Listings sites throw lifelines to dealerships

The coronavirus pandemic had ripple effects for vehicle listings companies this spring as government restrictions on social and business activity throttled demand for new and used vehicles.

Dealerships looking to conserve cash early on in the crisis turned to their marketing budgets to trim costs, and subscriptions to third-party vehicle marketplaces became one expense-reduction target. Several of the largest U.S. listings sites in turn reported increased dealership cancellations and suspensions in late March and April.

The listings companies also moved quickly to discount rates to help offset the impact of fewer sales and lower revenue for their dealership customers — actions that helped prop up their clients but strained their own bottom lines.

Yet several said the trend line appears to have stabilized, if not improved, as prospective car buyers increase activity on online shopping sites.

Initially, "we heard a lot that it was just time to be fiscally tight," said Scott Fanelli, vice president of dealer sales at listings company Edmunds. "Our counter to that is, there's going to be a huge pent-up demand at the end of this, and we want to make sure that you're in front of those customers now as they're doing research."

Edmunds, in Santa Monica, Calif., cut dealerships' rates by half in April and May and 20 percent in June. It also experienced "significantly higher than normal" churn in its dealership client count in the early days of the pandemic, Fanelli said, though that has stabilized with the company experiencing "record low churn" over the past 45 to 60 days. Edmunds, a privately held company, would not disclose the number of dealerships that canceled services. It had roughly 7,000 dealership clients early this year.

CarGurus, of Cambridge, Mass., allowed stores to suspend accounts during the pandemic, rather than cancel, since many couldn't easily respond to customer leads while showrooms were closed or employees were not working, CFO Jason Trevisan told Automotive News.

Suspended status pauses dealerships' payments and incoming leads until they are ready to resume full operations; suspension will remain an option for as long as CarGurus offers a subscription discount — at least through June, Trevisan said. The company is currently discounting subscriptions by 20 percent.

"We definitely saw dealers churning in March when this all began, and when we offered suspended status, we made it actually quite easy for them to churn," Trevisan said.

In early May, CarGurus CEO Langley Steinert told analysts the cancellation rate peaked by early April and that some dealerships had returned to paid status.

Online vehicle shopping activity generally began to perk up around the same time.

Cars.com, of Chicago, another listings provider, said traffic to its website began to improve in early April and that traffic as of May 29 was trending to beat May 2019 in visits and lead volume.

In March, more than three-quarters of respondents to an Automotive News survey said they were considering cutting marketing expenses.

"It is a knee-jerk reaction, right? If sales are going to come to a screeching halt, I'm going to batten down the hatches," Cars.com CEO Alex Vetter said. "We had dealerships that physically shut their showrooms, furloughed their employees, literally locked the doors, closed the dealership. And then what was interesting is that then they would see that their digital storefronts did not shut down."

Cars.com, like other listings companies, offered badging on dealerships' vehicle pages to let customers know particular services, such as at-home delivery, were available.

Such features, combined with discounts, helped "avoid the loss of hundreds of dealers who had given us their 30-day cancel notice," Cars.com interim CFO Jandy Tomy said in May. Cancellation rates have been higher in the second quarter, she said.

With lower fees and cancellations, listings companies have had to cut costs themselves. CarGurus, Cars.com and TrueCar all reduced employee head count, among other measures.

TrueCar, in Santa Monica, reported that its dealership customer count fell in the second half of March. Most of those customers suspended services rather than canceled them, CEO Mike Darrow said on the company's first-quarter earnings call.

"Dealers were quickly reacting to state regulations and things that were affecting their operations," Darrow told analysts. "So we expect a lot of that business to come back."

Cox Automotive's Autotrader declined to comment beyond a statement from General Manager Jessica Stafford, who said the company's dealership relief efforts and new products helped retain customers.