Car ads drive the business at Autotrader.com

“We’re in a business with a very positive secular trend moving in our direction,” Chip Perry, president and CEO of Autotrader.com, told attendees at the e-Tail 2003 Conference in Boston this week.

That was an understatement. Few money-making web sites dominate their field more than Perry’s company dominates the online advertising of used cars. Autotrader’s online ad revenue has surged from a mere $1 million when the site began business in 1998 to a projected $138 million this year. The site carries 2.3 million listings for used cars, more than double the combined online used car listings of all of Autotrader’s competitors in the used car advertising space, including Yahoo, Excite, Autobytel and cars.com. The company’s web site generates more than 7 million visitors a month.

Only about 300,000 of the listings come from private sellers, the rest represent the used car inventory of the 40,000 dealers who have agreed to participate in Autotrader’s program, fully half of all auto dealers in the U.S.

Autotrader generates virtually all of its revenue by selling upgraded ads for used cars, in addition to publishing free listings. Unlike the free ads, the paid listings include more details and pictures of the car, including in some cases a 360 degree video “walk-around.” The company’s advertising merely connects buyer with seller by providing phone numbers and e-mail addresses of sellers, who are then contacted directly by potential buyers. Autotrader does not conduct the sales transaction.

Perry explained that the secret to Autotrader’s success is partly the result of its nationwide network of sales reps, most of whom work from their homes and call on dealers in their region to sign them up for the company’s online advertising program. “You can’t build a business like this by going virtual,” said Perry. “We’ve built it by developing a red-meat-eating sales force.” In addition, the site provides detail in its paid car listings that cannot be matched by traditional print classified ads. Its search capability allows visitors to search for the brand, model and year of car in the local, regional or nationwide market. Perry estimates that because of his web sites broad reach and high traffic, it can reduce a dealer’s cost of advertising a used car from about $350 per car sold for print classified ads to a range of $25 to $100 for Autotrader ads.

While Autotrader plans to expand to online new car advertisements, Perry resists any notion that there is a big market for selling of cars online, simply because buyers of cars want to inspect them first in person. “This is fundamentally not an e-commerce phenomenon, but an online advertising, contact and information business.”