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Lindsey Auguste and Dennis Galbraith

Lindsey Auguste and Dennis Galbraith Investigative Reporters

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DIgging into the TrueCar Controversy

 

The TrueCar discussions have kicked up a storm of controversy in our industry.  It’s easy to get sucked into the feeding frenzy that the fight engenders – bad mouthing, name calling, posing speculation as facts.  In response, DrivingSales aimed to find out the real arguments and the face-value answers.  We scoured the discussions online, watched hours of video, policed the print, and even spoke with one of the leaders of the battle, Jerry Thibeau of Phone Ninjas, to find out what really are the arguments against TrueCar.  Then, we did the same thing on the other side, including a question and answer session with Scott Painter, CEO of TrueCar.  What follows is an unbiased view of the controversy, aiming to confirm or bust the statements that fuel the TrueCar controversy. 

The Car is a Commodity:  FALSE

It’s frustrating that TrueCar is trying to frame dealers’ products as a commodity, completely stripping from it the experience and value you provide in the transaction.  If you sell your cars as if they are commodities, then you deserve these dealer cost prices because you’re not bringing any value to the customer experience.  But that’s not the case with most dealers.  Most dealers want to provide an all-star car buying experience so customers will return.  The fact that TrueCar considers cars a commodity is the very reasoning by which they support posting car pricing that show below dealer cost.  They’re saying that there is no additional benefit to the purchase price other than the car.   But price isn’t about cost and profit, it’s about value.  People pay extra for added value, and do so happily.  Brand value is the reason Honda disallowed their pricing on the TrueCar site, and brand value is the very reason TrueCar won’t share their financial statements with the many dealers who have repeatedly asked for it on open forums – because it’s worth more than the dollars and cents that it costs to generate.

TrueCar is stealing Dealers’ DMS data: FALSE

It’s not stealing if you give it to them.  Dealers who are signed up on TrueCar have agreed and willfully allow TrueCar to scour their customer information to track the sale of a car through the TrueCar introductions. They purchase transactional information from over 30 sources including banks, lending profiles, registration information, etc.  The idea that dealers could shut down TrueCar by keeping them out of their DMS system is simply inaccurate.  According to Painter, through all the sources that they buy data, they are seeing 90% of all car transactions across the United States.  So even if all 18% of dealers in the market that they have access to (as reported by Painter) suddenly and permanently stopped providing their transactional data, TrueCar still would hold the lion’s share of the information and have the most accurate reporting of car sales transactions. 

Of course, True Car isn’t the only vendor that dealers allow into their DMS.  There are a multitude of vendors we let in for a variety of reasons, so the fact that dealers are letting TrueCar in should not in itself rile up the amount of controversy that this company has stirred up.  And if it weren’t TrueCar exposing the transactional data in this depth, it would inevitably be somebody else.

But TrueCar is using our data against us!  TRUE and FALSE

To say that TrueCar is using the dealer DMS data to power the TrueCar curve is incorrect.  In fact, it is against TrueCar’s privacy policy to do so and if it is being done, then there’s altogether a more legal issue at hand, which we are neither privy to nor qualified to make statements about.   But the data that TrueCar is providing to consumers does go against you. 

It’s not that transparency is bad, though that’s another argument in itself.  The data that TrueCar is presenting is real.  It’s a numbers game and their giving it to the customers straight.  The problem is that the data being shared is not rooted in any context.  If a car is sold below invoice, even below dealer cost, it could be for a number of reasons – it’s too old, bonus income, more inventory, etc.  But TrueCar doesn’t share that information with their consumers; all they show are the numbers.  So this transparent data sharing is in fact just as misleading as not sharing it because they haven’t given the consumers the practical information that goes with all data points, including the outliers on both ends.  So an actionable solution to this problem doesn’t lie in trash talking on the internet.  Train your sales staff to be able to adequately explain to their customers what the TrueCar data isn’t.  That’s the low price doesn’t explain trade-ins, odd colors, inventory issues.  Arm them with the tools they need to enlighten the customer with market knowledge.  Empower them to be the trusted advisor they are.

Painter declared to us as well as in his letter to the automotive industry that about 20% of cars sold in 2011 are at a loss, as if that makes it better – it doesn’t.  But it’s 20% for a reason: because anything more than that is not sustainable.  Companies don’t stay in business by selling their goods at cost.  It doesn’t pencil.  Yet, they portray to their consumers that such a price is not only possible, it’s fair.  Painter directly revealed to us he doesn’t subscribe to the notion that people will see cheaper prices and feel entitled to them.  He instead thinks people will see what the costs are to the dealer and voluntarily pay a higher price.  It’s possible, but all of the comments from real customers that have generated over a number of neutral, non-automotive sales sites have not expressed that sentiment.  They want a lower price.  Who wouldn’t?

TrueCar encourages a ‘Race to the Bottom’:  FALSE - Not in practice.

The slippery slope is a fallacy. Unquestionably, Painter paints the picture to consumers that dealers and salespeople are dishonest and untrustworthy to consumers.  But in addition to price, location and selection are huge factors in a customer choosing a car dealership.  It’s always been like that.  When we started seeing fixed pricing on the Internet, the same fear arose: “Only the dealers with the lowest price will get the customer!”  This same sentiment came about when people started valuing their trade-ins online.  And when Edmunds, KBB, RealCarTips.com and all the other sites that are motivated by fixed or inventory pricing popped on the scene, the lowest priced dealer was prematurely deemed the only would-be survivor, duking it out at the bottom with whoever is left.  Yet here we are, over a decade later, selling cars.  The information is out there to be had – this isn’t new.  But either people aren’t finding it, aren’t looking for it, or at times, don’t have any interest in it.  The lowest price doesn’t always win.  Customer service, experience, location, selection, and trust are dominant and are all things that a dealer has control over. These are some of the many things that distinguish automotive retail from a commodities market.

