Under fire, TrueCar alters Web pricing
Complaints from dealers and state regulators end guaranteed discounts, 'best' local quote
 | TrueCar CEO Scott Painter: No more online price quotes from dealerships and a new fee structure for many clients |
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TrueCar.com, the online vehicle shopping service, has stopped offering vehicle prices from dealers and promises of big discounts.
Instead, TrueCar shoppers now request price quotes from local dealers after they visit the TrueCar Web site.
The switch, along with other changes made last week, are a sea change for TrueCar, which had staked out a niche in online vehicle shopping by pitching big discounts.
Now TrueCar resembles its online shopping competitors such as Cars.com and Edmunds.com in the way it connects shoppers to dealers.
The changes come at a difficult time for TrueCar. It is losing dealerships and just agreed to pay $50 million a year for three years to be Yahoo.com's exclusive auto shopping partner.
Pressure for change came from two powerful sources.
Dealers, such as Richard Cvijanovich, a TrueCar client in Phoenix, said the emphasis on discounts eroded transaction prices and profits. TrueCar dealers with lowball prices "really skew the market for the rest of us who are trying to make a profit on the front and back ends and be fair with our clients," he said.
And regulators in many states said TrueCar's methods violated various laws designed to protect the interests of dealers and consumers. In many states, that will affect not only the way TrueCar presents pricing information to shoppers, but also the way it charges its dealer clients.
"By removing dealer-provided pricing altogether, TrueCar is providing market information, not a dealer's specific pricing, and is not advertising on behalf of the dealer," TrueCar said in a statement to Automotive News.
"TrueCar is in no way involved in arranging or negotiating a sale or procuring a vehicle, addressing potential brokering concerns in many states as well."
As part of the changes last week, the company eliminated its "Best Local Price" feature. On its Web site, TrueCar had promoted the lowest price for a car offered by a TrueCar dealer in the shopper's market as the "Best Local Price."
Now the TrueCar site refers to a "Target Price," a phrase that significantly downplays the promise of a low price for shoppers. TrueCar says the Target Price is an estimate of what consumers can expect to pay for the vehicle they're researching.
With the changes, TrueCar said its service is "all clear" and legal in 36 states. The company said it has taken "necessary steps" to be compliant in the 14 other states in which it does business, and awaits regulatory approval of its changes. TrueCar does not operate in Alaska.
TrueCar said last week that it is also planning a reworked Web site that will still emphasize savings for consumers. The company provided no details but said the reworked site will be "fully compliant from a regulatory perspective."
Painter's big plans
Despite complaints from dealers and regulators, TrueCar said last week that sales generated by the service are still healthy.
"None of the changes to the TrueCar business model affect the relationship or economics between Yahoo and TrueCar," the company said. "TrueCar generated sales, and customer volume remain strong and growing despite the recent changes that ensure national compliance."
TrueCar CEO Scott Painter launched TrueCar in 2008 with a simple notion: promise that shoppers would "know the real price" for the vehicle they wanted by posting in-depth vehicle pricing and transaction data.
In 2010 he added price offers from dealers to the Web site. That function allowed shoppers to print out a "Price Protection Certificate" that promised a discount from the invoice price. And shoppers could compare offers from three nearby dealers.
TrueCar defines invoice price as what the factory charges the dealer for the vehicle and options, including shipping, regional advertising costs and other factory fees.
The prices from dealers set TrueCar apart from competitors such as Edmunds.com, Cars.com, KBB.com and others. Vehicle shoppers on those sites simply request quotes from dealers. None of those sites offered prices directly to consumers, much less discounts from the invoice price, before shoppers visited the dealership, as TrueCar did.
Painter's vision was bold, but he is anything but subtle. He wears suede dress shoes with blue jeans and sports an exclusive IWC-brand Swiss watch. He talks at a quick clip. Simple questions are met with long multipronged answers, often with a reference to his decade-long experience in the Internet world.
He casts himself as a revolutionary agent, shaking up the status quo of auto retailing. He calls vehicles a commodity and pitches a vision of auto retailing in which salespeople are rendered all but obsolete by the wealth of vehicle information available online.
