A Kinder, Gentler TrueCar — Will Dealers & Investors Buy In?

A Kinder, Gentler TrueCar — Will Dealers & Investors Buy In?

March 28, 2016 — When Chip Perry took the helm at TrueCar last December, his mission was clear — create a more dealer-friendly company while regaining the trust of investors. The first part of the mission is well on its way as the company announced last night the launch of a revamped business model designed to be more dealer-friendly. The tweaks, which TrueCar dubbed “Dealer Pledge,” are not an overhaul of TrueCar’s business model but a recalibrating of its value proposition that tended to position dealers in a bad light.

Since its beginning, TrueCar’s marketing message and several of its practices angered its dealership customers. It was a volatile and often ugly relationship that ultimately forced out founder Scott Painter last summer. Meanwhile, the company has yet to generate a profit. The stock price plummeted nearly 60% last year, and has lost another 44% in early 2016.

If Perry plays his cards right, the moves should be a first step in helping TrueCar move from being a break-even company to one that is generating at least a modest profit over the next year. Although Perry, in an interview Saturday with The Banks Report, reiterated his comments from his first earnings call with investors this year and refrained from making any promises regarding TrueCar’s financial performance for 2016. The company earlier this year projected revenue of $270 million to $275 million for 2016 with a break-even EBITDA. But Perry is smart, he knows the value of under-promising and over-delivering. His predecessor often did the opposite, a fact that eroded investor confidence. (Read our analysis from the February earnings call.)

Nevertheless, the company is hoping this weekend’s announcement brings more dealers into the fold which should begin to re-energize the top line sometime this year.


For three months, Perry visited and talked with numerous dealers cataloging every complaint and suggestion about TrueCar. In his words, the team looked at “every nook and cranny” in the company. Based on what he heard from dealers — some of it “brutal,” says Perry, — TrueCar “formulated a comprehensive plan — one I think, that is intended to really change how TrueCar serves dealers and makes it a much better place for dealers to do business with, while also maintaining a good dollar value for consumers — something we have to do as a third party. You’ve heard me say from the beginning, there is a chance for a much stronger win/win.”

TrueCar tweaked its model in three areas:

Product Offering: 

  • Eliminating the Dealer List page (a page Perry called “evil”). The page listed prices from competing and unbranded dealers, a dynamic dealers complained created a race to the bottom for profitability. It was a page that hurt dealers and didn’t really provide value to consumers, Perry says.
  • Pricing now will be based on the dealer’s local market, not regional area. This will provide customers with more realistic pricing.
  • TrueCar is moving away from pricing virtual vehicles whose configurations may not exist. Instead, price offers will be VIN-specific.
  • Customers now will have to provide contact information prior to receiving a price offer from a dealer.
  • TrueCar will no longer automatically apply incentives dealers receive from the manufacturer to the price of a vehicle. It is now up to the dealer how much of that incentive to provide to the customer.
  • TrueCar dealers will have more opportunities to brand and market themselves — such as, “Why buy from us,” messaging on TrueCar’s website.

Relationships with its Dealers:

  • Adding more than 100 dealer service consultants (not sales people) who will visit each dealer customer on a monthly basis. Perry estimates the total cost for the additional service consultant field force will be in the $10 million to $12 million range.
    • “I’m confident we’ll pay for it through our improved revenues,” Perry says.They’re only there to help the dealers utilize their tools, understand best practices from high performing dealers who have much higher than average close rates. And, then help the dealer close more sales through those insights and the ongoing training that’ll happen.”
  • Making the subscription-pay model available in every state — not just the ones that prohibit a “pay-per-sale” model. This will roll out later this year following pilot testing in Georgia. However, the “pay-per-sale” model is not going away. It’s part of TrueCar’s fundamental value proposition, being able to match sales with leads.
  • TrueCar promises to delete any non-public personal information received from a participating dealer that has not been matched to a purchase after 90 days. That customer is the dealer’s customer, TrueCar says and promises not to use “sales matching” data from customers who have not interacted with TrueCar.
  • TrueCar will use a third party to monitor how it uses data accessed from the DMS. It has never used anonymized pricing transaction data from the DMS to power the TrueCar pricing curve, without permission from the dealer.
  • TrueCar also is promising not to enter into dealership’s traditional profit centers such as F&I and used vehicles.

