Third-Party Marketplace Battle Unfolding? Legacy vs Startups

[Ryan Everson]

For the last decade-plus, dealers (and consumers) really only had 3 major third-party marketplace sites - Autotrader, Cars.com, and Cargurus.

However, the third-party landscape appears to be on the verge of changing, and it will be interesting to see how it all plays out.

What's causing this shakeup?

First, Carvana has been experimenting with listing external dealer inventory on their website for over a year now. They've disclosed this on earning calls and have a small pool of dealer partners that uphold their "quality standards." We'll have to wait and see if they expand this program.

Then last week, Quicken Loans / Rocket Mortgage launched RocketAuto.com, a third-party marketplace that handles all customer follow-up, financing, etc, and sends near finalized deals/leads to partner dealerships. The success of Rocket Mortgage leads me to believe they will be a force to be reckoned with and a worthy competitor against Carvana and Vroom (who, ironically, Rocket currently powers).

And finally, Fair.com (originally started by TrueCar founder Scott Painter) announced they were soon pivoting to a third-party marketplace model very similar to RocketAuto.com.

I'm positive the "legacy" third-party sites like Autotrader see this upcoming battle unfolding. They've all slapped together cursory features like "shop at home" badges and search filters. Furthermore, Autotrader has their poorly executed and rarely used "Accelerate My Deal" digital retailing feature, CarGurus is launching "CarGurus Convert" digital retailing, etc. They all have the resources to put up a good fight to retain their market share against these new entrants.

Don't get me wrong, most customers aren't ready to buy a car 100% online (yet), so there is still a huge market for the legacy third-party sites. So, the third-party legacy sites have a delicate balance of retaining their existing business model to serve consumers and keep dealer partners happy (who are often averse to change), while also gently pivoting to a model that incorporates features of RocketAuto and the likes.

So, how do you think this will all play out?

 

[john.quinn]

Being old and crotchety (no, not referring to @ddavis), we've seen an awful lot of new jazzy whiz-bang gizmos and whoozits ramp-up. Most fail. I remember when Ebay Motors was going to put dealers out of business. I remember the putz from AT TIM sitting in my GSM's office telling me that if we don't sign-up for TIM, he was going across the street and they were going to eat my lunch (Page 7 of the Chip Kelly sales manual).

"Digital Retailing," as an industry... maybe it hasn't quite failed, but it's certainly on some precarious ledge, and it better be careful where it next steps. So far, the "stuff" meant to replace the dealer has been a huge fail; the stuff meant to make it easier for consumers and dealers to get on the same page still has legs.

Along those lines, I will say this: the gizmos and whoozits that have lasted since the early aughts have one thing in common: adaptability. You look back and see with what they started, and with what they "found" their niche, and it would have been difficult to predict. There are no more fax machines to replace (DT), and owner's grandson websites to upgrade (DDC).

Another thing... and this is amazingly true: talk to someone on the F&I side of the business, and they REALLY REALLY believe the automotive process starts and revolves around credit and the credit process.

I was with DDC during DT acquisition, and being the CRM guy, was immediately thrust into "Integration Initiatives" (don't get me started). To that ecosystem, a "Lead" was someone in the DT portal... they had no earthly idea of the world before credit workflow was initiated. All this to say... there's been some heavy-hitting finance-first money to hit the market before. Yawn.

 

[Ryan Everson]

Being old and crotchety (no, not referring to @ddavis), we've seen an awful lot of new jazzy whiz-bang gizmos and whoozits ramp-up. Most fail. I remember when Ebay Motors was going to put dealers out of business. I remember the putz from AT TIM sitting in my GSM's office telling me that if we don't sign-up for TIM, he was going across the street and they were going to eat my lunch (Page 7 of the Chip Kelly sales manual).

"Digital Retailing," as an industry... maybe it hasn't quite failed, but it's certainly on some precarious ledge, and it better be careful where it next steps. So far, the "stuff" meant to replace the dealer has been a huge fail; the stuff meant to make it easier for consumers and dealers to get on the same page still has legs.

Along those lines, I will say this: the gizmos and whoozits that have lasted since the early aughts have one thing in common: adaptability. You look back and see with what they started, and with what they "found" their niche, and it would have been difficult to predict. There are no more fax machines to replace (DT), and owner's grandson websites to upgrade (DDC).

Another thing... and this is amazingly true: talk to someone on the F&I side of the business, and they REALLY REALLY believe the automotive process starts and revolves around credit and the credit process.

I was with DDC during DT acquisition, and being the CRM guy, was immediately thrust into "Integration Initiatives" (don't get me started). To that ecosystem, a "Lead" was someone in the DT portal... they had no earthly idea of the world before credit workflow was initiated. All this to say... there's been some heavy-hitting finance-first money to hit the market before. Yawn.

I agree, however, I think RocketAuto has a great chance at success.

Why?

1) Proven success with Rocket Mortage - they quickly became the #1 mortgage lender in America

2) ^ this means they have first-party data and relationships with millions of their existing customers. Data is gold in today's environment. Email will be a big (and free) traffic channel for them. People that have life events like buying a house also over-index on a vehicle purchase in the same year. Instead of would you like fries with that shake, would you like a car with that house?

3) Single-point rooftop and small dealer groups don't have the resources to create a Carvana-like solution like Lithia has done with Driveway.com, Asbury with Clicklane.com, Penske with CarShop.com, etc. Rocket provides these smaller dealers the technology and resources to be able to compete head to head with Carvana.

