It doesn’t come as too much of a surprise that when you Google search “car buying” one of the first results you see is for TrueCar. You may have heard of TrueCar from a friend, seen one of their many ads online or on TV, or even used the website yourself.
“Car buying” and “TrueCar” are nearly synonymous, but do you really know how TrueCar works “under the hood?” TrueCar’s convoluted behind the scenes relationship with car dealers might surprise you, and although the company was founded on a “customer first” mission and vision, they’ve seemingly pivoted away towards doing whatever they can to best support the people that pay their bills (aka the dealers).
A 2019 article from the New York Times is appropriately titled, “TrueCar’s No-Haggle Promise Meets a Chorus of Grumbles”. Let’s explore how TrueCar works, why dealers don’t like it, and why car buyers find it frustrating too.
Legal issues from the start
Soon after arriving on the car buying scene in 2005, TrueCar faced legal issues. TrueCar’s pricing model leveraged a sometimes predatory (and always illegal) business practice referred to as “bird-dogging”.
Bird-dogging is simple: it’s when one party sends leads (prospective car buyers) to dealers for a set price (usually a couple hundred dollars). Bird-dogging is illegal for a few reasons, mainly because it jeopardizes a consumer’s likelihood of getting a fair deal.
TrueCar’s business model quickly drew the ire of dealers as the leads they sent ended up not purchasing vehicles. Dealer’s paid for leads, and frequently they wouldn’t buy cars at the dealership, and instead they’d go back to TrueCar to “try and find another deal.” The dealership was essentially paying a bird-dogging fee for … nothing.
Eventually, after legal pressure from several states, TrueCar pivoted away from this pricing model, and instead decided to offer their “services” on a subscription basis. Dealers would be charged monthly for TrueCar’s leads instead of paying ad hoc.
“I really thought that [TrueCar was] a competitor of ours and not a collaborator, that if we did our job properly we could source our own lead,” said Ray Shefska, a 43 year veteran of the car business.
How TrueCar “works”
From a customer’s perspective, TrueCar seems like a blessing.
A quick search on the TrueCar website yields all sorts of information you want to arm yourself with during the car buying process. TrueCar shows you which dealers have the car you want, what other car buyers in your area are paying for that car, and the quality of the deal you can expect to get on a particular make and model. Sounds good, eh?
It is, until it isn’t.
The issue is that TrueCar warps potential car buyer’s expectations in a variety of different ways. What might be an excellent deal one day (on the end of the month, for example), could be impossible the next. How far beyond invoice dealers are willing to go can be altered by how close they are to a manufacturer’s incentive, the day of the month, or myriad other factors that are not made obvious by sites like TrueCar.
At the end of the day, TrueCar makes ends meet in the same way other online car research websites do: they sell your information to their network of car dealers. The unfortunate reality is that this introduces yet another middle-man in an already convoluted transaction process.
Remember, dealer’s have to pay monthly to get access to TrueCar leads, and even though dealers don’t like to do it, they still pony up the cash:
“One of the worst parts about having internet leads was that we typically work about four or five times harder effort wise … and you paid for the privilege of having made that deal!”
Car dealers need to recoup some of their “investment” in TrueCar when they sell you a car, and you don’t have to be a rocket scientist to figure out how they do that … it’s by charging you a bit more than they would have otherwise.
Sitting in between car dealers and car buyers puts TrueCar in an impossible position. By trying to serve two very different audiences at the same time, neither of them end up with a truly satisfactory solution. This is one of the many challenges businesses in the automotive industry face.
So are sites like TrueCar really smoothing the rocky cliff that is car buying? Are they just middlemen selling your information and shooting you into the same sales funnel that has been frustrating customers for a century? The true answer probably lies somewhere in the middle. Sites like TrueCar will exist until there is a fundamental change in the car buying process, and that fundamentally change probably won’t happen any time soon.
It’s unfortunate, but the reality is that dealers make money operating in the fashion that they do right now, and customers (although irritated), have become accustomed to the “status quo” that is car buying. Will it change? Absolutely. Will it take time? Without question. Will TrueCar be a part of the evolution? The jury is still out.