WardsAuto.com reports TrueCar Hoodwinks Dealers

SEE ALSO: Paragon Honda Supports American Honda's Warning Against TrueCar.com

DETROIT, MI - December 19, 2011: WardsAuto.com reported that a company called TrueCar says it can show buyers what other people paid for the car you’re interested in buying. TrueCar is getting that data by providing dealers with sales leads, but the dealers only have to pay for those leads if it turns into a sale.(reported as $399 per deal to True Car).

A deal that on the surface sounded too good for sales hungry dealers to pass up, so lots of dealers signed up. But now it’s turning out to be too good to be true. In the fine print, dealers have to give TrueCar access to their transaction prices. That’s one way the company says that they can tell buyers what others are paying for the cars. But dealers are saying that this is ruining their profit margins. (Ed Note: how we wonder? does every buyer get a deal that has no profit in it or is the $399 bird-dog fee taking the profit out of the deal?)

Wardsauto.com reports that dealers are furious with TrueCar and feel they’ve been hoodwinked (Ed. Note: Imagine a car dealer becoming the "hoodwinkee" we always thought they they were the "hoodwinker", oh how the worm has turned in the modern world).

True Car an investor supported company is headed by Scott Painter, an entrepreneur who specializes in online pricing and selling, and is the former head of CarsDirect.com.

Editors Note: The Auto Channel has always preached that the initial price paid for a vehicle is only one factor in the purchase decision, and by the way, not the number one criteria. Most important is to buy a vehicle that really meets your needs; whether practical or emotional, because if it doesn't you will get pissed every time you get into your new wrong car. To help buyers determine how to buy the "right" vehicle, The Auto Channel has developed many tools that can help buyers make better decisions and not risk suffering for years with their mistake If you are a serious car buyer go HERE and invest the time needed to buy it right. and I don't mean just saving a few bucks .. happy researching.

Manufacturer Responses to the TrueCar Situation:

American Honda believes that much discount advertising is bait-and-switch advertising, which is not beneficial to the consumer...(see complete statement below)

Official Honda Statement Concerning TrueCar

TrueCar has made the following statement on its website: “American Honda Motor Co., Inc. has directed all Honda Certified Dealers to remove up-front price guarantees for consumers from the TrueCar website. “

In fact, American Honda has not directed any dealers not to advertise on TrueCar’s website or any other website. American Honda, however, provides marketing funds to its dealers for use in their advertising of Honda and Acura vehicles. Dealers who wish to receive marketing funds are expected to adhere to certain guidelines that govern dealer participation in its Honda Dealer Marketing Allowance (DMA) Program and its Acura Carline Marketing Allowance (CMA) Program. Among the many advertising guidelines to which dealers must adhere to in order to receive DMA/CMA Funds, Honda dealers are restricted from advertising new Honda vehicles at a price below dealer invoice plus destination and handling charges and Acura dealers are restricted from advertising new Acura vehicles at a price below MSRP plus destination and handling charges. Such guidelines do not limit a dealer’s discretion to advertise a new vehicle at any price if the dealer is not seeking DMA/CMA Funds. Furthermore, the dealer is free to charge customers any price it chooses, in its absolute discretion, for a vehicle.

The function of these guidelines is three-fold. First, it encourages dealers to use the advertising money provided by American Honda for interbrand advertising. That is, rather than providing funds to dealers so that they can engage in discount advertising against other Honda and Acura dealers (which does American Honda and consumers no good), American Honda wants dealers to use the funds to promote the advantages of Honda and Acura vehicles when compared with competing brands. Second, discount advertising is detrimental to the Honda and Acura brand images. American Honda has no wish to pay for ads that portray its products as “cheap” or “low-end” vehicles. This may be appropriate for other manufacturers; it is not appropriate for the Honda and Acura brands. Third, American Honda believes that much discount advertising is bait-and-switch advertising, which is not beneficial to the consumer and reflects badly on the manufacturer that condones it. Dealers that advertise vehicles for extremely low prices (as some do on the TrueCar site) may engage in either direct bait-and-switch tactics or using the automobile’s brand name to sell expensive accessories, service contracts and the like. For an example, please see the TrueCar article in Automotive News published on December 12, 2011. American Honda’s advertising policies discourage such tactics, which American Honda believes are injurious to consumers.

Who is Scott Painter

The Auto Channel became aware of Scott Painter and his company, CarsDirect.com, sometime in the late 1990's as the company attempted to enter the retail new car business with a "unique business plan." The uniqueness of the business plan was that CarsDirect would pretty much guarantee to sell a consumer any car they wanted at whatever price the consumer felt was reasonable. Since CarsDirect was not a franchised car dealership, to accomplish the goal CarsDirect would purchase the car from an existing franchised dealership and then re-sell the car to the consumer at the consumer's price. This meant that CarsDirect often, if not consistently, would purchase the vehicle at a price higher than it then re-sold the vehicle for. In other words, they lost money on every or at least many transactions.

Scott Painter's underlying concept in losing money on the deals, as we understood it, was that it would make CarsDirect a player in the retail automobile business by driving franchised dealers out of business, thereby leaving CarsDirect as the source for new passenger cars and trucks. CarsDirect was just one of many "Dot.Com" companies that later became known as "Dot.Bomb" companies. Painter's CarsDirect business plan was the same basic business model attempted by such other monumental failures as Furniture.com, eToys.com, WebVan.com, Pets.com, and Garden.com. Management of these companies shared one great characteristic: they had little or no experience in the industries that they were trying to conquer. Their belief was that the ".com" suffix was sufficient to secure success. (Note: some domain names of the various infamous dot-bomb companies have been acquired by other companies or individuals who were already in the same space. Their business models using the domain names share none of the negative aspects of the originators).

