Dealers representing 117 new-car franchises are suing TrueCar Inc. for more than $250 million, claiming they are victims of false advertising and unfair competition.
The lawsuit was filed today in U.S. District Court in New York by dealer lawyer Leonard Bellavia of Mineola, N.Y. TrueCar disputed the claims and vowed to fight the suit.
In the complaint, the dealers argue that TrueCar’s advertisements falsely claim that consumers who use the vehicle-shopping site’s services can buy a car without haggling or negotiations. The filing dealers are not current users of TrueCar, though some have used the service in the past.
The dealers who filed the lawsuit “have lost sales and have suffered injury to their goodwill and business reputation as a result of TrueCar’s false advertising claims,” the suit says.
Said Bellavia: “They’re seeing their customers jump ship.”
False-advertising charge
Vehicle buyers are drawn to TrueCar and its subscribing dealerships by advertisements that promise a no-haggle experience but fail to deliver as promised, Bellavia said. Such advertising violates the Lanham Act, the federal false-advertising statute, Bellavia said.
In addition to the $250 million-plus sought by the suit, the plaintiffs are asking the federal court to enjoin TrueCar’s advertising.
"We are aware that a complaint has been filed on behalf of a group of dealers who are not on the TrueCar program. We believe the complaint is without merit," TrueCar spokesman Alan Ohnsman said. "We will vigorously defend ourselves and our business practices and expect to be fully vindicated.”
The lawsuit says, “Despite its advertising claims to the contrary, TrueCar does not ‘remove surprises’ at the dealership.”
Consumers, the lawsuit says, “will be surprised to learn” that “the promised vehicle may not be in stock, and may not be available at the advertised price or financing terms.
“TrueCar’s false or misleading advertising,” the suit continues, includes “false ‘no-haggle’ claims,” “bait-and-switch” advertising, “false factory invoice claims,” “false financing claims,” “false transparency claims” and “false rebate claims.”
Lost sales
The dealerships participating in the lawsuit generally lose at least three and more typically seven sales a month because of TrueCar’s advertising, Bellavia said.
At a likely gross profit of at least $2,000 per vehicle and a loss of three sales a month, Bellavia estimates the damages at $432,000 per store over a four-year period. He described the four-year period as the two years leading up to today’s filing and the two years it likely would take to get to trial. At the loss of seven sales a month, damages would amount to just more than $1 million over four years, he said.
Those calculations also assume lost annual service revenue of $1,000 a year per vehicle.
Besides lost sales and, therefore, lost service business, the lawsuit says dealers suffered from lost profits when dealers had to match or exceed TrueCar’s false prices and terms, the loss of a trade-in that could have been sold, and the loss of manufacturer incentives.
‘Deceive’
After describing TrueCar’s advertising and how its website and “Guaranteed Savings Certificate” work, the lawsuit repeatedly argues that TrueCar “has intentionally set out to deceive the public.”
Moreover, any fine-print disclaimers, the lawsuit says, “are insufficient to alleviate consumer deception.”
For example, the suit contends that TrueCar’s claims of “transparency” are “literally false.”
According to documents filed as part of the lawsuit, “TrueCar advertises: ‘No Surprises. Our TrueCar Certified Dealer Network believes in transparency so you can trust that everything is upfront and out in the open. No hidden costs or surprise fees. Ever.’”
Those documents continue: “However, TrueCar’s affiliated dealers pay fees to TrueCar for customer referrals,” specifically, $299 for every new vehicle and $399 for every used vehicle sold from a TrueCar price offer or dealership introduction. “These are hidden fees which are not disclosed to consumers,” the lawsuit states.
“The loss of customer goodwill, and the destabilization of Plaintiffs as viable businesses, are injuries that cannot be remedied by monetary damages,” the suit states, “and thus require preliminary and permanent injunctive relief, prohibiting TrueCar from continuing with its illegal advertising and promotional activities.”
