When Bon Scott sings “What I want I take, what I don’t I break,” in this AC/DC classic, the “problem child” he’s referring to could be TrueCar.com. The digital car marketing channel solves a big problem for consumers who aren't in love with dealerships and hate haggling. But, um, they have created some, too.
To rehash this year’s hotel-room trashing: there are three lawsuits the company faces now from dealers in New York (who accuse the company of false advertising for its no-haggle promise); there's the suit from the California New Car Dealers Association that argues that TrueCar, as a price-setter that takes a cut of actual sales, is pretty much a dealer and de facto broker (which takes the firm way beyond the lead generation model, into a gray area that kind of forces dealers into a new business model, too: warehousing cars); then there was a shareholder suit in late May.
And then there was last week's dour news from the Street when TrueCar's stock hit the mosh pit with a 36% free-fall after the company missed Q2 targets. The company blamed its slower-than-expected traffic and sales, in spite of more money spent on marketing and dealer recruiting.
Scott Painter, the company's CEO, might want to pull back on his claim that the company will ultimately command 40% of all car sales (about 10 times what it drives now.) That statement by itself is sure to make dealers love him.
Which is good because he also says the company doesn't have a dealer problem. But there could be a problem in CFO Michael Guthrie's statement, “We had a lot of prospects this quarter; we just didn’t close enough. So we have to invest more in the [TrueCar] experience to turn those prospects into unit sales.” Actually, maybe a couple of problems here.
Industry veteran Jim Sanfilippo points out the inconvenient truth that the industry has kind of been up all year. Hello? What did TrueCar, which, theoretically, has access to a mountain of dealer sales data, miss? If I were an investor and TrueCar were my advisor, I'd be saying something like, “WTF.” “There's a real disconnect here from a company that is data driven,” he says. “Why didn't they see this coming.”
Second problem to my ears is that Guthrie's assertion sounds an awful lot like an unhappy dealer on the 31st of the month. Maybe his are not the wisest choice of words, given what TrueCar is facing in court. If I didn't know better, I'd have sworn Guthrie was speaking as the CFO of an OEM, or of a dealer holding company like Sonic Automotive or AutoNation. When I hit my mental “translate” button I’m hearing, “We didn’t sell enough cars.”
Which brings up the other recent bad news for TrueCar: AutoNation's decision to part ways with the firm. Seems AutoNation, the largest dealer group in the U.S., wants to develop its own system for driving sales and revenue, which it has been testing already.
Sanfilippo sees a big lesson for dealers and OEMs in all of this. “Consumers don't want to negotiate anymore, and they don't have to. There's a better way; dealers and OEMs need to embrace that the transaction experience is officially and forever more part of the brand,” he says. “TrueCar had a viable idea: consumers will pay lobster prices for good lobster. And people still hate buying cars from dealers.”
Dave Winslow, VP of digital strategy at automotive on-demand dealership software company Dealertrack Technologies, seconds that emotion, making the point TrueCar could be something of a canary in a coal mine situation for both dealers and automakers. “Dealers haven’t kept pace with technology.”
But he sees that changing, noting AutoNation is rolling out its AutoNation Express initiative this year; Sonic has also been developing a retail iPad pricing application, and automakers are also building out their own real-quote-on-real-car programs, e.g., General Motors’ “Shop, Click, Drive” online sales initiative. “We are seeing growth in that technology where a consumer can put down money, reserve the car, and put in the paperwork, including registering and even titling, digitally,” he says. “But there needs to be a lot of support from manufacturers to move dealers into the digital realm."
Winslow says KBB.com and Edmunds.com’s focus on ad-supported editorial content and research, not just driving sales, gives them an outrigger business TrueCar doesn’t have. “People need to find objective research in the market. So we see a lot of growth in regular advertising. The fact is, if you want to get into the differences between the Chrysler 200 and Focus, you are not going to TrueCar.”