Dealers who dropped the TrueCar.com shopping site last year may have left themselves open to charges of anticompetitive collusion to increase vehicle transaction prices.
Antitrust lawyers say the Federal Trade Commission's new investigation into the dealers' actions hinges largely on whether they agreed to participate in a group boycott of TrueCar.
"If each dealer independently said, 'I'm going to withdraw from TrueCar,' then that would be permissible," said Maurice Stucke, a former lawyer in the Antitrust Division of the U.S. Justice Department. "The problem is when dealers agree among themselves that they collectively will withdraw."
The FTC is not answering questions, and the scope of the investigation is unclear. But it appears that the scrutiny is focused on a controversial period for TrueCar in late 2011 and early 2012.
During that period, many dealers criticized TrueCar's business model, which encouraged participating dealers to offer low transaction prices. Many dealers dropped TrueCar during the controversy. The number of participating franchises dropped from about 5,600 to 3,200, TrueCar has said.
"An agreement doesn't have to be a written contract," said Stucke, now a professor at the University of Tennessee College of Law and of counsel with the GeyerGorey law firm in Washington. "It's really a fine line: To what extent does grousing [become collusion]? It has to be more than just complaints."
In a letter to dealers this month, the FTC said it is investigating whether some companies in the "retail automobile industry" committed anticompetitive acts "by agreeing to refuse to deal with TrueCar."
TrueCar works by attracting car shoppers to its Web site. The shoppers request price offers from participating dealerships. In all but a handful of states, TrueCar has a pay-per-sale model, which requires participating dealers to pay TrueCar $299 for every new car sold from a TrueCar lead and $399 for every used car sold.
TrueCar, prodded by dealers, subsequently changed some of its methods that put downward pressure on retail prices. Many dealers have since rejoined the site, TrueCar says. The number of participating franchises now stands at 6,500.
The FTC investigation opens up old wounds and creates fresh challenges for TrueCar and the industry.
The role of state dealer associations could come under special scrutiny in the case. State associations convened dealer meetings to discuss whether TrueCar complied with advertising and consumer laws in their respective states -- which could be interpreted as collusion.
Mike Charapp, a Virginia lawyer who represents dealers and dealer associations, said state associations that held such meetings were wise to precede them with a disclaimer calling on attendees to make up their minds individually on how they would proceed with TrueCar, not act in concert.
That said, dealer associations are afforded some leeway to represent the unified voices of their members on legal and regulatory matters without crossing into anticompetitive actions, he said.
The investigation also opens intriguing questions on what amounts to collusion in the age of social media. Two dealers who received letters from the FTC said they posted critical opinions of TrueCar on blogs in late 2011 and early 2012.
"What constitutes an agreement is basically the $64,000 question in antitrust," said Lee Goldman, a professor at the University of Detroit Mercy School of Law and a former FTC antitrust lawyer. By itself, Goldman surmised, "a blog would not be enough."
But the fact that TrueCar changed how it operates after so many dealers dropped out could help the FTC prove collusion, Goldman said. TrueCar abandoned a practice in which dealers could see what other dealers were bidding on price to win car buyers.
On the other hand, he noted that the evidence appears much weaker than in the FTC's case against Detroit-area dealers in the 1980s, when it determined that they had colluded to keep their lots closed on Saturdays and most evenings. Defiant dealers often found vehicles on their lot damaged and showroom windows broken.
Regardless of what the FTC finds, if anything, dealers embroiled in the TrueCar case should expect a protracted process punctuated by requests for information and possibly months of hearing nothing, Charapp said.
By FTC standards, the letter is fairly informal, he said. The letter broadly requests dealer communications about TrueCar rather than a tougher approach using the agency's subpoena power and specific questions to hone in on possible violations.
Kelly Automotive Group in suburban Boston received a letter from the FTC last week saying the agency's Bureau of Competition is conducting a nonpublic investigation into possible legal violations, said Mike Warwick, director of digital marketing at the eight-store group.
Automotive News obtained a copy of the letter from another dealership that was served the letter.
Warwick said attorneys of Kelly Automotive Group would be consulted to see how the group will comply with the FTC's request for any e-mails and other documents related to TrueCar.
Warwick said he didn't know why he was named in the letter except that he criticized TrueCar's business and pricing model on dealer blogs in late 2011 and early 2012.
An executive at another dealership served the letter also said he commented on blogs about TrueCar.
Joel Christie, an FTC attorney in anticompetitive practices, signed the six-page letter. FTC spokesman Peter Kaplan said the agency would not confirm that an investigation was under way.
TrueCar CEO Scott Painter said the company knew nothing about the action until it was served an FTC letter last week seeking documents.
"I want to make this clear: We didn't ask for it [the investigation], and we knew nothing about it," Painter said.
Painter said the timing of the investigation is odd given that the company has completely restructured its business practices and mended fences with dealers over the past 18 months.
"It's like calling in reinforcements for a battle that is already over," Painter said.
Lawyer Stucke said the FTC can argue that the dealers harmed consumers, in addition to TrueCar.
"If consumers benefited from TrueCar pitting these dealers against one another," he said, "the real loser could be then the consumer."