Is a Shakeup Imminent in the Automotive Digital Marketing Space?

Here is the Insight­ful Obser­va­tions of Indus­try Watch­er & Icon, Maryann Keller:

Not that long ago new car deal­ers relied almost entire­ly on Fri­day news­pa­pers ads pro­mot­ing week­end spe­cials along with lists of new and used cars in stock. But the advent of the inter­net rev­o­lu­tion­ized how U.S. con­sumers researched and shopped for cars, shift­ing more than 50% of car deal­er­ships’ adver­tis­ing bud­gets to dig­i­tal.*

Deal­er­ships that quick­ly adopt­ed dig­i­tal adver­tis­ing saw high­er sales and low­er per unit adver­tis­ing costs…but that advan­tage dis­ap­peared when all deal­er­ships sub­scribed to the same ser­vices. As one deal­er­ship own­er told me; 

“When I was the only Chevro­let deal­er in my town on True­Car, I was get­ting cus­tomers that prob­a­bly would not have come to my store. But today, all the Chevy deal­ers in my town are on True­Car, so all we are doing is pay­ing a fee for peo­ple who would have bought from us any­way.”
    
Today, it still costs a deal­er­ship more than $600 per vehi­cle in adver­tis­ing expens­es (near­ly the same amount deal­er­ships spent on tra­di­tion­al adver­tis­ing before the advent of dig­i­tal mar­ket­ing – and when per unit front-end mar­gins were much high­er). Yet, many dig­i­tal plat­forms offer lit­tle dif­fer­en­ti­a­tion among deal­er­ships than the ancient Fri­day news­pa­per. With prof­it mar­gins under pres­sure from ris­ing inter­est rates and plateau­ing sales, deal­er­ships are begin­ning to eval­u­ate the pro­duc­tiv­i­ty of each of their dig­i­tal sub­scrip­tions and are cut­ting those that fail to deliv­er actu­al car buy­ers.
  
The auto retail space is heav­i­ly pop­u­lat­ed with com­pa­nies promis­ing to deliv­er real cus­tomers for a fee. There are at least 112 ven­dors sell­ing CRM tools, 87 offer­ing lead man­age­ment, 75 pro­vid­ing chat ser­vices, and 104 offer­ing new and used car leads. There are also more than 300 mar­ket­ing solu­tions, data min­ing, rep­u­ta­tion man­age­ment, e-com­merce ‘shop­ping carts,’ and own­er marketing/equity min­ing ven­dors with their own cus­tomer tar­get­ing and reten­tion tools. For our pur­pos­es, I’ll focus on some of the larg­er ven­dors that car shop­pers turn to ini­tial­ly. This list includes mar­ket­place sites, like CarGurus.com, Cars.com, AutoTrader.com, TrueCar.com, and many oth­ers that have added inven­to­ry list­ings and lead gen­er­a­tion to their core busi­ness­es like Car­fax.

All of these com­pa­nies have busi­ness mod­els that gen­er­ate rev­enue from deal­er­ships in hopes of inter­cept­ing car shop­pers before a car sale. But growth has plateaued, as near­ly all fran­chised deal­er­ships and most larg­er used car deal­er­ships are already list­ing their inven­to­ry on these mar­ket­place sites, mean­ing that small (if any) incre­men­tal increas­es in deal­er­ship count won’t gen­er­ate much in rev­enue.

More­over, despite traf­fic claims, over 90% of U.S. car buy­ers already use the inter­net to research a vehi­cle pur­chase. Con­se­quent­ly, these sites are not gen­er­at­ing new auto­mo­tive shop­pers for deal­er­ships (vehi­cle pur­chase demand is deter­mined by afford­abil­i­ty). Instead, they are bat­tling amongst them­selves for ‘screen time’ with the same car buy­er who’s vis­it­ing mul­ti­ple sites, a war being unwit­ting­ly financed by car deal­er­ships.
 
