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.
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.[PAGEBREAK]
F&I: Let’s talk about your use of the word “commodity.”
Painter: The definition of a commodity is that a similarly equipped product is identical from Retailer A to Retailer B. And the reality is, the customer basically believes that their choice of buying it at Dealer A or Dealer B is not going to affect the quality of the product that they are buying. And this is not a TrueCar or a technology issue. This is a Henry Ford issue.
But let’s go back to the ’98, ’99 timeframe. That’s when the Internet really disrupted traditional media and everybody said, “The Internet is going to kill these advertising sources.” So, today, lead generation is the No. 1 way to acquire new customers at the modern dealership. That’s because lead gen is about addressability and the ability of the dealer to buy the name of an in-market customer.
So, back in ’98, ’99, only 5 percent of consumers were even online at all. And if you were online looking up the third-row safety seat, you were an in-market customer.
F&I: That’s obviously not the case anymore.
Painter: It’s not even the same thing anymore. We believe that there are probably as many as 10 indicators of in-marketness. One indicator is when a customer asks what the price of a car is. That means they’re getting closer to a purchase. So that has really been the whole premise of lead gen and why it’s become a $3.5 billion dollar category that’s run by six or seven big companies. The biggest problem we see with lead generation is the value proposition is neutered as soon as you can discover upfront price without having to reveal who you are.
F&I: The Internet has forced that change?
Painter: I don’t think anybody did this by intent. Fifteen years ago, when you went into a car dealership, the role of the salesman was that of product expert. Then the Internet comes along and provided better access to content and information. The Internet and the industry get an A-plus for distributing product information, but the role of the salesperson, as a result, is different.
F&I: Do you believe that’s true for used cars?
Painter: No, it’s totally different, because a used car is never truly going to be a commodity. That’s where a salesman has a really profound role in helping the customer.
F&I: So, does your vision of the future include dealerships?
Painter: I don’t believe we are going to have a “dealerless” future. But I believe the price Customer A, B and C pay for new cars will narrow as time goes by and transparency becomes more prevalent. I believe there will be fewer dealers that can survive in that kind of a market as an absolute number, and I do believe that surviving dealerships will need to focus on cost control, customer service and the customer experience. And, finally, I do believe that this is a profitable, thriving business environment and opportunity.
F&I: When you access a DMS, what information do you see?
Painter: We do not see any of the customer’s Social Security numbers, credit card numbers or credit scores. We do know who they are down to their telephone number and address. That’s because we’re tracking them after they contact the dealer [who is] using our service as part of our performance-based billing model.
F&I: So, you’re not building a customer database to market to in the future, as some have claimed?
Painter: Nothing could be further from the truth.
F&I: You’ve said your DMS data pull is not used to fuel your market transaction curves. So, where do you get that data?
Painter: We buy what is called anonymized flat-file data from numerous providers. We see more than 90 percent of all transactions, new and used, in the United States. And we’re not tracking that data for anything other than aggregated data analysis about what people paid.
F&I: How strong is that price protection certificate you offer car buyers?
Painter: Nobody is tricking us. We see the data. If a customer got a price certificate and paid a higher price, we see it.
F&I: Do you penalize violators?
Painter: We do have a three-strike policy if they don’t abide by our 26-plus service requirements. And if we feel the violation is egregious, we’ll go ahead and bounce the dealer right away.
F&I: But how do you stop bait-and-switch tactics?
Painter: The dealers provide us with an invoice offset that applies to of all the vehicles on their lot. If a dealer switches the customer from a model to a different configuration of vehicle, that savings is still there.
Look, I realize that some people feel, because of my past at Cars-Direct, that this is an anti-dealer play. It’s not. This is about fundamentally recognizing that the consumer has changed how they shop, and we believe that this is one of the most important tools for dealership profitability and growth in the future.