TrueCar's Embattled CEO: Critics Should Embrace Change

Scott Painter has become one of the most controversial people in the auto-retailing industry.

The issues may not be as black and white as some people think. But clearly, Painter has vexed many in the dealership world.

They claim TrueCar takes financial transparency to an extreme, eroding pricing and hurting dealership gross profits.

TrueCar sends Internet leads to participating dealers but only charges

for leads that result in sales, $300 for new cars, $400 for used. TrueCar taps into dealership-management systems to confirm how many leads become sales so the firm can charge accordingly.

But TrueCar also provides local pricing trends to car shoppers who use its website.

In response to allegations that the pricing info is extracted from dealers’ operating systems, Painter insists it comes from other sources.

Wherever it comes from, TrueCar uses the data to create bell-curve graphics showing consumers recent high-low transaction prices of various makes and models. The site also offers tips on how to get the best car deal.

Armed with that information, consumers then can submit leads proposing how much they are willing to pay a dealer for a vehicle.

Painter tells WardsAuto the TrueCar program represents the new reality of pricing fairness.

He and TrueCar have become the subject of a growing number of blogs and online discussion-group comments, many from people who claim he is trying to undo the industry.

“This is a growing movement,” says Jim Ziegler, a high-profile dealership trainer and a major critic of TrueCar who claims it is a destructive force.

“This is the biggest thing I’ve taken on since my opposition to the Auto Collection,” he says, referring to Ford’s ill-fated plan of about a decade ago to own dealerships in certain markets.    

“Painter istrying to walk both sides of the street at the same time,” says another detractor, auto consultant David Ruggles, a former dealership general manager. “I’m not sure how much longer he can do that.”

As a counter-offense, Painter has conducted a round of media interviews in an attempt to answer his critics and address their “misconceptions.”

While critics are vocal, Painter and TrueCar are not without allies.

Jeremy Beaver, a general manager with the California-based Del Grande Group lauds the firm for providing quality leads and bringing transparency to the buying process.

A contributor to an online discussion group says, “All this whining about TrueCar! It is a voluntary leads provider. If you choose not to participate, then don’t.”

Another dealer did just that. After hearing all the criticism, he says, “I submitted an immediate cancellation of the TrueCar program for all of our 14 stores. Done.”

Group 1, a dealership chain, reportedly has ordered its dealerships not to use TrueCar.

Others, such as Earl Reed, general manager of Ontario Volkswagen in Ontario, CA, are on the sidelines watching what is going on.

“We haven’t signed up with TrueCar; I haven’t done enough investigating. But I have been following the banter,” he says. “Frankly, VW does a great job providing us with good leads. I don’t need another vendor.”

Some auto makers are wading into the controversy. American Honda recently warned dealers about offering vehicles below invoice price on Internet shopping sites such as TrueCar.com.

TrueCar’s business model is ineffective and can hurt dealer-customer relations, says Brian Benstock, general manager of the world’s top Honda store, Paragon Honda in New York City.

He gives a scenario: A customer visits a dealership expecting a guaranteed low price listed on a third-party website. When the dealer can’t meet that pricing expectation, the customer becomes disappointed and suspicious.

“It takes what is already a contentious encounter and adds fuel to the fire because the customers feel like they were bait and switched,” says Benstock.

With a dealer paying TrueCar for leads that become sales, the customer likely will cover that cost in some way, he says. “Whether they are given less for their trade-in or charged higher interest rates, the fee has to come from somewhere.”

About 5,800 U.S. dealerships have signed up to get TrueCar leads. Those that do should make sure they are not overcharged, says Bill McClure, director-Internet sales and marketing for the Fitzgerald Auto Malls, a three-state dealership group based in Maryland.

“We are driving TrueCar crazy because we audit ever invoice, record by record, and we normally find $5,000 to as much as $9,000 in over charges and in being billed for customers who we have already been working with,” he tells WardsAuto.

McClure cites another flaw in the system.

“Dealers load their lowest-selling price per model into a pricing sheet,” he says. “Dealers are then alerted to the lowest price within 60 miles (96 km) of their location so they can see how price-competitive they are.

“However, that low price often is not true because we have found that it is from a market hundreds of miles from our locations. Most dealers do not know TrueCar has a 250-mile (400-km) radius default as a market area.”

The online discussions have drawn in a range of participants. Recently logging on to defend TrueCar is Steven Dietz, a principal in GRP Partners, an investment firm that has bankrolled TrueCar acquisitions such as the purchase of Automotive Lease Guide, a data and residual-setting firm.  

“It’s unusual to see the head of an investment firm taking on bloggers,” Ziegler says. “But what’s going on with TrueCar is unusual.”

