Cars Commerce: Fireside Chat with Alex Vetter, CEO of Cars Commerce

Good, great. Thank you. Nice to meet you. Thank you very much.

Sure, we did. First of all, it's great to be here and see everybody, and thank you to NADA. It's important. Well, first of all, the company we acquired is called Dealer Club, and it's a wholesale trading platform built for dealers by a dealer. And Joe Neiman, the founder of ACV, this is his second incarnation. And as Joe and I talked about the industry and where it's headed, we agreed on a lot of common problems, which is dealers need less fees, more efficiency, and partners that are giving power back to them. And so one of the essences what I loved about Dealer Club is that we pay sellers to sell cars on our wholesale marketplace. And so we charge only the buy fee, but sellers get rewarded and get paid to sell on the platform. It's also differentiated because it's reputation based, so that dealers are front and center with their reputation and their past trading history front and center. So if a dealer doesn't send a title or misrepresents the condition of the car, not as advertised, you as the buyer can penalize that seller by scoring them low on that transaction. Over time, the reputation of the seller is a big part of the deal. And where that's similar to my Cars.com business is we've never run a race to the bottom. Other marketplaces love to pit you guys against each other, tell you to lower the price of your cars to climb to the top of the search results, and then they charge you more for that privilege. That's a classic race to the bottom model. In our model, our algorithms favor consumer sentiment. So if you're a five-star dealer on our platform, you're organically going to elevate in our rankings because ultimately we find is the delta on what you pay for a car has become very small over time. The internet has brought such transparency. It's really more about the customer experience and can they trust you, are you going to be a reliable person that they can drive an extra distance and know that you're going to take care of them on their trade. And so we've always elevated experience and reputation in our core consumer retail marketplace. Dealer Club does that as well and returns half the profits back to you.

Well, I'm excited because we've been through a lot of crazy cycles over the last three to five years with just big macro changes. And I do see, I'll call it normalization for the first time, starting a year where you've got the new car market improving. I think volume was up 2%, which is modest but good considering where it's been. As you guys know, that puts pressure on used car pricing coming down about 5%. So the market is going to normalize a bit, which is good for most operators who know how to run their business. But dealers we talked to are trying to find new profit centers which they can capitalize on. And we do think wholesale should be a profit center for dealerships. There's no reason with the volume of buyers that are out there you should have to wholesale vehicles and incur so many costs for inspectors fees. You're giving away your profits. And so by moving to this differentiated pricing model, we think we can help dealers turn wholesale into a profit center and a big opportunity. I also just think that technology is speeding operations. Most dealerships are now acquiring two, three stores, they're moving up to 8, 12, some cases 30 dealer footprints, and they're looking for technology that they can run across a platform of dealerships and get operating leverage. And that's what Cars Commerce was built to do: enable you to get data across all your websites, appraisal technology that you can do in minutes, appraise cars quicker, trade inventory amongst your stores, and then list your cars for sale and advertise it to an in-market car shopping audience. So I think dealerships are trying to find new ways to get leverage in their operations to reduce their operating cost and even their human capital cost. I mean, we've got dealers that said, 'Alex, I loved my way we used to appraise cars, but the guy that did it we had to pay him $175,000 a year and take 40 minutes for every car. We now pay a college kid $80,000 a year and they appraise cars in minutes using ACUT Trade.' They're dropping that human capital cost down and they're running a more efficient business using technology and data to pave the way.

Well, look, I'm this you may have teed me up for a little bit of a commercial plug, so I apologize, but that's what they told me to do. Alex, well look, I don't know if the Amazon people are in the room, but you are going to fail. And the reason you're going to fail is that the last mile of auto is hard. It is a tough row to move people through that final last mile of the transaction. And local dealers have proven reliably the best operators at handling that trade-in, exchange, new sale opportunity with ease and efficiency, and it's getting faster and better every year. To think that digital retail is going to all of a sudden magically fix that last mile is a fool's errand. And I'll say to the OEMs here, we've got 65% of Hyundai dealers on Cars.com today. If you want to move volume, give me a call. Let's start putting Hyundai cars in front of competing makes and models and drive that volume directly to your retail network, as opposed to trying to create some new PR-driven media frenzy around Amazon, which by the way tends to destroy local retail. When you look at the arc of that company's history, that's all they've done is eliminate local operators and mom and pop shops. So it sounds great, I think it's a fool's errand. I think the industry, if they would embrace the partners who've been here for 25 years giving back to the dealer community, exhibiting with NADA, we're your white hat. We're here to support you. We're not ever going to get into your business. We're a tech enabler, you're the operator. And once we start to realize who's in it with us and who's against us, I think we can unlock a lot of value.

Well, I think they're going to burn through a lot of capital and piss off a lot of investors because there won't be a return. And of all the companies that wanted to figure out a direct consumer digital solution, like Cars.com has been it for 25 years, you'd think we'd study it and try to figure it out. But what we consistently see is the difficulty in that last mile. Exchange and the costs are prohibitive to try to do that. We know service is the number one need of most owners. That's actually more valuable than the purchase experience. We spend a lot of time on the purchase experience, but it's the ownership experience that dictates brand loyalty. And you're not going to do that as a national company. You better be boots on the ground at the local level. So I just think tech is an enabler, but it can enable a local system. And that's what we've concluded with all our years in the market. If we enable our partners to use technology and create a better customer experience, they're going to delight the user far better than the tech. And yes, they want to use technology to show that they're being transparent on valuation. That's why our appraisal will show the consumer why the car is priced the way it is based on all the supply and demand data that Cars.com has. And consumers value that transparency, much like they look at Zestimate for a home. They want that validation from a third party. And the dealers that embrace a third-party validation and use that as evidence that they're being transparent, they remove friction from the customer journey. And I think that's where we're headed as an industry, is just being more tech first. And by the way, to the OEMs and dealers, no more capital allocation towards new showrooms, shiny coffee bars. Start investing your capital into your digital experience, because that's where the consumer's already gone. Yes, it's nice to have a nice showroom, but you got to invest where the customer is, and they're spending far more time looking at you digitally than they are spending in your physical stores.

Well Mike, I appreciate your sentiment on advocacy. I was raised by entrepreneurs who ran small businesses, so it's kind of in my DNA, although I never want to be a car dealer. That's like kickboxing. I'd rather stick with technology and let you guys do the heavy stuff. But I will put an agenda item on NADA's plate for 2025. And one of the things we're doing for all of our dealer-inspired website customers, we power about 8,000 websites for dealers across the country. And what we continue to see are third-party companies tagging dealer websites with tags on your websites, but we have no commitment to what that data is being used for. And in many cases, dealers have asked for features and services to be put on their website to power various experiences. But I think there's enormous data loss, and we don't think these vendors are being transparent with the dealers as to what they're doing with your audience data. And I think that NADA has got to take a leadership role here to help police these vendors that are on your website. Every quarter, we'll produce a report. You need to validate that a) you approve that they can ride on your back, and b) that you have an agreement with that vendor that you know what they're doing with your data. And number three, what I'd like to see us do, it's okay if an OEM is taking your information, but why not do a rev share back with the dealer on where they're using your data? You're spending millions of dollars to drive traffic to your website. I don't know why other people should be able to use that and then profit from it without revenue sharing with dealerships. So a big theme, Mike, I'm going to be coming to NADA. We've been analyzing 8,000 websites. We're going to name names. These are the companies that are riding on the dealer websites, and we need NADA's help to develop fair business practices to both protect dealer data but make sure it's far more transparent what third-party vendors are doing with dealer data.

Yeah, you got it.

Thank you guys, appreciate it.