Vehicle listings players transform again

Editor's note: An earlier version of this story, which also appeared on Page 20 of the Feb. 10 issue, incorrectly characterized the trajectory of TrueCar’s dealership customer count. The company has added dealership customers in recent years.

Third-party vehicle listings sites, which helped change auto retail more than two decades ago with the advent of online auto classifieds, are again on the verge of disruption.

And the catalyst for the ongoing transformation — the Internet — will be a familiar one to dealers.

In the 1990s, vehicle marketplaces such as Cars.com and Autotrader helped usher in the era of the savvy shopper arriving at dealership lots armed with specific model, price and payment information researched on a third-party website. Today, with shopping as easy as clicking a button, experts say providing leads alone won't be enough for these companies to stay relevant: They're going to have to help consumers buy a car.

Some companies say they're reinventing their businesses to help dealerships capture more online shoppers — and keep up with upstarts such as online used-vehicle retailer Carvana — with technology and software that support transactions, not just advertising.

"The consumer expectation is changing," said Nick Gorton, vice president of product innovation at Edmunds, a company once known for printed pricing guides that now allows customers to value vehicle trade-ins and estimate payments while searching listings on its website. "You generally think that if you're researching and sorting through results, you're going to be able to transact."

The evolution is happening at the same time the segment — estimated to be worth around $3 billion — faces disruption from within.

Up-and-comer CarGurus, which analysts say changed the game by allowing dealers to list vehicles for free, has pulled traffic, revenue and influence from the traditional market leaders, led by Autotrader and Cars.com.

CarGurus' surge has led to shuffling within the vehicle listings space as companies jockey for consumers' eyeballs — and dealers' wallets — by trying to provide better returns to dealers pinched by compressed vehicle margins and cooling new-vehicle sales.

For their part, Cars.com and rival listings sites say they're not threatened by what competitors are doing. Rather, they are focusing on growth and carving out different niches to help dealerships adapt to the digital disruption shaking up the car-buying process.

The shift from leads to transactions also is a way for the players to differentiate themselves in an increasingly crowded segment — one some analysts say could shrink over time.

"The marketplaces are evolving into transactional businesses, slowly but surely, and there will come a tipping point where they have to be very actively involved as transaction businesses," said Peter Zollman, founding principal of AIM Group, which provides business intelligence and consulting related to marketplaces. "A classified site with listings in five years won't be much left. If a site is not part of the transaction, it's going to be left out."

There's only so much room for growth in core listings, and declining auto sales could mean less traffic for listings websites, said Dennis Bulgarelli, vice president for automotive at Comscore, which provides market intelligence data.

There's movement already toward enabling vehicle purchases.

Autotrader, owned by Cox Automotive, in 2018 rolled out Accelerate, a digital retail platform allowing shoppers to build a deal while searching for a vehicle.

Cars.com CEO Alex Vetter is optimistic about Dealer Inspire, the 2018 acquisition that gave the Chicago company entry into digital retailing software, websites and other tools designed to help dealership profitability.

CarGurus also is considering jumping in. Last fall, CFO Jason Trevisan told Automotive News it planned to acquire companies to help it break into dealership technology adjacent to its main listings business. The Cambridge, Mass., company has signed with lenders to allow consumers to get financing preapprovals. It plans to expand dealership marketing tools and is enabling vehicle delivery outside of a dealership's home market.

Last month, CarGurus bought Autolist, another listings business, which it says will boost its scale and help it get into digital retailing, for an undisclosed price.

To date, Zollman said, CarGurus has made the least progress in transactional tools among the biggest marketplace sites. "But don't underestimate them for a second," he added.

Branching into transactional software is not only a value proposition as more consumers seek end-to-end transactions, but it also enables transparency about pricing that could lead to higher transaction prices if consumers click a "buy now" button rather than haggle over price with a salesperson at a dealership, Zollman said.

Marvin Fong, an equity analyst at BTIG who follows some public marketplace companies, said they aim to offer dealerships the ability to sell cars entirely online — "or as close as you can get."

"If that's the way people want to buy cars, that's going to mean there's a lot fewer dealers, and that's also going to mean less ad revenue for the online classifieds, so it's a way to diversify their business," Fong said.

Cars.com is reimagining itself as a provider of tools to help dealerships maximize profitability and reduce inefficiency. One of its big plays is in digital video marketing, which executives say will cut dealer spending on more expensive TV advertising. The company also is investing in website chat tools, inventory management software and technology that tracks what sites customers are visiting.

"The world doesn't need more marketplaces," Vetter told Automotive News. "Pricing in this industry has become hypercompetitive."

TrueCar, a smaller player in the segment, unveiled a new customer experience this quarter as part of a rebranding campaign. It's the company's first new product in several years, interim CEO Mike Darrow said.

