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Honda Warns Dealers About TrueCar - Bad for the Honda Brand!

Reports That Honda Is Fighting TrueCar Prices

Below-invoice online discounts frustrate some dealers and automakers

In an article published on Monday August 12, 2011 Automotive News Reports that Honda, maker of the Civic, wants dealers to stop offering prices under invoice on TrueCar.com


Automotive News goes on to report:

Honda, leery of brand-eroding discounts, has warned its dealers to stop offering prices below invoice on TrueCar.com and other Internet shopping sites.


The discounts jeopardize payments that Honda sends to dealers for local marketing, the automaker told dealers in October. Industrywide, the payments range from $300 to $600 for a $30,000 vehicle, one dealer said.


TrueCar is a leading player in the growing online retail industry that channels Internet leads to dealers. TrueCar CEO Scott Painter last week criticized Honda's position.



"They're trying to say Hondas are worth more than invoice, but if everybody's paying less than invoice, that's not true," Painter said.


The dispute highlights frustration among some dealers and automakers who say third-party Web sites such as TrueCar are eroding their power to set transaction prices.


TrueCar publishes recent transaction prices on its Web site and offers what it calls guaranteed low prices to shoppers. Dealers who sign up with TrueCar agree to pay the company $299 for each new vehicle sold from a TrueCar lead and $399 for each used vehicle sold.


Honda spokesman Chris Martin said that the automaker considers TrueCar an advertising medium. And Honda does not permit dealers to advertise prices below invoice, in part because it erodes Honda's brand equity. Dealers who do so jeopardize per-car payments from the factory under Honda's dealer marketing allowance.


But Painter said Honda is ignoring the realities of the marketplace, in which dealers compete aggressively on price.


In response to Honda's actions, TrueCar last week began warning Honda shoppers with a banner on its Web site that they might not get TrueCar's low price.


Upfront price guarantees are a key part of TrueCar's pitch to shoppers. And the prices listed for vehicles on TrueCar's Web site often are below invoice.


For example, a TrueCar search near Ann Arbor, Mich., for a 2012 Toyota Camry SE with automatic transmission and four-cylinder engine returned three guaranteed prices from local dealers, two of which were for less than the car's $22,075 invoice price. One dealer was offering the car for $21,875, another for $21,025 and a third dealer listed a car at the invoice price.


In TrueCar's terminology, the invoice is several hundred dollars above the cost of the vehicle to the dealer because the price does not include such factory payments to dealers as the holdback allowance.


Painter said Honda sales via TrueCar have declined since October because of Honda's warning.


He said the 278 Honda dealers under contract with TrueCar sold 2,389 vehicles in November. TrueCar's Honda dealers sell an average 8.6 new Hondas per store per month, and leads from the Web site generate 12.2 percent of the total sales volume of TrueCar's Honda dealers, he said.


"They could be doing twice as many sales through our platform than they are right now," if Honda revoked this policy, Painter said.


Painter was careful to add, though, that he was not picking a fight with Honda.


More clout

Painter: The stats don't lie.

On Jan. 1, TrueCar's role in auto retailing will grow. That's when TrueCar becomes the exclusive online vehicle shopping partner for Yahoo.com. Traffic to TrueCar's Web site is expected to jump from a couple of million unique visitors per month to 20 million per month as a result of the deal, Painter said.


Now, though, TrueCar leads account for a small slice of U.S. auto sales. TrueCar-participating dealers are expected to sell about 250,000 vehicles from TrueCar leads in 2011 either from shoppers on the TrueCar Web site or through agreements with more than 100 large associations, such as USAA and AAA.


Painter said he wants to almost double the number of dealership franchises that participate with TrueCar to 10,000 next year and facilitate the sale of about 500,000 vehicles.


USAA, a financial services association for military families, has asked Honda to reconsider its TrueCar action on behalf of its 8 million members who did 500,000 searches for Honda and Acura vehicles this year, according to a recent letter from David Bohne, president of USAA federal Savings Bank, to John Mendel, executive vice president of American Honda Motor Co.


Protecting profit

The Toyota Camry SE: In Michigan offers of $1050 below the invoice price.

Mike Warwick, director of digital marketing for the seven-store Kelly Automotive Group in suburban Boston, agrees with Honda's policy toward TrueCar.


