Category: Strategy

Cox Automotive Home Game

After Dealertrack, I started noticing how many other companies Cox Automotive has acquired. Many of my old friends are now Cox employees. I wondered if Cox would be able to find synergies among the subs. Acquirers always talk about synergy, which means that the combined entity should make more money than the subs could on their own. For example, listings on MakeMyDeal come from Autotrader, which benefits both.

There are other examples that I am not at liberty to disclose. Strategy buffs can play along using the exhibit below. Click the thumbnail for a larger image, print it out, and then draw lines connecting subs where synergies are possible. Look for cross selling, channel sharing, vertical integration, etc.

Cox Game

Be creative, but don’t be vague. You must be able to identify a project that will exploit each synergy. Extra points for stringing subs together in workflow sequence. Here is one that I spotted while making the chart. Any resemblance to an actual project is purely coincidental.

  • AiM snaps a photo of an off-lease vehicle. This photo, plus some data, is uploaded to Manheim, then forwarded to HomeNet and advertised for resale on Dealer.com … all using a proprietary message format which we’ll call, playfully, COXML.

You can see that Cox tiles our function space pretty thoroughly (not to mention the Chinese holdings) so there is plenty of opportunity. Enjoy the game, and feel free to share your results.

Five-Part Series on Online Car Buying

I wrote this ad-hoc series last fall, around the topic of online car buying. It started out as technical post on how to do tech strategy, and then one thing led to another. Here is a guide to the five articles.

The first two are from the perspective of a traditional dealer system, like a menu, that needs to find a new home online:

The next two are from the opposite perspective, online car buying sites that need to add traditional dealer functions:

Finally, when I had looked at all of the car buying (and shopping) sites, I needed a way to classify them:

I hope this makes the series more readable. If nothing else, it will help me to keep the blog organized. Enjoy!

Taxonomy of Online Car Shopping Sites

I have been writing an ad hoc series about online car shopping. It started with a technical point about how software vendors should migrate into this space, and then along the way I started characterizing the sites themselves. In this article, I present a classification scheme which may be of interest to technology strategists.

One way to look at car shopping sites is in terms of functionality. In my last article, I presented six key functions:

  • Specify vehicle and trim
  • Price vehicle
  • Price protection products
  • Value trade
  • Structure deal
  • Obtain financing

For each function, there are grades of support. Does the site sell protection products, for example, and are they customized for the chosen vehicle? This would be a way to rank the sites, like Consumer Reports. I have strong opinions here, but they’ll have to wait for a later article. For strategy purposes, the sites are better characterized by three business decisions:

Control of inventory – Traditional car shopping sites are platforms for common inventory search across multiple dealerships. Because they do not control the inventory, there are limits on the functions these sites can provide. Looking at inventory (and delivery) is a way to characterize the site’s relationship with the dealer.

Disclosing the price – Most of the downstream functions are blocked until the price is settled. This is what separates shopping sites from buying sites. Unfortunately, price transparency is a problem for many dealers. In addition to no haggle pricing, we now have innovative solutions from TrueCar and Make My Deal.

Different makes – A site that specializes in a single make can also specialize in financing and protection products. In addition, some information systems may be standardized. On the other hand, most car buyers begin by comparing similar models of different makes, like the Touareg versus the 4Runner.

My approach groups the sites into eight categories, and gives us a way to describe the differences. For example, when the customer moves from a platform site to an individual dealer, the make (and the lot) is specified. Now the dealer can offer customized financing and products.

The difference between a platform site and, say, Carvana, is that Carvana owns the inventory and can quote a price. In fairness to new car dealers, price transparency is less of a problem with used cars. Carvana, Vroom, and CarMax have the inside track. Otherwise, AutoNation Express would be in this category.

You could slice it thinner, but I think eight categories is enough. I leave it to the reader to evaluate all twelve single-feature comparisons.

 

Taxonomy2

One thing I learned studying syntax as an undergrad, is that you construct a paradigm to fit the data you have, and then you prove the paradigm by using it to find new data. Here, I drew a blank for case #2, and then I realized it would be the web site for an OEM company store, as in Europe. Sure enough, Tesla fills this slot.

There is one more feature I would have liked to include, but I felt it was too much, and that is systems integration. AutoNation Express has the distinct advantage that whatever payment calculator, menu presentation, or other gadget they may add to the site, it is guaranteed to work seamlessly with an AutoNation dealer.

Another way to prove out my taxonomy is to explain and predict trends in the industry. Speaking of AutoNation, one of these trends is toward increasing consolidation by the big, public dealer groups. They are represented online by cases #1 and 3.

To defend themselves online, private dealers will migrate into the most capable of the platform sites, and there will be a shakeout. The winning platforms will not be mere lead providers. They will have to offer advanced shopping features, as I have described previously, and they will have to solve the problem of systems integration with a diverse dealer base.

Eventually, as both camps wrestle with the pricing issue, there will be a breakthrough. Like the first prehistoric fish to draw breath on shore, the platform sites will struggle into case #5.

The one strategic curveball would be if a consolidator decided to open up their site to outside dealers, blurring the line between cases #1 and 5, or a platform site started acquiring new car franchises. We’ll leave this chimera for another story.

How to Save TrueCar

My title is somewhat facetious, but “how to position TrueCar so that it makes dealers less hostile and invites fewer lawsuits” was too long. The Auto News forum is not exactly laden with objectivity. People see the headlines and the share price, and then they crow about TrueCar going out of business.

Complaints or negative publicity about our business practices, our compliance with applicable laws and regulations … could diminish users’ and dealers’ confidence in our products and adversely affect our brand

Investors are more objective, as in Why I’m Buying TrueCar despite the Sell-Off. You can look at the Morningstar rating (undervalued) and the quarterly report. TrueCar is making twice the revenue of Autobytel, and growing faster. Still, there is the hostility. Here are my thoughts:

  • Enhance the site to support online buying, as I have described previously.
  • Add features like the ability to sell protection products. This feature alone would compensate for foregone gross on the front end.
  • The platform should help individual dealers to compete with consolidators. Make it a “community” that includes dealers, affinity groups, and finance sources.
  • Prepare for a world of one-price dealers. Look at Scion, for example. The histogram for a Pure Price dealer has only one bar.
  • Use out-of-market data, consumer data, and statistical inference to provide a more detailed pricing picture. This feels less like “ratting out” the dealers.
  • Make the database a research tool, as Zillow is for homes. TrueCar owns ALG, so they already have the machinery.
  • Update the revenue model, to avoid legal classification as a broker. The current model, ironically, becomes less effective as more dealers adopt it.
  • Think about pay per lead, or monthly. I can’t share the details, but I understand the AutoNation deal could have been saved.

These measures should allay the hostility that some dealers have toward price transparency, and the TrueCar business model. If all else fails, and litigation persists, there is the “nuclear option.”

I can think of a few ways to end price obfuscation, for good. The practice is obsolete anyway (not to mention unfair and deceptive) and would not survive six months of concerted attack. Of course, that would also damage the TrueCar model, as presently constituted. I recommend doing the strategy alignment first.

TRUE