Hey all,
I would like to weigh-in with some personal and inside perspective on the Homenet acquisition and more generally what I think is going on with AutoTrader.
First, as I’ve stated in the past, I thought long and hard about selling my company. In the end, I did not sell to the company with the highest offer and I even refused the direction of my board to run an auction. I chose to sell to AutoTrader because of all the potential acquirers, they had the data assets that would allow me to take inventory management to yet a higher level. Having said this, I never could have chosen AutoTrader if I didn’t personally believe in their mission.
Now, I’m fully aware that it wasn’t more than about 3 or 4 years ago that you couldn’t mention the name AutoTrader without arousing the ire of just about every dealer. It is true, in my opinion, that they push the envelope of pricing with dealers too hard.
Two years ago, I was invited to attend AutoTrader’s annual meeting. I personally witnessed Chip Perry announce to an audience of over 1,000 field reps that their company had made significant errors and that if their mission did not change, the company’s future prospects would be dim. Often, companies make mistakes, but seldom do they so publicly admit to them. At that same meeting, Chip Perry declared that from that point forward AutoTrader’s sales objectives were not primary, but rather secondary to those of their dealer customers. Chip told the audience of 1,000 reps that they were no longer considered to be sales reps, but rather advertising consultants.
Chip’s proclamations over the succeeding two years were backed up with action. First, all of the senior executive team members have been replaced with individuals that have a very different perspective on how to pursue success than their predecessors. There have been no dealer price increases whatsoever during the second half of 2008, all of 2009, all of 2010 and I have reason to believe for all of 2011 as well. Further, AutoTrader has invested millions of dollars of training for their field staff. They’ve hired NADA Dealer Academy to re-tool their people to be consultants rather than sales representatives. I too have had the privilege over the past two years, of conducting such training.
I firmly believe that those who choose to characterize AutoTrader in a negative way are either laboring under impressions from the past, or perhaps just cynical because of their clear dominant market position. Fortunately, I’ve done well enough financially that I don’t need to carry any company’s official line, nor would I ever risk my reputation by saying things that I don’t believe. I will honestly tell all of you that the intentions and actions of this company today are very different from the past, and in fact very much aligned with my own. In spite of its proper intentions, everyone must remember that AutoTrader is still very large and capable in any given situation of not doing the right thing. I do believe, however that in such circumstances they would like to consider what ever grievance you might have with the intention of rectification or a mutually agreeable solution.
Now, let me share some insights with you about the recent acquisitions, I think there are several things involved. First, if you look into the future of the automobile business, I think that there are several things that can be fairly predicted. The first is the likelihood of continued margin compression. This isn’t the doing of company’s like AutoTrader, vAuto or others, but rather an inevitable consequence of the internet and information age. It’s happening in every industry around the world. As the margin compression continues, I believe that there will be an increased consolidation of dealers. I fear that individually owned dealerships are likely going to go the way of the family farm. In an environment of shrinking margins, scale becomes of much greater importance. I don’t know what the actual numbers might be, but I can well imagine that in 10 years, 80% of the dealerships could be owned by perhaps 300-500 companies.
OK, if you’re a dealer solution provider looking at that future, what does it mean and what would you do? Well, I think the first thing that it means is that as dealer margins shrink, so will yours. It’s unrealistic to think as a solution provider that you’re going to extract a big fat margin from a dealer that has razor thin ones of their own. In such likely circumstances, how will you grow your business? The most reasonable answer is not to think that you’re going to raise your prices, but rather to expand the products and services offered. This in fact has much to do with my motivation for selling vAuto and I suspect much of AutoTrader’s with respect to their recent acquisitions.
I can personally assure you that of all the meetings I participated in during the past two months since the acquisition, I have not heard a single mention about raising dealer prices. Rather, all of the discussion has surrounded how AutoTrader can take the various products and services of its recently acquired companies and put them together to create best-of-breed dealer solutions. It is now clearly the responsibility of all of us in the expanded AutoTrader family to deliver on this promise. Our future performance in this endeavor is how I think we should ultimately be judged.
Finally, I can’t help but take exception to an assertion that Vehicle Detail Pages (VDPs) are not important. For the past year or so, I’ve gone around the country exhorting dealers to consider VDPs as “the money metric” in evaluating the performance of on-line classified advertising sites. Having had the privilege of working with over 3,000 used car departments, I’ve found a clear mathematical correlation between the number of VDPs and the number of used vehicle retail sales. Specificially, during the 13 months that I researched and wrote the book Velocity 2.0, I tracked the retail sales and key internet metrics for 100 randomly selected vAuto clients. Consistently every month, the dealerships that got the highest number of VDPs sold the most retail used vehicles. Conversely, the dealers that got the fewest VDPs sold the least number of used vehicles. In fact, over the 13 months, I did not see a single dealer sell more than 100 retail units in a given month without generating 10,000 VDPs. So with this information clearly documented in the past and present, it’s simply wrong to say that VDPs aren’t what it’s all about for any dealer advertising on a third-party classified site.
Simply stated, the more times that your vehicle appears on a vehicle detail page view, the more times a customer is going to call your switch board or show up at your front door with a highly qualified intent to purchase a specific vehicle in your inventory. The notion that most customers email rather than just show up has also been proven wrong by several dozen independent research studies. These studies are available to any dealer that questions this notion. Also, the assertion that search result pages and vehicle detail pages attempt to hide the dealer brand is absurd. Just simply go on an AutoTrader SRP or VDP and count the number of times you see the dealer’s name and ways to contact them, including direct links.
In conclusion, I’d be happy to discuss any issues that anyone has concerning AutoTrader, its recent acquisitions or the performance of its site. In reality, such discussions are healthy. I think it’s also important to remember that solution providers need dealers, and dealers need solution providers. Ultimately, no one wins at the expense of the other.
Thanks for your consideration.
Dale
