By on November 19, 2012

In a world where many alleged car buying services are little more than bounty hunters that feed willing buyers to the sharks, TrueCar stood out for truly identifying dealers with the lowest price. This is about to change. Earlier in the year, one of the dearest wishes of some car dealers and OEMs nearly came true: TrueCar, the Santa Monica company that empowered customers by giving them heretofore top-secret pricing information, was under fire from OEMs, dealers, and state regulators. Losing thousands of dealers in a matter of weeks, the company nearly went out of business.

“It was a near death experience, absolutely. The company almost died,” says Scott Painter, TrueCar’s CEO in an interview with Thetruthaboutcars. “We went to the whiteboard and began rebuilding the business is if we were a well-funded startup.”

The company not only had to reinvent itself, something it had done frequently in its existence, it completely changed direction. Says Painter:

“We had a choice. The choice was are we going to partner with the industry with the belief that transparency is good and can be profitable, or are we going to pick up the consumer’s momentum and be their hero at the expense of the dealer. We chose to partner with the industry.”

For no one was this change harder than for Painter himself. As co-founder of 1-800-CARSEARCH, a predecessor of Autobytel, and long-time veteran of the “cars at the lowest price” business, Painter was known for his rhetoric that played on customer fears and nurtured the image of the salesman as a predator.

People think car dealers make a lot of money, something Painter admits is not true. Discounting is rampant in the industry, and it has been so long before the Internet. Dealers make very little money on the sale of a new car. In 2011, the average profit per vehicle was $23, says NADA. Now, it is up to a few hundred dollars, with 20 percent of the dealers losing money on the sale of a new car. The main reason behind this lies in how the industry operates. Dealers receive a retroactive bonus on every car if the reach certain milestones. If you have sold 900 cars near the end of the year, selling 100 at a loss to “make your number” becomes enticing. For decades, OEMs blamed dealers for discounting, and dealers blamed OEMs. Now, everybody blamed TrueCar.

By the end of last year, TrueCar found itself under attack from all sides. Honda got the ball rolling in December of 2011 by warning its dealers away from TrueCar. State regulators knocked on TrueCar’s doors. Fearful of fines, dealers abandoned TrueCar. Sales originated through TrueCar dropped from 13,000 per month in December to 2,000 in June.

Looking back, Painter thinks TrueCar came under attack simply because it became relevant. Dealers and OEMs had an ambivalent relationship with the on-line services since they started in the late 90s as part of the dotcom boom. Blamed as the antichrist, they were nonetheless welcome to make incremental sales with little fuss, and to help dealers and OEM to “make their numbers.” But for many years, says Painter, “we did not really matter, and nobody cared.”

Suddenly, OEMs, dealers, trade associations, the industry press, and state regulators did care. Saddled with a cost structure that anticipated hyper growth, the company hemorrhaged cash. In September 2011, TrueCar had closed its last private equity round, next stop: IPO. Instead, existing investors had to ante-up a bridge loan.

Rebuilding the company, TrueCar first “changed anything that was potentially illegal,” Painter says. Then, TrueCar softened its tone. Out went the anti-salesman rhetoric, in went the line that dealers in the TrueCar system are “holding margin and making money.” Customers no longer learn dealer cost and lowest price paid. Without registration, and giving up anonymity, customers today don’t learn much more than that most customers pay somewhere between dealer invoice and MSRP. TrueCar’s value proposition shifted from getting the lowest price to not paying more than necessary. An advertising campaign, anointed by TrueCar’s dealer council, now stresses “fair” prices.

The new system already is successful – for the dealer. Dealers on the TrueCar system are making more money than before. TrueCar has replaced over 1,000 dealers it has lost. By the end of the year, Scott Painter hopes to be cash flow positive again. TrueCar survived the near death experience. The idea of giving the customer true, transaction-based pricing information however became a victim of OEMs and dealers, who simply don’t want you to know.

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27 Comments on “After A Near-Death Experience, A Kinder, Gentler TrueCar Is Re-Born...”


  • avatar
    -Nate

    Once again greed trumps all in America .

    -Nate

  • avatar
    michal1980

    And truecar became truecrap. Once they provided actual useful information, now? nothing more then dealer lies. I’d rather have seen them die… oh wait they did.

