Professional Community for Automotive Marketers, Car Dealers, OEM and Suppliers
(This was a response to a TrueCar Discussion post that I felt worth showing here)
@Jason M...that statement really exemplifies the tremendous misinformation on this entire subject, and a lack of understanding of regulatory issues. Case in point...
When I was heading up a confidential entrepreneurial project for Ford Motor Company over 10 years ago, there was no state license or regulation that was directly applicable to that business model in all the states we were operating in, including California...it was just another case of regulations not keeping up with business and technology...no big deal, it happens in every industry whenever a new business is introduced, and will continue to happen forever. And in hindsight, one could argue that the program we were developing at Ford did many things that TrueCar, AutoNation Direct, Edmunds, et al did, but in one entity, so it was definitely outside the norm back then. So after much discussion with state regulators in CA, they deemed that we were technically "non-compliant," which is absolutely not the same as "illegal" or "breaking the law"...no one was arrested, charged, etc. The regulator simply ruled that we needed to do X and Y to become compliant. One item was that I needed a Used Car Dealer license, which really didn't apply to our business, and they readily admitted that, but they said we needed SOMETHING here, and that was the BEST fit available. Another requirement was signage (which used car dealers had to have), which totally didn't apply since customers would never ever come to our office because we weren't a retail store front. But since that comes with the Used Car Dealer license, we did it to meet the regulation. Simple. Business went on and we learned a TON in our project. Mission accomplished.
Likewise, TrueCar has not broken/violated any laws as you and others have erroneously stated below. Like my example above, TrueCar's business also does not fall neatly within any business licensing category in any state, and we have operated for over 3 years in plain sight, awareness, and discussions with regulators with no issues. Even in Virginia, TrueCar already changed the business model to a subscription model about a year ago when state regulators advised us that the original business model didn't comply with current regulations. So we promptly made that change to alleviate their concerns. However, they recently re-reviewed that revised model and ruled that it was technically non-compliant. So we promptly adjusted the model again to a run-of-the-mill flat-fee subscription model that everyone uses, so we were back in full-compliance. Simple. Business goes on.
We would never knowingly jeopardize a dealer's or partner's business when our success is aligned with their success...to believe that we would do so is just naive and ridiculous. Why would any business knowingly do that and jeopardize long-term success? They obviously wouldn't. I've worked in a lot of top-notch places, and the folks I work with here at TrueCar are as a whole the smartest and most driven people I've ever worked with...I'm literally inspired every day by this team. I also reiterate that I have worked very hard during my entire 20+ year career to help dealers, OEMs, and businesses succeed, and have a strong track record doing so. I have run dealerships, many of my best friends are dealers and general managers, and I would never work anywhere that hurt dealers. There is no such thing as a "race to zero" (if you understand basic economic theory, studied it in college, or read Nobel Laureate George Akerlof's paper on the auto retailing industry and the impact of asymetrical information, you'd get this), TrueCar doesn't increase a dealer's operating costs (but rather, reduces them), and transparency and upfront pricing doesn't lower CSI, but rather, improves CSI (and improves closing rates...I never lost a deal when a customer brought in an Edmunds TMV report into the showroom...you just have to know how to use it in your process.). And so on.
However, if anyone still wants to challenge me on regulatory issues and franchise laws, as I've said many times, I'm all ears. I've signed more Sales & Service Agreement docs on the OEM and retail side, developed more pro formas, analyzed more financial statements, worked on more market studies, worked on putting dealers into business, worked on taking dealers out of business, etc. than everyone in this thread combined. I would consider myself to be an expert on the subject, so I don't wildly speculate or spin because I actually know firsthand what I'm talking about. I've said many times before, it is impossible (nor is it desirable) to eliminate all dealers through any company, be it an OEM, or TrueCar, or AutoTrader, or Costco, or anyone. To actually believe that this is either possible, or a business objective, is ignorance and fear-mongering at its best. If anyone actually believes this is possible, please explain how because I'd love to hear it. Until then, this argument should be dead forever because it's ridiculous to allege an impossibility. If anyone wants to have an intelligent discussion about this, I'm happy to do so. If you want wildly speculate about things like dealer counts, perpetuate factually incorrect and untrue statements, and/or serve up any number of conspiracy theories out there within a one-sided, biased forum, sorry, I really can't help you there because I just don't have time to waste like that.
Pay-for-performance is a key element of mutual success for TrueCar and our Certified Dealers. Ask any traditional or digital marketing company to let you pay them only if they deliver X-amount of qualified traffic or actual sales. Some (like TrueCar, direct response companies I know, etc.) will, because they are confident in their ability to move the needle...but most won't for a variety of reasons. Likewise, ask any dealer consultant or vendor if you can pay them AFTER their consultation/seminar/training/visit IF AND ONLY IF the dealership actually improves as a direct result. A vast majority won't largely because they a) aren't that good, and/or b) aren't confident they will actually help the dealer move the needle. I'm happy to consult dealers on a performance basis. If the dealership misses the mark, the dealership doesn't pay a penny. But if we hit it, then the dealership pays a premium. Simple. Next time a marketing company, a vendor, or consultant wants to do business with you, throw that contingency option out there for them and see what kind of response you get...it tells you a lot about what you will actually get out of the deal. I still have an open consulting challenge to anyone opposed to TrueCar. We'll have NADA or NCM select 6 dealerships with comparable issues and comparable opportunities, put the names in a hat, and I along with any 5 of you in this thread will draw names. We'll spend a year consulting for our respective dealers, and after that time, we'll have NADA/NCM pick the dealership with the most improvement in New, Used, F&I, Parts, and Service sales and profitability, and CSI too. Winner gets paid a premium (the "pot") for time and travel as well as having bragging rights, and the rest get no compensation whatsoever. I'm in, and am waiting for 5 folks adamantly opposed to TrueCar (or KBB, or Edmunds, or whomever) to step up to the challenge to see who REALLY knows what's best for a new car dealership's success as a whole, and how to get them there, and who doesn't. Who's with me?
