Autotrader Forcing Small Dealers Out of Business

The 2007 NIADA report is out and provides some excellent nuggets of information about the health of the used car market and its participants. A few rough highlights before I go into something I find more interesting:

  • Days supply of inventory for dealers is up because of lower sales
  • Reduced sales forced dealers to cut into gross profit
  • Market share of independent dealers continues to decline
  • Advertising expenses per vehicle sold was up slightly over ’05 and significantly compared to ’03
  • Rent per vehicle sold was down slightly
  • Net profit as a percent of sales was down slightly 1.87% compared to 1.97% for ’05

What strikes me the most is the apparent rise in advertising costs and how dealers are coping, or not, as the case may be. According to the NIADA, advertising expenses have risen 51% in four years; this is coupled with the decline in market share of Independent Dealers, likely a result of the increasing ease with which consumers can sell their own cars.

The NIADA survey shows dealers reduced their use of non-Internet mediums. Completely expected – but, the number of dealers that claim to have a website declined 10%. This begs the question, where did the money go? Presumably, a dealership without a website is not going to spend money on SEO or SEM, but instead might channel it into online classifieds, like Autotrader, which continues to .

Leading online, classified properties, like Autotrader, present an interesting conundrum for dealers. They allow dealers to reach a wide audience, but they also force dealers to compete on price, reducing a dealer’s ability to differentiate. At the same time, because they have a large market share, and several good partnerships, they can raise prices on dealers.

Here is a list to the top 10 Internet Automotive Sites of 2003 – it’s old, but still provides some information. What’s interesting to note is that Edmunds, MSN, AOL, Yahoo, Netscape and Univision. And while it may be easy and cheap to launch a new website, it’s a completely different task to turn that website into an industry leader. Essentially giving near monopolistic powers to companies like Autotrader and Cars.com.

I am not arguing against companies like Autotrader; clearly the automotive landscape is in a period of creative destruction, and what emerges should, hopefully, be a better experience. However, dealers need to think about how they can continue to compete in the emerging landscape, and how they spend their advertising dollars.

6 responses to “Autotrader Forcing Small Dealers Out of Business

  1. Misleading headline

  2. There are many other forces that impact the survival of small dealers. Claiming AutoTrader.com is the reason is an easy and convenient explanation.

  3. “Autotrader Forcing Dealers to look elsewhere” would possibly have been a better title. Though, it sure got my attention!

  4. If you are a small car dealer that want to expand your online marketing, check out a new service called EasyAutoSales.com. The service provides free inventory management and unlimited photos per vehicle for small dealerships.

  5. great stuff, it always amazes me how many dealerships overlook a focus on organic search engine optimizationm even the small ones can benefit greatly.

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