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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: 1331

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

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Comment by Keith Shetterly on November 27, 2012 at 4:21pm

/rant on

What I read that Scott Painter said recently, and which he and his company have done in the last six months, which changed my mind about TRUECar was not anything about remorse for some "Public Lynching".  That simply didn't happen and I don't accept it.  When you allow your employees to banter on this and other sites about how cars are commodities and treat good people here and elsewhere as stupid, all while not really explaining yourself except to be As Condescending as Possible (essentially trying to 'pat the widdle car dealers on their widdle heads'), AND when your employees buy anti-dealer profane domain names, AND when your lead investor couldn't stop chuckling here about how we didn't 'get' it . . . well, you get back what you put in.  That's no lynching.  That's just losing your perspective to your ego, and that wasn't our fault.  Here or at any dealer or dealer group or state level.

Even this Forbes article points it out "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."  Okay, put your hand in the dealer's pocket for your fee and then present a 'free' service while aligning with the consumer AGAINST the dealer?

Scott Painter has owned up.  I thank him for that, and for the work that Mike Timmons did to help correct TC's path.  Scott Painter, however, hasn't asked for and doesn't need an apology from any of us.  What he needs is to continue to revamp his company around his TRUECustomer (the paying dealer) and help us ALL modernize.

And we should follow his lead in that direction muy pronto and stop trying to say we did something wrong.  He knows we didn't.  He can't 'reform' his company to be right now if he was already right, right?  

To wrap, I've offered to help TC (directly, Scott Painter) to continue down their current path with dealers any way that I can.  I'm not going to apologize or feel bad for something I didn't do and don't believe WAS done--instead, I'm going to continue to help dealers and ANY company that helps dealers win their market.

Many thanks to Scott Painter and TRUECar for their changes.  And a shout out to Mike Timmons, who understood it all.

/rant off

Comment by Ralph Paglia on November 27, 2012 at 1:21am

Jason, you are right about the various state regulatory agencies getting involved, and the way they forced TrueCar to change quite a few of the details around what they show the public and how they charge the dealers who use them.  As for falling in love with TrueCar or anyone else for that matter, keep in mind that you are referring to a guy who has worked for both ADP and Reynolds and Reynolds... Who has sold Ford and Chevrolet... I am very objective and have never been shy about criticizing any supplier, including the companies I worked for, when appropriate and while I was working for them!

Comment by Jason Manning on November 26, 2012 at 11:40pm

Ralph,

Never questioned your opinion of TrueCar.  Just stating my own opinion with their past history.  I don't see what happened a year ago to be trash talking.  What TrueCar was doing in many states was illegal.  Don't we have an obligation to call it out to protect our industry?  What happened a year ago was about making a rogue company conduct business legally and make the industry aware of their "previous" goals to reduce salesmen in the showroom, reprice profit out of our inventory, and reduce the number of dealers in the United States.  O.J. Simpson did some illegal things too and he wants back in the public eye, just like anyone else that makes a mistake.  Is he coming back with growing popularity?  Absolutely not.  It's hard to recover from illegal activity.  It is what it is.  TrueCar's employees must know the hill they are climbing.  I assume that if you spend more and more time with TrueCar that eventually you will fall in love with them completely.  In fact, there are many people in regretful relationships after the honeymoon.  I just don't want to ever fall in love with TrueCar...ever.  I remember my first impressions and so do many other dealers.  I don't ever have a problem with anyone who wants to carry a torch for them.  I'm sure O.J. has his followers too.  With the help of Forbes magazine, who are we on this tiny forum?  The future is open to anyone.  As for now, I just see TrueCar as a continued foe and not so much a friend.  They were after dealer data and that is Fort Knox for dealers.  It's where their greatest investment is after nearly 100 years.

