Eric Nichols remembers working in a dealership business development center in early 2008 that was flush with purchased Internet leads.
One problem: The leads were mainly "crap," he said.
Back then, booming auto sales had drawn scores of new vendors into the lead-selling business. And the poor-quality leads for which dealerships paid $20 apiece were littered with bad contact information or people who had filled out forms to enter a sweepstakes rather than buy vehicles.
But the Great Recession rinsed most of the fly-by-night players out of the industry, said Autobytel CEO Jeff Coats.
Now, purchased leads at Nichols' current employer, Apple Honda in Riverhead, N.Y., are producing vehicle sales about 20 percent of the time, Nichols said. That compares with single-digit close rates at the Chrysler-Dodge-Jeep store where he worked in 2008.
"Being way out on the east end of Long Island, we really rely on the third parties," said Nichols, director of business development at Apple Honda.
Leads are vehicle-buying prospects who fill out Internet forms or otherwise indicate the desire to be contacted by a dealer.
Coats says he sees no evidence in the current auto boom of the lead-selling frenzy of late 2007 and early 2008 that admittedly gave Autobytel and the industry a black eye.
Back then, Autobytel, a leader in generating prospects and selling them to dealers, bought 97 percent of its leads from vendors big and small that advertised on Google and elsewhere to try to lure car shoppers to leave contact information.
Autobytel relied on nearly 80 suppliers for the leads it resold to dealers, Coats said. When Coats took over as Autobytel CEO in December 2008, dealers were closing on only 3 to 5 percent of all the millions of leads the company sold to dealerships, he said.
As the recession worsened, many of the small players left the business. And Coats began the long process of rebuilding Autobytel's own websites to generate leads as well as aggressively advertising on Google and elsewhere to find car prospects.
Last year, Autobytel sold 6.6 million leads to dealers, 75 percent of which were generated internally with the other 25 percent bought predominantly from just 10 suppliers, Coats said.
As a result, vehicle sales rates on the internally generated leads jumped to between 16 percent and 25 percent, which is in the ballpark of the typical dealership website.
Additionally, Autobytel last month bought its biggest rival, Dealix, for $25 million in cash. And in 2014, it bought another competitor, AutoUSA. Together, Autobytel and Dealix sold 11.6 million leads last year.
Since the recession, a number of barriers to entry have gone up to prevent part-time lead generators from flooding into the business, Coats said.
On average, the cost of paid search -- those advertising links at the top of a Google search page -- is 50 percent higher for Autobytel than it was in 2007, he said.
As the automakers and their dealers have aggressively entered the fray for that advertising, it has pushed out less sophisticated third-party lead generators.
Autobytel also has spent millions improving its autobytel.com and car.com websites to provide the kind of modern shopping experience consumers demand, Coats said.
One Midwest dealership group buys leads only from Dealix to move specific slow models or when it finds itself with extra inventory, said a source who asked not to be named.
About 10 percent of the group's leads convert to sales, above the third-party industry average of about 8 percent, the source said.
"The quality of leads is definitely better than it used to be," the source said.