"Honda's trying to protect the gross profit in selling a car and trying to protect the salespeople who are the backbone of the industry," Warwick said.


Kelly, with a Honda store and two Nissan stores among its holdings, dropped out of its TrueCar contract this month after just three months as a participating dealer, Warwick said.


In November alone, the group was inundated with 700 leads from TrueCar customers who took a guaranteed vehicle price that Kelly offered, he said. But the stores closed on just 20 of those deals and only three were profitable given the discounts negotiated, Warwick said.


The vast majority of customers went elsewhere, using the deals negotiated on TrueCar to get lower prices for vehicles at other non-TrueCar dealers, he said. Meanwhile, Kelly had to follow up with all 700 customers, Warwick said.


Few Honda dealers, he said, would be willing to risk their dealer marketing allowance for the additional volume that TrueCar can bring.


Industrywide, that type of quarterly allowance is 1 to 2 percent of the sticker price for every vehicle sold, Warwick said. On a $30,000 vehicle, that would be $300 to $600.


Other dealers, though, like TrueCar. Taylor Chevrolet in suburban Detroit is eager for TrueCar's tie-up with Yahoo to begin, said Jeff Kotlarek, Taylor Chevrolet's Internet sales manager. He gets about 15 new-car sales per month from TrueCar.


He said Taylor Chevrolet offers vehicles to TrueCar shoppers at $100 below invoice and still makes money on the vehicles by upselling on warranties, accessories or additional options. The store sells about 175 new vehicles total per month.


In a recent speech, AutoNation CEO Mike Jackson said of TrueCar: "The good deal that they're pitching to the consumer is lower than average. So to the extent that everyone goes with the TrueCar price, it moves the average down.


"It's a death spiral, and the question is whether they are powerful enough to unleash that dynamic in the U.S. marketplace."


AutoNation's COO, Mike Maroone, sits on TrueCar's board of directors, but neither he nor AutoNation has financial ties to TrueCar.


Written by Ryan Beene
Follow Ryan on Twitter
and David Barkholz
Follow David on Twitter and
Source: Automotive News

Amy Wilson contributed to this report

You can reach Ryan Beene at rbeene@crain.com.
Follow Ryan on Twitter

Views: 1543

Tags: -, About, Bad, Brand!, Dealers, Honda, TrueCar, Warns, for, the

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Comment by James A. Ziegler on December 21, 2011 at 4:36pm

KANSAS AUTOMOBILE DEALERS ASSOCIATION
 

 

 

IMPORTANT NOTICE: Brokering Prohibition – True Car/ZAG

 
To:      The Members of the Kansas Automobile Dealers Association
 
From:  Don L. McNeely, President
 
Various models for motor vehicle sales programs have brought increased attention on marketing practices in Kansas and across the country.  Commentators have most recently focused upon such programs as that offered by TrueCar/ZAG though there are many forms under which a dealer may be functioning, particularly in online arrangements.  This comment will focus upon how such programs can actually unwittingly or otherwise set you up for possible violations of the Kansas Dealers and Manufacturers Licensing Act, particularly those declaring motor vehicle brokering illegal in Kansas. 
 
It is KADA’s opinion that the manner in which programs such as that offered by the True Car program as it is currently structured and being offered in our state do in fact violate the Kansas brokering prohibition.  This is particularly so as it relates to a dealership paying a direct marketing fee, which can be likened to a commission, for each vehicle sold. While it is not unlawful to pay an annual or monthly advertising or subscription fee for vehicle leads, it is a violation of the Kansas brokering law to pay a third party a fee—or other benefit--for bringing buyer and seller together.  
 
It is our understanding that a number of Kansas franchised new car and truck dealers are currently doing business utilizing the TrueCar/Zag format.  It is also our understanding that several formal complaints have been filed with the Kansas Department of Revenue’s Division of Motor Vehicles requesting an investigation of those dealers who have been identified.
 
As a reminder, the Kansas broker prohibition statute was enacted in 1990 and was ultimately upheld by the Kansas Supreme Court in 1992 (Blue v. McBride).  K.S.A. 2010 Supp. 8-2404 (q), (r), and (u) which respectively pertain to new and used vehicle brokering describe prohibited and allowed practices and exceptions (display, advertising, soliciting and acting as a broker).  These are also discussed and tempered in the McBride case to allow for the free exchange of information, but one must still keep in mind that brokering practices are squarely prohibited.  
 
