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On the Point

To Catch a Fox

June 12, 2013

We are rapidly approaching the day when all of the nation’s car dealers will walk out to their henhouses and discover all their chickens are gone.

I have been warning you for years this was going to happen. I’m sort of the Alpha Dawg version of Paul Revere. Did you listen? Did you take action? Or did you naïvely wait for your dealer associations to march onto the battlefield to protect you? If you did, then you’re in the majority. Unfortunately, you’re going to get exactly what you deserve. After all, who let the fox in the henhouse to begin with?

Return of the Firebrand

I have spent the past few months spearheading a campaign to focus dealers and industry people on another issue dragging your stores’ profits down, stealing your business, and using your own inventory to divert your customers to other dealerships.

As we have entered the Internet age, advanced technology and a new wave of vendors have appeared. They seem to be the nicest people in the world. Yet, they convince dealers to sign some of the most stupid and vicious contracts conceivable.

Do any of you even read these contracts? You didn’t just allow the fox to enter your henhouse; you’ve signed over all of your rights and ownership of those chickens.

The foxes are, of course, the lead providers you once considered trusted vendors, and dealers are suffering some very real abuses at their hands.

It began rather innocently last year with Cars.com. I really wasn’t looking for another crusade at the time because I had my hands full helping attorney Lenny Bellavia round up dealers for his mass-action lawsuit against Carfax — the original fox in the henhouse. So there I was, communicating with my new friends at ABC News, helping the producers gather information about Carfax’s alleged abuses of consumers and dealers.

At that time, Cars.com wasn’t even on my radar screen. In fact, I had always heard they were among the most dealer-friendly vendors. The original issue was dealers reporting that Cars.com and AutoTrader were installing an app that appeared on their websites. The app was called “RoadLoans,” and it automatically offered customers financing after they selected your unit. The problem was — and still is — that, if the consumer clicked on your RoadLoans button, and you weren’t a paying subscriber of RoadLoans, then the app would suggest they buy a similar car from another dealer. Not just any dealer, mind you, but a member of RoadLoans.

Dealers revolted. Cars.com responded by offering a secure credit app that would, for a price, remove the RoadLoans app from your paid advertised unit.

Just as we were gearing up for a fight over that issue, another, more sinister situation came to light. It seems Cars.com, along with several other vendors, was sending follow-up e-mails to customers who had selected a specific unit and submitted a lead to the dealer. The e-mail listed eight similar units at other dealers in the market they might consider.

‘Da Man’ wasn’t too happy when dealer consultants like Brian Pasch defended Cars.com’s lead nurturing strategy, which includes showcasing vehicles from multiple dealers in follow-up e-mails to consumers who submit a lead on Cars.com. In an April 30 YouTube post (youtu.be/u62WXwAird8), Pasch responds to Jim Ziegler’s criticisms of Cars.com before explaining his take on the firm’s strategy.
‘Da Man’ wasn’t too happy when dealer consultants like Brian Pasch defended Cars.com’s lead nurturing strategy, which includes showcasing vehicles from multiple dealers in follow-up e-mails to consumers who submit a lead on Cars.com. In an April 30 YouTube post (youtu.be/u62WXwAird8), Pasch responds to Jim Ziegler’s criticisms of Cars.com before explaining his take on the firm’s strategy.

Dealers everywhere became enraged. A revolution sprung up like a flash fire and I, admittedly, fueled it. So, in less than two weeks, Cars.com threw up the white flag and posted a video to announce it was discontinuing the practice. They did try to defend their follow-up campaign, explaining that 58 percent of car shoppers return to the market after submitting a lead.

My contention is that it’s not the lead provider’s place to decide whether to re-market to the consumers the dealer paid to attract. “Churning” the leads is an old trick to make a vendor look as if its producing more leads than it really is.

Theoretically, the cycle could go on forever. If a customer clicks on the second dealer’s unit in that stealthy follow-up e-mail and submits a lead, the vendor could send that customer yet another eight choices. And they continue to do this to justify the high cost of leads.

It’s an Epidemic

In the firestorm of dealer reaction that followed Cars.com’s missteps, we uncovered dozens of other vendors posting your inventories on “pirate” and “lead farm” websites. These sites are just passing leads from dealer to dealer. There’s no telling how many times the same customer’s lead was sold and resold after initially being fed to these third- and fourth-party websites.

One website that kept popping up was CarGurus.com. A relative newcomer to the lead brokering game, CarGurus.com is fed dealer inventory by Cars.com and many other formerly trusted vendors. We’re even hearing from dealership managers that GM and Chrysler Digital are in bed with these people. I personally view CarGurus.com as the most hostile, anti-dealer website yet.

