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TrueCar.com Founder Reinvents Himself After Almost Killing His Company

TrueCar.com Founder Scott Painter Gets A Do-Over After Almost Killing His Company

TrueCar.com CEO Scott Painter
 

The ADM Professional Community was at the center of the storm a year ago when the retail auto industry joined together to both critique and reject the public facing TrueCar business model.  Since that time, numerous changes have been made at TrueCar in multiple areas.  I have previously published an article on ADM asking the industry to consider reevaluating TrueCar based on over a dozen significant changes to their business model which have each been designed to benefit car dealers and their customers.

 

One of the most striking of all changes at TrueCar has been the attitude, demeanor and statements made by Scott Painter relevant to the retail auto industry and car dealers.  I spent over an hour of one on one time in Scott Painter's office last July and was struck by his candor, willingness to acknowledge the mistakes and miscalculations he had made in the past. 

 

The following article was recently published by Forbes Magazine and offers some deep insights into the changes that have occurred within TrueCar and rare insights into the changes that have been made on a more personal level by Scott Painter:

 

Serial entrepreneur Scott Painter, founder of TrueCar.com, has spent much of his career trying to tell auto dealers how to run their business.

 

Written by Joann Muller, Forbes Staff

Over the past two decades, he has founded 37 companies, many of them auto-related, and has raised over $1.25 billion from investors who share his conviction that buying a car is a painful experience in need of an overhaul.

 

Few would argue with that assertion. But Painter’s latest attempt to disrupt automotive retailing by sharing transaction data over the Internet stoked enmity among thousands of car dealers, who complained that TrueCar’s marketing tactics had triggered a price war that was driving them out of business. Mike Jackson, chief executive of AutoNation, the country’s largest dealer group, spoke for many when he blamed TrueCar for creating “a race to the bottom.”

Even Painter now sees that his original business model was unsustainable. “If 10 to 15 percent of cars are sold at a loss, it threatens the survival of the ecosystem,” he said. TrueCar’s business model is based on the simple premise that car pricing will find its own equilibrium in a free market that is transparent. But the system tended to favor car buyers by promoting the lowest price on the block, giving them leverage to go find an even better price. By running roughshod over the interests of its own network of car dealers, whose cooperation is critical to his success, Painter ended up nearly destroying the company he had spent seven years and $126 million building.

“It’s embarrassing,” says a chastened Painter, blaming his own “arrogance” for TrueCar’s near-collapse earlier this year, when one-third of its dealer network jumped ship, car sales plunged and it piled up $40 million in losses.

Now, after enlisting help from auto dealers, manufacturers and other industry leaders, Painter is relaunching TrueCar.com with a more conciliatory approach that he says balances the interests of dealers and consumers. A new dealer council provides ongoing advice, and new management with experience in both auto retailing and manufacturing were brought in to repair fractured relations with the industry.

In a new $8 million national advertising campaign, bricks-and-mortar car dealers are portrayed as TrueCar’s “trusted partners” while the emphasis for consumers is getting a “fair price,” not necessarily the lowest one.

The site still publishes data about recent transactions but it no longer shares what the dealer paid for the car nor does it promote the cheapest price as the benchmark for other dealers to beat. Instead, it gives both network dealers and consumers enough information to strike what it calls “a fair deal” by letting them know what others recently paid for similarly-equipped new cars in their geographic area. Dealers pay $299 for every customer lead that results in a car sale.

Other car-buying websites like Edmunds.com and kbb.com share recent pricing data with consumers, but Painter says TrueCar’s figures are better because it shows actual transactions, rather than an average of recent sales. These transactions are posted on a bell curve, displaying the percentage of sales in four price ranges: below market, great, good, and above market. Both buyers and sellers then have the parameters to agree on a fair price, which Painter says typically settles in the lowest quartile of all transactions (the left side of the bell curve) compared to the lowest 6 percent of transactions before the change.

The ad campaign, which broke this week, marks a new beginning for TrueCar.com, which began in 2007 and grew quickly, doubling revenue every year. Although TrueCar.com is the public-facing business, about 80 percent of the company’s revenue comes from managing car-buying programs behind the scenes for affiliates such as AAA, Consumer Reports, American Express and military credit union USAA.

By the end of 2011, revenues were $76 million, TrueCar.com had turned profitable and, with 5,600 dealers in its network, it was selling 30,000 vehicles a month (2 percent of U.S. sales) through its website and the websites of its affiliates.

But trouble arrived in late 2011 as some dealer groups and regulators began to question the legality of TrueCar.com’s business model, suggesting it was acting as an illegal broker. Fearful of incurring fines, some dealers started bailing out of the TrueCar network. Others were angry about TrueCar’s marketing tactics, including an ad campaign that told buyers how much they could undercut the dealer’s price if they bought their car through TrueCar’s website.

The impact was devastating: the dealer network shrunk by one-third in the first three months of 2012 and vehicles sales through its TrueCar.com network plunged 80 percent, from over 13,000 per month at the end of 2011 to just 2,000 a month in June. Revenues from its core auto-buying programs also fell by one-third. On the precipice of death, Painter obtained an emergency bridge loan from existing investors, which include Capricorn Investment Group, GRP Partners and an affiliate of Guthy-Renker.

