Cliff Banks - The Banks Report

AutoNation’s Digital Power Play

A few years ago – prior to the recession – I walked the floor of the North American International Auto Show in Detroit with AutoNation CEO Mike Jackson (was not chairman at the time).

At the time, AutoNation was consolidating all of its stores onto ADP’s dealer management system. Jackson shared a vision with me of creating a seamless transaction process in which customers could start the process online and come into the store picking up where they left off without having to begin the process over again.

The recession likely slowed the implementation of Jackson’s plans but he clearly hasn’t abandoned it.

Also included in that vision was a move toward creating a national AutoNation brand that the dealer group began more than a year ago in February 2013.

One of the results of creating a national brand is that AutoNation’s online sites are now generating more sales than all of its third-party relationships combined, according a statement Jackson made in the company’s earnings call with analysts this week. Traffic to its sites have increased by 20% over the last year.

In light of those results, AutoNation has decided to advance its investment in its digital brand by more than $100 million over the next several years.

Much of that investment is going to come from money it historically has spent with third-party lead providers such as AutoTrader, and others. (It recently sold its third-party lead aggregator AutoUSA to Autobytel for $10 million).

Prices for using the services of third-party lead providers continue to go up. And, while dealers recognize the value they provide, chafe at having to spend money that is used to build a vendor’s brand instead of their own.

AutoNation has the scale, the dealership bandwidth with more than 225 stores – along with the technical capability to now focus on building its own brand. The group also is looking to expand its digital reach in the service and fixed operations areas.

AutoNation likely will continue doing business with third-party vendors, but Jackson is sending a clear message that the conversation will be on AutoNation’s terms, not the third-party’s.

It will be interesting to see if other public groups follow AutoNation’s lead.

We talked this week with the president of a prominent Northeast-based dealer group who said he recently canceled a contract with a large third-party vendor that was costing his group more than $90,000 a month, in part because of the company’s refusal to negotiate. Another key reason was a lack of noticeable return on its investment with the vendor.

He’s willing to use them in the future, but says it will be on his terms — not theirs.

It’s likely not a widespread trend yet, but there are influential dealerships that are stepping up and focusing their efforts on building their own brands digitally, and as a result, are reducing their spend with vendors.

With some of these dealers, the third-party vendors are going to have to adopt a more collaborative – and cost sensitive – approach.

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