Online Pricing Competition Lowers Dealer Margins

We see it all over the country: dealers spending more and more per car on advertising while complaining that margins are lower than ever because of online price competition.

Many dealers tell me, “To win the sale you have to lose the gross.” While MBAs may scratch their heads at that logic, those of us on the street know what’s really happening.

The auto-retailing industry is going through the same self-realization that’s already hit the home-service sector and legal field. In terms of marketing, it’s time to go “Defcon 3.”

Home-service companies tell us Angie’s List online customer leads are low quality. Law firm principals say the same thing about FindLaw.com. Many are jumping that ship and going organic in their marketing to get out of the shoals.

But many auto dealers still buy promises of great riches if they just list on this or that website or pony up $20 for a lead that seems to lead nowhere. Some dealers are buying every lead that moves and even some that don’t.

It all drives up the cost of selling a car while actually limiting sales volume. Internet marketing alone is not enough. Ask Amazon, Google, Bing, and Microsoft why they still advertise on national TV. 

Online car consumers are shopping more stores than ever before, dealerships located farther away than buyers ever considered the last time they bought a car. In a race to the bottom, dealers can end up chasing a digital lead all the way to a loser sale.

Dealership principals can be too removed from the sales floor to see what is really happening. If they would ask their lawyer friend or the guy who owns the local air-conditioning company how they get their customer leads, they would hear: “We need organic leads to grow sales and profits, not just sales.”

How to you go organic? First, don’t rely heavily on Google to help you. Google often does not give you reports on organic traffic on your website. Why should it? It wants to sell you its originated search-engine marketing and search-engine optimization, not drive up the free stuff.

Carefully review cost-per-click campaigns. I’ve met business owners paying triple retail for these clicks thinking that they were getting a great deal.

What’s an organic lead? It’s a shopper who sees your ad and goes directly to your dealership website, often bypassing Google or any other search engine. Those potential buyers know who you are, know what you sell and want to contact you right away.

A veteran dealer that employed this organic strategy saw customer prospects increase 5%, sales go up 26% and closing rates improve 22%. It should be noted that his walk-ins, who are the lowest-quality leads, were down the first month. This is good because they were replaced with customers contacting the dealership by phone and email to schedule appointments.

Why fight for the hamburger when you can dine on filet?

Adam Armbruster is a partner in the retail and broadcasting consulting firm
Eckstein, Summers, Armbruster and Co. He can be reached at [email protected] or

941-928-7192.