At least consumers no longer have to enter the process blind
When it comes to negotiating a price on a new car, the script has not really changed much over the years: The dealer’s salesman writes down a price, you counter and then he walks to the back of the showroom to talk with the manager to “see what we can do.”
At least consumers no longer have to enter the process blind. Prospective buyers can educate themselves on Web sites like Edmunds and Kelley Blue Book and get suggested retail prices and find out how much their trade-ins are really worth.
Still, the auto industry has not embraced the digital age in the way other businesses, like real estate or travel, have. In part, that is because the auto dealers’ business practices are protected by state franchise laws.
But then, a company called TrueCar.com came onto the scene and tried to shake things up. It started running television commercials late last year, which attracted a lot of attention, and the industry immediately pushed back — hard. Here’s why: Besides showing what other car buyers paid for a particular car, TrueCar also gave an estimate of the dealer’s true cost. But what really alarmed the industry was TrueCar’s promise to deliver a guaranteed price from several dealers, essentially eliminating the need for any haggling.
The auto industry worried, perhaps rightly, that all this would squeeze their already thin profit margins on new cars. So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. Honda Motor Company also protested loudly, threatening to cut off marketing dollars to dealers that did not follow its guidelines when promoting its brands on TrueCar’s site.
“There is a fear that TrueCar might work too well,” said Scott Painter, the company’s chief executive, a serial entrepreneur who also started many other auto-related sites, including CarsDirect.com.
So how long can the car industry continue to operate the way it did when your grandfather walked into the showroom? And does TrueCar really provide the best model for consumers who want a fair price without the hassle?
Clearly, at least some dealers fear that showing their hand will drive them out of business. “Dealers are afraid if they give customers their best price, they will just take that price and go to another dealership and see if they can beat it,” said Jeremy Anwyl, vice chairman at Edmunds, an auto research Web site.
And even Mr. Painter acknowledged that though most of the dealers that his site works with have managed to hold their profit margins steady, dealers in some markets became so incredibly competitive that their business would not be sustainable over the long run. “We have always said it is not a race to the bottom,” Mr. Painter said, adding that for his service to succeed, dealers need to succeed. “But there is no question that dealers’ natural tendency to compete with one another has resulted in extremely low prices.”
To comply with regulators and their patchwork of different state laws, TrueCar initially stopped operating in a handful of states while it tweaked its business. It has resumed operating in those states except for Colorado and Louisiana (it doesn’t operate in Alaska).
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