You have to pay attention to the laundry list set forth in the law.  It defines a broker to be any person who, for a fee, commission, money, other thing of value, valuable consideration or benefit, either directly or indirectly, arranges or offers to arrange a transaction involving the sale of a vehicle, or is engaged in the business of (1) selling or buying vehicles for other persons as an agent, middleman or negotiator; or (2) bringing buyers and sellers of vehicles together, unless excepted.  (See K.S.A. 2010 Supp. 8-2401(x).)  As you can see the arrangements that are prohibited forms of brokering describe many elements of the TrueCar program which you should review carefully before engaging in such practices. 
 
Another thing we have heard expressed about marketing arrangements are concerns related to legal issues of privacy, data use and ownership, as well as data access, particularly where a dealer has given outside access by a unrelated third party to its DMS system.  The TrueCar/ZAG structure serves as a significant example of the issue.  It collects transactional data from supposedly various sources to determine “the right price” to pay for a car.  Vehicle pricing points aren’t necessarily the only issue, though.  KADA is of the opinion that this can be ve

Comment by James A. Ziegler on December 16, 2011 at 12:27pm

Okay Honda has taken a courageous stand and banned TrueCar pricing with it's dealers. I know for a fact VW is strongly considering doing the same. I hope VW realizes that they've just began to get some incredible momentum in the market AND now is NOT the time to allow an invader like truecar to devalue the brand in the public's eyes. No matter what you sell, TrueCar cheapens your brand.

Group 1 made sure their dealers cancelled after looking at the exposure of having these people rooting around in their DMS, especially with AutoNation's CEO on the board of Truecar...

Group 1 was smart enough to see the writing on the wall and run as from away from these people as possible. When is Asbury, Penske, Sonic and others going to awaken and realize they people appear to be a huge threat? Even large private groups like Rick Hendrick should be looking at the evident danger we're all perceiving here. 

Where are FordGeneral Motors and especially...where is Toyota in this escalating skirmish? I am embarrassed that mark Reuss, president of general motors would actually go to TrueCar Headquarters and play with Painter showing him a 750HP Camaro.

I did not mention Nissan because their dealers are using Truecar to sell way below invoice so they can collect stair step money. You guys are smiling now BUT if Nissan takes away the program, you're screwed royally because of the benchmarks you set with TrueCar making your brand image "Ultra Cheap Nissan"

Does Mark Reuss NOT understand that his dealers are being raided by these people cheapening the product down to unprofitable and below? I find it hard to believe that Reuss would publicly suck up to these people if he truly understood.

There are a few investigations of TrueCar popping up here and there AND we're still urging dealers to put more emphasis with your dealer associations to get off of the sidelines and represent us... I know a couple of associations are doing their best while others limped off of the battlefield without firing a shot...  weak. 

I am especially disturbed about Toyota staying quiet while Honda takes a stand. It's like sending a message that Toyota has less value. 

This thing will gather increasing momentum and I predict TrueCar will find some high-profile weak suck who will sellout their integrity for the publicity or hard cash and take a stand publicly backing them and betraying dealers.

Of course, this is all a lot of conjecture, speculation, supposition and opinion...I might be wrong. :)

 

Comment by Rick Kovalsick on December 13, 2011 at 6:43am

It will also have an adverse effect on the used car market. THey are essentially devaluing the trade when the time comes around for a new vehicle. or if they realize they are in a car too smal and need to upgrade sooner rather than later. No longer will we need to look at a car as invoice, less holdback, less incentives. Chop another grand or so off. It will affect leasing. Say a Honda Civic is expected to have a 50% residual in 3 years. Lets call the car at MSRP $18000. Honda figures it to be $9000. If TrueCar has their way, someone who purchases the same Civic at a TrueCar price should expect $8000 if they trade it in. TrueCar will hurt the industry and the consumer in the long run.

Comment by Richard Roy on December 12, 2011 at 11:34pm

[quote]Comment by Peter A. Bond 3 hours ago...I am once again, shocked and disappointed at the extreme effort to knock down an industry that contribute so very much to the communities we serve![/quote]

Hey Peter, you are onto something...I see it everywhere and it's a disease. For some reason we don't want anyone to make a profit anymore. I believe one thing is certain; If we continue on this crazy path no industry or profession will be immune. I want the people I do business with to make a profit so they can continue to provide me with service and that they'll be around tomorrow so I can do business with them again. I had this conversation recently with a fishing guide.