TrueCar wants to eliminate the salesperson from the business.  TRUE

Although Painter said in his interview with us that he encourages the customer to go to the dealer and try to find the right car for them, and that TrueCar supports that one-on-one dealer relationship, his public statements, time and again, evidence the opposite.   Even as far back as 2008, when TrueCar more or less launched at a TechCrunch conference, Painter stated that there are too many dealers and it’s “completely unnecessary” to have so many, directly indicating that there’s no need for a large number of dealers as it stands now.  What’s interesting is that TrueCar wants to provide not only customers with information, but also dealers with information that they can use to target their audience.  He relayed some data to DrivingSales in our interview about car buying behaviors; for example, in some zip codes, people will travel 100 miles to save $100 on a car sale, but in other zip codes, namely the Los Angeles area, people won’t travel 5 miles to save $5000 – a direct indicator that multiple dealers are needed to serve the customer as they want to be served.  People still have their loyalties – to brands and to dealerships.  People want someone to hold their hand, to confirm their information, and to hand them the keys.  Those things don’t change just because some people are interested in a better deal.  Most cars won’t sell without you. 

Now What?

TrueCar is a company that saw a need in the industry from a consumer perspective and is capitalizing on the opportunity.  Everything new that has come across a dealer’s table in the past has done the same thing: frightened the dealer on the possibility of extinction.  But that’s the nature of any business.  New ideas, products, or models arrive that change the space and force businesses to adapt if they want to survive and thrive.  TrueCar may or may not be good for our industry, but it is not going away.  Neither is it taking over the lion's share of the media market, at least not with a cost per action model tied to the sale.   

When it comes right down to it, no dealer's future ever rested in the hands of the media, and surely not one tiny slice of it.  How will the advent of this company and similar ones challenge you to be better?  What will you do to ensure your space in the market and continue to improve the company you, your family, or investors set out to create?

Brian Pasch
Lindsey and Dennis, this is a well formed piece of this hot topic. I would add that the another compelling issue that was not discussed in this initial piece. Is TrueCar state advertising and brokerage laws. For example, one state dealer association has told me that they will be sending out a letter to all their members informing them that their legal counsel has advised them that TrueCar breaks over five automotive advertising and brokerage laws. Is the TrueCar model acting as an automotive broker? If so, many states have licensing laws for brokers or forbids brokering at all. Is the Price Protection Certificate compliant with states that require the advertised price to include all fees, regardless of disclaimers? As soon as the letter this released this week, I will post the link. To me, dealers can debate the merits of the TrueCar model but if dealers will be wide open for lawsuits, this is a much bigger issue. My concern is that as soon as these state associations go public with the claims, opportunity seekers will start filing lawsuits against dealers. So, let's keep an eye on the legal issues, which could end up to be the real costs involved in being a TrueCar member dealer.
Jim Bell
Gotta love the TrueCar debate. I looked at signing up with ZAG about a year ago, and really looked at it and it just didn't make financial sense to go forward with them. Why would a dealer spend all kinds of money with their online advertising, and then on top of that, pay an additional $300 to ZAG/TrueCar to lose money. I know of a 17 roof top dealer that had all of their stores on the program. Since all of this has come out in the last few weeks, they have since canceled their partnership with them. They did their cost analysis and it was a 'nightmare.' Chances are, you are going to get that same customer that would have submitted a lead with TrueCar or with any of the other providers. As Jerry said it, "Kill the Beast."
Rob Fontano
As a dealer that has used Zag/TrueCar, I can tell you that they do pit dealers against each other every month. You will receive a report telling you where you need to be to be competitive with like makes and models even if you are 100 miles or more apart. It is the dealers choice to lower their prices in order to garner more leads, but if the customer is in your back yard and the other two dealers are 100 miles away, the customer still walks in with the TrueCar pricing from those dealers. That in effect creates a "race to the bottom" in my mind and drives down the value of those vehicles in those markets.
Arnold Tijerina
Reality is that as long as any dealers are using TrueCar as a lead source, they'll do as you say Rob, print out the price from your competitor who IS on TrueCar and bring it into YOUR dealership. In most cases, even though you aren't on the TrueCar program, your desk managers will still "try" and sell the car to the consumer if only to move a unit. Only upside is you won't have to pay the $300 fee to TrueCar. Bottom line is that dealers are sending this data. Nobody is stealing it. If a dealer has an issue with anyone using their data, they should be aggressive in reading contracts and policing their own data. It's their responsibility to know what data is being sent, to whom, and how its being used. Simply pointing a finger at TrueCar and making them the bad guy is misguided. They aren't the only player in the game. This is the most objective article I've read about this situation. Kudos.
Jim Elliott
Good article! Long before TrueCar there was always a competitor in your market selling cars at or below invoice, and there always will be. Reality is that new car margins have been reducing since the 1980's and are now paper thin. This is a business with multiple profit centers to withstand low new car margins, and dealers with high service absorption continue to win the battle in the marketplace. TrueCar is accelerating a dealership trends and dynamics that have been in place for years. Price negotiation is a sensitive issue. Most customers don't want to get take all the dealers profit at ridiculously high prices. They just want to know they are not getting creamed and paying hundreds/thousands more. Good one-price dealers are more transparent about pricing in their market and build trust that way. Consumers are looking more for transparency than for crazy low prices.

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