What Is TrueCar?
TrueCar operates a website which publishes prices for new and used cars. Their slogan “Know the Real Price” claims to offer the most transparent pricing data available on just about any vehicle on the market.
So if you are in the market to buy a new car, and have narrowed it down to the one you want, you can go to their site and enter in the year, make, model and TrueCar will give you a price, and list some of the local dealers who can sell it to you at that price (if they pay TrueCar a fee.)
TrueCar doesn’t sell cars. They just try to dictate the way cars are sold, and if it means turning dealer against dealer, that’s what they’ll do. In fact, they’ve been at it for awhile.
How Does TrueCar Rip off Dealers?
TrueCar is ripping off dealers by accessing data and using it to create competition in the market.
A customer who buys a car from a dealership after going through TrueCar will be “proof” that a dealership was able to sell a particular car at that price. If one dealer can do it, others should too, and so the “race to the bottom” ensues.
It doesn’t take long to see how dealers are going out of business.
TrueCar aims to make a commodity out of the car business. I don’t know about you, but buying salt, sugar, coffee beans, soybeans, aluminium, copper, rice, wheat, gold, silver (commodities) is not very realistic for the automotive industry.
That’s where this goes if dealers don’t step up and stop this now. Cars are highly sophisticated, and it turns out that sophistication comes from the US, more specifically Detroit.
TrueCar Is Betting $200M That It Will Take A Long Time To Figure Out What They Did
And quite frankly, they know they are going to get away with it:
In a statement, TrueCar said it is “addressing technical and procedural questions raised by regulators who may not know what to make of our service…. TrueCar invites and takes seriously questions about consumer protection and is vigilant about ensuring that its partner dealers honor their commitments to buyers.”
So what exactly are they doing, and why does this need to be exposed and investigated.
1. They are charging dealers a fee for every customer who buys a car through this process. It’s $299 for a new car buyer, $399 for used.
2. They have access to a growing number of dealership databases so they can accurately charge the dealer for every sale they sent their way.
3. They are currently partnering and acquiring companies that have vast amounts of customer data, pricing data, email addresses, phone numbers, credit scores, and private financial information.
So isn’t it odd that they are charging dealers, the same dealers they may eventually put out of business? Sounds like ethical business practices to me.
Next is the dealers database they so “conveniently” need to have full access to in order to determine whether or not the customer who came in with a TrueCar price sheet actually bought a car. Don’t worry, they don’t care about the price that customer just paid, and they certainly wouldn’t tell your competitors, can you imagine?
The point I’m trying to make on that last one is, that Scott Painter, the CEO wrote on his blog that they don’t use that data:
We don’t use our dealer partners’ information to populate the TrueCar pricing curve. That information comes from entirely separate sources of anonymized data that represent nearly 90% of all vehicle transactions in the U.S.
So what I’m sitting here thinking is, what does he consider the definition of “anonymous data” to mean? If you delete the names is it anonymous? Because, if you have enough data you can certainly cross-reference by email address. That’s crazy talk!, or is it?
TrueCar claims it’s not using the data like that, which seems odd especially for a company that is acquiring data is massive quantities. DealerTrack has already started turning over their data, as of October 1st, 2011:
On August 19, 2011, we agreed to sell our wholly owned subsidiary, ALG, to TrueCar in a transaction structured as a tax-free reorganization. In consideration for the sale of ALG, we were to receive a 15.0% equity interest in TrueCar and a warrant to increase our ownership interest to up to 19.9%. In a separate series of transactions, TrueCar completed a new equity financing raise with other investors. To maintain our 15.0% ownership upon the closing of the transaction on October 1, 2011, we made an additional investment in TrueCar in the amount of $7.5 million through cash remaining on the balance sheet of ALG on the date of sale.
We have also entered into additional commercial arrangements with TrueCar for its use of certain DealerTrack and Chrome intellectual property and data in its products and services. In addition, we have the right to appoint a director to TrueCar’s board of directors, which we have exercised as of October 1, 2011.
[source: DealerTrack Holdings 10Q]
TrueCar Tells Dealers To Change Prices
Now remember the quote from Scott Painter’s post? The one where he states that they don’t use the pricing data. Well it appears that is not true based on the following information shared in an industry podcast.
In Larry Bruce’s podcast, pay attention to the 20:00 mark:
“It has been an absolute race to the bottom, and our TrueCar rep used to call us 3-4 times a week because people were changing prices that fast. TrueCar was telling you this? Yes, they can go in and see the data, and they can see what everyone else was doing…..”
Here’s a recent quote from Painter where he is indicating that consumers don’t have to trust the dealers:
“There’s an average 25% range from top to bottom on what people pay for a commodity — the exact same car,” Painter says. “Buying a car should be more transparent. You don’t have to trust the dealer anymore — trust the data.” [CNN Money]
What consumers should do is question the data.
What dealers should do is ensure the privacy of their customers data.
What the state should do is investigate TrueCar and find out what they plan to do with all the data they claim they aren’t using, and were never authorized to be in the possession of when it was originally submitted.