Car Sales Are Slowing. Car-Listing Websites Are Just Getting Started.
Auto retail is finally shifting from a seller’s market to a buyer’s market: Dealers’ car lots are looking fuller, while high interest rates are making consumers choosier. That spells opportunity for online marketplaces such as Cars.com, CarGurus and TrueCar that stand to do well when manufacturers and dealers become more desperate. CarGurus and Cars.com are among the largest online platforms that consumers use to shop for cars.
They primarily earn money from dealers paying subscription fees in exchange for having their inventory listed. Dealers and car manufacturers can also pay for advertising slots and additional features their potential customers might value, such as online appraisals and loan screening. CarGurus also has a transaction platform that makes instant offers to consumers and acquires inventory outright before flipping vehicles to dealers.
Such websites have become valuable research tools for shoppers, for whom cars are among their most expensive purchases—second only to homes. But dealers understandably have a love-hate relationship with them: The exposure is great, but the transparency can make pricing dynamics more competitive. Moreover, some dealers end up allocating a substantial portion of their marketing expenses for placement on these platforms.
One dealer interviewed by analysts at UBS, for example, said about half of the company’s marketing spending was allocated to third-party sites such as Cars.com and CarGurus. Nevertheless, dealers recognize that they need the platforms because that’s where consumers do their research, according to Kunal Madhukar, equity analyst at UBS. Cars.com estimates that there are about 40,000 dealerships across the U.S., roughly half of which list on its website.
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