January 30, 2018 — Cars.com continues to unwind its affiliate contracts with previous owners which include six major newspaper publishing firms, a relic from the company’s founding 20 years ago. The latest move, announced this morning, converting eight of newspaper publisher tronc’s affiliate markets into Cars.com’s direct sales channel effective February 1.
As part of the transition, Cars.com is hiring tronc’s sales and support teams for those eight markets, which include the second and third largest markets for new car sales in 2017 — Los Angeles, CA, and Chicago, IL. Other markets include Fort Lauderdale, FL; Orlando, FL; Baltimore, MD; Newport, VA; Hartford, CT; and Allentown, PA.
The 2,000 dealerships in tronc’s affiliate markets represent 37% of Cars.com’s wholesale revenue, including $13 million of unfavorable contracts liability amortization, according to the release announcing the transition. Cars.com expects to report more than $10 million of incremental revenue in 2018 ($23 million before the impact of the reduction in revenue amortization).
The agreement also includes a multi-year advertising and marketing agreement between Cars.com and tronc. Under this new agreement, tronc will be recognizing less revenue but a slightly improved EBITDA.
“This agreement with tronc represents rapid progress against one of our strategic priorities. We have successfully negotiated the early transition of more than half of our wholesale revenue since becoming an independent publicly traded company last June. Integrating tronc’s sales and support teams with ours will create efficiencies and allow for broader product sales, while enabling stronger dealer relationships. In addition, this brings us even closer to realizing the full revenue and profit upside of the affiliate markets to enhance value for shareholders,” says Alex Vetter, Cars.com President and Chief Executive Officer.
Cars.com also announced earlier this month the renegotiation of its affiliate contract with McClatchy to convert its remaining 17 affiliate markets into the Cars.com direct sales channel prior to the October 2019 affiliate agreement expiration date.
The McClatchy transition will begin on or before April 1 and will happen in three phases prior to October 1, 2018 in the following markets: Fort Worth, TX; Charlotte, NC; Fresno, Sacramento, Modesto, CA; Kansas City, MO; Miami and Bradenton, FL; Lexington, KY; Boise, ID; Columbus and Macon, GA; Columbia, SC; and Belleville, IL. Conversions in Raleigh, NC;Tacoma, Bellingham, and Olympia, WA; and Myrtle Beach, SC have already started.
The move should increase Cars.com’s revenue by 1% in 2018 with full impact felt by the end of 2019. As part of Gannett’s buyout of Cars.com from its other owners in 2015, Cars.com’s affiliate contracts were extended, with four set to expire in October 2019 and two in June 2020. The contracts gave the previous owners the exclusive right to sell Cars.com’s products, paying the online listings site 60% of its retail rate for those markets. In 2016, $170 million of Cars.com revenue came from the wholesale affiliate contracts.