Incorporated: 1997 as AutoConnect.com
NAIC: 518111 Internet Service Providers; 441120 Used Car Dealers
SIC: 7375 Information Retrieval Services; 5521 Used Car Dealers
AutoTrader.com, L.L.C., is an Atlanta, Georgia-based company that operates the largest Internet used vehicle classifieds marketplace, boasting over three million listings from about 40,000 dealers and 250,000 private owners. Approximately 13 million qualified buyers visit the web site each month. Aside from used cars and trucks, AutoTrader offers listings for some new cars as well as classic cars, motorcycles, and boats. The web site also provides research and comparison tools for vehicle shopping, and has forged partnerships with Capital One Auto Finance to providing financing, and GEICO to provide insurance. AutoTrader generates income through paid listings, advertising, and transaction fees from Capital One and GEICO. While listings are free to dealers, they can pay a premium monthly fee to receive a higher placement of their ads on the site. AutoTrader also provides dealers with a weekly report indicating the number of unique hits their ads are receiving, allowing them to make better decisions on pricing and descriptions. AutoTrader is a subsidiary of Manheim, the world's largest wholesale automobile auction company, which is in turn owned by Cox Enterprises, Inc., an Atlanta media company.
Predecessor Company Founded: 1996
The earliest incarnation of AutoTrader was ADP AutoConnect, established in 1996 by ADP Dealer Services, a unit of Automatic Data Processing, Inc., a company that had been established after World War II to process payrolls. In the 1990s ADP was well positioned to take advantage of the Internet to provide a wide variety of financial services. AutoConnect was intended as a one-stop resource for all things automotive. It brought together the links of almost 4,000 dealers, numerous automakers, auto clubs, parts, and service sites, as well as online auto industry publications. The site's toolkit allowed users to find dealers and specific new and used vehicles. One tool allowed a side-by-side comparison of vehicles, while others calculated monthly payments versus lease payments and provided credit checking. AutoConnect was not alone, however, in its desire to leverage the power of the Internet to sell vehicles, parts, and services. Auto-by-Tel, for example, had gotten a head start on laying claim to the market. Originally designed to sell vehicles over television by way of toll-free telephone numbers, Auto-by-Tel quickly switched to the Internet, debuting on the Prodigy online service in March 1995, and three months later launching its own web site to sell new vehicles through dealerships.
Other Internet start-ups rushed to enter the field as well, primarily focusing on the sale of new vehicles. It was no surprise that Cox Enterprises would decide to become involved, but due to its Manheim Auction Inc. subsidiary the focus would be on used vehicles. The business was formed in Manheim, Pennsylvania, following World War II, taking advantage of the high demand for used cars as automakers retooled after devoting their production capacity to making war materials. The Manheim founders established an auction house where used cars were put on the block and it grew so popular that soon sales were limited to dealers. By 1959 Manheim Auctions was running three "lanes" of cars for auction simultaneously and it became the largest auto auction in the world. In the 1960s Manheim grew even larger by acquiring other auto auction houses. It then attracted the attention of Cox Enterprises.
Founded to own newspapers, Cox had always embraced new opportunities and new media. Early in the 1960s the company began acquiring cable television systems through the Cox Broadcasting unit, which in 1966 began a business- and technical-publishing division. Among its products were wholesale car price guides, which relied on auto auction sales information to determine used car prices. By acquiring Manheim, the market leader, Cox gained access to valuable information. With the backing of Cox, Manheim continued to grow, both internally and through further acquisitions. In 1991 Manheim Auto Auctions merged its operations with assets of General Electric Capital Corporation and Ford Motor Corporation to nearly double in size. With the emergence of the Internet, Manheim began making sales calendars and auction inventories available on the web. Manheim Online was also established as a price guide and vehicle locator for independent dealers, and the first Used Car Market Report was compiled and made available for download to dealers' personal computers.
