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The Federal Trade Commission is investigating whether dealers colluded to hurt TrueCar Inc. in 2011 and 2012 over vehicle price competition fostered by the online shopping site.
In a letter to dealers, the FTC said it is investigating whether some companies in the "retail automobile industry" committed anticompetitive acts "by agreeing to refuse to deal with TrueCar."
TrueCar CEO Scott Painter said today in an interview that the FTC investigation did not stem from a TrueCar complaint.
The FTC is not answering questions, and the scope of the investigation is unclear. But during that period, many dealers criticized TrueCar's business model, which encouraged participating dealers to offer low transaction prices, in turn generating sales for the dealers. The FTC enforces laws that mandate fair business competition.
TrueCar works by attracting car shoppers to its Web site. The shoppers request price offers from participating dealerships.
Last year, many participating dealers dropped TrueCar amid the controversy in 2011 and 2012. And TrueCar, prodded by dealers, subsequently changed some of its methods that put downward pressure on retail prices. Many of those dealers have since rejoined the site, TrueCar says.
The Kelly Automotive Group in suburban Boston received a letter from the FTC this week saying the agency's Bureau of Competition is conducting a non-public investigation into possible legal violations, said Mike Warwick, director of digital marketing at the eight-store group.
Automotive News obtained a copy of the letter from another dealership that was served the letter.
Request for documents
Warwick said attorneys of the Kelly Automotive Group would be consulted to see how the group will comply with the FTC's request for any documents and e-mails related to TrueCar.
Warwick said he didn't know why he was personally named in the letter except that he criticized TrueCar's business and pricing model on dealer blogs in late 2011 and early 2012.
An executive at another dealership served the letter also said he commented on blogs about TrueCar.
Joel Christie, an FTC attorney in anticompetitive practices, signed the six-page letter. FTC spokesman Peter Kaplan said the agency would not confirm that an investigation was under way.
Painter said TrueCar knew nothing about the action until the company was served an FTC letter this week seeking documents.
"I want to make this clear: We didn't ask for it (the investigation), and we knew nothing about it," Painter said.
Painter said the timing of the investigation is odd given that the company has completely restructured its business practices and mended fences with dealers over the past 18 months. "It's like calling in reinforcements for a battle that is already over," Painter said.
TrueCar came under fire from dealers and regulators in late 2011 over cutthroat pricing that caused many dealers to lose money on the cars they sold through TrueCar leads.
TrueCar subsequently abandoned a practice in which dealers bid against one another to win shoppers on price.
Separately regulators in 2012 in various states questioned whether TrueCar was violating state advertising and consumer laws.
TrueCar says now it has been in compliance in all states for several months and has rebuilt its network of participating dealers to 6,500 franchises from about 3,200 in 2012 during dealer defections.
Painter will comply
Warwick of Kelly Automotive said that four of six Kelly stores participating in TrueCar cancelled their contracts this month.
But he said the cancellations were unrelated to the FTC investigation. They dropped TrueCar because of a new policy enforced by the company this month. TrueCar decided to demand that dealers pay fees on all customers who download TrueCar price offers from participating dealers and buy a vehicle. But some dealers object, saying they establish the relationships before customers download the offers.
TrueCar, in all but a handful of states, has a pay-per-sale model. That model requires participating dealers to pay TrueCar $299 for every new car sold from a TrueCar lead and $399 for every used car sold.
Painter said TrueCar intends to comply with the FTC request for documents. The letter also warned recipients not to destroy documents.
Painter said, "It's a pain for us and the dealers."