Carsales-Customer Focus v Profit v Exec Remuneration
Hi, Bob Aldons of Car Business with another tale of the auto trade in Australia. For the last few years, I’ve been a consultant to a US based company, Gerson Lehrman Group. (GLG for short). GLG is an American expert network that operates a membership-based platform that provides independent ad-hoc consulting services to business professionals around the world. GLG approach industry experts on behalf of their clients regard various aspects of business, and in my case about the automotive industry. This article is about Carsales, or at leasy my opinion.
I’ve been consulting to GLG and other similar international companies for opinions as diverse as market share, car finance, but more particularly about the internet of things and specifically about the rise of carsales.com.au and the go forward position of Cars Guide and other car retailing platforms. Carsales is a behemoth in the online car industry in Australia. Starting from a concept of Greg Roebuck at then car software company Reynolds and Reynolds, (now Pentana) some 19 years ago (1997 according to the history books) Carsales has become an industry heavyweight.
The strange thing, in my opinion, is why they haven’t had any real opposition, but perhaps that’s about to change. Having a monopoly as Carsales do, is only a short-term position. As other successful companies from international markets look at the Australian model, and with success in their own market, these companies will look at opportunities here. The one thing that has protected Carsales’ share in Australia at least is the relative size of our market. We’re selling 1 million plus new cars but around 2 million used cars. That, in my opinion, has protected them.
But times they are a changing. The entry of Cox Automotive here in Australia and their acquisition of Manheims (Auctions) Dealer Solutions (Software platform) and recently a major share of Cars Guide, will change the landscape.
And then there’s a new entry into the used car online market too. A new disruptive business (think Uber and Air BNB) is in beta testing with a completely new business model to the typical pay per lead and pay per view model enjoyed by Carsales and Cars Guide. Watch this space when I announce the business model.
Undoubtedly the online internet business for cars will change in the next 1 to 3 years. Whether the likes of Carsales can maintain their market share is a point for discussion.
So what’s this blog post all about? It’s a question that was raised during discussions with the last international company to discuss Carsales with me.
And the question posed was what driver(s) are in place to increase or even just maintain Carsales market share or even share price.
I’ve been dealing with Carsales essentially since their inception in 1997. I’ve watched not only their share price increase over this time, but coupled with that has been their charging model. What was once a $10 per lead model, now runs out at around $60 per lead.
Their management fees per dealer have risen substantially – and it’s a very brave dealer who’ll buck the system and tell Carsales to cancel their account. The Motorama group did that a few years ago and despite being ‘carsalesless’ for about 12 months, they reverted to the Carsales model.
It’s just too hard to replace the leads that Carsales sells a dealer and go it alone. Lots of dealers have tried in one way shape of form without success.
Some areas that I have concerns about Carsales are:
- Poor representation from their field staff to dealers
- Inadequate response times from their support center in the event of a problem with their software. Carsales works office hours and not on weekends when many states are operating.
- A poor model where dealers can’t limit stock to upload
- Gouging of dealer business
Carsales is one of the very few businesses that I dealt or even today deal with where I don’t know how much their service is going to cost my business until I receive an end of month invoice.
It’s like giving a supplier your banking details and asking them to fill in the numbers each month. It seems to me that this business model works very well for Carsales as a company, but pretty poorly from an openness and accountability viewpoint for their customers. The private sale customer’s of course, aren’t subjected to a business model like this. Private sellers buy a base product and then are offered upsells – and that’s fair and reasonable.
Dealer customers are signed up to a pay per lead model and then can’t even limit the number of leads that they receive on a specific car that’s listed.
I’ve seen evidence of a particular car receiving 20, 30 or even more leads at $60 per lead. I think best practice here would be to allow the dealer to limit the number of leads that they receive (perhaps 5 to 7) and then have the opportunity to automatically de-list that car until those first 5-7 leads has been thoroughly decided and worked over by the dealer’s sales department.
Will this happen? Don’t hold your breath – the existing model is what makes the current Carsales model so effective. But arguably, Carsales won’t have the lion share of the current internet car sales business for long. Short sighted profit interests will be harangued in the long term by other operators who see the weakness in the current way of doing business.
So what drives sales growth? My opinion is that the senior executive and board target 10% growth year on year to justify the relatively significant salaries and bonus payments. And shareholders aren’t about to get heavy with Carsales as their dividends and share value continue to grow year on year. They will however, have a different opinion when the share price growth and dividend payout starts to fall.
And when will this happen? Sooner rather than later, I think.
What’s Car Business all about?
Car Business is a multi-dimensional automotive company that aims to help you to buy your new car for a better price than you can do on your own. Based on the Redcliffe Peninsula about 15 minutes from Brisbane Airport and 30 minutes from the Brisbane CBD, Car Business is located in an area that allows us to pick and choose from Brisbane’s finest new cars for sale.
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Above anything else, Car Business is a company that provides current automotive advice for car owners who don’t have access to knowledgeable car industry friends. To those of you without someone to talk to, I’m your expert – the car guy.
I’ve been in the car industry since 1978 – covering all aspects that consumers need advice on. I’ve been called a lot of things in my time – The Car Professor, The Car Doctor, and recently the Car Guy, but the bottom line is that I know a lot about this industry. Whenever someone needs some advice – they call me.
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Please drive carefully
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