4) Most dealers suck at the few digital retailing leads they may get. Rocket Auto's BDC takes the burden off the dealers by following up with customers and working the deal from start to finish before handing off to the dealer to deliver.

5) If Rocket only manages to partner with 10% of dealers, they will still have far more inventory than Carvana / Vroom with no inventory or logistical overhead expenses. Customers flock to inventory selection.

6) The legacy third-party sites have to focus on both the current reality that most customers don't want to buy a car online (yet) and the near-future reality of customers wanting to buy a car online. They also have to focus on the current reality that most dealers don't believe in digital retailing (yet). It's a delicate balance for them to satisfy 2 conflicting realities. Whereas Rocket has an advantage that they don't have to serve both realities, they can focus solely on the future and not get bogged down with change-averse dealers.

7) The world is a lot different than it was when eBay Motors launched in 2000 and when Trade-in Marketplace made its debut in 2010. Carvana grew deliveries 96% YoY and jumped to the #2 used-volume leader in 2020, surpassing Autonation, Penske, Lithia, Sonic, Hendrick, Asbury, etc. This illustrates that there is a growing appetite. Sure, we're not there yet, but the tea leaves are showing more and more customers will be ready in the not too distant future.

8) Rocket founder (and billionaire), Dan Gilbert, is the 23rd richest person in the world. Enough said.

 

[Ryan Everson]

I agree, however, I think RocketAuto has a great chance at success.

Why?

1) Proven success with Rocket Mortage - they quickly became the #1 mortgage lender in America

2) ^ this means they have first-party data and relationships with millions of their existing customers. Data is gold in today's environment. Email will be a big (and free) traffic channel for them. People that have life events like buying a house also over-index on a vehicle purchase in the same year. Instead of would you like fries with that shake, would you like a car with that house?

3) Single-point rooftop and small dealer groups don't have the resources to create a Carvana-like solution like Lithia has done with Driveway.com, Asbury with Clicklane.com, Penske with CarShop.com, etc. Rocket provides these smaller dealers the technology and resources to be able to compete head to head with Carvana.

4) Most dealers suck at the few digital retailing leads they may get. Rocket Auto's BDC takes the burden off the dealers by following up with customers and working the deal from start to finish before handing off to the dealer to deliver.

5) If Rocket only manages to partner with 10% of dealers, they will still have far more inventory than Carvana / Vroom with no inventory or logistical overhead expenses. Customers flock to inventory selection.

6) The legacy third-party sites have to focus on both the current reality that most customers don't want to buy a car online (yet) and the near-future reality of customers wanting to buy a car online. They also have to focus on the current reality that most dealers don't believe in digital retailing (yet). It's a delicate balance for them to satisfy 2 conflicting realities. Whereas Rocket has an advantage that they don't have to serve both realities, they can focus solely on the future and not get bogged down with change-averse dealers.

7) The world is a lot different than it was when eBay Motors launched in 2000 and when Trade-in Marketplace made its debut in 2010. Carvana grew deliveries 96% YoY and jumped to the #2 used-volume leader in 2020, surpassing Autonation, Penske, Lithia, Sonic, Hendrick, Asbury, etc. This illustrates that there is a growing appetite. Sure, we're not there yet, but the tea leaves are showing more and more customers will be ready in the not too distant future.

8) Rocket founder (and billionaire), Dan Gilbert, is the 23rd richest person in the world. Enough said.

All that being said, I don't understand Rocket's logic of not having a simple payment calculator on their VDP??

They still have a ways to go to match the UI/UX of Carvana.

However, I've heard Rocket has 1,650 engineers with 30 developers dedicated to RocketAuto so I'm sure it will only get better with time.

 

[Tallcool1]

My first question, who is providing the financing? The FAQ was a little unclear. Maybe the dealer, maybe Rocket Auto? My guess is the dealership, only because I seriously doubt Car Max would be on board if they were potentially losing F&I.

Clean website. No filter for distance.

 

[Ryan Everson]

My first question, who is providing the financing? The FAQ was a little unclear. Maybe the dealer, maybe Rocket Auto? My guess is the dealership, only because I seriously doubt Car Max would be on board if they were potentially losing F&I.

Clean website. No filter for distance.

Yeah I thought it was odd that omitted a distance filter too. Maybe offering vehicle delivery is a requirement?

For financing, it sounds like dealers are allowed to select the lenders. Not sure if dealers can load F&I products in their platform.

 

[Greg Spencer]

Yes, financing is from the dealerships. Rocket doesn't sell car loans yet, but it may do so in the future.

 

[ChrisR]

Had a demo with them, they are still figuring things out. No pricing structure yet, no firm ETA on when things will get to move forward. On the list though.

 

[Jeff Kershner]

Be sure to catch RefreshFriday tomorrow!!

@Ryan Everson will be joining us to discuss this trending topic!

 

[Rohit Sharma]

Biggest thing going for legacy dealers is the physical presence, whether that is the ability to go and see a few cars or the presence in the local retail space for decades. They also have the ability to provide service which increases loyalty. This is something that the new sites are not going to be able to fulfill, or at least find it very difficult to do so. You can see this trend in online only retailers like Warby Parker, Amazon etc - they are all looking for local presence. The biggest thing going for the likes of Carvana, Vroom, et al is the convenience (perceived or real) factor - the convenience factor wins for a sale, but what happens when you need to service? Whoever is able to marry these two will take the lead in this transformation. Regardless of the winner, providing a better retail experience to the consumer is going to be paramount.