TrueCar CEO Scott Painter to step down by year end

Scott Painter, founder of the online car-shopping site TrueCar Inc., will step down as CEO of the company later this year.

TrueCar said a successor is expected to take office by year end. Painter, 46, will remain chairman of the company's board of directors.

“After a decade of building TrueCar from an idea into a public company,” Painter said in a statement, “I have come to the conclusion reached by many founders and entrepreneurs in my position: It is time for a change.”

Christopher Claus, a TrueCar director since April 2014, has been named lead independent director and will focus on the board's search for a new CEO.

Claus will also help build ties with USAA, a group of companies that provides insurance, banking, investments and retirement products to current and former members of the U.S. military. Claus is a former senior executive with USAA, a key business partner and TrueCar's largest shareholder.

"I am honored to begin serving as the lead independent director and look forward to working closely with the leadership team to build upon and execute the vision that Scott has created, as well as maintain a strong partnership with the company's largest affinity partner, USAA," Claus said in a statement.

The company's announcement made no mention of President John Krafcik or whether he could be a candidate for the top job.

Krafcik, former CEO and president of Hyundai Motor America, joined the TrueCar board of directors in February 2014 and was named president of the company in April 2014.

Serial entrepreneur

Painter, who founded TrueCar in 2004, is a serial entrepreneur whose auto-related ventures have included CarsDirect.com, Build-To-Order Inc. and AUTOAccess, which he started while he was an economics student at the University of California-Berkeley.

He led TrueCar through a period of rapid growth, built around offering consumers a low-price promise without the hassle of negotiating with dealers.

The company went public in May 2014 and its shares have swung broadly, peaking at $25.00 and falling as low as $5.45, over the last year. In Nasdaq trading Thursday, before the company's earnings were released, the shares closed down .37 cents, or six percent, at $5.54.  

The company's rapid growth was followed by a near collapse in 2012 that saw thousands of dealers exit the TrueCar network amid complaints about bidding wars that caused them to sell cars at a loss. The company also faced legal challenges in several states on grounds that it violated auto-brokering and advertising laws.

Since that period, which Painter and other insiders refer to as “the swirl,” TrueCar has sought to rebuild relationships with dealers and regulators. It abandoned its low-price pitch in favor of a “fair price” promise and formed a dealer council to listen to their concerns. It also modified its fee structure in some states to comply with regulations.

The tensions with dealers continue to haunt the company, though. At least three lawsuits have been filed against the company by dealers and dealer groups, and Painter himself has been the target of criticism from such prominent industry players as Mike Jackson, CEO of AutoNation, which ended its ties to TrueCar last month.

Painter has been steadfast in his defense of TrueCar and its business, arguing that such challenges are typical for companies that seek to disrupt a longstanding business model.

“We have an unwavering and long-term focus on a transparent car-buying experience,” Painter said in an interview last month with Automotive News. “There’s absolutely no benefit to consumers, dealers or the industry in reversing the trend to transparency.

“We may not be popular,” he added, but the dealers who work with TrueCar “are profitable because they're selling.”

Painter used an earnings conference call on Thursday to take responsibility for the battering TrueCar’s stock has taken in recent weeks. The shares fell 36 percent in a single day in July after the company announced it would miss its second-quarter earnings estimate.

“The bottom line is that we failed to deliver the operating results that our shareholders deserve,” Painter told analysts on the call. “As the CEO, I bear the ultimate responsibility for our performance and falling short of expectations, including my own.”

Painter also acknowledged TrueCar’s tense relationship with dealers -- particularly AutoNation, which severed its ties with the online shopping site on July 15.

“I recognize that, as the founder of TrueCar, I have had a sometimes strained relationship with the very dealer community we exist to serve,” Painter said. “In addition, I do not believe that I have always communicated our value proposition to investors as effectively as I could have. Those things are on me.”

Losses narrow

Painter's plan to give up the top post was announced along with disappointing second-quarter financial results. The company reported a net loss of $14.7 million in the latest period, compared to a loss of $15 million a year ago. Revenue rose 29 percent to $65.3 million from $50.5 million in the year-ago period.

TrueCar warned last month that its second-quarter profits and revenues would fall short of previous guidance, mainly because fewer customers bought vehicles using the company's website or other platforms.

Using accounting methods that do not fall under generally accepted accounting principles, TrueCar said it lost $3.8 million in the second quarter, compared to a non-GAAP loss of $1.4 million a year ago.

"It was a tough quarter in relation to our initial guidance," TrueCar CFO Mike Guthrie said in a statement.

"We have reset our guidance and the team is working diligently to drive operational improvements that will yield both revenue growth and, more importantly, a return to expanding adjusted EBITDA margins," Guthrie added.

TrueCar said the number of vehicles purchased through its platforms increased 27 percent to 190,358 in the second quarter. Guthrie said TrueCar's new-vehicle transactions represented 4 percent of total U.S. retail sales in the quarter.

The number of dealerships using TrueCar's platforms and network also rose 21 percent to a record 9,300, the company reported. TrueCar defines the dealership count as individual new-car brands sold by dealers on the platform.

But the second quarter also brought a number of headaches for the company. Tense contract negotiations with AutoNation, the country's largest dealership group, ended with the two companies parting ways.

The spat played out in public, with Painter and AutoNation's Jackson trading barbs and each claiming to have left from the negotiating table. At one point, TrueCar said AutoNation had been "materially" undercounting the number of vehicles it was selling to TrueCar customers.

Earlier this week, AutoNation said its July new-car sales grew 9 percent from a year earlier to 29,875, making it the company’s best July since 2006.

Krishnan M. Anantharaman contributed to this report.