Scott Painter says a rebuilt TrueCar has survived brush with disaster
Photo credit: ROGER HART
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DETROIT -- Scott Painter, the hard-charging founder of TrueCar Inc., can look back now at the crazy events of last December with amused detachment.
But at the time the crisis that embroiled TrueCar was anything but amusing.
Regulators in several states questioned whether TrueCar's methods violated consumer protection and business statues. Dealers complained that TrueCar.com, a Web site that channels shoppers to auto dealers, depressed transaction prices. Reporters pressed him for answers.
At one point, Painter said, he was receiving so many e-mails per day -- about 2,000 -- that he assigned a staffer to sort them into two piles: "causes and symptoms."
And while all this was crashing in on him, he was waiting for days at a California hospital with his wife for what should have been a joyful moment uncluttered by the demands of business: the birth of a daughter.
But true to the nature of a serial entrepreneur, Painter, 44, persevered. He said TrueCar has been rebuilt as a dealer-friendly operation no longer based on cutthroat pricing that drives down dealership profits. Membership is up, after a steep plunge, and the regulators are at bay.
At the hospital with his wife, he spent hour after hour on the phone, hearing out angry dealers, explaining TrueCar's operations to regulators and reassuring TrueCar investors that the crisis could be contained. He ultimately would need a $50 million cash infusion from investors to cover massive operating losses.
Painter took breaks from his wife's side to rush to the hospital's board room, which he rented to conduct TrueCar board meetings.
"It was a gut-check moment for us," Painter recalled.
Last week Painter was as confident as ever as he shared his story over pizza, burgers, mac and cheese and other American comfort foods at a suburban Detroit restaurant.
But he is the first to acknowledge that he has had one heck of an education in the unforgiving world of American auto retailing.
"We had to find a new DNA as a business," he said.
The crash course had one obvious effect on Painter: As the crisis wore on in December, January and February, he lost 53 pounds, he said.
During this time he tore up the company and pieced it back together. Painter says his company is back on solid footing, and he plans to relaunch national cable TV advertising for TrueCar on Nov. 15.
Early this year the company stopped advertising completely as Painter led employees through the painful metamorphosis.
Dealer friendly?
The new TrueCar, Painter promises, is friendly to dealers. He says the company's Web site pitches to customers a fair, low-haggle car-buying experience instead of a low price, which was the main selling point last year.
Gone is the cutthroat vehicle pricing model that prompted TrueCar dealers in each market to bid down prices to win deals. Under the old model, a car shopper seeking a bid on an auto would trigger a downward spiral of offers from participating dealers.
Painter, who has started more than three dozen companies, acknowledged last week that the reverse-auction model induced so much competition among dealers that transaction prices for TrueCar buyers were in the bottom 6 percent nationally.
"Mike Jackson was right," Painter said, speaking of the AutoNation CEO who had been publicly critical of the TrueCar business model. "It was a race to the bottom."
That meant that many participating dealers were losing money on TrueCar sales leads, Painter said.
Shoppers used TrueCar's no-haggle pricing service in 2011 to buy 235,640 new and used vehicles.
Near-death experience
The price competition got so intense by the end of last year that dealership groups such as Group 1 Automotive Inc. in Houston and David Wilson Automotive Group in Orange, Calif., ordered their stores not to participate.
Other dealers turned to their state associations for help. The associations used their ties with state regulators to push them to question the legality of other TrueCar practices.
Those included the practice of charging dealers $299 per vehicle sale, arguably in violation of brokering laws in some states, and for advertising a price below invoice, which violated some state consumer-protection laws.
By the time TrueCar this summer was able to declare its business model in compliance in all 49 states in which it operates, the company's retail network had fallen from a high of 5,600 franchises to 3,160, Painter said.
And, TrueCar, a privately held company, had a net loss of $40 million in the first half of 2012, Painter said.
"We almost died," he acknowledged.
'A muligan year'
Painter said he was on the road 82 of the first 90 days after his daughter's birth on Dec. 21. "This was a mulligan year," he said dryly.
But Painter says changes he has made to TrueCar are paying off. TrueCar has rebuilt its franchise roster to 5,200, including 35 of the 50 largest dealership groups nationally, he said.
Participating dealers no longer are able, when bidding prices to shoppers, to see the last lowest bid from another TrueCar dealership, Painter said. That has kept prices from spiraling downward, he said.
Vehicle pricing for TrueCar users now is near the lowest 25 to 30 percent, instead of the bottom 6 percent.
TrueCar's face to shoppers also has changed. The TrueCar Web site no longer shows shoppers the dealer cost of specific models, as figured by TrueCar. Instead, TrueCar emphasizes savings from the sticker price.
Painter said the former model was not sustainable for dealers. He said what shoppers really want is a fair price and a good buying experience that comes with low-haggle pricing that TrueCar can deliver. He concedes that time will tell how consumers accept the new approach.
Shoppers also must register and leave contact information to get a price quote from participating dealers in the shopper's market. This gives those dealers the opportunity to contact the shopper immediately.
Previously, registration was not needed to get a guaranteed price. And shoppers often took the price from the TrueCar dealer and shopped it to competing dealers, Painter said.
Change in lexicon
At the dinner last week, Painter admitted that his own words over the years stoked enmity toward TrueCar. For instance, he questioned the necessity of dealership salespeople in the buying process. He said last week those words don't reflect how he feels about dealers.
In fact, last week when the word "commodity" -- a synonym for a low-profit deal -- was mentioned in a question about new car-buying, Painter staged a polite cough and said the word was no longer welcomed in the TrueCar lexicon.
Bunnin Chevrolet in Culver City, Calif., is one of the stores that stuck with TrueCar throughout the crisis, said Daniel Wingard, Bunnin director of business development.
TrueCar shoppers have provided consistent incremental vehicle sales that were profitable before and after the Web site changes instituted by TrueCar, Wingard said.
From July 1 to Oct. 10, TrueCar shoppers accounted for 26 of the 500 new Chevrolets sold by Bunnin. "I can't complain," he said.
Painter is looking for that kind of momentum in the future.
Painter said, "We believe the concept of truth and transparency in car-buying can be profitable."
You can reach David Barkholz at dbarkholz@crain.com. -- Follow David on 
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