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 21^st 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 21^st century.