John Holt, CEOAutomotive News World Congress 2006

Today’s Takeaways: Observations from 10 + Years in this Business

> The Internet has arrived – at long last!

> Its short-term effect was exaggerated; its long-term impact has been under-estimated

> A comprehensive Internet strategy requires focus on both creating and converting opportunities

- We have opportunities to transform existing spends and create opportunities for unheard of value

- The average dealership is losing far more opportunities than it’s winning; conversion matters too

> Internet impact and ROIs justify our attention and commitment

CobaltCRM

CobaltCRM

Cobalt Strategy Create and Convert Opportunities

Create Opportunities

3rd Party Leads3rd Party Leads

Convert Opportunities

• Dealix Leads

Website Leads

(phone, email, walk-up)Website Leads

(phone, email, walk-up)

• OEM Portals

• Websites

• Search

Topics

> State of the World

- Overall Internet Usage / Ad Spending

- Automotive Industry Trends

> Insights from Recent Surveys and Research

- eBusiness Performance Data

> Implications / Actions

95.4

202.9

296.2287.9

State of the World: Internet Usage Keeps Growing

Growing Internet Usage (Millions)

Source: Nielsen NetRatings, ITU

2000 2005

► 68% of total population

► More than doubled in five years

Internet UsersInternet Users

Internet Users

$4

$8

$19

$12

Internet Ad Spending ($ Billions)

Internet Ad Spending (and Paid Search) is Growing, Primarily at Expense of Newspapers

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Ad Spend Budgetby Medium

Source: American Advertising Federations

1995 2005

Newspaper TVInternet

Radio OtherSource: Park Associates. Jupiter

2005 2010

Other Internet Paid Search

$0.4

$1.8

3.0 M

6.1 M

Automotive Internet Ad Spending Driving Car Sales

2003

Source: Jupiter, Borrell Assoc.

2007

Automotive Internet Ad Spending

($ Billions)

2003 2009

18%*18%*

33%*33%*

* Percent of total car sales. Source: Jupiter

Internet-Generated New Car Sales

(Millions)

Most Retailers Are Doing OK, But…

$27.0

$28.0

$29.0

$30.0

$31.0

$32.0

$33.0

$34.0

2000 2001 2002 2003 2004

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Dealership Sales Net Profit before Tax

► High Sales Volumes

– 8th consecutive year of 16+ M vehicles sold

► Manageable Margin Pressure

– OEM incentives

– Low interest rates

– Profit diversification

Sales ($ M) Net Profit (%)

Source: NADA Average Dealership Profile

Success FactorsSuccess Factors

► Growing Pressure

– Identify advertising / marketing efficiencies and efficacy

► Internet’s Appeal

– Buyers are there

– Efficient, measurable means to attract in-market car buyers

ImplicationsImplications

Dealer Ad Spend per Vehicle Increasing Faster than Rate of Inflation

$250

$500

1995 2005

CAGR: 7%

Source: Park Associates. Jupiter

82%

50%

79%41%

29%

33%

Third-Party Leads Growing in ImportanceGreat ROI

2002

Source: Jupiter 8/05

2003

3rd Party Leads as % of Total Dealer Internet

Marketing Budget

2004 2005

Source: Jupiter 8/05

Percentage of Dealers Using 3rd Party Leads

2006E2004

The Huge and Coming Impact of SearchGreat ROI

► 67% of Auto Buyers Research Online*

► 70% Start at a Search Engine**

* JD Power 2004 Autoshopper.com 2004 study** Yahoo! Complete 2005 auto study

Dealership

Auto BuyersDealer Website

3rd Party Website

OEM Website

Insights from Cobalt Research

Research Overview: Approach

> Studied 12 months of leads to 1,329 dealerships

- Over 1.1 million leads matched to actual vehicle sales by R.L. Polk

- Analyzed close rates, sales cycle, brand defection, cross shopping

> Telephone survey – interviewed 4,000 customers that submitted leads to evaluate their perceptions of dealership lead handling

> Industry-wide eMystery Shop – over 4,000 dealers / 22 brands

- Responsiveness, response times, quality of response

> Conducted 20 onsite evaluations of high performers

- Determined common best practices that lead to higher conversions

Research Overview: Key Findings

1. The majority of leads turn into sales

2. Most customers have a very short purchase timeframe

3. Most dealerships are experiencing a significant amount of “lost opportunities”

4. Dealership responsiveness to leads is improving, but the quality of those responses is not

5. High performers utilize a remarkably common set of absolutely teachable best practices

Based on registration information supplied by R.L. Polk & Co.