"When you go two or three years without product innovation, you tend to fall behind, and we knew at the end of [2018] our product was less than competitive," Darrow said. "You're hesitant to pour a lot of marketing resources into a product that has become stale or is not optimal."

The Santa Monica, Calif., company is working to turn around the business, which has been losing money.

AutoNation cut ties with TrueCar five years ago in a contractual dispute over access to customer data. That was a year after the nation's largest new-vehicle retailer said it planned to scale back its use of third-party marketplaces as it built its own digital shopping presence.

Today, "the overwhelming majority" of AutoNation's dealerships have returned to TrueCar after the company made changes to how it uses dealership data, said Marc Cannon, AutoNation's chief marketing officer.

Third-party sites are realizing they need to support dealer profitability to succeed, he added.

"It's a valuable part of our business," Cannon said. Third-party sites today contribute to AutoNation a percentage of total sales in the low teens. "It's not going to go away."

Vetter said dealerships are turning to third-party sites as allies as they contend with the disruption to their sales model from digital upstarts such as Carvana.

"We want to help the local dealer fight for their local position in the market and maintain their profitability," Vetter said. "A lot of dealerships historically looked at third-party marketplaces as sort of like a necessary evil. I think we want to be like their key to survival."

Evolution in the segment also can be attributed to the rise of CarGurus, launched in 2006 by Langley Steinert, who previously led online travel site TripAdvisor.

CarGurus allows dealers to list inventory on its site for free, although for a fee they can unlock access to additional features — such as pricing tools and including dealership contact information on their CarGurus vehicle pages.

Analysts credit CarGurus with spearheading the practice of rating deals based on whether they're a good value to consumers — a move that prompted some competitors to follow suit.

Gorton, of Edmunds, said that while the company is known for its vehicle price valuation, it made that information more visible on its website after CarGurus did so. Edmunds is transforming in a bigger way — last month it moved to eliminate 129 jobs by March and then sold a minority stake to used-vehicle giant CarMax.

Some analysts say CarGurus' "freemium" approach has squeezed some competitors, including Cars.com, which is coming off an unsuccessful sale attempt prompted by an activist investor and a restructuring of its dealer network in 2019. Companies that charge dealers to list vehicles on their marketplace can't easily compete with a free service without diluting their leads, analysts said.

"Over the last few years, CarGurus has been the interesting one to watch," said Jonathan Turpin, a principal at AIM Group. But, he added: "It's the CarGurus factor that is causing the pain within the marketplace."
CarGurus has climbed to the top of the pack for website visits, according to Comscore. At the same time, its revenue has grown by double-digit percentages, moving it to No. 3 in the market behind longtime leaders Autotrader and Cars.com in 2018, according to AIM Group.

Trevisan told Automotive News that the company knows what its competitors say about it: that its rise is the result of an aggressive marketing budget and that it has undercut other listings companies on price. He doesn't deny either one.

"To [grow] that quickly against competitors that have been around for 25 years, I'd say, yeah, that takes money to do that," Trevisan said.

The company launched at a lower price to build its customer base, he said. CarGurus has more than 40,000 stores as customers, nearly 29,000 of which pay. Cars.com, by contrast, had more than 18,000 stores as of the third quarter, while Cox's Autotrader and Kelley Blue Book count is close to 20,000.

"We believe that as it relates to consumers, it's a winner-take-most opportunity," Trevisan said. "As long as we're able to keep taking share like we have been, we think it will be hard for the number of competitors that exist today to continue to thrive."

Consolidation is possible, several analysts told Automotive News.

None of the listings companies would comment on their acquisition plans.

Vetter said he has a fiduciary responsibility to Cars.com shareholders to consider inquiries about potential tie-ups, but he is not actively shopping the company after the 10-month strategic review.

A key factor that could determine consolidation is whether companies are able to reinvent themselves to stay abreast of a digital future, several analysts said.

"The ones that keep up with the trends in technology and those kinds of things are going to be the ones that will begin to separate themselves even more from the competition," said Bulgarelli, of Comscore.

Third-party sites are playing a more important role today than in the past to accommodate consumer interest in researching vehicles and pricing ahead of purchase, said Jessica Stafford, general manager of Autotrader and Kelley Blue Book.

The auto retail industry is still figuring out what online vehicle sales will look like, she said, but the practice will only become more prevalent. As it does, she added, "the way it integrates into third-party marketplaces is critical."

"We have to focus on what's the next disrupter and how do we actually disrupt ourselves, instead of waiting for it to happen to us," Stafford told Automotive News. "Our space has continued to evolve, and I believe if you don't stay ahead of that evolution, you become obsolete."

Some companies say they're reinventing their businesses with technology and software to help dealerships keep up with online used-vehicle retailers.