1. John Holt, CEO Automotive News World Congress 2006
Thanks / welcome
John Holt, CEO Automotive News World Congress 2006

2. 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
In my remarks, I don’t intend to spend much time discussing The Cobalt Group
Rather, thought it would be more interesting for you, if I shared overall insights about the state of our industry
Insights derived from
Publicly-available research, as well as some
Targeted studies Cobalt has sponsored, in order to
Understand specific issues that auto dealers face today, with regard to the Internet
I’d like you to remember just two things, as I go thru my remarks
After 10 long years, dealers have now begun to leverage the Internet to sell cars
But they still have a long ways to go, in order to extract real value..

3. Cobalt Strategy Create and Convert Opportunities
OEM Portals
Websites
Search
Website Leads (phone, , walk-up)
Cobalt
CRM
3rd Party Leads
Dealix Leads
Create Opportunities
Convert Opportunities

4. Topics State of the World Insights from Recent Surveys and Research
Overall Internet Usage / Ad Spending
Automotive Industry Trends
Insights from Recent Surveys and Research
eBusiness Performance Data
Implications / Actions
In the next 20 minutes, I’ll cover four topical areas
Quick snapshot of Cobalt
Overall Internet usage trends in our industry
Then, I’ll review some topline results from recent research Cobalt has sponsored. This research includes:
A survey of more than 300 dealers, regarding Internet Search Engine Marketing
A comprehensive survey of more than 1,300 dealerships, concerning their usage, over a 12-month period, of more than a million Internet 3rd-party leads
On-site visits to a handful of Internet-savvy thought-leader dealers, to better understand their best practices, and to witness ‘high performance in action.’
Finally, I’ll summarize by articulating the implications of our findings, and what – I believe – the future holds for our industry..

5. State of the World: Internet Usage Keeps Growing
Growing Internet Usage (Millions)
Internet Users
68% of total population
More than doubled in five years
Definition of Internet User (from ITU stats):
(1) The person must have available access to an Internet connection point, and (2) The person must have the basic knowledge required to use web technology.
2000
2005
Internet Users
Source: Nielsen NetRatings, ITU

6. Ad Spend Budget by Medium
Internet Ad Spending (and Paid Search) is Growing, Primarily at Expense of Newspapers
Internet Ad Spending ($ Billions)
Ad Spend Budget by Medium
Essentially flat print ad sales for most of 2005: “worst advertising performance in what has been a decidedly negative year for most papers.”
Causes:
Slackening ad demand
Rising costs
Declining circulation
Job cuts
Source: Newspaper Asssoc’n of America
2005
2010
1995
2005
Other Internet
Paid Search
Newspaper TV
Internet
Radio
Other
Source: Park Associates. Jupiter
Source: American Advertising Federations

7. Automotive Internet Ad Spending Driving Car Sales
Automotive Internet Ad Spending ($ Billions)
Internet-Generated New Car Sales (Millions)
33%*
And that’s why automotive spending on Internet advertising is expected to grow…
Which will also drive incremental new car sales..
18%*
2003
2007
2003
2009
Source: Jupiter, Borrell Assoc.
* Percent of total car sales. Source: Jupiter

8. Most Retailers Are Doing OK, But…
Sales ($ M)
Net Profit (%)
Success Factors
High Sales Volumes
8th consecutive year of 16+ M vehicles sold
Manageable Margin Pressure
OEM incentives
Low interest rates
Profit diversification
For auto dealers, business has been pretty good, for the last five years…
Source: NADA Average Dealership Profile

9. Dealer Ad Spend per Vehicle Increasing Faster than Rate of Inflation
Implications
CAGR: 7%
Growing Pressure
Identify advertising / marketing efficiencies and efficacy
Internet’s Appeal
Buyers are there
Efficient, measurable means to attract in-market car buyers
However, things are bound to change
Given the U.S. OEM outlook, and given that dealer advertising spend has doubled over the last 10 years, dealers will be forced to
Identify more cost-effective ways to advertise and market cars
That’s where the Internet comes in, because it’s
It’s the ONLY medium that’s measurable
Source: Park Associates. Jupiter

10. Third-Party Leads Growing in Importance Great ROI
3rd Party Leads as % of Total Dealer Internet Marketing Budget
Percentage of Dealers Using 3rd Party Leads
Studies have shown that more than half of all consumers prefer to disclose information to a third-party site, rather than a dealer site.
The resulting leads, called 3rd party leads, have proved a growing goldmine of sales opportunity for dealers
It’s also one of the reasons why The Cobalt Group acquired Dealix in 2003.
Dealix is the market leader in providing dealers with 3rd-party leads..
2002
2003
2004
2004
2005
2006E
Source: Jupiter 8/05
Source: Jupiter 8/05

