As the chief executive of fast-growing TrueCar Inc., Scott Painter is a lightning rod for auto dealer ire over how the century-old sales model is changing.
Painter's Santa Monica-based company serves as a go-between for its dealers and car shoppers, taking a $299 cut of each transaction. It gives consumers data on the actual prices currently being paid for a particular make and model — not just the sticker price — and generates no-haggle price offers from three participating dealers who want to make the sale.
Dealer groups in New York and California are mounting challenges to TrueCar's operations, alleging the company violates various car sales regulations. Criticism, he said, comes from some dealers who are losing business or are being forced to charge less for their vehicles.
Painter sat down with
What causes the tension between TrueCar and some of the dealers and dealer trade groups?
There clearly is a new way to buy a car and an old way. We are bringing the dealer and the customer together based on the customer expecting to be dealt with fairly, with an up-front price with no surprises. And the dealer is saying, "I get that. Those are the rules."
Our business model only appeals to dealers who are willing to play by a different set of rules. That's not for everybody. Dealers not on the program are basically saying they like the old way of selling a car. The dealers who are embracing the program are saying, "We want to appeal to a modern customer based on establishing trust through data and transparency." The notion that there is some friction and that some dealers are unhappy validates our business model.
What are the dealer objections?
They feel to some degree entitled to the customers in their local market.
If dealers sold cars differently, would you be around?
Great companies exist to solve real problems. That defines entrepreneurship. Define your problem and state your solution. It is a sad and unnecessary fact that auto retail has lost so much trust with consumers that most car dealers are willing to lose money on the sale of a car as a loss leader to get to all the more lucrative parts of the transaction, such as financing, insurance and extended warranties.
Whom do you compete with?
When people think about TrueCar they think our competition is folks like Edmunds.com or Kelley Blue Book. That's not how we view it. They don't have our same business model. We can be happy with customers going to these sites to get information and then coming to us when they are ready to buy. Our competition is the non-TrueCar dealers.
You have about 9,300 new-car dealers signed up. What makes TrueCar work for them?
Dealers who are on the program are cutting costs out of their business. We don't charge dealers for leads, we don't charge dealers for subscriptions. We charge dealers for sales. What other media channel goes to a dealer and says, "Don't pay me unless it works"? We are literally the only accountable advertising channel that dealers have. The average dealer is spending over $600 in just marketing alone on each car it sells. We are saying to them: "Would you be willing to pay half of that — $300 — on a per-car-sold basis?"
What is in it for consumers?
They are saving time and saving money. We introduce trust into an otherwise murky conversation, and in a way that helps the dealer and the consumer find a price that both are satisfied with. TrueCar buyers buy a car in an average of under one hour. The national average is four hours.
What are the future opportunities you see in this business?
If you take new and used cars, that's a $1-trillion market in the U.S. But 90% of the people don't pay cash, so you have financing and leasing. That's another $900 billion. You have auto insurance, that's another $1 trillion. You have maintenance, repair, fueling, accessories — it adds up to a $4.5-trillion ecosystem. We are developing solutions for if you have a trade or you need to get your purchase financed. TrueLoan, TrueLease and TrueTrade are all in development.
It is only in this last year that we are now cash-flow-positive, that we are putting money in the bank, and I have this huge cash war chest that I can use to invest in solving more of the auto retailing problems. We are truly the only company investing in these new areas at this level. The one thing we want to be super-careful of is that we are not taking revenue from the dealer. This is about helping dealers cut cost out of the business.
How will you trade a car in digitally?
The idea is that we can now use technology and the phone — it is the best sensor that has ever been developed to allow you to chronicle your car and compile all the information. We can now use the ability to cross-reference that information against all known databases [of used-car sales and prices] so that we can give the dealer a hyper-accurate view of exactly what the customer is trying to trade in. It means we can create efficiency in that market too.
How big can TrueCar grow?
Dealers spend $10 billion going to market every year. In 2014, we got about 2% of that — we generated a little over $206 million in revenue and drove almost 4% of new-car retail sales. The idea that we are a 40% market share company is not unreasonable given the unique place we have in the business. Nobody is going to do what we are doing. We are already at almost 10% in California. The industry grew 6% last year — we grew 60%.