Monday, February 06, 2012

Online Car Shopping Service, TrueCar.com Caves in to Pressure by Auto Industry

You, the car buyer, just lost a big battle that you never even knew was going on! Regular readers of this blog and my Hometown News column, and listeners to my radio show know that I praised TrueCar.com for “Changing the Way Cars Will Be Bought in the 21st Century”.  TrueCar was started by a young entrepreneur, Scott Painter, in 2008 and has grown remarkably up until now. Last year about 235,000 cars were bought through TrueCar, 2% of total USA car sales. Private investors have poured $275 million into the company. Why was it such a good company? For the first time ever, a car buyer was guaranteed the absolute lowest price in the market for any make and model. Once car buyers heard about TrueCar and understood what they did, it was a “no-brainer”. To buy a car any other way was insane. TrueCar was the best thing that ever happened to car buyers.

Now, it’s just like every other online car buying service, back under the control and manipulation of the car dealers. Last week TrueCar knelt down and surrendered to “The Man”, the power establishment of large car dealer groups like AutoNation, manufacturers like Honda, and politicians and regulators in the pockets of dealers in states like Colorado. As the pressure mounted, TrueCar was forced to stop doing business in 14 states. Their dealership members plunged from 5,200 last year to 4,200 this year. TrueCar makes their money, not from the car buyer, but from the dealer. The dealer pays TrueCar $299 for each car they sell on their program. The politicians, manufacturers, and large dealer groups caused many dealers to drop out of the program costing TrueCar millions of dollars.

Last week TrueCar stopped posting the lowest price in the market for you to choose. Instead, they offer a “target price”. A target price is higher than the lowest price in the market. To get the “lowest” price, you now have to contact the dealer. You’re not much better off than you are with no buying service. The MSRP on every new car window sticker is a “target price”, but you have to contact the dealer to get the lower price. I’ll agree that the MSRP is probably higher than the target price, but the principal is the same. If you have to negotiate with each dealer to get the real lowest price, how is the target price any better than sticker price?

Now, when you go to www.TrueCar.com and try to find the lowest price, you will find all of the dealers listed have the same “target price”. If a dealer submits a price above the target price, he is not listed. Before this capitulation to the power brokers, you had the price that each dealer in your market had submitted to TrueCar as his absolute lowest price. Now that price is hidden from you, the car buyer, only the car dealer who submitted the price and TrueCar know the lowest price.  In fact, other dealers don’t know the lowest prices submitted by their competition. They know only their own lowest price. This removes the very essence of what formerly made TrueCar, the car buyers’ best friend…COMPETITION between car dealers.

Now a TrueCar customer is right back to the old way of buying a car which is to call, email, or personally visit a dealer and ask him what his best price is. This invites the same old run around that you’ve probably experienced hundreds of times. “Are you prepared to buy today? That car is no longer available but I have another one just like it. When you’re ready to buy, come back and I’ll beat any price you get. That $999 is our “dealer fee”. All dealers charge this and we’re prohibited by law from removing it. The pinstripes, nitrogen in the tires, paint sealant, and fabric coat are an extra $1,799.”

I’m not a lawyer, but this whole thing sounds like price-fixing to me. A free market place is supposed to allow and encourage sellers of the same product to offer their lowest price to the buyers. Buyers are supposed to be enabled to easily choose the lowest price from among those offering those products. When sellers and manufacturers conspire to thwart this process, it’s called price fixing. Right now you can go on the Internet, click on www.Amazon.com  and dozens of other online retailers and select most any product (except a car) and find out the names of the sellers and the prices sorted from the lowest to the highest. Of course, you can also read customer reviews and determine shipping costs before you make your final decision. What makes cars exempt from that free market place process?

I’m especially disappointed in Scott Painter, founder and CEO of TrueCar because he had a really great concept, an “out-of-the box”, genius idea.  He could have been the Steve Jobs of online car buying services and changed the way cars were bought all over the world, just like Steve Jobs changed the world with the Macintosh, iPod, iPhone, and IPad.  But unlike Steve Jobs who stood up to enormous pressure from the establishment and most everyone telling him this can’t succeed, Scott Painter threw in the towel to make the fast, sure buck and avoid the conflict that lay ahead.

The good news is that someone will come along, take Scott Painter’s idea and have the courage and perseverance to make it work. That person will change the way cars are bought in the 21st century. 

11 comments:

  1. I ALWAYS TURN THE CHANNEL ELSEWHERE WHEN I HEAR THE IDIOT RINGS OF PHONE AND THE VOICE, "EARL STEWART" --HEARING THIS IS MOST IRRITATING AND CERTAINLY "does not" MAKE ME WANT TO EVER DO BUSINESS WITH A CO. WITH SUCH AN IRRITATING COMMERCIAL THAT ONLY MAKES ME WANT TO NEVER DO BUSINESS THERE. I AM NOT ALONE IN FEELING THE SAME WAY ABOUT NOT WANTING TO HEAR THE STUPID "COMMERCIAL" THAT TELLS NOTHING ABOUT "WHY" OR "WHAT" IS THE REASON ANYONE SHOULD WANT TO SHOP THERE. I CERTAINLY WOULD NOT WANT TO GO TO A PLACE THAT HAS SUCH IRRITATING "COMMERCIALS" THAT THE PUBLIC HAS TO ENDURE IF NOT TURNING TO A DIFFERENT CHANNEL.

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  2. Dear Anonymous,

    Thanks very much for your critique on my TV commercial.

