Cars still need to be sold by salespeople and that never changes. And most people still want to get on the phone to talk to their dealer. What does change is the ability to find cars on the Web, notes AutoTrader CEO Chip Perry, who was speaking at the Borrell show last week in New York.
The automotive industry is “an influencing medium rather than a direct response medium,” adds Perry. “The fundamental role of an intermediary is to influence consumers” rather than get involved in transactional or pay-per-click models. Just 3 percent of used cars had been listed in the pre-digital days, he noted. But now it is a requirement to have comprehensive listings up on the site. Digital media revenue models such as featured listings won’t work if you can’t get comprehensive listings up, he says.
It also holds down the cost of selling every car. “It’s an efficiency model,” says Perry. AutoTrader’s effective CPM for an association campaign is $375. The effective CPM for a spot TV campaign, on the other hand, will run around $7,346.
AutoTrader itself has been rapidly growing like “a rocket ship,” due in part to key acquisitions, such as KBB.com and backend tools for dealers, which boost value. While AutoTrader hasn’t raised base rates on its dealers for three years, it still is seeing 15 percent annual growth due to addition of tools, says Perry. Revenues have climbed from $626 million in 2009 to $720 million in 2010, and are projected to reach $1.037 billion this year. There has been rampant speculation that AutoTrader is preparing itself for an IPO, but Perry did not address these.
Long term, Perry says AutoTrader’s business will be sustained by drilling down deeper beyond listings. “We always operate on the assumption that horizontal companies are coming after us.” Recently, the company has added features such as comparison shopping for both new and used cars. “What new car cars shoppers really want is inventory,” he says.
The company is also becoming more of a media entity that offers a range of solutions related to auto marketing. With KBB, which lives on as a separate brand, for instance, AutoTrader has developed a trade-in marketplace.
“Trade-ins are the biggest pain point in auto shopping,” says Perry. With KBB’s new deal, dealers can make an offer online and allow users to redeem it at their dealership. It makes sense to do it on KBB since 80 percent go on the site to research the value of their used cars. The new effort is being heavily marketed with TV advertising.