11. The Huge and Coming Impact of Search Great ROI
Dealer Website
3rd Party Website
OEM Website
67% of Auto Buyers Research Online*
70% Start at a Search Engine**
Auto Buyers
Dealership
How many people, in this audience, have visited either Google or Yahoo, or MSN or ASK Jeeves websites
In the last month?
In the last week?
Well, that’s proof of the power of search engines!
EVERYONE goes to search engines, to find everything
That includes car buyers, too
More than 80% of all car buyers are using the Internet as part of their purchase process
Even more staggering, 70% of those shoppers START their process at one of a handful of leading Internet search engines
That search query takes a consumer to one of three places
An OEM website
A dealer website
Or a 3rd-party website, such as Edmunds, or Kelly Blue Book
It’s pretty clear that if you’re a dealer, and you’re NOT working hard to show up on those Internet search engines, you’re missing a huge opportunity to connect with in-market car buyers..
Equally important, however, are the third party websites..
* JD Power 2004 Autoshopper.com 2004 study
** Yahoo! Complete 2005 auto study

12. Insights from Cobalt Research
So that provides a quick view into the state of the industry.
Now, I’d like to review some topline results of the research Cobalt has sponsored.
This research includes:
A survey of approximately 300 dealers, conducted by Hebert Research, regarding Internet Search Engine Marketing awareness, attitudes and preferences
A comprehensive survey of more than 1,300 dealerships, conducted by research firm R.L. Polk, concerning dealer usage, over a 12-month period, of more than a million Internet 3rd-party leads, as well as
On-site visits to a handful of Internet-savvy thought-leader dealers, to better understand their best practices, and to witness ‘high performance in action.’
Insights from Cobalt Research

13. 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

14. Research Overview: Key Findings
The majority of leads turn into sales
Most customers have a very short purchase timeframe
Most dealerships are experiencing a significant amount of “lost opportunities”
Dealership responsiveness to leads is improving, but the quality of those responses is not
High performers utilize a remarkably common set of absolutely teachable best practices

15. Leads not converted to a sale Leads converted to a sale
Leads Are Real
All New Vehicle Leads
56%
44%
Leads not converted to a sale
Leads converted to a sale
56% of the leads resulted in 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

16. Customers Have a Short Purchase Timeframe
68% of leads closed to a sale within 90 days
0-30
31-60
61-90
91+
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
Elapsed time between the date of lead submission and date of lead closure

17. Lost Opportunity is Significant
8% closed at the original dealership
92% closed at other dealerships = “lost opportunity”
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%
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

18. Lost Opportunity is Significant
All New Vehicle Leads
56%
44%
Leads not converted to a sale
Leads converted to a sale
66% purchased the intended brand or a used vehicle at another dealership
Intended Make (New)
8% Bought at Intended Dealer
Sold at “Other” Dealer
92%
24%
Other Make (New)
Lost Opportunity
34%
Used (Any Make)
42%
All "Missed" Sales
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

19. Dealership Responsiveness to Leads is Improving
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%
*Source Cobalt 2004/2005 Industry-wide eMystery Shop

20. But Response Quality Has Slipped
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%
*Source Cobalt 2004/2005 Industry-wide eMystery Shop

21. Customers Cite Importance of a Quality Response
What is the primary reason you bought a vehicle from the (intended) dealership?
Inventory
Proximity (Dealership)
Dealership Response (good, quick)
Price (price was competitive)

22. Customers Cite Importance of a Poor Response
What is the primary reason you bought a vehicle from another dealership?
Price (too high)
Dealership Response (poor)
Other Brand (customer decided to buy a different brand new vehicle)

23. 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
So, I’ve covered A LOT of really interesting research in a relatively short amount of time, today..
But I’d like to summarize my insights, as follows:
The good news is that after 10 long years, the Internet is finally actually demonstrating its value to dealers
That said, the Internet has become more complicated
Dealers need to know how to exploit
Internet 3rd party leads,
Internet search engines, and
Internet lead management, and to implement strong business processes
Equally important, dealers need to invest in CRM – the business processes that will leverage their Internet investments – in order to attract and retain their customers..
All of that is hard to do.
However, we strongly believe that in complexity, there are both challenges and opportunities..

24. Thank You John Holt, CEO jwpholt@cobaltgroup.com
Thanks for your time today.
I look forward to taking your questions after the break.
Thank You John Holt, CEO