Be aware that you, the dealer, signed away the right to control where your inventory goes. If you take a moment to read your contracts with your vendors, including Cars.com and all of your other lead providers, CRM and even some of your DMS vendors, you’ll find that, in many instances, your vendor has complete ownership of your inventory information and customer data. You have signed away carte blanche permission for them to do whatever they wish, post it wherever they will, and repackage, repurpose and resell your data as they please.

And it’s your own damn fault.

So what are your dealer associations doing to protect you from these abuses? Up until now, very little. The good news is I’m hearing the associations are indeed joining the fight, and they’re doing so without blinders or special interests standing in the way. But this battle is just one front in the war against vendor data abuse.

Define ‘Affiliates’

In our dialogue with Cars.com, we learned the company has a number of relationships with what its internal documents referred to as “affiliates” and “partners.” As events unfolded, we learned from insiders in the lead business that those terms are used to refer to financial arrangements to generate as well as buy and sell leads. We’ve been told that an “affiliate” might receive $6 to $12 per lead they serve to the vendor that the dealer is paying.

Another entity I was unaware of that came to light was a company called the Detroit Trading Company. Evidently, the Detroit Trading Company is one of several brokering houses that buys and sells leads to different vendors for resale. So it’s possible that your exclusive, high-priced lead may be sold to the same dealer by multiple sources or passed around to multiple dealers.

Complaining to your vendor may cause them to piously proclaim they are an advertising company, not a lead generator. They all keep repeating the same mantra, saying that it’s all about the consumer experience and how consumer-friendly and transparent they are. The truth is, with many of these second- and third-party vendors, it’s about their financial experience on the backs of the dealers.

As for CarGurus.com, we have multiple accounts of this happening and have the screen shots to prove it. Remember, the majority of inventory on CarGurus.com was fed to them by a series of trusted vendors and even some CRMs and manufacturers. In other words, they exist mostly to be a lead farm for many vendors, including Cars.com — at least initially.

The vendors have a whole army of bloggers in their pockets. The bloggers are marching to their defense with stupid arguments about “lead nurturing” and a dozen other wimpy sound bites. From my vantage point, it seems everyone who has come to the defense of these vendors is financially involved with them.

You may be wondering what the big deal is. Well, let me explain. See, I have heard from dozens of dealers who submitted “test leads” to CarGurus.com using fake names and found their own inventory. Then they received a lead-submission message from Cars.com or Autobytel or any number of other lead generators. Did you catch that? You submit your fake lead on your own inventory and, lo and behold, you hear back from Cars.com as if it generated that lead.

But it gets better. Dealers who have tried this say they received another e-mail, this time from CarGurus.com, listing additional units in their area. We have seen dealer-supplied screen shots of as many as 80 additional units served up to a customer by CarGurus.com after Cars.com sent the lead to the dealer whose inventory initially attracted the customer on CarGurus.com.

One dealership manager in New York actually published a blog post of his own with screen shots of 161 additional units from CarGurus.com. And that was after he sent the test lead to CarGurus.com and got the lead from Cars.com.

Here’s where it gets even kinkier. A dealer I work with in Alabama told me he submitted a test lead to CarGurus.com after finding his units on that site. He got the lead back from the vendor he did business with, but he also received a follow-up e-mail from CarGurus.com with 20 additional units he might be interested in — all supposedly in his market. His car was No. 17 out of the 20 listed. But the first 15 units CarsGurus.com suggested were all from a CarMax dealership located in a different ZIP code than the lead was submitted.

It appears to me that CarMax seems to get a lot of preferential positioning with CarGurus.com, and not just in this context. I can’t say it’s anything more than coincidence, but it certainly makes me raise a skeptical eyebrow.

HomeNet and Dealer Specialties, companies which were also feeding dealer inventory to CarGuus.com, were completely transparent and cooperative. They showed dealerships how to enable or disable any inventory feed going to these websites.

A Bad Deal

Another thing I don’t like about CarGurus.com is the site rates dealers and their deals. Labels, from my understanding, include “Great,” “Good” “Fair” or “Bad” deals. What gives the site the right to do this? And what standard is it using to rate these deals?

In one case, a dealer told me a test lead he submitted to CarGurus.com on one of his units came back as a “Bad Deal.” The site said it was overpriced by more than $10,000 and offered “Good Deals” available at other dealerships. According to my contact, the site compared his special-edition Dodge Ram Crew Cab with a base model Ram 1500. I am not sure whether this was just a mistake made by non-car people, but if not, it could be a malicious attempt to switch the original customer to a unit being sold by a dealer in whom they had a vested interest. Whichever the case, my dealer was screwed.

