Dealers’ Digital Spend: Auto Trader and CarGurus

Dealers have seen a surge in digital marketing over the past three years. Research carried out by CDK Global found that dealers are spending 64% of their marketing budget on digital tools, up from 45% in 2015. Some retailers, it said, were spending as much as 85%.

A lot of this spend goes into online classified websites. The latest financials from Auto Trader (full year results) and CarGurus (Q1, 2018) show how two very different companies at different stages of development are targeting dealers for business.

Auto Trader turned in a strong performance in 2017 with pre-tax profits up 10% to £210.8m on turnover up 7% to £330.1m. The group has been growing and monetising the services it offers to dealers. It re-launched its retailer advertising packages in April 2017 and 12% of its dealers are now on one of its Premium and Advanced tiers. The average revenue per dealer forecourt per month rose 10.2% or £149 to £1,695.

Finance was a new development and likely to be lucrative for the group in the future. During the year it added monthly payment prices to two-thirds of car stock listed and launched search by monthly payment, making it easier for consumers to shop for their next car.

It also launched its new InSearch and video products, helping manufacturers to target new car buyers more effectively. After a successful pilot, it started making money from its Dealer Finance product and 69% of eligible car retailers now pay for this feature.

It said about 3,000 retailer forecourts, representing 39% of trade stock, use at least one of its stock management products, i-Control and Retail Check.

Trevor Mather, chief executive officer at Auto Trader, said: “This has been a strong year of revenue and profit growth for Auto Trader, driven predominately by retailer and manufacturer adoption of the new products that we launched throughout the year.”

So that’s Auto Trader. What about CarGurus in the UK? Motor Trader spoke to founder and CEO Langley Steinert this month, a man with impeccable digital credentials as he also founded TripAdvisor, the successful online travel platform.

So, what does CarGurus offer dealers? The answer, he says, is complete transparency. For used vehicles, it calculates a fair retail price based on analysis of current and previous car listings. It calls this the Instant Market Value (IMV), which is updated daily and takes into account make, model, variant, year, mileage, options, location and vehicle history. It compares the asking price of a vehicle to the CarGurus IMV, and factors in dealer reputation. From this calculation, it rates the quality of the deal as great, good, fair, high or overpriced. Steinert stresses that it always puts the best deals on top based on its algorithms and not on how much a dealer pays.

CarGurus was formed in 2006, listed on NASDAQ last year, and is now giving  shareholders more detail of how it is doing in both the US and more importantly for UK retailers, its international unit, which include the UK Germany and Canada. Steinert said the UK is the biggest player internationally.

The CarGurus international business is expanding fast, generated revenues of $3.5m (£2.6m) in the first quarter of 2018, up 119% with GAAP operating losses of -$7.7m, up 33% year on year. The group now has 2,765 paying dealers in its international market compared to 1,348, a year ago. The average annual revenue for each rooftop is now $5,045, up 15% compared to a year ago. In the US, where it has been in existence since 2006, it is $12,470, up 17% year on year.

Where the US has gone, the UK may follow.  CarGurus started TV advertising to drive traffic to its website. Steinert told Motor Trader the same could happen in the UK but there was no timeline. “In the US we made a very big push in terms of TV advertising and seen a great response in terms of brand recognition and traffic to our site. It is certainly something we will take a look at in the UK,” he said.

In the US CarGurus has a peer-to-peer section, which caters to private sales. In the UK, it does not have this – yet. “In the future that would be on the road map, I cannot tell you specifically when,” said Steinert.

And in the US it has launched SEM Plus, which aims to drive traffic to dealers’ website using inventory-based dynamic ads that update in real time, and offering hundreds of thousands of keywords per account. It also offers account management and audience re-targeting through

Google and Facebook to re-engage prospects.“I would say, yes, at some point we will offer search engine marketing to [UK] dealers. In the US we launched it last fall and the response has been overwhelming. We are working at quite a different scale. For instance when we ask a dealer how many keywords are you working with or your agency is providing for your account, the typical response is 500 keywords. Most of our customers are talking about hundreds of thousands of keywords. We are able to show dealers we can drive significantly more volume at lower cost,” he said.

Steinert acknowledges that one of the key differences between launching in the US and the UK was the dominance of Auto Trader but he argues that the CarGurus transparency proposition is compelling and UK dealers like choice. “We are the fastest growing automotive shopping site in the UK at the moment. Our dealer partners in the UK are excited about that. Auto Trader is a formidable competitor and they have done a great job in building a great brand but I think dealers are interested in finding a viable alternative.”