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Under Fire

After his business came under intense scrutiny, TrueCar’s Scott Painter began reaching out to media outlets to tell his side of the story. The following is an abridged version of the editor’s discussion with the company’s founder.

February 2012, F&I and Showroom - Cover Story

by Gregory Arroyo - Also by this author

Scott Painter, the embattled founder of TrueCar, says his company wants to be the beacon of truth in an industry that has lost its relationship with consumers. But, as one blogger put it, the industry isn’t interested in the “kind of transparency” TrueCar aims to deliver.

At the heart of the debate is pricing. TrueCar offers car buyers a veiw of a vehicle’s dealer cost, market average, factory invoice and sticker price. TrueCar then provides the customer with three dealers who have the vehicle they want at the going rate. The tradeoff for the dealer is that they don’t have to pay for the lead ($300 for new vehicles, $400 for used) unless the sale is completed.  

TrueCar isn’t the first vehicle-buying site to deliver pricing transparency. Kelley Blue Book offers a similar view of dealer-invoice and fair-market pricing, but KBB doesn’t require access to a dealer’s dealership management system. TrueCar does.

Late last year, that level of access began to fuel accusations that TrueCar was using dealers’ DMS data to set its pricing curves. Some even suspected the company of stealing and trading existing customers’ personal information. The criticism of TrueCar’s business model came to a head in early December, when several prominent automotive figures, including our own Jim Ziegler, began calling for a dealer boycott.

Painter denies the dealership is using its DMS access for anything other than dealer selection and billing. He shot down concerns about data theft, saying his company meets banking-level security standards, a requirement of partners such as USAA and American Express.

Over the summer, Honda dealers were informed by their OEM that marketing dollars would be withheld if they advertised Hondas below dealer invoice or Acuras below MSRP on TrueCar. It also shared with dealers its concerns for data security, which prompted Group 1 Automotive, the nation’s fourth-largest auto retailer, to order 42 of its 108 stores using TrueCar’s service to cut ties with the company. Calls seeking comment from Group 1 went unanswered.

On Dec. 15, the Colorado Automobile Dealers Association issued a memo to its members, warning TrueCar dealers that the Colorado Department of Revenue’s auto division was investigating possible violations of state advertising laws, a review initiated by TrueCar in late November. According to a CADA rep, TrueCar asked the state to review its marketing materials, which the state initially OK’d.

The story was fluid through December. Painter’s critics continued their assault on the company. Early in the month, the editor visited TrueCar’s Santa Monica, Calif., offices, and sat down with Painter to get a better understanding of the philosophy behind his business model. At the time, a new relationship with Yahoo! Autos would go into motion on Jan. 1. Painter expected that partnership to increase TrueCar’s share of the new-car market from less than 3 percent to at least 24 percent.

Painter expects a new partnership with Yahoo! Autos to increase TrueCar sales eightfold once it goes live Jan. 1. As of December, sales originated on the TrueCar channel represented just less than 3 percent of all U.S. new-car sales.
Painter expects a new partnership with Yahoo! Autos to increase TrueCar sales eightfold once it goes live Jan. 1. As of December, sales originated on the TrueCar channel represented just less than 3 percent of all U.S. new-car sales.

F&I: What do you think is wrong with the car business?

Painter: I think, in general, there is an all-time low in terms of consumer trust of the industry at large, and I think there is a general fear by consumers of the process of buying a car. 

F&I: But consumers do have misconceptions about dealers as well.

Painter: I think average consumers would be shocked by how little dealers make on the sale of a new car, that they absolutely may lose money. And I’m not talking about selling a car below invoice, I’m talking about selling a car below dead cost, which dealers do more than 20 percent of the time. I think part of the systemic reasons for the erosion of margin has to do with the population of dealers themselves.

F&I: Are you shocked by the backlash?

Painter: Whenever you do something that is as dramatic as what we’ve done, you’re going to get a lot of reaction. The fear about a race to the bottom is really about a reverse auction-type format, where customers are being competed for by the dealer based on price alone. For example, in our system, we know there are three primary dimensions customers use to select a dealer to buy from: price, proximity and selection.

And every geographic area behaves very differently. We’ve studied this and it’s a very interesting science that comes out of it. We know customers from certain ZIP codes will travel 50 or 60 miles to save as little as 100 to 200 dollars. But in places like West Los Angeles, where the customer might be three miles away from the Auto Gallery, they’ll drive five miles away to Auto of Beverly Hills because that’s in their comfort zone. So, it’s not all about price.

Comment

  1. 1. howell clark [ February 09, 2012 @ 07:43AM ]

    i suppose how they purchased cars in japan where one used to walk up to a window and and tell an order taker what they wanted is how mr painter sees the future in the past. i know he says this is what he sees as what the customer wants but how does one separate the snake from the skin of Cars- Direct.

 

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