The Auto Channel laughingly believed these dot bomb companies to be scams and we often warned people away from them. We felt that it was okay for an individual to use his or her own money to fund such preposterous enterprises, but that it was irresponsible and fraudulent for the companies to seek and accept investment from outside persons. As we listened to or read statements issued by these companies we recall being shocked by what we felt were common business-sense blunders, lies, distortions, and/or incorrect information designed to mislead investors. While there were dot.bomb era executives prosecuted and convicted of illegal activites related to their respective scams, we always felt that there weren't enough and that some of the most egregious offenders got away, hmmm, "scott-free."

Three years ago, in September 2008, we were contacted by a public relations company that had been retained by a new entity called "TrueCar.com." The PR firm issued a press release and was hoping that we would publish it on TheAutoChannel.com. The following is our response to the press release. Although we did share this response with two subsequent individuals who were hired by TrueCar to perform the same marketing tasks, we never made this response public until now:

Date: Thu, 11 Sep 2008

"Hi Ken-

I received your press release a short while ago regarding the new venture TrueCar.com. I presume you hoped that I would okay its publishing.

I read over the material and did a bit of research on those items that I was either unsure of, or that I wanted to see if others' memories jived with my own.

I can tell you that after doing the above, I have some very serious problems with the claims made by your clients, even taking into account what might be deemed as harmless marketing puffery. If your clients were not in the same industry as me, I might choose to let it slide, but considering that I might have to deal, yet again, with the harm created by IPO con-artists, I'm not going to sit idly by and let them get away with fleecing investors and fooling consumers and auto industry members, again.

Scott Painter was not a pioneer in online automotive websites, unless you want to include the experience of selling vehicles to consumers for less money than his company paid for the vehicles: Historic maybe, but not the kind of heroic information that your press release suggests. In fact, it was just this kind of idiotic business model that caused millions of investors worldwide to lose hundreds of billions of dollars, culminating with the DotCom bubble bust, which caused the worst economic depression in world history.

As for the notion that Painter brought upfront car pricing to the Internet, or that TrueCar.com is the first to utilize actual prices paid for vehicles to help determine a fair (or market) price, or that TrueCar.com is “The authority on new car pricing,” these statements are all false.

To deal with the last point first, how can TrueCar.com be “The Authority…” when the company has no track record or business experience? Is this just marketing puffery? I think not, since investors and industry members are being asked to buy into it and spend money on it. Legitimate business operators would wait for some actual business experience before they float this boat. I think it’s a fraudulent statement.

Regarding being “the first to introduce upfront pricing on the Internet,” unless you guys have some obtuse Bill Clinton-esque explanation to what that statement means, I think I can safely say that several other entities would have beaten CarsDirect to this claim, including my own company, which predated CarsDirect on the Internet by at least two and a half years. We tore down "...the curtain of secrecy around new-car pricing" in January 1996.

Moreover, my company has been using “actual prices paid by buyers” along with other traditional pricing sources to arrive at vehicle prices for several years. And while my company may have been the first to use a combined hybrid approach to vehicle pricing, I don’t believe we are the only ones doing so now. Therefore, by the time your client’s website effectively launches, the best that TrueCar could really claim is that they are the second, or third, or twentieth, or two-hundredth to use a combined-prices formula.

You also paint (the pun is intentional) Scott Painter’s other efforts with Build-to-Order and Zag as being something important to the car business. They’re not, and never were, except as a source of amusement. They were, and still are, inconsequential.

It’s interesting to note that IdeaLabs, er…I mean Internet Brands, has completely removed from its website any hint that Scott Painter was ever involved with the company. Considering IdeaLabs highly questionable business history, I think it’s incredibly revealing that even they would completely distance themselves from such an innovative industry pioneer.

By the way, why did you leave out Painter’s experience with BoatsDirect.com? Surely some pearl of marketing genius must have come out of that experience that would be useful in developing TrueCar.com.

In about 1998, I was in attendance at the Robertson & Stevens investor meeting when Farhang Zamani and Payam Zamani presented their vision of how AutoWeb.com was going to change the way that consumers buy vehicles. They talked about how their own unpleasant experience in trying to buy a car led them to develop the AutoWeb business plan. I noted, even then, that they never talked about issues that are really germane in establishing a business: issues that seasoned investors should have queried the brothers about had they not been all wrapped up in DotCom hysteria. When I read Scott Painter’s words on how and why he developed CarsDirect, I wondered if he was also in the audience that day and wrote down everything that Farhang and Payam said. It certainly sounds like it, and the end result for the companies and the respective individual investors was the same.

The world doesn’t need another round of worthless companies seeking investors, and the auto industry doesn’t need more goniffs. If I had any prior knowledge that TrueCar was presenting at the TechCrunch50 conference I would have been there to set the attendees straight. I work very hard to make a living in the automotive business. Please tell your clients to find some other industry to fuck up.

Incidentally, if I’m all wrong and Scott Painter and his TrueCar management associates are really responsible for a string of highly successful business ventures in which the investors have profited generously, please let me know. I would be very willing to make apologies and stay out of their way while working with new potential investors.

Most respectfully,

Marc J. Rauch (Exec. VP and Co-Publisher of TheAutoChannel.com)"

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