Manheim and ADP Assets Merged: 1997
In 1997 Manheim and ADP formed a joint venture, AutoConnect, which assumed the name of the ADP consumer web site. The purpose of the new web site was to allow dealers, as well as private individuals, to list used cars for sale at no charge. Manheim had gotten a head start on the idea. In 1996 the company conducted a test that allowed dealers who had just bought a car at auction to advertise it in the newspaper while at the auction house.
Majority owned by Manheim, AutoConnect established its headquarters in Atlanta, and in August 1997 Chip Perry was installed as the president and chief executive officer. After earning a degree in civil engineering from the University of Virginia, Perry enrolled at Harvard Business School, where he received an M.B.A. He then spent time as a management consultant at McKinsey & Company before joining the Times Mirror Company, where he served as vice-president of corporate development and vice-president of new business development for the Los Angeles Times. He became familiar with online ventures, establishing TimesLink.com, one of the pioneering online newspaper services that evolved into LA Times.com.
The revised AutoConnect.com site began to take shape under Perry. In 1998 Manheim began rolling out $25,000 photo stations at each of its 65 locations, installing about two each week. Vehicles were assigned a bar-code sticker related to the vehicle identification number as they arrived at the auction sites. They then passed through the imaging station at two miles per hour as an infrared scanner read the bar code and a digital camera shot a picture; the data was then stored in a computer database. After placing a successful bid on a vehicle, dealers completed a blue form indicating the retail price, and a free listing was created on the AutoConnect site. As a result, a dealer could have inquiries about the vehicle before he had time to return to the lot. To make sure dealers understood the AutoConnect concept, especially to reassure the skeptical that the listing was indeed free, all Manheim employees, even janitors and cashiers, were fully briefed to answer questions. Other employees wearing AutoConnect T-shirts were also stationed at the auction checkout lines to urge dealers to submit their blue forms for a free listing.
For the most part, dealers embraced AutoConnect, although many did not expect a significant surge in business. The company did well at the National Automobile Dealers Association convention in February 1998, convincing more than 1,000 dealers to list their inventories. To gain greater visibility with dealers, consumers, and potential advertisers, AutoConnect broke a multimillion-dollar Internet advertising campaign and began testing television, radio, and printing ads as well. Taking advantage of its corporate parent, AutoConnect was also featured on the Cox Interactive Media's 17 "city sites" and five other specialty sites.
In April 1999 AutoConnect gained further exposure by forging a 26-month deal with Internet service provider America Online to become the main source of its used vehicles classifieds. Cox's newspapers also helped to beef up the site by integrating their classified vehicle listings with the AutoConnect database. The biggest development of 1999 was the merger of AutoConnect and Auto Trader Online, which brought together the two largest sellers of used cars on the Internet. AutoConnect carried listings from more than 32,000 dealers, while Auto Trader served 18,000 dealers as well as 120,000 private owners. The two companies were actually distant cousins. Auto Trader Online was owned by Trader Publishing Co., a joint venture of Cox Enterprises and Landmark Communications. Trader Publishing produced weekly magazines with vehicle listings, including Auto Mart and Auto Trader. When AutoConnect and Auto Trader were officially joined in the fall of 1999 they created a megasite called AutoTrader.com that featured the world's largest vehicle database, totaling more than 1.25 million used cars and trucks.
Public Offering Canceled: 2000
AutoTrader.com launched a major advertising and branding campaign at the start of 2000 to introduce the brand to the general public, the highlight being a 30-second commercial on the January 20, 2000, Super Bowl telecast. The company appeared to be on the verge of a tremendous success, increasing its vehicle listing to 1.5 million in a matter of weeks, a number destined to reach two million by the end of the year, prompting eBay Inc. to take an equity stake in the business in March 2000. To take advantage of its momentum AutoTrader prepared to make an initial public offering (IPO) of stock in 2000 that called for the sale of 6.5 million shares at $10 each. However, in the same week in April that the company filed to go public, the stock market took a turn for the worse, leading to the bursting of the dot-com bubble. Internet companies began going out of business, and investors shied away from Internet stocks. In November 2000, AutoTrader canceled its IPO.
