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Trust Issues

The breakup between TrueCar and AutoNation stirred up old emotions and accusations, but a former TrueCar exec believes both companies will survive the dustup.

August 2015, F&I and Showroom - Cover Story

by Gregory Arroyo - Also by this author

Serving as a panelist at the 2015 Vehicle Finance Conference this past February, TrueCar Cofounder Jim Nguyen urged finance sources to improve the auto finance experience by engaging consumers directly.
Serving as a panelist at the 2015 Vehicle Finance Conference this past February, TrueCar Cofounder Jim Nguyen urged finance sources to improve the auto finance experience by engaging consumers directly.

Describing the current auto finance experience as “too complex and confusing” and stuck in the “status quo,” TrueCar Cofounder Jim Nguyen made a pitch to auto finance execs at the American Financial Services Association (AFSA)’s 2015 Vehicle Finance Conference in San Francisco: Engage consumers directly or continue subjecting them “to the finance manager at the dealership.”

“Why can’t we have a Lending Tree-type environment so I can see all my options?” he asked. “What if you were to take a leap beyond that and let the intelligence of the system determine the best deal, because it’s all empirical?”

By “system,” he meant the TrueCar algorithm, and the “leap beyond” refers to an environment in which consumers shopping on TrueCar will make buying decisions based on price as well as available finance incentives.

“I’m looking for the best SUV deal out there. And maybe the best deal is the used one; maybe it’s the new one. There is a manufacturer willing to offer me an incentive, and there is a captive finance company that has zero percent APR,” said Nguyen, describing TrueCar’s vision. “And when I boil it down to my monthly payment, my new vehicle is so much more affordable than that used vehicle.”

This wasn’t the first time a representative of TrueCar has talked about moving beyond new-car transactions. In the company’s April 2014 registration statement, filed with the Securities and Exchange Commission (SEC) a month before its May 2014 initial public offering, TrueCar listed a number of products and services it planned to add.

“We are in the early stages of pursuing our mission to transform car buying for consumers and dealers,” the filing stated, in part. But it also acknowledged possible roadblocks standing in the way of that goal.

“If car dealers perceive us in a negative light, or our relationships with them suffer harm, our ability to grow and our financial performance may be damaged.”

‘Over My Dead Body’
TrueCar and AutoNation had been engaged in contract negotiations several months prior to the expiration of their prior agreement in March. A key sticking point was data: TrueCar reportedly requested data covering all the group’s finalized sales records. But despite reports that AutoNation CEO Mike Jackson said “Over my dead body!” in response to TrueCar’s request, negotiations were far less dramatic than the war of words that played out in news reports following the July 9 divorce — at least according to Marc Cannon, AutoNation’s CMO.

TrueCar’s Scott Painter said car buyers can choose between TrueCar’s ‘truth, transparency [and] upfront pricing’ and AutoNation’s ‘traditional manner’ of doing business.
TrueCar’s Scott Painter said car buyers can choose between TrueCar’s ‘truth, transparency [and] upfront pricing’ and AutoNation’s ‘traditional manner’ of doing business.

“I’ve heard from other people now that the conversations got nasty and heated. They never got nasty and heated. I was there,” Cannon says. “[TrueCar CEO Scott Painter] was crystal clear that [access to transaction data] was unconditional, and we didn’t agree to that.”

TrueCar declined interview requests for this article, but, according to a May 23 letter summarizing the now-infamous meeting, TrueCar wanted the names, addresses, phone numbers and email addresses of all buyers and co-buyers and VINs, stock numbers and the year, make, model and trim of every vehicle, as well as sales dates, deal numbers, deal status, the salesperson’s name and dealership ID.  

The letter, signed by TrueCar President John Krafcik and Senior Vice President of Dealer Development Mike Timmons, stated that the sales data was needed for the company’s pay-per-sale billing system — $299 for every new vehicle sold and $399 for every used vehicle sold. “The data is necessary to power our sales-matching system, which is the basis for identifying sales in pay-per-sale billing,” the letter read.