  • avatar
    Thinkin...

    Wow, first Zag and now TrueCar. Props for them keeping the business alive, but I don’t really see the point for consumers. So now they’re committed to helping dealers? Isn’t the whole point of online car buying websites to help customers?

    It’s a pity that car manufacturers put the kibosh on the original service. The present iteration of TrueCar is clearly less helpful to customers overall. Now it just seems to be one of many websites to look up the “invoice” price, with the option of entering sharing contact info so you can get spammed by dealers.

    Personally, after Zag evaporated I’ve been recommending AutoRef to friends, as a simple way to get decent offers on cars without dealing with salesmen. It’s free, and even easier than personally e-mailing all the internet service managers for direct quotes.

  • avatar
    neevers1

    I noticed that something had changed….. When I bought a car last I used Truecar, and it was very helpful. This time around I went to truecar, and well, it wasn’t the same, the information wasn’t there, no invoice cost no nothing. Needless to say it was obvious they had changed from a good site to just a shill site. I ended up getting a far better deal just doing it on my own. Too bad.

  • avatar
    FJ60LandCruiser

    It was nice to be able to research the actual price of a car on the web, so you knew if you were overpaying. Now, all web sites do is list fradulent prices (dealers often put up rebates, trade-in allowances and other crap to drop their prices on cars.com, autotrader, and the like) and half the cars listed aren’t as described, or inventory stock is not actually at the dealer. If you have a question, you immediately get assaulted by overager iternet sales reps who won’t give you an honest price over the web, demand that you come in, and try to pull the same crap if you were to walk into the dealership.

    Car buying is highly dysfunctional in this country and it’s always battle to get anywhere below the MSRP, let alone a good deal. Lying is not only encouraged, but required, and car dealers treat customers as marks. Trade ins are always undervalued by 25% with all sorts of inane excuses, and even in a market hungry for used cars a dealer will lowball you and try to convince you that it’s the best offer out there.

    Part of the problem is the lack of education. The industry has tried very hard to suppress what they’re paying for the cars… Part of the problem is that customers are complacent and can be easily swayed/pressured by the criminal tactics of the sales staff.

    It’s sad to see that Truecar has joined cars.com and autotrader and become an inventory listing site and a place for the sharks to trawl for easy marks.

    • 0 avatar
      Kendahl

      We just bought a Ford Focus SE hatchback 5-speed. Only options were mud flaps and rubber floor mats. MSRP was $19,745. We paid $17,388 which is 12% below MSRP. The last time I shopped hard for a new car, by playing the local dealers against each other, I was able to get 20% off. In this case, only one dealer in the area was willing to stock cars with manual transmissions. I’m sure the other dealers would have been willing to dealer trade or order a 5-speed car for us. But I decided this dealer should be rewarded for stocking them and we bought a car off his lot without pitting him against his local competition.

  • avatar
    SherbornSean

    Pity. TrueCar really heped me get a good price on my Odyssey purchase a year ago. Now the only real support for consumers comes from message boards, like the ones at Edmunds where consumers list what they have paid.

  • avatar
    Dukeboy01

    It’s quite a filp- flop in perspective from the business model they had. I wonder how many “marks” who don’t pay nearly as much attention to industry news as enthusiasts on TTAC do will understand that TrueCar has basically switched sides.

  • avatar
    imag

    What happened to Cars Direct? I actually had two very good experiences with them.

    The key to getting a fair deal on a car is very simple:

    1. Find the car you want, either by searching online, going to various dealers, or ordering *on the phone*.

    2. Negotiate the deal over the phone. Leave the dealership if they do not uphold the deal. Don’t get mad; just leave.

    3. Realize that $500-$1000 over invoice is not a bad deal for most vehicles. Dealerships need to stay in business to allow you to drive cars. If the dealership is in an expensive location, like downtown in a city, you should pay slightly more than you would at a megastore 100 miles out. It’s a convenience fee. Likewise, new or high demand vehicles will cost more, and end-of-year or discounted models cost less. The phone will allow you to find a fair price without 4 hours of BS.