Comment by Gregory Lawrence Noonan on December 12, 2011 at 7:44pm

I was having dinner in LA last week and, like so many others, we talked about TrueCar.  As we sat having a nice steak with a good waiter in a moderately priced restaurant I asked, why aren't we paying the same price, for the same cut of meat as we would have outside of the city.

I went to lunch with some clients in Santa Monica on the airport and questioned the waiter why I was paying more for my chicken dish than at the place at the mall. On the way to airport I bought a full tank of gas and wondered why I paid more for the same gallon of gas as I could have out in the suburbs and when I got there I asked Avis why I paid more for my rental on the airport then I did form the hotel down town.  Then I stopped and bought some stuff at the Westend mall and noticed that prices seemed to be higher than Target.

Wake up retailers, he is making money, for free, by using your data against you.  That simple might as well accept it or tell him you are mad as hell and aren't going to take it any more.

GN

It just doesn't make sense that the small retailer would ask a bit more for the same thing I can buy form the big box.  

Comment by Peter A. Bond on December 12, 2011 at 7:36pm

I am once again, shocked and disappointed at the extreme effort to knock down an industry that contribute so very much to the communities we serve! The government agencies have taken a toll and now TrueCar! Why is the automotive industry targeted with the apparent obsession of destruction of an industry that employs 20% of the population, both directly and as a result of what we do?  What is my dentist, doctor, clothier, super market and other costs as it relates to what I am charged? I don't have that answer and I can't Google it! What is TrueCar actual costs as a "transparent" company to produce the leads they send unsuspected dealers? I don't know! What is the cost of a Big Mac at McDonald's? I do not know! Now we have TrueCar attempting to give consumers less than our cost and creating ill-will when we do not sell everyone the vehicles we represent at below profit prices!  Other entities acquired by TrueCar such as Zag and the monopoly TrueCar is forming will impact our industry as we know it! The majority of new vehicle dealers already do not produce a profit and now, we experience another jack ass that represents a lie which clearly states, we have more profit to lose! What an ass!

Comment by Ralph Paglia on December 12, 2011 at 6:55pm

One should think carefully before getting in between a manufacturer and its dealers. The threat here, as evidenced by the callousness of Mr. Painter as he feels the sudden rush of his "partnership" with Yahoo is to the entire viability of the franchise system, margin management and of course the obvious need to balance supply with demand as it relates to optimal share and profit. However, a caution to Yahoo is appropriate under the rule of "beware of unintended consequences" as Honda, like many OEM's spends a ton of money on Yahoo. And like any other rule of economics, that can disappear during a Monday morning staff meeting in a New York second.


Read more: http://www.autonews.com/article/20111212/RETAIL07/312129951 <met...

Comment by Ralph Paglia on December 12, 2011 at 6:53pm

Right on American Honda! Mr. Painter I question any business model that relies on selling a car at a loss.
At some point the consumer is going to have to pay more that the advertised price for this to be a winning proposition for the consumer, dealers, and the manufacturer. -The "true car" process lacks the transparency that Mr. Painter claims by failing to disclose this. Change is necessary and change is the norm in our industry. The dealers that take care of their customers provide a valuable service to the clients that they serve, and typically get more than their fair share of business as a reward. Our industry has never been about price alone, and it never will be, Mr. Painter, service counts, and as a consumer I am willing to pay a fair price for exceptional service. I do not expect to buy a world class product at below the cost of the item. Your claim of an average savings of $4000+ off of MSPRP is not supported by any facts. I would love to see an audit of the actual transaction prices, for True Car transactions, compared with the MSPR for each transaction concluded by True- Car. Is it your position that the transaction prices would average $4,000 below MSRP as advertised? Eventually, this business model will fail, as previous business models that rely on practices that are not mutually beneficial always do. In the short run there will be some money made by those using our industry to make a "quick buck" and when the dust settles there are bound to be some investors that get burned.


Read more: http://www.autonews.com/article/20111212/RETAIL07/312129951 <met...

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