Sales/leases have been adjusted for matching efficiency by a factor of 1.36, which represents a 73% historical match rate

144,842

248,051

199,656

0%

25%

50%

75%

100%

592,549

52,408

0%

25%

50%

75%

100%644,957

512,685

0%

25%

50%

75%

100%

56% of the leads resulted in a sale

All New Vehicle Leads

56%

44%

Leads not converted to a

sale

Leads converted to a sale

Leads Are Real

Customers Have a Short Purchase Timeframe

Time to close a lead

273,886

103,130

63,455

204,486

0

50,000

100,000

150,000

200,000

250,000

300,000

Days to Close

Nu

mb

er o

f C

lose

d L

ead

s

42%

16%10%

32%

0-30 31-60 61-90 91+

68% of leads closed to a sale within 90 days

Elapsed time between the date of lead submission and date of lead closure

Based on registration information supplied by R.L. Polk & Co.

Sales/leases have been adjusted for matching efficiency by a factor of 1.36, which represents a 73% historical match rate

Based on registration information supplied by R.L. Polk & Co.

Sales/leases have been adjusted for matching efficiency by a factor of 1.36, which represents a 73% historical match rate

144,842

248,051

199,656

0%

25%

50%

75%

100%

592,549

52,408

0%

25%

50%

75%

100%644,957

512,685

0%

25%

50%

75%

100%

All New Vehicle Leads

56%

44%

Leads not converted to a

sale

Leads converted to a sale

Lost Opportunity is Significant

8% closed at the original dealership

92% closed at other dealerships = “lost opportunity”

8% Bought at Intended Dealer

Sold at “Other” Dealer

92%

All Leads converted to a Sale

Based on registration information supplied by R.L. Polk & Co.

Sales/leases have been adjusted for matching efficiency by a factor of 1.36, which represents a 73% historical match rate

144,842

248,051

199,656

0%

25%

50%

75%

100%

592,549

52,408

0%

25%

50%

75%

100%644,957

512,685

0%

25%

50%

75%

100%

All New Vehicle Leads

56%

44%

Leads not converted to a

sale

Leads converted to a sale

8% Bought at Intended Dealer

Sold at “Other” Dealer

92%

66% purchased the intended brand or a used vehicle at another dealership

All Leads converted to a Sale

Used (Any Make)

Other Make (New)

Intended Make (New)

42%

34%

24%

Lost Opportunity

All "Missed" Sales

Lost Opportunity is Significant

*Source Cobalt 2004/2005 Industry-wide eMystery Shop

   

Industry eMystery Shop Metrics       

               

        2004* 2005*  

  Overall Responsiveness 60.0%   69.7%  

  Response Time Average (hrs) 9.5   6.5  

               

  Quality of Responses:        

               

  Answered the Shoppers Questions 38.2%   25.9%  

  Used Brand or Product Highlights NA   23.9%  

               

Dealership Responsiveness to Leads is Improving

*Source Cobalt 2004/2005 Industry-wide eMystery Shop

   

Industry eMystery Shop Metrics       

               

        2004* 2005*  

  Overall Responsiveness 60.0%   69.7%  

  Response Time Average (hrs) 9.5   6.5  

               

  Quality of Responses:        

               

  Answered the Shoppers Questions 38.2%   25.9%  

  Used Brand or Product Highlights NA   23.9%  

               

But Response Quality Has Slipped

Customers Cite Importance of a Quality Response

39.3%

21.4%

14.2%

9.6%

4.3%

1.2%

0.7%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Trade-In (fair trade-in value offered)

Other

Existing Relationship (with dealership)

Inventory (had what looking for)

Proximity (dealership in close proximity)

Dealership Response (good, quick)

Price (price was competitive)

What is the primary reason you bought a vehicle from the (intended) dealership?

Price (price was competitive)

Dealership Response (good, quick)

Proximity (Dealership)

Inventory

55.4%

20.4%

14.4%

3.7%

3.3%

1.5%

1.1%

0.2%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Trade-In (poor trade-in value offered)

Other

Existing Relationship (none with this dealership)

Proximity (dealership in distant proximity)

Inventory (inadequate)

Price (price was not competitive)

Dealership Response (poor, slow)

Other Brand (customer decided to buy a different brand new vehicle)

Customers Cite Importance of a Poor Response

What is the primary reason you bought a vehicle from another dealership?

Other Brand (customer decided to buy a different brand new vehicle)

Dealership Response (poor)

Price (too high)

Closing Remarks

> What should you remember? The Internet matters!

- It’s where the buyers are

- It’s time to transform historic media spends; doing things the same old way “out of habit” is irrational and wasteful

- The Internet requires focus on both creating and converting; doing it right means buying the right assets and making a commitment to people/process too

- The ROIs justify the effort

- We’re damn lucky to work on something so transformative

Thank YouJohn Holt, CEO

jwpholt@cobaltgroup.com