    • 0 avatar
      d524zoom-zoom

      Imag…

      WOW some common sense that is nice to read, and sometimes hard to find here @ TTAC, and especially when it comes to the discussion of buying a new vehicle!! My hat is off to you. Thank-you

      The whole mindset that the dealer is out to screw you has gotten so fukn OLD it’s laughable. I spose that these same people that want to buy a car @ “cost” also expect their produce guy at the market to sell them a banana or a grape at cost. Another example IMHO of people not having a clue but think they do, combined with the whole “I’m Special the world revolves around me”. The car dealer is here to make money like ANY BUSINESS. If Best Buy did not make a profit on the shit they sell then how do they keep the doors open to sell more shit??? Before you reply think about it!!

      • 0 avatar
        ott

        +1

      • 0 avatar
        darkwing

        I don’t think you meant to, but you hit the nail on the head — grocers sell above cost, while car dealers sell above “cost”. If dealers insist on playing these games, they deserve the stigma they get.

      • 0 avatar
        ajla

        Buying fruits or a DVD is a lot different from buying a car, and people complain about the price of groceries all the time.

        Most people aren’t angry that car dealers make money. They don’t like HOW dealers make money.

        Stuff like $400 pinstripes, last-second $1200 dealer fees, lies about someone’s credit rating, lies about specs, “we lost your trade-in’s keys”, and “Let me talk to my manager while you sit here for 40 minutes” aren’t very endearing.

      • 0 avatar

        Dealers earned their reputation.

        You could do business about ANY OTHER WAY, and come out with happier customers.

  • avatar
    Stumpaster

    I just bought a new car. Cars.com was very helpful to see how low the dealers may go, just by reading the listings within 500 miles, but the real revelation was when I simply emailed various local dealers of the same brand, told them what I want, and asked for a price, added my phone number for any questions. Those who continued emailing back without info were ignored. The real deals came on the second or third round of emails. Turns out I didn’t have to travel miles to get a good deal. F trucrap.

  • avatar
    DC Bruce

    You have to believe that True Car’s “resurgence” in business is just from people who haven’t figured out that the site isn’t what it used to be. As soon as people figure out that it’s no more than a way for car dealers to get names, e-mail addresses and phone numbers of prospective customers (like any number of other sites out there), I doubt they’ll keeping using it. It’s no better than — or maybe not as good as — Edmunds’ “TMV.”

    I really don’t care what the invoice price of a car is; we all know that there are various allowances, holdbacks, etc. that allow a dealer to sell a car “below invoice” and make money.

    What I do care about — and miss — is True car’s “average price paid” statistics. That really gives the buyer as sense of where the market is. And it puzzles me that car dealerships make such effort to limit “price discovery” and competition.

    By contrast, the price of a house you buy is always negotiated. But, you can do your homework and review actual sales prices of similar homes in the same neighborhood to get an idea of what a reasonable price would be.

    Personally, I think the True Car guy made the wrong choice, even in terms of making money; because now there’s no difference between True Car and any number of other, similar services. If their investors have dreams of an IPO, they’d better forget them.

    Ain’t gonna’ happen, boyz.

  • avatar
    david42

    What a shame. TrueCar was very useful to me 18 months ago.

    New cars are commodities. It’s insane that dealers are able to price them as if they’re custom-tailored suits.

    I don’t believe for a moment that dealers are losing money on any significant portion of their sales. Most car purchases involve a trade-in, and that’s where the money is. And that’s also the problem with the whole process: even if TrueCar worked perfectly, customers would still get screwed on their trade-ins. On my most recent car purchase (not the TrueCar one), I was confident that the dealer was giving me a very low price on the new vehicle. Hooray. But the trade-in value was wicked low…. it took a while, but I got them to raise it from $22k to $26k. So in spite of their “fair” new car price, they were clearly hoping to make at least $4,000 of profit on this simple transaction. Even with the higher trade-in price, I’m sure I left some money on the table.

    I have absolutely zero sympathy for car dealers. There is no transparency in the net pricing (including the trade-in), so of course it attracts people who think there’s nothing wrong with screwing customers.

    If it were possible to price every new car at a fixed % over invoice, and to receive a trade-in value at a fixed % of the vehicle’s next retail sale, I would gladly use that system, even if it meant I paid a few hundred bucks extra.

