My Business Case Against TrueCar

I’ve been personally involved in the debate about TrueCar.com’s “vision” of what amounts to closing up to five or six dealerships in certain areas and creating a salesperson-less showroom and buying experience: a “just-pick-up-the keys” strategy.

Despite certain weak backtracking on some of these points by TrueCar CEO Scott Painter, as late as 2010 he was strongly touting these points about dealers and salespeople with investors and the public. And his employees were stating it publicly as a solid direction well into late 2011. 

Whether you like that direction or not (and I certainly don’t), there are dealers who ask if TrueCar can help them increase car sales. Here’s why I think it doesn’t.

First, TrueCar does not contribute to incremental business. It is a “new way for consumers to shop,” according to the firm.

Its roots are with Zag, a firm that directed sales leads to dealers from an affiliate network. Zag partnered with companies such as insurance firms and financial institutions that then offered their own “private-label” car-buying websites.

Many dealers signed up with Zag in order to get those few affiliate deals that may have fulfilled dealers’ monthly bonus quotas. We often had to do the affiliate sales in order to reach sales goals established by auto makers. But dealers did so by giving up gross and financing.

And Zag was paid only if a lead led to a sale ($299 for new vehicles, for example), which was a deal that many dealers felt they could not pass up.

Zag has since morphed into TrueCar. But now the latter is chasing the entire car-shopping public, to the tune of at least a $150 million advertising budget on TV and elsewhere.

A dealer who sold, say, 100 vehicles a month including five Zag deals, now faces the possibility that all their shoppers might get a pricing certificate from TrueCar. Instead of just a few sales yielding little or no profit, the potential is for more and more deals to be that way.

This is not incremental business. It is a replacement of the dealers’ marketing, which is what TrueCar suggests for dealers.

So the customers, dealers’ customers, become TrueCar’s customers, for which you will pay at least a $299 bounty, although in some states TrueCar has recently switched to a subscription fee. It did that in order to avoid violating regulations against-bird dogging, or paying a third party for a lead that results in a sale.

Forget about incremental business. There’s just that bounty a dealer pays, plus the “great” price wrangled out of him by the TrueCar user. Why would a dealer sign up for this?

Second, a dealership’s reputation is its business asset. TrueCar couldn’t care less about your reputation. When the “beta” buyers for TrueCar complained to TrueCar about the process, they complained about the dealer experience, about price certificates not being honored. 

Shopping with the certificate as a negotiating ploy was negative because no other dealer wanted to honor the price to get the business, either. Dealers took the heat if they sold a particular car before the TrueCar buyer, armed with a price certificate, showed up to buy it.

This price-selling is nothing we would allow a green-pea salesperson to do in order to sell a car. Yet, TrueCar claims it somehow is good for our business?  It’s not good for that, or for our reputations.

Third, TrueCar, by definition, has a schizophrenic business model. It claims to be for both the consumer and the dealer. Is it for the consumer? Sure, to drive traffic to TrueCar.com.  Is it for the dealer?  Sure, to pursuade dealers to sign up. 

In 2001, back when he was railing against the stock market, Painter complained of this very problem with Wall Street serving both buyer and seller, and how wrong it was. It’s still wrong.

TrueCar won’t increase your business, may hurt dealer reputations and is not, by any stretch of the imagination, dealer-centric or dealer-supportive. TrueCar is for TrueCar, period.

(Automotive consultant Keith Shetterly, who holds a degree in electrical engineering, is a former dealership Internet manager. He can be reached at 281-229-5887 and [email protected].)