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TrueCar Revamps Pricing Curve

September 6, 2012

TORRANCE, Calif. — TrueCar has adjusted its practices in an effort to reel back its cautious dealer base. Since the company constituted the TrueCar National Dealer Council in April, the alliance has worked to redefine the marketing service’s reputation, with its latest change being an update to its pricing curve.

The big change to the pricing curve, which allows car buyers to see market listing prices, was the elimination of “dealer cost” — defined by the company as “invoice minus incentive minus holdback.”

“When we provided dealer cost, we got an enormous amount of pushback from the industry,” said Stewart Easterby, TrueCar executive vice president of operations. Dealer cost was a major topic of discussion at the dealer council’s inaugural meeting in April, Easterby added. It was at that meeting that the 20-member council suggested its removal.

“The dealer council leaned in pretty hard and said, ‘We don’t like dealer cost,’” he said. At issue was how dealer cost was presented on the company’s website, as members claimed it created an inaccurate reference point for negotiations between the dealer and consumers.

“What the dealer council is saying is that if you look at the true cost of any particular vehicle, it’s going to vary due to various manufacturer programs. So, the actual cost cannot be calculated to the penny and their point is it’s not accurate,” he explained.

“We didn’t feel that anything before was inaccurate; it’s just more that the concept of ‘dealer cost,’ as we defined it, was not accurate enough in the eyes of dealers…We thought that was a fair critique. We listened and we changed, and we removed dealer cost.”

TrueCar spent much of the first half of this year repairing its damaged reputation after it came under fire from dealers and state regulators. Dealers questioned the company’s business model, including its pricing curve and the company’s required connection to its customers’ point-of-sale system.

Regulators in California, Colorado, Indiana, Louisiana, Nebraska, Ohio, Oklahoma, Virginia and Wisconsin also questioned the company’s advertising and billing models. Colorado became the first state to put the brakes on TrueCar, charging the company in mid-December with violating at least five advertising laws, as well as other prohibitions.

Easterby said the company is now operational in all 50 states, except Louisiana. He said TrueCar voluntarily suspended its service there while it works through issues related to its advertising.

“That’s not to say we weren’t (compliant) before,” Easterby said, adding that the company was forced to switch to a subscription model in some states. “A lot of it has to do with the interpretation of regulations that were written, in many cases, generations ago that did not anticipate a business model like ours.”

When it launched, TrueCar offered buyers a view of a vehicle’s dealer cost, market average, factory invoice and sticker prices. The company then provided shoppers with three dealers who have the vehicle they want at the going rate. The trade-off for dealers was that they didn’t have to pay for the lead ($300 for new vehicles, $400 for used) unless a sale was made.

“We had to make the changes we did,” Easterby noted. “The last thing we wanted to do was put our dealers at risk.”

The one lingering issue is the company’s required connection to its dealer clients’ DMS. Critics of the service charged the company with using that connection to access data to fuel its pricing curve, an allegation Easterby denied. “It’s impossible to do so,” he said.

After taking fire from critics and state regulators in mid-December, TrueCar’s dealer count dropped from 5,625 to 3,500. But the marketing service has managed to rebuild its dealer network to 4,700 dealers.

 

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