Then he spun into disaster control mode. In January he launched a series of meetings with dealers around the country to listen to their concerns. That resulted in creation of a dealer council comprised of 20 members representing 24 states, 35 brands and 281 franchises. In February he hired Pat Watson, a 39-year veteran of the South Carolina Dealers Association to keep the dialogue going. He also hired Larry Dominique, a former Nissan executive, to be a liaison with manufacturers.

To address regulatory concerns, TrueCar also made important changes to the way dealers quote prices on its website. Instead of offering prices relative to “dealer invoice,” they now promote guaranteed savings off the manufacturer’s suggested retail price (MSRP). In a few states, TrueCar had to move to a subscription-based business model instead of the $299-fee system to satisfy regulators. TrueCar also gave dealers powerful analytic tools so they can adjust prices according to changing market conditions to ensure they remain in the competitive “sweet spot” while protecting their profit margins.

The changes are working, says Painter. Dealers are returning. Over the past eight months, TrueCar has replaced more than 1,000 of the dealers it lost earlier in the year, ending the third quarter with 5,200 dealers. Vehicle sales have rebounded too. It’s back to selling 20,000 cars per month through TrueCar.com and the auto-buying program for affiliates is on track for record sales in the fourth quarter.

Remarkably, Painter is forecasting fiscal 2012 sales will be up 15 percent over 2011, and TrueCar.com will be cash flow positive again by the end of December.

Was it all a terrible dream? Sadly, no. It really did happen. But Painter no doubt learned a hard lesson about how difficult it is to force change in the auto industry.

About the Author:

Joann Muller, Forbes Staff

I write about the global auto industry

 

Source: www.Forbes.com

Views: 1275

Tags: A, After, Almost, Company, Do-Over, Founder, Gets, His, Killing, TrueCar.com

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Comment by Brian Bennington on November 24, 2012 at 4:20pm

Having just recently started receiving ADM commentary, I'm still forming opinions about its purposes.  While it's extremely interesting and I've commented more on it than any other website, the dark, uncontrollably cynical side of me questions exactly why this post is as pro-"give Truecar another chance" as it is. I've reread it several times, and it leaves me wondering. Would an hour one-on-one interview with its creator, an extremely persuasive (note: he garnered over $1.25 billion from investors in his propositions) visionary, just on its content, leave me as unbiased as I was before?  What's to be gained by being positive about an operation that initially was so negative about current auto retailing?

These are just two of several questions this blog has created. Which really comes around to a more fundamental question about business in today's, dare I say, ultra profit-driven climate: Who can you trust?     

Comment by Jason Manning on November 24, 2012 at 11:37am
Someone wise once told me that "People don't change." I agree (they may "try"). Even if a chameleon can change its color, for survival...it's still a chameleon. Dealers are loyal to their customers for profit. We can't afford to give that up for the purpose of a "better lead." We have too much invested over time. We are in this for profit...so is TrueCar...lest we forget. A chameleon is a chameleon.
Comment by Brian Bennington on November 23, 2012 at 6:36pm

Remembering all of the comments Painter made about the car business prior to his "reversal of fortunes," I'm having a hard time believing his admissions of "arrogance and embarrassment."  I only know what I've read about him, but having a "life experiences" education admiring the spirit of entrepreneurs (and with 37 company start-ups, he's an exceptional one), being visionary, self-confident and super motivated doesn't blend well with humility and regret.  But, I could be wrong and it could be a true "olive branch" of peace.    

Comment by Ralph Paglia on November 22, 2012 at 7:06pm
There are two issues to consider when reevaluating TrueCar: The first is the entire business model of outsourcing a portion of a car dealer's marketing budget to third party providers. In the case of TruCar, over 90% of the sales generated by their referrals are from affinity partnerships with companies such as USAA, AMEX, AAA and others. If you want those referrals, TrueCar is where you go to get them.

Second issue to consider is the magnitude of the investments TrueCar's management team is making to become more beneficial to dealers. I see them investing significant resources in providing dealer services and support designed to drive more profitability into dealer operations. Hey,none of us can change the past, but some of us are willing to invest in becoming better in the future, and I personally see the leadership team at TrueCar working diligently at becoming a more profitable resource for dealers.
Comment by Tom LaPointe / CarChat24 on November 21, 2012 at 7:08pm

i'm not a huge autonation fan but kudos to mike jackson for calling a spade a spade. i think this story broke a while back, but to me it seems like a change in semantics, not tactics. imho, of course. the irony is that trucar gets 3x more money for a bottom feeder referral than a store will pay a warm referral from a current client.

Comment by AndrewBarter on November 21, 2012 at 1:50pm
I think that is waaaaaaaay past time for the dealers (are you listening NADA?) to take control of this funnel and remove all the things that take away value from a consumer and profit from dealer.. The OEMs seem very happy to be uninvolved... Happy Turkey Day Friends!

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