TrueCar Aims to Foster Hassle-Free Auto Deals
A photo on TrueCar.com shows a young couple, identified as Connor and Julie of Santa Barbara, Calif., standing next to a Hyundai Elantra Touring that they purchased, the caption indicates, for about $3,000 less than the manufacturer's suggested retail price. "Never overpay," the company urges in big font.
TrueCar Inc., through the website, publishes data on actual auto sales alongside listings for similar new and used vehicles, allowing shoppers to lock in good prices—average savings of $2,500 off the manufacturer's suggested retail price for new cars, the company says—while preserving dealer profits.
Based in Santa Monica, Calif., the 8-year-old company promises a hassle-free car-buying experience from a nationwide network of more than 5,500 certified dealers, which it says have sold more than 706,000 vehicles through the site, saving buyers $1.75 billion.
Thilo Koslowski, vice president and lead automotive industry analyst at Gartner Inc., said TrueCar is disrupting auto retailing by giving consumers insight into pricing while playing nice with its network of dealers.
After retooling operations last year in response to dealer complaints and discussions with state regulators, TrueCar appears to be regaining momentum. In the past 12 months, more than 2,000 dealers have joined or rejoined the service, a TrueCar spokesman said.
In November, the company announced that Deloitte & Touche had ranked TrueCar 99th on its Technology Fast 500 list of the fastest-growing North American technology, media, life sciences, telecommunications and clean technology firms. The company had been 63rd on the list a year earlier, before its overhaul.
Deloitte considers companies on the list to be "ground-breaking" enterprises that are reinventing the way people do business. Here, in brief, is how TrueCar works.
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Consumers go to the site and click on the particular makes and models they want to buy. TrueCar will show the MSRP, the factory invoice price, the average price that other consumers actually paid for the model, a TrueCar price estimate and anticipated savings off the MSRP.
Shoppers can view price estimates from certified dealers in their area and print a certificate to lock in "guaranteed savings" and present to the dealer.
The site, which offers a similar service for used vehicles, provides customized deals for members of affinity programs associated with AAA, American Express, Consumer Reports, USAA and hundreds of other insurers, lenders, employers, credit unions and organizations.
"Consumers are changing their behavior and as a result dealers must change how they go to market and sell," TrueCar CEO Scott Painter said recently. "There's not just a new generation of customers, … there's a new expectation around what an auto shopping experience should be as a result of the new technology."
A decade ago, he said, the new availability of product information on the Internet "changed consumer behavior, where they no longer go into an auto dealership to get consumer information about a car." Consumers instead could gather that data anonymously on the web, Painter noted. "That's had a huge impact on the dealers."
Having pricing data on what others have paid provides consumers easier insight into what price is fair, he said.
Consumers may not realize, Painter said, that "15 percent of all new cars are sold at an absolute loss." Since more than 70 percent of transactions involve trade-ins and 90 percent involve financing or leasing, dealers can use trade-ins and financing or leasing arrangements to make up for money lost on the sale, he said.
TrueCar can help dealers avoid selling at a loss, he said. The costs of traditional marketing, commissions, overhead and depreciation can add up to $2,000; by using the site, dealers can cut those costs significantly while offering customers an attractive deal and making a profit, Painter said.
"The dealers that are on our program are actually making money today and we can measure that," Painter said.
TrueCar uses a transactional business model, receiving a flat fee of $299 on new-car sales and $399 for used cars, except in states where pay-for-sale business approaches aren't allowed. An average dealership typically spends $700 to $900 per car on marketing so they can cut marketing costs in half on a sale and pass some savings to customers, Painter said.
The company has been in hypergrowth mode for eight years, doubling in size annually, with revenue in excess of $100 million, "and we anticipate the ability to double the size of the business every year for the foreseeable future," Painter said. The company drives 1.4 percent of the 15 million U.S. new-car market, he said.
Painter said about 26 percent of U.S. dealerships participate in the program. If the business keeps growing at the current rate, TrueCar will need 30 percent to 35 percent of all dealerships, "and that will represent national coverage," he said.
TrueCar appears to have regained its footing after a backlash from dealers that hit the business in late 2011 and early 2012, causing regulators in several states to take a look at the company and prompting significant changes. The Wall Street Journal detailed the fracas, saying TrueCar's "disruptive" service "nearly drove it out of business."
In January 2012, after a "listening tour" with dealer groups and manufacturers, the company announced "a nationwide, multi-faceted strategy to tackle regulatory compliance issues and demonstrate its commitment to state regulators, state dealer associations and to better serve its dealer partners."
TrueCar substantially revised its business model, including the website experience and dealer billing methods in certain states, to ensure compliance with all applicable laws, a spokesman said via e-mail. There are no known open regulatory issues or inquiries from regulators, he said.
TrueCar last year also formed a national dealer council, a group of auto industry veterans and dealers, including those that don't participate on the platform, to work with the company. The company said it would preview major policy, product and process changes with the group. It also hired a vice president for dealer development to build and strengthen dealer relationships.
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Phil Bonfanti, general manager of Lakewood Fordland in Lakewood, Colo., near Denver, and member of the TrueCar dealer council, said the company's transformation made it more dealer- and customer-driven. In the past five or six months, Lakewood Fordland's Internet customer traffic is up about 20 percent, he said.
"We found TrueCar to be a very positive means for us to do business," Bonfanti said.
"Price is the easy part of our business. The tougher part is to find the customer the right vehicle for their lifestyle," Bonfanti said. TrueCar helps make price a nonfactor by establishing a "very, very fair" price, he added. "It's helped us tremendously by taking the doubt out of the pricing arena."
Working with TrueCar "helps us build better rapport with our customers, it helps us to better satisfy our customer wants and needs," Bonfanti said. Dealers want customers to have a good feeling about their businesses down the road, he said. "TrueCar helps bridge that and helps us and the customer focus on making a very big ticket purchase."
Koslowski said TrueCar is is not as aggressively disruptive as it tried to be with its original business model. The company is alleviating some angst for consumers while easing concern by dealers.
As with any Internet platform, he said, "consumers really need to ask themselves how much better (off) they are," as the site doesn't necessarily provide the ultimate best price, although it gives consumers data to help them feel more confident.
TrueCar needs to do more to communicate its new value proposition to both consumers and dealers, Koslowski said. He expects the company to keep striving to improve data quality, attracting more consumers and dealerships to become almost a clearinghouse for auto industry information.
Painter said the company has no direct, damaging competition now, but he expects others to enter the space, as "it's just too big of a market" for others to ignore. TrueCar, which is well funded, is focused on growth and profitability for now, and eventually should go public, he said.