Comment by Ralph Paglia on November 26, 2012 at 8:10pm

Let me ask a question related to my previous comment and the comments made by a few others... Why is it that when we publicly trash a supplier company, everyone seems to get a kick out of it, and there is a tendency to pile on? Yet, when we try to "do the right thing" and suggest that a company may have been maligned beyond what is reasonable, people freely and publicly challenge the motivations of that person?

On a direct and personal basis, I know of many positive recommendations and endorsements that are bought and paid for... However, in this day and age of web based opinion drivers and a new found concern over reputation management, has it ever occurred to anyone that some people MAY have a vested financial interest in trashing a company with what they post online?

I ave personally witnessed and seen when employees of dealership A post bad reviews about dealership B, who they compete with... Why would we not question the motivations of those who make extreme statements to the negative about any person or company?

Comment by Ralph Paglia on November 26, 2012 at 7:56pm

Jason, Brian and everyone else who questions my opinions on TrueCar;

First of all, I have never "endorsed" TrueCar as a company who supplies dealers, I have suggested that there have been enough changes made at TrueCar over the past year that it is well worth a dealer's time to reevaluate the services they provide, from a pure business development perspective. Here's the article:  http://www.automotivedigitalmarketing.com/profiles/blogs/truecar-ti...

Secondly, TrueCar is not an individual (not even Scott Painter), there are well over 200 people working at this company. Besides car dealerships, where I have spent the better part of my adult life, if there is one particular type of company I feel confident in being an expert on... It is automotive suppliers serving dealers. 

With that said, I will admit to having some feelings of guilt around the "Public Lynching" I participated in a year ago, where the company being hanged was TrueCar... Over the course of the past year I have spent time with dozens of TrueCar employees.  Every single time I do, there is a part of me that recognizes the simple reality that these are intelligent, hard working people who endeavor to assist their dealer clients in selling more cars... So, yeah... I feel like I have something in common with these people. 

I have also experienced what it is like to answer THEIR questions about what many TrueCar employees perceive as an unfair treatment of them and their company by the online automotive communities who roasted them a year ago. In the article that I referenced at the beginning of this comment, the reader will see that what REALLY convinced me to change my opinion about whether or not TrueCar should even be considered by a dealer, was when I started talking to dealers who have been using them the past 6 months or more... Realizing that these dealers WERE making a profit on their relationship with TrueCar and they are convinced that the affinity program delivers car buyers to them that their dealerships would otherwise not have an opportunity to sell a car to... So, how is it even logical, or could be considered reasonable and in good judgement to suggest that TrueCar should NOT be considered by any car dealer as a marketing services supplier?

Once you get past the schoolyard bullying mentality, or the high school cheerleader type of holding a grudge forever, with no consideration of a reevaluation, it makes no sense at all not to reevaluate whether or not a dealership should be doing business with TrueCar.  This is about business, selling and servicing cars profitably... It should not be about holding grudges or refusing to reevaluate a supplier who has changed the offering they provide.

Comment by Michael on November 26, 2012 at 6:39pm

Oh yes, with the endorsement of the affinity partners comes significant credibility in influence and credibility.

Comment by Michael on November 26, 2012 at 6:38pm

As a constructive suggestion to truecars.com, legally, one cannot post on the internet or any other advertisement, 'BEST PRICE'. Suggest that Kevin derives an alternative venacular.

On a side note, the affinity partners that Truecar has aligned with, was a great execution. Myself, as a Dealer for 25 years, the pioneering in the early 90s with having exclusive affinity partners with numerous credit unions in our city, led to bountiful referrals.  

Comment by Gary Marcotte on November 26, 2012 at 11:31am

What is to be gained by being positive about an operation that initially was so negative...?  Perhaps Ralph has the integrity to research the issue, study the operation and conclude that many of the negative issues have been understood and corrected...?  This idea that everyone is able to read Scott's mind, heart and motives it at best unfair to Scott and the hard working team that he leads.   I hear dealers talk about how the industry has changed, and the customer experience has changed and that dealers have changed to meet the needs of new customers....but Scott is not allowed to....c'mon, at least the team deserves better....

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 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.

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