How TrueCar.com Caught Car Dealers Off Guard

The Internet is (finally) introducing progress to the car business… whether automotive retailers like it or not.

While the Internet itself has so far been little more than an evolution of how car dealers do business (think about it: dealers have been receiving and responding to sales leads from Internet customers for more than fifteen years, yet most dealerships still see less than thirty percent of their sales coming from these online customer inquiries), what TrueCar will bring to dealers is nothing short of a revolution… and most dealerships aren’t prepared.

TrueCar’s business model is designed to eventually eliminate car dealers. For now, they seem content with just getting rid of the pesky commissioned car salespeople. If TrueCar gets their way, every car dealer in the country will provide the actual selling prices of their vehicles up-front; with no haggling. This, it seems, has gotten some in the industry a bit peeved.

“It’s not too late to put this beast down,” commented one such peeved industry veteran about TrueCar on one of the leading automotive dealership forums, DealerElite.net. Others on the site are calling for government investigations and dealer boycotts of TrueCar.

Can they put the beast down?

Forget for a moment how good their model of showing a guaranteed selling price is for consumers, TrueCar still needs car dealers to pay them $299 to $399 per vehicle sold or TrueCar will simply go away. If dealers truly abandon TrueCar, then what?

Unfortunately for the TrueCar detractors, there are two unstoppable forces at work that guarantee that even if TrueCar crashes and burns, the TrueCar business model will not only survive, but eventually become the industry norm. These forces are competition and consumers.

While there have probably been hundreds of dealers who have dumped TrueCar as a provider of sales leads since the industry call-to-arms officially began in November, there have likely been hundreds more who’ve signed on. Dealers, you see, want to sell cars; TrueCar, it seems, actually helps them do that. The competitive nature of car dealers simply won’t allow them to leave these sales leads to their competitors.

From a consumer perspective, one might ask “what took so long?” Why is it we can discover the actual selling price of everything from iodine to iPads before we ever leave for the store, but with cars we still have to haggle as if we’re walking through the Istanbul Grand Bazaar? With or without TrueCar, consumers were already moving toward no-haggle pricing for their vehicle purchases. TrueCar accomplished just one thing that had not been successfully deployed before: displaying the final selling prices of identical vehicles from competing dealers… and this, you see, removed the dealers’ greatest advantage in the car deal.

Why would dealers ever knowingly give up their advantage?

It only took a few car dealer indiscretions to allow TrueCar to get into the position of radically reforming the way new cars are sold to the public; and nearly all of these are examples of failed leadership at the dealer level.

Because most managers of car dealerships got to their level without the assistance of a solid training program or a heavy focus on process or process improvement, it’s no surprise that they “lead” with virtually no focus on these, as well.

Automotive retail provides some of the best examples of bad leadership, likely due to its history (“no one trained me, why should I train anyone?”) and its unbelievably high turnover rate (“why train my salespeople, when they’ll just end up working for someone else in a year?”). Additionally, car dealers have survived for years without the need for formal training programs or progressive leadership; why should anyone think they need these today?

With no focus on training or continuous process improvement, most dealership Internet sales managers – the ones who should have seen TrueCar coming and warned the others – were so busy playing with Facebook and Twitter; so busy thinking they were in the technology business that they never even realized they were in the business of selling cars at a profit. Of course, for most Internet managers, it didn’t help that since they receive almost no respect or support from the other managers in their store – including their direct supervisors – it is doubtful anyone would have listened to them about TrueCar anyway.

Interestingly, the dealerships that wasted (and continue to waste) countless hours and dollars to perfect some social media identity generally feel that social media is a revolution in the auto industry – while missing the true revolution: transaction price transparency and the guaranteeing of transaction prices via the Internet.

Not all dealerships want to put the beast down…

The dealership owners and general managers who never fully embraced the idea of selling cars online are the ones that are the most annoyed by TrueCar. They are the ones rallying their local state associations and regulatory agencies to protect them from themselves. Progressive dealerships – those organizations where everyone is pulling toward the same goal; and where the future brings opportunity, not uncertainty – are comfortable with the move to TrueCar. Many of them got rid of commissioned salespeople years ago.

In his book, Adapt Or Die: How The Internet Is Destroying Dealer Profits And What To Do About It, Kurt Baumberger warned of this phenomenon three years ago. Did any dealers listen? Perhaps a few, but for the most part, dealers continued to run things as they always had: heavy on telling and yelling; light on teaching and improving.

What is most surprising to me is that anyone is surprised. There has been a race to the bottom in automotive retail since the first online listing of vehicles became available. I think what is also surprising is that it’s taken until 2012 for this to become a reality in automotive retail.

