What's Wrong with VINSolutions & AutoTrader Merger? Plenty

There is a funny thing about technology and the car business: Nobody seems to care and everybody cares.

It's an interesting statement I know, and at first read probably ridiculous. Let me do my best to tell you what I mean (stay with me here, I am not the best at this stuff). So the upcoming acquisition of VINSolutions (the "Be one with VIN" folks haha) by AutoTrader (AutoTrader.com I think, although I'm not sure how they have this parceled out) is a glaring example that nobody cares about technology except for the revenue it can bring it's owners. Here's how it went:

So in the last 12 months AutoTrader buys Kelly Blue Book (KBB.com), vAuto and it's amazing CEO Dale Pollack and now VINSolutions (Be one haha, sorry I laugh everytime I write it). AutoTrader is an advertising company that sells space to on AutoTrader.com to car dealers and consumers who want to sell cars. It is a VERY profitable business and has been growing for a long time by doing a great sales job and by squeezing every last dime out of dealers (what recession? let's raise prices again). So I think sometime in the last few years some aggressive Investment bank with a good deal of TARP money went to Chip Perry (CEO of AutoTrader) and said something like "Chip you can't really make serious cash unless you go public. Let's do an IPO". Then they probably went to dinner at like Morton's Steakhouse, saw a play (probably "Spiderman" on Broadway) and then had a really expensive glass of really old liquor at some really swanky NY club (I was gonna write "bar" but I really don't know the difference between a "bar" and a "club"). At the end of the night the banker told AutoTrader.com that they had a real problem: They were an old school advertising play and not a technology company. This wouldn't matter to you or I but in the IPO game this is a big yawn and will reduce the money everyone could make. So, much like many have told many before (don't ask who or when), the banker told Chip to go buy some really profitable tech companies so they could pitch this deal to wall street as the "tech superstar for auto dealers". Plan is set, they jump into their limo's with AutoTrader's super bowl/NBA Final/Stanley Cup/World Cup/NASCAR commercials playing on the flat screen and drive off into the night. The next morning I bet the fun began...

Kelly Blue Book is a profit machine and the first purchase. They provide used car appraisals both on and offline to dealers. Seems like a perfect fit for AutoTrader because their core business is used cars and with both together they will be able to cross sell.

Aquisition number 2 is vAuto and a GEM of a company. With this they get the best tech CEO in the space and the core business is again valuing pre-owned cars. Perfect play since again they sell to the same buyer in the dealership: Used car manager

OK here's where it gets funny: Now they buy a rocketship of sales in VINSolutions (Be one with VIN haha). VIN is a "CRM" company with a strong used car pricing tool that used to be their primary business (hence the VIN or Vehicle Identification Number in VINSolutions). About 3 or 4 years ago their CEO, Mike Dullea was a consultant in Kansas City who resold iMagicLab's CRM. Long story short we cut him off and he then partnered with one of our customers and somehow managed to create a CRM under the VINSolutions (Be one with VIN, it kills me) name. The original version looked an awful lot like ours and even used our icons but I digress.

I am not going to slam VINSolutions (Luke, I'm your father) here, after all a $90 plus million dollar transaction is impressive, but what they built was a tremendous demo and a great sales pitch. Like all the car dealer software that seems to do really well in our space, it's flash and dinners and no substance that sells to dealers (see my other post about the same topic here). So, AutoTrader sees the big sales numbers, they see the big ramp of people and dealers and they say "I'm in". Much like other great merger failures in our space like the Dealerskins buy, ADP/BZResults combo or the repeatedly acquired DealerUPs, ZERO due diligence was performed except on the accounting system. The theory goes I guess, if folks are paying they must be happy.

Now, many of you reading are probably saying "how does Latman know they did no due diligence?" and the answer is: Trust me I know. After 9 years in this space I have great friends throughout the AutoTrader and VIN org's. VIN has a fine young CTO in Matt Watson, but the technology is immature and tries to do everything for everybody. When the intial sale wears off there is nothing to be happy about and dealers are stuck to live with their bad decision until someone brave makes a change. Don't believe me? Look at the community boards in our space and see for yourself (look at VINSolutions own internal support social network and you can really see the Titanic being replayed).

OK, so have the picture so far? VIN has really NOTHING to do with pre-owned cars anymore, sells to a completely different buyer (CRM's need buy-in from the WHOLE dealership) and in order to be successful need a huge training team with continual visits to keep people engaged. None of these things are in AutoTrader's core competency and VINSolutions (Are you ONE?) is doing the whole monkey-on-a-cheese-wheel-until-we-are-sold dance. Enter AutoTrader and a big line of credit probably provided by the same bankers that paid for the amazing hash browns at Morton's (no, really, they are to die for, I had an AutoTrader rep buy me dinner one time back at North Bay) and poof, instant technology company.

AutoTrader is now just like Dominion, wait, OMG, that's right, Dominion WAS owned by AutoTrader's publishing arm. Haha, so now both sides of AutoTrader have tried this failed method of buy and drain (for those of you new to the car biz, Dominion owns such storied but ruined companies like AutoBase, AVV and Dealerskins). Unbelievable that they have watched it fail under a sister company and still they do it again.

Do they think potential investors of their IPO are stupid?

Yes, yes, I believe they do. :)

Keith

P.S. If I was a current VINSolutions (new slogan: watch us run away fast to spend our money) customer I would look to Autobase as an example of what's about to happen. AutoBase was THE CRM in our space until it was gutted by the new owners. I don't care what they say, nobody plays the game the same once they get rich (Hey LeBron how's that championship thing going?)

 

Comments

[Unknown]

Wow! I cannot believe I have never read this before. I am a competitor, but this is some really, really good writing and RIGHT ON POINT! 1 year later, this post is almost prophetic. Still no support from Vin and their customers are leaving them as fast as Matt Watson left when he got his money. Your statement about "no due diligence" is the same we have heard. "...Trust me I know." I digress, but I am loving reading this blog and although we are a competitor (and although you gave us a few negative mentions - probably deserved), we actually see our space very similar.

Again, great writing and insightful perspective. Now that I have found this, sad that you won't be posting anymore.