Scott Painter, whose TrueCar online auto shopping site rattled the industry by promising customers no-haggle pricing and deep discounts, is changing his business model to comply with state regulations.
The biggest difference: TrueCar will change the way it charges participating dealers and the way it presents the price commitments of those dealers to online shoppers.
In states that prohibit bird-dogging -- paying a third-party lead provider when a lead turns into a sale -- TrueCar will charge dealers a subscription fee not related to sales volume. Currently, the dealer pays TrueCar $299 for every lead that results in the sale of a new vehicle. A used-vehicle sale generates a $399 payment.
"It's a fundamental change to our business model," Painter told Automotive News late last week.
That change is the most dramatic among many modifications, which will vary from state to state. Painter said he expects TrueCar's operation in every state will be compliant by mid-February at the latest. He expects his company to change its dealer billing model in as many as 20 of the 49 states in which it operates.
Painter outlined other changes that were approved by TrueCar's board late Thursday:
-- In states such as California, which allow brokering -- paying an agent to negotiate the purchase of a vehicle -- but require significant disclosures about the broker's involvement, TrueCar will still switch to subscription fees for dealers.
-- TrueCar will continue charging dealers per-sale fees where those fees are legal, unless an individual dealer requests to be on a subscription model, Painter said. That option will be available to dealers in all states.
"We've only been contacted by seven states, but we're looking at all states that we do business in to be compliant with the letter of the law," Painter said.
TrueCar has suspended its service in Colorado, Nebraska, Oklahoma and Louisiana until regulators approve changes to how TrueCar's service operates in those states.
Painter said he is working with regulators in those states to ensure that TrueCar is compliant.
But his efforts to become compliant nationwide could be daunting because many states carefully enforce laws designed to protect dealerships and consumers.
In addition to altering the fee structure, TrueCar is changing the way it states the promised discount to online shoppers. Figures quoted to shoppers will be in terms of a dollar-figure discount from sticker price, not from the so-called invoice price.
Several states ban the term "invoice" in ads, arguing it's a potentially misleading term that does not always state the dealer's true cost.
After shoppers configure vehicles at TrueCar.com, they request prices from participating dealers in their area. The prices are printed in a "Price Protection Certificate" that shoppers take to the dealership.
Currently, the certificate puts the value of that discount in terms of its relation to what TrueCar calls the "invoice" price. With the changes, that discount will be expressed in relation to the vehicle's suggested retail price, or the sticker price.
"You will not see the term 'invoice' on the certificate," Painter said.
If a discount of, say, $2,000 below sticker is offered for a specific vehicle and that vehicle is not available at the dealership, TrueCar said the $2,000 discount would be available on any vehicle of the same nameplate.
Painter is a 43-year-old serial entrepreneur who has started 37 companies over the past 23 years. TrueCar, originally known as Zag.com when it was founded in 2005, was thrust into the spotlight after becoming Yahoo.com's exclusive vehicle shopping partner Jan. 1.
At Yahoo.com, TrueCar replaced Cars.com and agreed to pay the search engine $150 million to offer its service to car shoppers.
Painter said TrueCar's traffic has soared. In the last 30 days, TrueCar leads led to 34,000 sales, he said, up from 18,000 in September. But news of the suspension in various states has worried TrueCar's dealers.
TrueCar says shoppers last year bought about 235,000 vehicles through the Web site from 5,200 dealer franchises.
Last week TrueCar reported 4,200 franchises. And Painter said he has a large number of pending dealers.
"Once the states give us the green light," he said, "we are not concerned about the number of dealers we will have."