Needless to say, many dealers, struggling with falling profits on new vehicles in the Internet age, were unimpressed with Painter's vision, particularly when some participating dealers paid TrueCar $299 when a TrueCar new-car lead brought a sale and $399 when a used-car lead brought a sale.
"We are building a business around solving a problem," he said in November. "Everything is changing in the car-buying experience and we are building a concept of transparency. For at least 10 years the consumer has been changing how they shop, and the rules of how they go to market are changing. How dealers do business is no longer business as usual."
Painter says his privately held company has attracted more than $200 million from investors to support his plans for expansion.
Last year TrueCar was a hit. The site accounted for about 235,000 auto sales at U.S. dealerships -- nearly 2 percent of the market. Topping it off, on Jan. 1, TrueCar became the exclusive vehicle shopping partner for Yahoo.com.
But instead of popping champagne corks now after the Yahoo deal, Painter has been huddling with dealers and regulators to address their complaints, which mushroomed in late 2011. In other words, the status quo that Painter set out to shake up is getting its due.
Dealer angst
And his company has lost dealers.
Group 1, the nation's fourth-largest dealership group based on new-vehicle retail sales, dropped the service in November. Numerous individual dealers and smaller groups have done the same. Last month, Painter told Automotive News that the company had 4,200 franchises under contract, down from 5,200 late last year.
TrueCar's dealer critics said the site's methods fostered excessive price competition in local markets that eroded transaction prices and profits.
TrueCar dealer Cvijanovich, co-owner of a Subaru dealership and general manager of an Acura dealership near Phoenix, said TrueCar's dealer-pricing tool, seen only by dealers, would allow one dealer to drag down prices in a market.
Cvijanovich (see-YAHN'-oh-vich) said the TrueCar dealer tool automatically compared prices he entered with the lowest price in the market for a particular vehicle. The low price was seen on his screen as the "Best Local Price." If his price was too high, it got highlighted in red. Such warnings cautioned that listing that model at that price could affect his ability to generate leads for that vehicle.
TrueCar said Jan. 16 it is developing tools to "identify" dealers listing "extreme price outliers," though it did not elaborate.
Cvijanovich was close to canceling his stores' TrueCar contracts but decided to remain with TrueCar since the company began revising its model.
He said, "It's 180 degrees from where I felt two months ago."
David Basha, owner of Carriage Auto Group in Gainesville, Ga., which holds Nissan, Kia and Mitsubishi franchises, said he also saw TrueCar prices in his market skewed by aggressive dealers. Basha canceled his TrueCar contracts in early December after using the service for about seven months.
"What a lot of dealers do is lowball the hell out of the price to generate leads. Leads come in, and they know some of those folks are going to need financing, so they'll have an opportunity to make it up there, or they're going to have a trade, which they can hold back money on the trade-in," Basha said.
He said the now-scrapped "Best Local Price" feature let shoppers see only the lowest-priced vehicles.
"If there are other guys out there listing vehicles for less than you are, you're not going to get any leads." Basha said. "I've seen pricing, in the matter of an afternoon, slip from $1,000 over invoice to $1,000 below invoice."
Eddie Stivers, president of Columbia, S.C.-based Stivers Automotive Group, disputes the assertion that the only way to generate traffic with TrueCar leads is with the lowest price. He says TrueCar appeals to a growing number of car buyers who want one-price selling, in which most of the work is done online.
"The grand misconception is that you have to have the lowest price. This customer isn't necessarily interested in the lowest price. This customer wants a hassle-free price," Stivers says.
"It's about knowing that you have a fair deal, and you can come in and transact in a method that makes you feel comfortable."
Painter says he is listening carefully to dealers' views about TrueCar. And he vows to fix their concerns.
He has the difficult task of reconciling three often adversarial parties. He is balancing the desire of shoppers for an outstanding deal with dealers' need for a sound profit while taking a piece of revenue for TrueCar from each deal.
That's a tall order, and for Painter, still a work in progress.
You can reach Ryan Beene at rbeene@crain.com. -- Follow Ryan on 
