Posts Tagged ZAG
TrueCar.com Founder Reinvents Himself After Almost Killing His Company – Automotive Digital Marketing Professional Community
TrueCar.com Founder Scott Painter Gets A Do-Over After Almost Killing His Company
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
Jim Ziegler Guidance: Ten Areas We Need to Concentrate on to Bring This Monster to It’s Knees…
1. Government investigation of ALL Data Aggregators taking consumer information from dealers’ DMS. Sadly enough, dealers who do business with TrueCar are exposed to liability charges. Cut off all access to unecessary data, no matter who takes it from the dealers DMS and make it illegal to “resell identifiable consumer data” and “transactional data”.
2. If anyone takes financial transactional data, they expose the dealer that allowed it to violations, especially if it is passed on to other vendors or shared.
3. Educate Consumers to what they’re doing with their information…
a. You buy a car from a dealer, do you really want your personal information, and maybe
even your financial information, passed along and sold and shared by “God knows who?”
b. These People Charge the Dealer $300 which the dealers have to build into the deal
c. Your Privacy and the Security of your Information could theoretically compromise your identity if you do business a company that takes data from the dealership.
4. Educate Investors and potential investors they could possibly be mislead if anyone is telling them this is a safe investment because of all of the dealers pushing back, associations pushing back, and government regulators in many states coming after TrueCar’s business model as NOT compliant, in some cases they’re saying it is Not Legal.
5. AMEX, USAA and all of their affiliates do not want the bad consumer relations this push back is creating with their members and customers.
6. Cancel your dealership’s Affilation with TrueCar. Tell people with certificates YOU don’t honor TrueCar and you feel the company is NOT reputable. Educate consumers as to perceived data exposure if they buy from a TrueCar dealer.
7. Make the dealers selling at huge losses take all of those deals. Big problem right now is too many Nissan Dealers and others are taking huge losers to get the factory money. The TrueCar reverse-auction business model will continually push those numbers down until the factory money is non-existent. Consumers need to hear from many dealers, “We don’t do TrueCar”
8. Keep calling your National and State Dealer Associations demanding they get involved and stay involved… No excuses.
9. Get the Manufacturers into the game. If GM, Ford, Toyota, and other majors change the rules about how we advertise and do business to protect the dealers, we can cut off their ability to set pricing. So keep it up at every dealer meeting. Call your Dealer Council Members and protest to your factory reps.
Tell the manufacturers, if they want showroom and facility improvements, we need the ability to make fair profits.
10. Tell everyone you know. Educate other dealers and industry people. Watch the Painter interviews…I believe this the first time a vendor has publicly announced they intend to bring down the dealers and hijack our business, taking our profits and starving us out with our own data. Painter has said manufacturers and dealers should bankrupt and he, in his God-like way” will control distribution.
When their Yahoo Deal kicks in we need to stand firm and “Just Say No” we don’t honor TrueCar deals.
It seems to me that the real problem that dealers should have with TrueCar/ZAG is not as much the disclosure of transaction prices in the now infamous bell shaped curve at TrueCar.com, but instead, the insidiousness of trying to predict who will buy a car from a dealer ANYWAYS and then charge that dealership $300 for a vehicle sale that TrueCar did not actually facilitate. I said to Scott Painter during our phone call that if he is successful in enrolling 10,000 dealers he will have in fact implemented a tax on every new vehicle sold for $300 that TrueCar collects. Three dealers in each geographic area that TrueCar defines, and the leads go to the dealer that would have been most likely to sell that car even if TrueCar was not involved… Paying for sales a dealership would have made anyways!!!
Adam Barish’s list makes me want to thump my chest, do high fives and smack-downs… However, in all sincerity, if you work in a dealership that uses TrueCar or any other value-diminishing price focused based marketing strategy, once the vehicle is sold, the damage is done. The mistake was made long before the customer showed up at the dealership. Therefore, why punish the customer for taking advantage of the stupidity that permeates your dealership’s marketing decisions?
If anything, I would want to win the “Hearts and Minds” of these TrueCar mooches and try to ensure that next time around, they do not want to do business anywhere else… Or, service their vehicle anywhere else. After all, if your dealership is so poorly managed that you cannot generate a fair profit margin, then I hope you are able to retain some of these customers in your service drive to earn SOMETHING from selling that car.
Now, I will also agree that Adam’s list made me smile and think “Hell Yeah!”, but let’s be smart enough to realize that wasting a customer is simply not the best way to go, so consider showing these TrueCar customers some love so they do not feel so compelled to use TrueCar in the future, instead preferring to deal directly with your dealership by cutting out the middleman and the extra $300 in dealer cost they incurred by using TrueCar.
Use the links provided to view Adam Barish’s extensive and detailed list of TrueCar Sales Process steps…