Advertising Messaging:

  • Eliminating advertising that positions the dealer as unfriendly places to do business with. Instead of focusing on the excessive time spent at the dealership and the hassle of negotiating a price, TrueCar will now highlight the ease of using TrueCar during the car-buying process.
  • Has removed “Never Overpay” from its advertising.
  • Will begin to highlight Certified TrueCar dealers and the important role they play in their communities.



The changes should play well with dealers — although, skepticism remains high. “We have big hole to dig out of,” Perry admits. “The proof will be in the pudding.” At the end of 2015, TrueCar had approximately 9,100 new car dealers as customers, up from 8,100 at the end of the third quarter when it suffered a net loss of nearly 600. The real challenge for TrueCar is to increase the number of sales it generates for dealers. Although it did begin to regain its dealer count in the fourth quarter, the bottom line wasn’t helped because a “disproportionate number of those dealer additions represented relatively lower unit volume stores,” CFO Mike Guthrie admitted in the year-end earnings call.


Another big question is whether car buyers will react positively to a more friendly dealer model. To be honest, what TrueCar was doing previously wasn’t working well. It did drive 5.1 million consumers to its website in the fourth quarter of 2015 (that traffic comes as a result of an expensive ad budget), but it only monetized 574,000 of those consumers. The new dealer service consultant team should help in this area, as it educates dealers on the nuances of the TrueCar system.

Time will tell, but whether customers will pick up on the changes and reject them, is questionable. investors are concerned that becoming more dealer friendly will negatively affect the value consumers see in TrueCar. Perry realizes it’s a big concern. “I can’t tell you how many skeptical questions I got from Wall Street saying, “How can you help dealers without hurting consumers?” he says. But he doesn’t believe it’s a zero sum game and argues the changes are actually better for the consumer because they provide more information about the vehicle along with more accurate pricing and better branding for the dealer. “So, it actually improves the, the consumer experience and, and, and also helps dealers at the same time,” he says.

Meanwhile, the company is rebuilding much of its technology to drive consumers through the end of the process. Perry admitted in February that it would not be an easy fix. We’ll be working on testing a variety of new pathways through this funnel and messaging approaches that will, I believe, enable us to pull more real car buyers through this system. It remains to be seen how many yet. That’s why we’re not projecting improvement. We don’t have historical experience in doing it,” he said.

As we wrote in February, this is an area for analysts to watch closely because it might be the single most important part of Perry’s strategy. It matters little if the dealer likes you if the consumer isn’t buying into the process.

Perry also has to pay careful attention to TrueCar’s affinity relationships and pending OEM relationships. Keeping the dealers on board while providing better traffic should go a long way, and even open up new business opportunities for TrueCar.


Another area for investors to watch is potential acquisition activity, although, don’t expect any big moves for the next several months. Perry says the company “will at some point cast its eyes beyond the four walls, but first we have to fix our knitting here and put the company on a new trajectory with the dealers and also financially.”

Despite all of the negative press and the pounding of its stock price, TrueCar is not in a bad position. The “Dealer Pledge” addresses the concerns dealers have, and, as a result, should help solidify its relationships with dealers — and may even bring back former high profile customers.

Meanwhile, financially, TrueCar is, for all practical purposes, break-even. It won’t take much to move needle in a positive direction. Furthermore, the stock price, trading at $5.30 as of press time, will rebound with some good news. Unlike last year at this time, there is reason to be confident in TrueCar’s future — a management team with a strong track record and a company with room to grow. But investors will need patience. The earliest the company should start seeing positive results is probably the fourth quarter (our analysis, not TrueCar’s).



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