    It's interesting that you say, "I CERTAINLY WOULD NOT WANT TO GO TO A PLACE THAT HAS SUCH IRRITATING "COMMERCIALS. I AM NOT ALONE IN FEELING THE SAME WAY ABOUT NOT WANTING TO HEAR THE STUPID "COMMERCIAL"

    We are the largest volume car dealership in Palm Beach County, the 6th largest volume Toyota dealership in the Southeast USA, and the 13th largest volume Toyota dealership in the USA.

    Apparently the rest of the world doesn't share your views about this TV commercial...or maybe they like us and Toyotas so much that they buy cars "in spite of my commercial".

    What do you think?

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    Replies
    1. I think that means that you are a liar when you claim to not use the same deceptive sales practices as the other "largest volume" dealers in America. You cannot brag about being in a group while also decrying how you are different from the group.

      That's what I think.

      Delete
    2. Dear "Anonymous",

      Here's what I believe...You're a dealer or employed by a dealer, a competitor of mine, whose "lunch I'm eating" and you're simply very angry about that.

      It's easy to hide behind anonymity and make accusations and call me names. If you truly believe that I'm a liar and engaged in deceptive sales practices, please be specific and come out of the closet. Be a MAN.

      Delete
  3. I, like you am not an attorney. I thought there may be some "price fixing" as well. You see, TrueCar reps called & emailed dealers and asked them to "adjust their prices" and suggested that they were not "competitive" in their regions according to dealers that were in the TrueCars network. The question I had/have is, Is it legal for TC to manipulate, control, affect prices up or down? My reading of FTC & DOJ rulings suggest to me it may be.
    I work for a dealership.
    Thomas A. Kelly

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  4. You said: “Last week TrueCar knelt down and surrendered to “The Man”, the power establishment of large car dealer groups like AutoNation,…….” FACT: Mike Maroone, COO of AutoNation is on the board of directors of TrueCar.
    I suggest that it would be in AutoNation’s best interest to see TC succeed, When all the competition is gone and only AutoNation still stands….What happens to prices then?

    I work for a dealership.
    Thomas A. Kelly

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  5. Thanks for your post, Tom.

    The price fixing I was referring to was between dealers in the same market. I was called by another Toyota dealer and asked to keep my prices the same as his and not to try and post a lower price. Of course, I refused and advised him that he was breaking the law by asking. If TrueCar is calling dealers and advising them how to price their cars, I'm unaware. But if they are, I agree that this is price fixing too.

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  6. Earl,
    TrueCar succumbed to its own hubris. Dealers were TC's ONLY paying customers ($299new/$399used per sale), and yet TC treated its customers in precisely the same disdainful, condescending, and and unethical manner that they claimed to be saving consumers from! Irony was think on that one. As well, TC's Scott Painter made no bones about wanting up to 70% of dealers in a market closed, and that he was going to open up on taking the aftermarkets from dealers, as well.
    In my opinion, dealers have allowed a culture to build up where folks can't decide which is more painful, the dentist or buying a car--and TC ran right in that door. It was the schizophrenic approach that TrueCar took--"pro" consumer but got paid by the dealer?--that was its undoing. In the end, they couldn't react to the dealer body the way they wanted because, again, it was DEALERS who paid them! Anyway, vs. Tom Kelly's point about Maroone from AutoNation being on their board, TrueCar is a TrueSnake. You just have to dig far enough to see it.
    And, for consumers, who do you think REALLY paid that $299/$399 fee? Exactly. The dealer passed as much as possible on to the buyer.
    And took the heat for any issues with that.
    A really poor business model for many dealers.

    Thanks!

    Keith Shetterly
    Auto Consultant/eCommerce Director for Dealership

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  7. Dear Tom,

    Mike Maroone being on the board of directors of TrueCar is a very good thing for TrueCar and my guess is that Scott Painter, the CEO of TrueCar invited him to join. AutoNation is the largest auto dealer chain in the USA and what better way to ensure 226 AutoNation dealerships to pay $299 to TrueCar for every car they sell through them? The problem was that AutoNation didn't like the way TrueCar was originally set up and I'm sure Mike Maroone was one of the key forces that brought TrueCar to their knees and changed back into just another online buying service.

    I don't know if Mike Maroone is an investor in TrueCar...I doubt it. Sitting on the board, as I said, was Scott Painter's attempt to win over Maroone, but it backfired when Maroone didn't like how this was the competitive pricing was dragging down AutoNation's profit margins.

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  8. Thanks for your posting, Keith.

    I don't agree that charging the dealers was TrueCar's undoing. After all, virtually all of the other online buying service charge the dealer, but monthly, not per sale. Every dealer that pay an online service monthly passes their costs, as much as possible, to the customer too. All businesses price their products as high as they can and still remain competitive. If you want to call that passing along as much of their costs to the customer as possible, OK. But what's wrong with that?

    Where TrueCar went wrong was in bowing to the pressure. Scott Painter, his investors, and board PANICKED when they should have stood tall and tough.

    Dealers can't stand to see their competition "eat their lunch" and just one TrueCar dealer of a given make in a market would eventually dominate that market under the original setup. If Scott Painter had been a stronger leader, he could have survived the first wave of attack and won the war. If he had to lower his price and sign just one dealer in every metro market, he would soon have all their competitors begging to come on board.

    Once word got out to the public that there was one company that could guarantee the lowest price on the new car of their choice, the world would beat a path to their door. They were almost there...great national advertising, a $275 Million war chest, powerful partners like American Express, Consumer Reports, USAA, GEICO, AAA, Yahoo. They even bought ALG.

    My prediction is that somebody will come along and copy TrueCar's original model, maybe lower the price or go to monthly billing, and lobby the consumers to support them. It's the car consumer that got screwed by TrueCar caving in to the Man and they never even knew what hit them.

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  9. nice posting about Online Car Shopping Service with affordable price. Car Service Honolulu

    ReplyDelete

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