At the end of the day, the value proposition for a dealer using TrueCar is strong. Is it for every dealer? Of course not...what is for EVERY dealer?! But If it wasn't a strong value proposition, thousands of dealers wouldn't still be active on the program, and a record number of dealers would not be contacting us to sign up for TrueCar to capitalize on new marketing opps. This is largely true because progressive dealer principals, GM's, GSM's, OEM execs, industry analysts, etc. understand the facts, truths, and the need to radically transform the business in light of tremendous future demographic shifts in the market that will DEMAND new ways of doing business; they will not accept what goes on in most dealerships today (especially Millenials...wait 10 years and see what havoc they bring to dealerships that cling to old-school practices like non-transparency, four-hour in-dealership negotiations, non-consultative selling, etc.). Interestingly enough, those most opposed to TrueCar (or KBB Reality Check, or Edmunds TMV, etc.) are usually sales managers, sales consultants, BDC folks, etc., largely because of a variety of issues both within and beyond their control I've stated in the past ad nauseum (e.g. dealership accounting practices, packs, value selling, etc.). To quote arguably the best dealer operations consultant in the industry and good friend of mine, "I understand why you do what you do, but I don't understand why you do what you do." That is what he often says to dealers when they do things that help one position or one department at the expense of negatively impacting the dealership as a whole.
We all intuitively know that the experience in dealerships is still relatively poor compared with other industries...it's like we're alcoholics in denial that we are alcoholics. JD Power research clearly shows this (and adds that price negotiation is the biggest source of dissatisfaction for 4 out of 5 customers), as do numerous other research studies on customer satisfaction (and don't confuse excitement of owning a brand new car with satisfaction of the process to get that new car...two very different things). Case in point...I went to a Honda dealer here in SoCal to test drive an Insight (I never tell people that I am in the auto industry because I want to get the "real" customer experience). During the test drive, I asked him why I should get an Insight over a Prius. His response? "Because it's a Honda." Thanks for the tip. So I laid out another softball question and asked him if the Insight was better technology, or lower price or whatever. He said, "Well, I don't know much about the Prius (?!?!), but the Insight is a hybrid that..." Strike two. When we got back to the dealership and the sales manager came out of the terrarium on a soft t.o., after some ice-breaking chit-chat, I asked him my initial question, to which he replied, "Well, I can guarantee you that our gas pedals won't stick!" Strike three. I wish I had a video camera because you can't make this stuff up. And of the 12 dealerships I visited across 6 different franchises that week, that was honestly the typical experience...the worst experience by far coming from a BMW store, and 1 dealership (VW) actually providing a pretty decent experience.
Like I said, I believe we all intuitively know that the experience is poor, and can prove it. Answer this simple question: Would you let your loved one (who was not a car expert, like my mom) go into a dealership in the area and buy a car on his/her own unassisted by you in any way? The answer is obviously "no." My mom would get raked over the coals as would your loved one too (or at least thoroughly taken-advantage of.). In fact, I have never met a dealer principal or employee that would tell their best friend or next door neighbor to just stroll into any of their dealerships unannounced and buy a car WITHOUT a) first setting up the deal in advance or b) telling the friend/neighbor to name-drop to then set up a deal in advance. Why? To help them get a fair deal and ensure a positive experience. If the process was fundamentally sound to deliver a great sales experience 100% of the time, this would absolutely not be necessary (Process Management/TQM 101). But the dealer principal knows what would happen to his/her friend or neighbor without his/her involvement in the deal. At least a 4th-gen dealer who reached out to me recently in support of TrueCar answered that question with an emphatic "no!" and added that as good as their dealership was (which it is), he was not confident his mother would have a satisfactory experience and a fair deal if she came in incognito and purchased a car on her own. I appreciate that honesty.
Once we get past the denial phase, the blame phase, and all these other excuses we're using (as I heard these same excuses and arguments when the internet came around, when Edmunds TMV came around, when TrueCar came around, when KBB Reality Check came around, and so on), we can then work collaboratively together to tackle serious issues and opportunities that dealers are faced with. Like I said, Millenials aren't like Baby Boomers...they are very tech-savvy, accustomed to shopping online, and will not tolerate nor accept the general experience provided in dealerships today. They will aggressively/actively seek out dealers that meet their needs (and spread that word), and/or come up with alternative solutions to the car-buying experience to fulfill that need. IMO, any dealer that doesn't meet the demands of this audience and radically changing market will become another Borders Bookstore within the next 10 years. But I'm an optimist, and believe that together, we can meet that challenge and do so successfully.