  • avatar
    onyxtape

    We bought our new car back in February and found TrueCar by accident. At the time, it listed the invoice, incentives, and dealer cost. I remember thinking that they wouldn’t last very long doing things like this. So I basically ended up around $400-$500 above dealer cost before incentives using that information. I didn’t even print it out to back up my numbers to the salesguy – it was just nice to have a concrete number in my mind to start negotiating around. A week later, TrueCar had removed all that neat info.

  • avatar

    I’m still seeing the bell curve between invoice and MSRP with actual prices paid displayed along it. What did they used to provide beyond this? More about the dealer’s actual cost after incentives and such?

  • avatar
    icemilkcoffee

    OK. I am totally confused. What exactly has been lost in the ‘new’ Truecar? I still see the invoice for every car. I still see the most important feature, which is a bar graph of what other buyers paid for that same car. So what exactly did they scrub from the site?

  • avatar
    mitchw

    How long before Painter pulls the ripcord on his golden parachute?

  • avatar
    Mschmal

    Truecar was always on the dealer’s side, the just pretended to be on the customers.

    In the old truecar, the dealers logged on to the back end of the site and set price for each model and trim. Dealers could put in what ever they wanted with no policing from truecar. The catch was that dealers also saw what their competition was entering for pricing. The bidding wars started without any relation to reality.

    Truecar quickly became the new newspaper classified only without VINs. The lack of VINs on the site ment there was no legal repercussion whatsoever for a dealer putting in a bogus price that they refused to honor.

    Ultimately the pricing of fictitious cars as well as stating pricing in relation to invoice was found to violate several state laws.

  • avatar
    mistercopacetic

    I think commentors here are spot on: people are not opposed to businesses making a profit, they are opposed to the manner in which they earn that profit. Namely, people don’t want to feel cheated. One could argue many businesses make tremendous profits without making their customers feel cheated *cough men’s formalwear funeral homes junk food *cough. What makes a customer feel cheated is when there is uncertainty they cannot control. There are four elements of uncertainty in buying a car: purchase price, trade-in, financing, and options/warranties/etc. You can give your car away to family/charity and reduce one element of uncertainty. If you can pay all cash or bring your own financing you can reduce 2 elements of uncertainty. If you are sure you don’t want any extra options, warranties, rustproofing, etc, you can reduce 3 elements of uncertainty. What remains is the purchase price itself. If you shop 5 dealers they will likely give you 5 prices. Dealership psychological domination tactics don’t help their reputation. Pushing tiny chairs into a corner of the finance guy’s office, while his huge desk towers over you and you sign hunched over on your knees. The back-and-forth, seeking approval from a guy sitting on a platform. And the waiting. Oh, the waiting. If it took four hours to buy a grape supermarkets would have a bad reputation too.

  • avatar
    ravenchris

    Drive by your local car dealer’s house to see how little she makes.
    Remind yourself how much dealer money goes to politicians.
    Make all necessary preparations to pay the lowest price possible for that new car.
    True car has joined the ranks of the usual suspects.

  • avatar

    Exactly why is it the consumer’s right to have a dealer’s private cost information? Dealers make plenty of money most years. In fact, you have to be pretty well heeled to get into it in the first place. The point is, they don’t make it on new vehicle sales. The ROI there sucks. Name me a single business where they consumer is privy to bare cost information. Here you will get some real information from a 4 decade industry insider. The Dealer needs to make a 10% transaction gross profit to pay overhead and make any reasonable ROI. That’s about $3K on the average deal. Does the consumer have any idea what expenses have to be paid out of that gross profit. Not unless they are business people themselves. If someone gets a $2K deal, the next person needs to pay $4K to keep the average.

    And speaking of the dealer’s house… if the dealership goes tits up, they come for the dealer’s house first off. Employees just lose their job.

  • avatar

    RE: “Remind yourself how much dealer money goes to politicians.”

    Dealer money going to politicians? Do you claim to have inside knowledge of this? If so, let’s hear the facts. Real facts. Auto Dealers DO belong to a variety of associates, depending on whether or not they are franchised new or independent pre-owned. Banding together is the best way for them to protect themselves from their suppliers, who think they should be able to control the investment of those dealers. But it ain’t the OEM’s money. And the OEMs have only one customer. Their dealers. End users are the customer of the dealer.


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