Are vendors like Cars.com unaware that this is happening? Are these lead farm sites collecting money from these vendors? And are the vendors aware that the leads they paid for are being sent elsewhere? Or is the only one unaware of all of this the paying dealer?

Follow the Money

Other than HomeNet and Dealer Specialties, none of the vendors using these lead farm sites will disclose who their affiliates and partners are. They piously spout platitudes about us (evil dealers) not being “transparent” as they stand there in a praying position with those little cartoon halos hovering above their heads, babbling about how their existence is centered around the customer experience.

As I write this article, Cars.com has admitted that CarGurus.com is one of its “partners,” but the meaning of the word remains unclear. It is certainly a financial arrangement. I do not believe they would have even admitted that if we hadn’t “outed” them. Regardless, Cars.com says it will remove CarGurus.com from the feed if the dealer asks them to; however, I’ve heard stories the firm is fiercely resisting those requests.

Almost every vendor that has access to your DMS is lifting your data and many, if not most of them, are abusing it. Yet dealers continue to blindly sign these stupid agreements.[PAGEBREAK]

Their companies are planting “cookies” in your customers’ browsers and following them all over the Internet. It has been related that they are repackaging and reselling your customers to competitors and even manufacturers. These same companies are also “scraping” your websites to lift information they can use to help your competitors. What you need to do is signature copyright every page and unit on your website so you can collect damages and make these people pay penalties for theft.

We just received information that a company we haven’t discussed yet had an icon on dealer websites to receive trade-in appraisals. When consumers clicked on that icon, it sent them to another dealership several miles away. One consumer, I was told, was shocked when the other dealership called.

This is a major company in our industry and they actually installed this on the unsuspecting dealer’s website as a trade-in value generator for the consumer. Subsequent test leads found it was happening repeatedly. Needless to say, the dealer cancelled.

The End Game

Are we asking dealers to put these vendors out of business? No. We’re asking these vendors to do the right thing. Dealers are realizing the huge amounts of money being passed around in this underground world. It seems to me that they don’t want to give up the juice.

Last year, there was a heated battle with TrueCar, with dealers, associations and lawmakers mounting an effective counteroffensive against the perceived abuses. Reports are that the company lost $78 million before changing its business model. In the end, however, TrueCar emerged more dealer-friendly without sacrificing any customer value. Today, it’s more profitable than ever.

I have had many conversations with Scott Painter, TrueCar’s founder and CEO, and his officers. There have been several issues recently where I gave them a call to let them know that something they were doing was bothering dealers. Each time, they immediately had me on the line with a vice president and their programmers and the problem was fixed. In other words, they’re working with us now.

I do not endorse any vendor, but I will say that TrueCar is, for the most part, more dealer-friendly than many of the companies discussed in this article. Painter and I actually joke around about it now. I sent him an anniversary card last year commemorating the first day I wrote about them on my blogs.

Now, as we re-focus on the data pirates and perceived abusers, we see that Carfax is going to court to fight a $50 million mass-action lawsuit spearheaded by my friend, attorney Len Bellavia. He now has nearly 300 dealers participating. I can’t say definitively, but I am guessing we’ll see the National Automobile Dealers Association and the American International Automobile Dealers Association getting involved in these skirmishes as well — maybe even some of the national used-car organizations, too.

The message is clear. We’re putting all the rogue vendors on notice. We’re not “gonna” take it anymore.

Until next time, let me continue to hear from you with phone calls, e-mails and blog contributions. Please copy this article and mass distribute it.

Jim Ziegler is the president of Ziegler SuperSystems Inc. E-mail him at jim.ziegler@bobit.com. 

Comments

  1. 1. DivaofData [ June 14, 2013 @ 03:22PM ]

    The best way to catch the fox in the hen house red handed is to embed a couple of records in your DMS system and monitor them. Register a couple of gmail accounts, input some bogus data into your DMS (sales & service records) under a few of your managers names with the gmail accounts included then wait for emails advertising your competitors offers. It’s a sure fire way of keeping your vendors honest, constant monitoring ensures you are not giving away YOUR data. The DivaofData

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Author Bio

Jim Ziegler

President & CEO of Ziegler SuperSystems

Jim 'Da Man' Ziegler joined the magazine in 2011 to deliver his On-the-Point message about the car business to dealer principals and store managers. He'll offer strategy advice on everything from sales and F&I to marketing in the digital age. Catch him every month at www.fi-magazine.com.

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