TrueCar even offered an additional 10% discount off its service fees if more than 90% of AutoNation’s stores used its platform. The firm was also prepared to make exceptions to its write-off policy, noting in its May memo that it would “provide limited partial credits under clearly defined rules.” The firm, which claimed its channel delivered 7% of the 78,560 new units AutoNation sold in the first quarter, also said its platform could represent more than 10% of the group’s new-vehicle sales by the end of 2015.

The letter also noted that TrueCar suspended more than 300 dealers “who did not meet marketplace or customer requirements,” and said the company was prepared to take similar action if AutoNation didn’t agree to its terms.

Cannon’s response: “We are not interested in sharing our data on our customers with anybody else. And why should we?”

Public Battle
Cannon talked to F&I and Showroom five days after the announced split. By then, the two companies had squared off in media reports — AutoNation’s Jackson called TrueCar’s demands “onerous” and “unprecedented.” TrueCar’s Painter responded by calling AutoNation’s decision a choice for consumers: TrueCar’s “truth, transparency [and] upfront price” or AutoNation’s “traditional manner” of doing business.

Former TrueCar Exec Ken Potter said he never expected AutoNation to part ways with TrueCar.
Former TrueCar Exec Ken Potter said he never expected AutoNation to part ways with TrueCar.

The two companies even fought over who fired whom.

AutoNation’s Jackson told the Los Angeles Times the dealer group took a hard line to protect its customers’ information. “For all we know, they are selling it to other parties,” he charged.

Painter responded in a letter to the editor published by Automotive News on July 20. “We have never sold the data. We do not use the data for marketing,” it read, in part. “Suggestions that TrueCar may misuse data are untrue and misleading.”
Painter further claimed that AutoNation was underreporting sales attributed to TrueCar. Cannon disagrees.

“This argument over disputed sales, that’s garbage. It’s exactly what we said it was, 3% [of the group’s 550,000 annual sales],” Cannon says. “Quite frankly, I don’t understand why TrueCar responded to us the way they did. Why would you get into this contest?”

The dealer group feared it would arm a budding competitor if it turned over its transaction data, Cannon adds, noting a recent decision by TrueCar to begin withholding contact information for leads the site directs to dealers. “We don’t like the branding mechanism that they’re putting in place with how they cloak emails,” he says. “No one remembers this, but that was the key thing with this whole data issue.”

Asked about TrueCar’s F&I aspirations, Cannon doesn’t mince words. “If you’re a dealer and you have a third party that’s now getting in between you and the customer one more time, is it in your best interest as the dealer?”

‘A Death Spiral’
Jackson’s comments in the coverage of the group’s breakup with TrueCar caused Steve Kalafer, founding chairman of New Jersey’s Flemington  Car and Truck Family of Dealerships, to dig into the operation’s sales records. He discovered that 91% of sales attributable to TrueCar since 2006 were made to customers who were either previous customers or within his operation’s designated or adjacent trade areas.

“What does that tell you? Those people would have come to see us anyway,” says Kalafer, who cut ties with TrueCar on July 10, the day after AutoNation announced its split. “It’s not that they want to buy through TrueCar, but if it’s free to check, people will do it. But TrueCar is counting these people.’”

In a now-infamous December 2011 speech, AutoNation’s Jackson described TrueCar’s upfront pricing as “a death spiral” for dealers, words that would be repeated throughout the 2012 dealer revolt that nearly put the site out of business. Fueled by Painter’s statements in the press and his company’s advertising, which played on outdated and largely negative stereotypes, dealers raised questions about data security and customer privacy. They claimed the site was using its DMS access to build a marketing database. They also questioned the company’s compliance with state advertising laws and prohibitions on brokering, pulling dealer associations into the fray. The concerted effort even reached the offices of state regulators.

Comment

  1. 1. Car SalesH8r [ November 25, 2015 @ 05:00PM ]

    imagine that; two car salesman negotiating. now there's a sleezefest.

 

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