WardsAutointerviews the embroiled Painter on the day his wife is expecting to deliver a baby, his fourth child. Here is an edited version.

WardsAuto:What do you make of the controversy surrounding you and TrueCar?

Painter:It doesn’t surprise me. There have been emotional attacks and I understand where they come from. There are misconceptions and assumptions I’m happy to correct.

WardsAuto:  Such as?

Painter: Car dealers and auto retailing have just had their worst stretch in 10 years. It has changed products and it has changed consumers. The TrueCar model represents change, and I recognize it not going to be embraced by everybody. But we are here for the right reasons?   

WardsAuto:What are those?

Painter: Our goal is not to kill dealers or end salesmen. But there is a need to reset the relationship between consumers and the auto industry. People should not hide from that.

We provide pricing transparency to consumers and help dealers sell cars. It makes no sense for a customer to walk into a dealership and pay substantially more for the same vehicle than someone else did. Yet that happens 23% of the time. That type of pricing is what has caused so many negative perceptions of auto dealers.

When people feel they are overcharged, they feel manipulated. Pricing transparency prevents that from happening.

On the other hand, it makes no sense for a dealer to sell cars at a loss, yet many of them do so out of desperation. What’s causing those losses? An oversupply of dealers. Some act irrationally to get the sale, hoping to zing the customer elsewhere. A successful modern dealer knows how to lower costs so he can sell cars and make money. One way to do that is to only pay for leads that end up as sales.    

WardsAuto:Some industry people lament that auto retailing is the only industry where consumers expect to know dealer wholesale prices and just about everything else.  

Painter: Every other industry has pricing transparency. The auto industry is the last to have it. Upfront pricing set by dealers is being confused with a death spiral that brings everybody down. If a retailer consistently sells cars at a loss, let him go out of business. But good dealers today are the ones that offer great customer service and create trust, in contrast to a time where there once was very little of it.   

WardsAuto:TrueCar is good for consumers, but is it good for dealers?

Painter: Competitive pricing lets everybody make money. It is absolutely insane what some people pay for cars. Some dealers massively overcharge and some massively undercharge.

We want to educate people as to what’s fair and introduce them to dealers who offer fair prices.    

WardsAuto: What is fair?

Painter: If you sell a Toyota Prius for $24,000 and another dealer sells the same car for $28,000, that seems like someone is unfairly overpaying. But a third dealer shouldn’t resort to charging $22,000 just to make a sale.

TrueCar is about accurate market pricing. For most consumers, dealership proximity and customer service are essential. But competitive upfront pricing is the price of being discovered.

When consumers sense fairness, it improves dealer gross. Enough bad actors have ruined it for the good actors over the years.

WardsAuto:But a lot of TrueCar critics aren’t what you would call bad actors.

Painter:We offer a provocative approach. We are not apologizing for the view of how to get there. Our approach is not going to help the bell ringers at dealerships. We’ll have supporters and detractors. If people are detractors, they need to learn more about us.

WardsAuto:Would you call yourself a visionary?

Painter:It would be arrogant to label myself like that. We have a point of view and want to be an industry thought leader.

WardsAuto:What is your vision of the dealership of the future?

Painter:  One in which the mystery of  price has left. Once you publish true data, you can’t go back. I don’t see zero salespeople. The salesperson’s role would be to provide a great and pleasant transaction, rather than spend an hour optimizing the price of a car.

WardsAuto:Are you opposed to a commissioned sales force?

Painter: No, I’m opposed to high-pressure sales tactics. But I am just as opposed to a skinny deal as a bell-ringer deal.

WardsAuto: Much of the controversy surrounding TrueCar is the claim that you go into dealership-management systems not just to verify whether leads are closed so you can charge for them, but also to get proprietary pricing information and share that with consumers.

Painter: We do not use the DMS to get pricing information. We buy that type of data from 30 different sources. When you buy a car, you leave a data trail a mile long, from titles and taxes all the way up to auto makers. That information is widely available and in many cases publicly available.

We don’t need to know who the individual consumer is, but we are hyper-confident of our data. It doesn’t rely on one source, and there is a Chinese wall between the DMS and pricing data.

WardsAuto: Some people call TrueCar a broker.

Painter: We don’t set prices, the dealer does 100% of the time. We don’t get involved in sales or do any of the paperwork. We are a performance-based marketing program. We are prepared to defend ourselves against the claim that we are brokers.

WardsAuto: In court?

Painter: Oh, who knows. I spent the majority of my life married to a woman who I ended up in court with. You can go to court on anything and with anyone.        

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