Car Business Transforms Despite TrueCar

auto-transform-wideHaving lived and breathed the car business for more than 34 years, I can tell you that every few years a new, enterprising group of business executives band together with a grand plan to transform our industry.  We typically learn from these new ideas, but they are rarely truly transformative, as witnessed by the latest efforts of TrueCar.  The company, which essentially serves as an online broker, promises “guaranteed savings on new cars, with no hassle or hidden fees.”  In recent months, the company’s stock price has plummeted and now trades at 75 percent below its 52-week high.  The founder and CEO was recently ousted and while the company’s advertisements still proliferate, TrueCar is in deep trouble with a business model that is unsustainable.

Now before I get accused of piling-on, it’s important that we discuss how we got here and why I don’t begrudge TrueCar, even if I’m not necessarily a fan of the company.

First, the dealership business model, which has dominated the industry for more than a century, is both a blessing and a challenge for the car business.  For those of us in the business, the dealership model provides appropriate protection for the substantial investment which goes into owning and operating a new car franchise dealership.  We must follow specific rules regarding operations, inventory, service, sales and marketing.  In exchange, we receive the privilege to represent a brand with a secure territory and the ability to sell a product that, fortunately, almost everyone desires, needs and can afford.  When operated properly, it is an amazing business and one that has bestowed upon me many opportunities.

The challenge is that consumers don’t always like our system.   Some, wrongfully in my opinion, see it as somehow restraining trade, and some dealers haven’t helped the cause by not operating to the highest ethical standards.  Our industry often gets a bad rap – sometimes deserved for the latter reason; however when digging into the numbers you can see that most concerns are driven by non-new car franchise dealerships.  And of course, consumers have to purchase their cars through a dealership.

While you may use a broker, your credit union, or a service like TrueCar to assist with your purchase, you ultimately purchase through a dealership.  One can’t knock on the door of the GM plant in Michigan and drive away in a new Cadillac.  That’s our franchise system, where a dealer makes a substantial investment in a building and must properly staff for all levels of responsibility and competence including technology, service, parts inventory, new car inventory, used car inventory, training and development.  In addition there are numerous other investments dealers have to make in their communities which require the dealer’s personal time, our associates’ time, personal involvement and monetary support.

As I mentioned, this idea of transforming the car business is not new.  Back in 1993, CarMax burst on the scene with what was described as a completely new model for buying and selling used cars.  It was supposed to change how every car dealer did business with a more transparent way of retailing.  Don’t get me wrong, CarMax is a respectable company and it has definitely altered how dealers do business, but it hasn’t led to a shelving of the manufacturer-to-dealer-to-consumer model.

Without question, the biggest change in automotive retailing in the past two decades is the Internet.  The proliferation of information about cars, offered by both the manufactures and third party providers, has created incredibly well-informed consumers.  As the digital age started to gain momentum, many said the Internet would force fundamental changes to the way cars were sold.  “Do we still need car dealers?” was a popular headline and refrain from industry pundits.

What the skeptics failed to realize is that automobile dealers are typically nimble business owners.  We observe new ideas, pay attention to market trends, listen to our customers and then react in ways that improve our business.  When customers started researching cars on the Internet, we embraced it and began advertising more heavily online.  Today, many customers know just as much about the car they are buying as the salesperson who is assisting them and, favorably, the dealer they purchase from.  We concentrate on added value to the sales process and sell very competitively, or risk losing a client forever.  Now, that’s truly transformative.

Back to TrueCar.  The company entered the marketplace with a new twist on the broker model but overstepped its boundaries in recent months.  First, a number of class-action lawsuits were filed across the nation against the company, some alleging deceptive advertising practices.  It turned out that while the company was advertising that it would secure the lowest prices for its customers, it wasn’t disclosing the fees it was receiving from dealers, according to the lawsuits.  Second, TrueCar lost approval with AutoNation, the country’s largest dealer network.  Between the lawsuits and the loss of its largest customer, TrueCar shares have tumbled and it is unclear how it will recover.

At Brickell Motors, we work with brokers, credit unions or other intermediaries, and we have experimented with TrueCar.  However, I have disagreed with TrueCar’s marketing messages from the outset.  Personally, I find it offensive that a company which relies on car dealers for its business would openly and aggressively bash us in their advertising.  I don’t believe that’s how one should conduct business.

Our industry isn’t perfect but we are constantly working on it.  We know that some people don’t like the car buying experience and like to work with a broker or their credit union.  Most dealers welcome these engagements.

I still believe that you will get the best deal, the best service and have a better ongoing relationship with a dealer, particularly one of ours, that offers factual and educated information with a personal touch of class.  I believe you lose a far superior retail connection and total satisfying experience when purchasing through an online pricing brand.   However, I recognize the consumer’s right to choose a broker or an intermediary company.  I don’t have to like it, but I respect it.

Make it a Great Day!