TrueCar is trying to take comparison shopping for an automobile to a new level. Instead of going down to area dealerships and kicking tires, since Jan. 1 Yahoo! Autos’ search, powered by TrueCar, lets you find the best local price with a click of the mouse. I looked at a no-frills Ford Fiesta and discovered that it’s $12,578 at one outlet 45 miles away and $13,483 at another, only 18 miles away. I think it’s probably worth the drive to save almost $1,000, don’t you?
One big advantage is that you don't go into the dealership with your hat in your hands, wondering what you're going to pay for the car. You walk in with a guaranteed, no-haggle price. If the sight of a car salesman agitates that pit in your stomach, maybe TrueCar is for you. The way it works is that the deal is for a model and trim level, not for a specific car with an advertised vehicle identification number.
It works for used cars, too, but in this case it’s a bit more like using Craigslist. I searched for used BMW 3-Series cars, and the service brought up a bunch of them, such as a 2002 325xi with 113,000 miles for $9,774 (11 miles away), or a 2009 328i with 19,000 miles for $28,700 (also 11 miles away, but in the other direction).
Of course, you can also shop at the TrueCar site, too. And the company's data powers a bunch of other auto search functions, including the "Build and Buy" service at watchdog Consumer Reports. TrueCar is growing quickly, and recently raised $200 million. The Yahoo! Autos deal is bringing in $150 million over three years. The company, headed by Scott Painter (pictured right), makes money by signing up dealerships, which pay it $299 for a completed transaction and $399 for used vehicles.
TrueCar, which works with more than 5,000 franchises in 49 states, took part in 250,000 auto sales in 2011 (350,000 since it was founded in 2005). It had a hand in 2 percent of sales in the nearly 13-million-car auto market in the U.S. last year. The company claims it has saved people $1 billion so far, with the average consumer saving $4,154 off the car’s suggested retail price (MSRP).
This is a smart business idea, and potentially very good for budget-conscious car shoppers. But all is not well in the TrueCar universe.
According to Automotive News, regulators in three states — Colorado, Wisconsin and Virginia — have alerted participating dealers that this business model may run afoul of the law. In three other states — Kansas, Ohio and all-important California — dealer groups are telling the same thing to their members. TrueCar itself says it has heard from regulators in six states.
TrueCar’s bargain shopping is handy for consumers, but a lot of dealers are upset. Colorado officials, acting on a complaint from the local dealers’ trade group, are after TrueCar for not listing those vehicle identification (VIN) numbers of cars for sale, using too-small type for disclaimers, and listing prices that don’t include handling and delivery. The state also objects to the company’s use of the word “invoice” (meaning the price dealers reportedly paid for the car) in advertising.
Honda is in a dispute with TrueCar over invoice pricing, too. In some cases, Hondas are advertised at below-invoice prices on the site, and that’s led the automaker to threaten to withhold local marketing payments (which can range up to $600 per car). Honda, obviously, thinks it’s injurious to the brand when cars are advertised at sub-invoice prices. The price I was quoted for that intro-level Ford Fiesta, $12,578, is less than the $12,788 invoice price, too.
TrueCar says all the noise from regulators — who so far are just conducting inquiries, and haven’t issued fines, enjoined the company from doing business, or filed lawsuits — is par for the course.
“Price is what matters in today’s market,” CEO Painter told me in an interview. “We believe in transparency, and some dealers are upset — they oppose transparency and oppose change. But the industry has reached a real inflexion point in how cars are sold.”
In fact, Painter disputes that the invoice price actually has much to do with dealer cost. “It’s a number that the industry publishes so you think it's cost,” he said. “There are many levels of profitability below the invoice price.” According to TrueCar, 24 percent of all cars in the U.S. were sold under the invoice price last year, and a whopping 15 percent were sold below actual dealer cost. “Being in the new car business is a lot tougher than most people think,” said Painter. “The average dealer is making less than $1,000 per car.”
Painter says American Honda may not want its customers to know that it sells cars below invoice, “but in fact it does.”
TrueCar issued a statement saying it is “addressing technical and procedural questions raised by regulators who may not know what to make of our service.”
None of this should prevent consumers from using Yahoo! Autos or TrueCar itself to find the best possible local car deal. The state laws that TrueCar is accused of violating tend to favor dealers, not car buyers. In many cases, dealers — who have a lot of clout in state legislatures, because they’re the biggest generator of state sales tax — would rather you not know how much they paid for a car, or where you might go to get it cheaper.
People do need to be protected from predatory practices and, Lord knows, car buyers have been subjected to enough of ‘em over the years. If it comes to that, TrueCar will have its day in court. Meanwhile, for the wonky among you, Painter goes into great detail in this video about how his company crunches numbers:
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