Last year, approx­i­mate­ly 17 mil­lion new pas­sen­ger vehi­cles were sold in the U.S., an esti­mat­ed 3 mil­lion, of which, were sold to fleets, leav­ing a retail mar­ket of 14 mil­lion (a third of which were leased). Accord­ing to Urban Sci­ence, in 2017 there were 18,213 U.S. fran­chised deal­er­ships as mea­sured by rooftops. A sim­ple cal­cu­la­tion results in 2.1 new cars sold per day per deal­er­ship. Assum­ing that new car deal­er­ships sell about 0.7 used cars for each new (like­ly greater than real­i­ty), that equates to 1.5 used cars per day, for a total of 3.6 cars sold per day in the aver­age deal­er­ship – or rough­ly 108 units per a 30-day month. The aver­age deal­er­ship in the U.S. main­tains a 70-day sup­ply, or 252 vehi­cles, which equates to a total of 4.6 mil­lion vehi­cles avail­able for sale on an aver­age day in 2017.
   
In the third quar­ter of 2017, Cars.com not­ed 4.9 mil­lion aver­age vehi­cle list­ings from 21,307 deal­er­ships, illus­trat­ing that the over­whelm­ing major­i­ty of U.S. deal­er­ships’ inven­to­ried cars are already list­ed on its site. Cars.com is only one of many mar­ket­place sites, and deal­er­ships are dis­cov­er­ing that when they also list their inven­to­ry on oth­er sites, they are essen­tial­ly pay­ing for the same cus­tomers to view their inven­to­ry mul­ti­ples times. A large deal­er­ship group recent­ly ana­lyzed its $2.5 mil­lion con­tract with a sin­gle dig­i­tal mar­ket­place and elim­i­nat­ed $600,000 in annu­al spend, after the group’s data showed the site pro­vid­ed decreased val­ue. It plans to do the same with its oth­er lead gen­er­a­tor ven­dor sub­scrip­tions.
    
Every lead gen­er­a­tor or mar­ket­place site boasts unique vis­i­tor traf­fic in the high tens of mil­lions, but these are mean­ing­less in terms of actu­al sales. Cars.com says that it had more than 100 mil­lion unique vis­i­tors in the third quar­ter of 2017. That would equate to more than a third of the U.S. pop­u­la­tion vis­it­ing its web­site in three months com­pared to new and used car pur­chas­es of only 7.1 mil­lion from fran­chised deal­er­ships dur­ing the same peri­od. And Cars.com is only one of many such lead gen­er­at­ing and mar­ket­place sites, as well as the deal­er­ships’ own web­sites and those of the automak­ers that they rep­re­sent.
  
As these sites become sat­u­rat­ed with com­modi­tized inven­to­ry at sym­met­ri­cal prices, cou­pled with a recy­cled pool of car shop­pers vis­it­ing most of them, they pre­vent any sin­gle deal­er from gain­ing a com­pet­i­tive advan­tage, and thus they become per­fect­ly com­pet­i­tive mar­ket­places that can­not gen­er­ate sus­tain­able prof­its for their sell­ers (i.e. deal­er­ships). To this end, many deal­er­ships claim that their only moti­va­tion to list their inven­to­ry on these sites is to sim­ply make sure that their local com­peti­tors don’t gain exclu­siv­i­ty in search­es.
 
It is no won­der that deal­er­ships are ques­tion­ing the val­ue of pay­ing high month­ly fees to list inven­to­ry on sites that have dimin­ish­ing con­ver­sion rates, com­modi­tized inven­to­ries, and soar­ing costs. Some deal­er­ships are shift­ing more to tra­di­tion­al media while oth­ers are look­ing at ser­vices that pro­vide them with the data and ana­lyt­ics to engage with their cus­tomers more prof­itably. The auto­mo­tive dig­i­tal mar­ket­ing space is sat­u­rat­ed, and a shake­up among the undif­fer­en­ti­at­ed list­ing ser­vices seems immi­nent as deal­er­ships’ front-end prof­its con­tin­ue to decrease.
The author, Maryann Keller is prin­ci­pal of Maryann Keller & Asso­ciates, a Stam­ford-based auto­mo­tive strat­e­gy con­sul­tan­cy.



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