Progress happens…

TrueCar is merely the first. Soon, industry leaders like Cars.com and AutoTrader.com will have to insist that dealers post guaranteed pricing on their new vehicles or consumers will simply flock to TrueCar (and the soon-to-emerge clones) to avoid the hassles of negotiating.

To those outside of automotive retail, the TrueCar detractors are probably starting to resemble what the horse-drawn carriage makers, smithies and groomsmen must have looked like as the first automobiles started rolling off assembly lines over 100 years ago. Cursing progress does nothing but make those doing the cursing seem small-minded and naïve.

The thing about progress is that it progresses – whether those in the way of progress like it or not. The progress that is radically changing the car business today has been moving like the lava flows of Hawaii’s Kilauea volcano. It has been slow and deliberate, but it’s gaining strength. You can try to divert it; but you cannot stop it. It is steady and it is devouring everything in its path.

So is TrueCar a consumer’s best friend?

I think there might be genuine concerns over how TrueCar acquires and manages private customer data; but I think the real threat they hold over car dealers is their guaranteed up-front pricing. They could get rid of their silly bell curve and no longer aggregate sales transaction data; and their effect on the industry would remain unchanged. They could also stop telling consumers what dealers paid for their cars, as this information is irrelevant in the transaction and has been available online for years, anyway.

(In the interest of full disclosure, I was first exposed to the TrueCar bell curve in 2009 – which showed what consumers had paid for similar vehicles – and I was impressed. Back then, I felt it would be a game-changer for TrueCar.com. Since then, TrueCar has expanded their online offering to include certificates guaranteeing what consumers would pay from member-dealers for a given vehicle. This innovation, coupled with pitting dealers against each other on a single webpage, made the bell curve unnecessary. Now the TrueCar bell curve is nothing more than worthless eye candy.)

With some in the industry mad as hell about TrueCar’s use of data, it is interesting that as recently as this past weekend, TrueCar CEO Scott Painter was quoted bragging in a New York Post article about the plethora of data sources his company employs to produce their useless bell curve. “We collect information from consumer reports, insurers, lenders, government records and other industry sources in addition to what the 5,400 US dealers provide so we can decipher the true cost of a new car,” said Painter; clearly oblivious to the government’s and the public’s feelings about data privacy.

Everyone is missing the point…

Consumers, if asked, would likely tell you that they don’t care how much dealers paid for a car; “just tell me how much I’m going to pay.” Dealers, because they hid even the latter information from their buyers until they’d successfully worn them down in the dealership for a few hours, have no one to blame but themselves for the growth of TrueCar.

When we buy a book on Amazon.com, we don’t care how much Amazon paid for the book or how much profit they make from the sale. We only care about the transaction price, the delivery terms and the service before and after the sale. The same is true of buying a car. Why should I care if the dealer who sold me my last car made $5 or $5,000? All that mattered to me was the price I paid, the delivery terms and the service before and after the sale.

If TrueCar wasn’t so busy trying to get every scrap of data from every consumer vehicle transaction, they might realize that the TrueGold they provide to consumers occurs when they pit dealers against each other to post guaranteed selling prices. Of course, just as car dealers suffer great leadership voids, so does TrueCar, it seems. CEO Painter comes across as an egomaniacal prick (which, more often than not, means he probably is an egomaniacal prick to everyone around him); he also seems to truly relish his role as the villain to his paying customers: the car dealers. (Not a smart move, if you plan to withstand the inevitable competition for the long term.)

Sincerely, TrueCar Dealer Development Team…

To their dealer-customers, TrueCar behaves more like a government agency than a trusted partner; and their customer communications are signed by divisions and not people. It will be easy for dealers to dump them once real competition emerges or the major online classified websites begin posting guaranteed prices for new and used cars (and thus start driving leads and sales, instead of just expensive branding).

What won’t be easy for dealers is to get this horse back in the barn. If comparison shopping is a way of life for consumer seeking a $500 HP, what makes anyone think it won’t quickly become the norm for someone considering a $30,000 Honda? The leaders in the automotive space understand this, because leaders understand progress and they take advantage of it – even if it means destroying a business model that works today.

The leadership lesson in all this for those in and out of automotive retail is two-fold: First, business owners and their senior leaders must take a stake in the innovations brought on by technology (and not leave this to some “Internet manager”); and these same leaders need to find ways to leverage the inevitable change to their advantage (or they need to be ready to do something else with their lives).

Like it or not, progress has come to automotive retail; and it’s not going away.