AutoTrader was fortunate to have owners with deep pockets and patience. While rival vehicle sites fell by the wayside or merged with others in order to survive, AutoTrader found itself in an enviable position. Aside from having the necessary financial backing, the company's emphasis on used cars rather than new proved a wise choice. The new car sites had to contend with laws in some states that protected dealers from competition, and automakers were reluctant to award new-car franchises to a web site operation. "Instead," according to the February 7, 2003 Wall Street Journal, used-car classifieds emerged as "the unlikely survivor. ... Advertising a used car online has big advantages. Classified car listings in newspapers are usually limited to a few lines of tiny text. Used-car sites are jammed with pictures, making it easier to portray all the scrapes and quirks of a vehicle. There's also a better selection online than in the hodgepodge of local newspapers and auto publications in which dealers usually advertise." Moreover, advertising on paper was so expensive that dealers could afford to list only a fraction of their inventory, whereas online their entire inventory could be represented.
Although AutoTrader shied away from expensive Super Bowl spots, it still had enough funds available to launch a $40 million campaign in 2001 to drive further site visits and build brand awareness. The company also expanded in a number of new directions. In February 2001 it began incorporating new vehicle listings. Later in the year it forged a partnership with Toyota, Lexus, and Honda to create the Certified Vehicle Program, which provided consumers with a select database of certified vehicles. In addition, in 2001 FordDirect chose AutoTrader to power its used vehicle search platform.
AutoTrader was established enough that it could charge for its listings. As a result, the company attained an important milestone in June 2002 when it reached profitability. It was a significant accomplishment in light of the difficulties that plagued Internet companies that had been launched in the heady days of the mid-1990s. By October 2003, AutoTrader signed its 10,000th paying customer. A study in 2004 showed that AutoTrader facilitated over $50 billion in sales each year, roughly 14 percent of all used vehicle sales in the United States.
In 2005 AutoTrader's ownership picture changed somewhat. Cox and Landmark decided to split up its Trader Publishing joint venture. As part of the arrangement, Cox received Landmark's 26 percent interest in AutoTrader. Then in September 2006 Cox formed a new operating division, Cox Auto Trader, which included AutoTrader.com, Auto Mart, and Auto Trader Publishing. AutoTrader continued to refine its operation as well. In 2006 the site introduced the My AutoTrader.com feature that allowed consumers to create their own space where searches and vehicles could be saved for future reference. The following year AutoTrader allied itself with MSN Autos to become that site's exclusive provider of used vehicle listings. AutoTrader also introduced its Credit Center to provide special financing options for credit-challenged car shoppers.
Principal Competitors
Autobytel Inc.; AutoNation, Inc.; Cars.com.
Further Reading
Baig, Edward C., "The Biggest Used-Car Lot of All," Business Week, August 9, 1999, p. 96.
Freedman, David, H., "Would You Buy a Used Car from This Site?" Forbes, November 29, 1999, p. 51.
Haddad, Charles, "Two Largest Internet Used Car Sellers Merge," Atlanta Journal-Constitution, July 19, 1999, p. A3.
Jordan, Gregory, "Online, Used Car Lots That Cover the Nation," New York Times, October 22, 2003, p. G13.
"Manheim Puts Vehicles on the Web," Automotive News, June 1, 1998, p. 18.
"One-Stop Free Automotive Internet Service Station from ADP," Information Today, October 1996, p. 52.
Tadjer, Rivka, "Car Industry Drives Online," InformationWeek, October 21, 1996, p. 66.
Wernle, Bradford, "Manheim, ADP Team Up on Used Cars," Automotive News, September 22, 1997, p. 50.
Zollman, Peter M., "A New Big Kid on the Block," Editor & Publisher, September 1999, p. 22.
— Ed Dinger
