For a businessman, there are few things worse than having to start all over again – unless it involves losing millions of dollars in the process.
But few in the auto industry have had more experience reinventing themselves than Scott Painter, a serial entrepreneur who has repeatedly come up with concepts aimed at rethinking the way cars are sold. Among the companies to his credit are CarsDirect and TrueCar.
The latter website made waves when it began offering U.S. car buyers the sort of deep, insider pricing information that hadn’t previously been made public, including not only data on what dealers really paid for a vehicle but also the lowest prices that customers were getting away with paying.
Not surprisingly, that didn’t sit well with retailers who accused TrueCar of violating various strict franchising laws. Notably, states like Texas and Virginia bar so-called “bird-dogging,” or auto brokering, where a third party steps in to help a customer get a better price.
Early this year, Painter and company waved a white flag and promised to work with, rather than against, dealers, hoping to develop a new approach that would keep them happy – but without angering consumers by shattering a model that promised to help them get the best possible deal.
Painter, 44 – and about 44 pounds lighter after a year in crisis mode – recently came to Detroit to discuss the reinvention of TrueCar. “We’re like a well-funded start-up,” he laughed, “only we’re entering our eighth year. We lost a lot of money. I lost a lot of weight. We looked into the abyss and decided we wanted to work with the industry rather than fight it.”
TrueCar wasn’t the first web service attempting to provide shoppers with useful pricing information. There are plenty of websites that offer “invoice pricing” statistics. But anyone familiar with the industry knows that there are all sorts of hidden discounts, such as so-called “holdbacks” that lower the actual dealer cost. TrueCar’s focus on transparency revealed the real numbers.
But that original model, Painter acknowledged, all but made it impossible for dealers to earn any money at all. It effectively created an environment that kept driving down prices to the point where retailers would have to drop below cost to keep new car customers and hope to make it up on other parts of the business, such as the repair shop or by mark-ups on financing and insurance.
“We became known for being the ‘Crazy Eddie’ of cars,” said Painter, a reference to a one-time New York City electronics retailer famous for drastically undercutting the competition.
Over the last 12 months, TrueCar has moved away from that model. Complicating the process, it has had to develop sites that comply with various franchise laws in all 50 states. The changes to the TrueCar site no longer reveal the rock-bottom number, though Painter and his associates insist buyers still get a real-world snapshot of a fair price – and can compare any offer with what other buyers nearby have been paying.
“We’re not (showing) the lowest price on the market” anymore, he explained, though he insists the revisions translate into a fairer and “better experience.” And the service is now more focused on helping customers learn what else a dealer provides.
Larry Dominique, a former Nissan executive now running TrueCar’s Automotive Leasing Guide subsidiary, contended there is more to focus on than just price. Smart shoppers want to make sure they’ll be taken care of by a dealer, which includes good service when needed and added benefits like a loaner car when a vehicle has to go into the shop.
“In the part, we were about money and proximity,” Dominique explained. “We weren’t focused on the qualitative aspect of finding a great dealer.”
Whether the new model will play well with shoppers remains to be seen. But the revised approach is clearly making dealers happy. Prior to the legal flap, TrueCar represented 5,600 retailers. That fell to 3,170 before the new approach was announced. Now, Painter hints that the dealer count is “almost back” to its earlier peak and still growing — the site itself claiming 5,097 current dealers — with 40 of the 50 largest U.S. dealer groups now signed on.
One reason is that TrueCar hasn’t changed its original payment model. Most auto pricing services are built around a referral, or lead, model. Their goal is to get website visitors to click on a dealer link. Each time that happens they get paid. TrueCar only makes money, however, when someone actually purchases a vehicle.
Painter claims that 30% of the shoppers who go beyond the basic process of just checking pricing and who actually connect to a dealer through TrueCar wind up making a purchase. While it’s difficult to get precise industry data, that would seem to back his claim that TrueCar generates more sales – and more revenue – than the industry’s lead-generating giant, Kelly Blue Book, despite having just a fraction of KBB’s traffic.
TrueCar is seeing 400,000 visitors monthly, a figure that jumps to 600,000 when one includes affiliate sites. Painter won’t reveal precise financial figures but by comparison, KBB documents indicated it is generating $125 million in annual revenues on 8 million unique visitors a month. Painter did confirm that TrueCar posted “substantial” losses for most of 2012 as it rejigged its business model – but insisted it is now moving back into the black.
Would that lead him to take this, the 14th company he has started, public? “I don’t care,” Painter asserted. “We’re probably a year away from even thinking about it.”
No surprise there, of course. TrueCar will have to prove that the new model really will work for the industry and consumers alike – no easy feat – and generate significant revenue before investors would be willing to make their own guess as to what its own stock might be worth.