Autotrader Follow Up

While working on other things last night I realized how tentative my argument about Autotrader was.  I started with a basic concept: rising advertising costs are hurting small dealers and then seemingly leapt to the conclusion that Autotrader is forcing independent dealers out of business.  As one astute commenter pointed out already, it is an easy and convenient explanation, and, as she said, the answer is more complex than I gave. I should also point out that I think Autotrader is a great company.  Dealers are just coming to grips with a changing market.  What I would like to do is delve deeper into the argument and flesh out some of the more interesting parts.

Nominally, independent dealers add value in a few ways (I am staying away from franchised dealers for this post) – in no particular order:

  • Making it easy for consumers to find cars in a given area
  • Take a risk position in a car by accepting it on trade
  • “Advising” consumers on the type of car to buy and how to finance it
  • Providing access to cars that only dealers can buy
  • Taking advantage of legislation that prevents non-dealers from selling more than five cars a year

Autotrader specifically, and car sites in general, have reduces the value added by dealers in three of those activities, and potentially a fourth. “Advising” consumers is a tentative value as few consumers put faith in car sales people, even if the advice is valid. Instead, many consumers look to other places to help determine what car to buy and how to pay for it. While this has likely reduced some profit that dealers used to make, it is the other activities where I think dealers have been the most affected.

Autotrader makes it easy to find a car and it the first place many go when searching for a car – I know I do. The issues for Independent dealers it that while Autotrader has made it easier for dealers to sell cars, they have also made it easier for consumers to sell cars to each other. Consumers can get the same amount of visibility for their car as a dealer for a cheap price. Consequently, private party transactions now account for a greater percentage of sales than independent dealerships. A consumer can sell a car for less than a dealer and make more than if he had traded the car into the dealer.  This also increases the supply of cars consumers can access obviating the need, to an extent, to go to a dealer.

Another unfortunate aspect for small dealers is that at the same time consumers are gaining greater bargaining power and have less need to go through a dealer, dealers are seeing their costs rise. Advertising costs, in particular, have gone up significantly in the past three years while their market share has decreased. The end result is fewer dealers.

Autotrader as a company is not forcing small dealers out of business, but a changing market landscape is forcing companies that are unable to adapt out of business. In the future, we will likely see more companies like eCarlink and Auto2Auto.  Companies that have changed their operating structure and know how to use the new environment to their benefit.  

4 responses to “Autotrader Follow Up

  1. I don’t believe that AutoTrader is the demise of the small dealer, just like 10years ago I don’t believe the dealers that opened the purse strings to major advertising spends captured the market. The biggest problem we have seen over the last few years are the small dealers not taking enough time to merchandise their sites. Very little pitures, no informative dialogue on each vehicles. I believe it’s still the automotive mentality that if I do something half way they will come to my lot in droves. Those that work at it will be successful those that don’t won’t and will go the way of the dodo bird. This is the new age of marketing

  2. Some AutoTrader.com/Cars.com Survival tools:

    All AutoTrader prices are polled from every Franchised dealer’s DMS. The Used Car Managers set prices for the sales rep’s inital offering. Almost universally this is a price that is at the high end of the market.

    Mr. Smart dealer (large or small) studies the online marketplace and re-prices a few units for loss leaders, or, re-prices many of them just a few hundred under rise to the top of price based searches.

    Take a look at the clearance area for BreseeChevrolet.com. Nearly40% of the inventory is marked down. Small store, 60-80 used units on the ground.

    F&I post sale survey says:
    2 out of 10 sales travel 1 hour or more!
    More than 50% found their vehicle online.
    40% visited the home site before they bought.

    Forget autotrader, that’s not the killer whale, the behemouth with a knock out punch is…

    Mega Dealer’s Web Sites.
    (more to follow)

    Joe

  3. I’ve done the homework, a mega store with 1,000 or more units on the ground keeps the web shopper at their site for 300 to 500% longer than a 100 unit store (2-3 mins vs 10-12 minutes).

    The average autotrader.com visit is 10 minutes! gulp!

    Say what you want, but the marketing leverage of 1000+ vehicles extends waaayyy past the first look.

    Not only has the mega dealer

    Web Shoppers are FAR more likely to re-visit the mega site to paw thru new arrivals and to re-visit the specials area

    Fact: Only the smart survive.
    Fact: There is room for all to survive, IF you are fast on your feet and welcome change.
    Fact: Franchised dealers are not programed to welcome change, they’re programmed to protect turf (i.e. defense not offense)

    Joe

  4. oops…. Typo! Sorry, let’ s fix that!

    …Not only has the mega dealer …
    got a captive web shopper for 10minutes, this long visit give the mega dealer time to sell all the “warm and fuzzy” stuff that appeals to the shoppers need to make the right decision (i.e warranty included, buy back guarantee, on-line service appts with service shuttle, etc…)

    The whole web experience is 2 dimensional. A customer craves the 3rd D. The mega dealer has all of the 3rd dimensions in boat loads.

    Web Shoppers are FAR more likely to re-visit the mega site to paw thru new arrivals and to re-visit the specials area.

    Sorry for the typo, I now return you to your normally televised program.

    joe

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