TrueCar Stock Drives Up As Auto Website Adds Dealers


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A lot of car dealers claim to offer no-hassle, no-haggle shopping. Then you get on the lot and somebody tries to sell you $20,000 worth of bells and whistles you don't want.

TrueCar ( TRUE ), a May IPO , tries to take that scenario out of the equation by prohibiting dealers in its network from trying to upsell customers who have already been given a set price for a specific vehicle.

The company operates a data-driven website that offers vehicle pricing and other information for new and used car buyers and dealers. It gets paid by dealers whenever a sale is made -- $299 for new vehicles and $399 for used ones.

Buyers can go to the site to get pricing information such as how much certain cars with certain features have sold for in certain markets.

After buyers plug in their ZIP codes and provide basic information, they receive three quotes from TrueCar certified dealers in the area that offer set prices for specific cars. There's no negotiating, and dealers must provide full disclosure of all fees upfront.

"We have a 'no surprises' agreement with the dealers. The price you see online is the price you're going to get," said Alan Ohnsman, TrueCar's senior vice president.

The 9,000-plus dealers in TrueCar's network must agree to honor the company's guidelines, Ohnsman told IBD. "When a buyer talks to a dealer there is an expectation of price confidence. Dealers who do not adhere to the program guidelines will be cut from the program. This year we have eliminated about 300 dealers."

Analytics Are Key

TrueCar's no-negotiation policy has gotten a lot of attention in the media, but it's not the only company that offers consumers a haggle-free buying environment. Dealership chainCarMax ( KMX ) has been doing that for a couple of decades.

Still, there are ways TrueCar has made a mark in the automotive industry, analysts say.

"TrueCar is simplifying the car-buying process for users by combining proprietary and third-party data with robust analytics to offer a transparent and easy-to-use car buying tool," JPMorgan analyst Doug Anmuth noted following TrueCar's third-quarter earnings report.

Others in the online car sales sector includeAutobytel ( ABTL ) and privately held operations Cars.com and Edmunds.com.

One way TrueCar tries to distinguish itself from others is that dealers in its network don't have to subscribe to get sales leads.

"We are not just sending you a collection of names that your sales department must follow up on," Ohnsman said. "We send you customers ready to buy."

That's one reason TrueCar's dealer network continues to expand rapidly, he says -- from around 7,700 just before its initial public offering seven months ago to about 9,500 now. Of those, about 8,400 are franchised dealerships and 1,100 are independent.

"There has been a very strong and robust uptick in the number of dealerships the past several months," Ohnsman said. "Our goal is to get 10,000 to 12,000 franchised dealers, which is about one-third of the total dealers in the U.S. That's about as far as we want to go."

The reason TrueCar doesn't want to go above that figure is because it wants to ensure that its network includes "only the best dealers with the best practices," he added.

TrueCar Draws Dealers

Meanwhile, dealers want to join TrueCar's network because doing so widens their customer and revenue base, analysts say.

In a recent report upgrading TrueCar to "outperform" from "sector perform," RBC Capital Markets analyst Mark Mahaney noted that TrueCar's unit sales per franchise dealership rose 16% year-over-year during the third quarter.

"More units per dealer means that TrueCar is generating more value for each dealer, and this is a clear validation of the dealer's value proposition," Mahaney said. "TrueCar believes it now generates about 15% of its dealers' new car sales, which we view as a sign of its growing importance to dealers."

Another thing that distinguishes TrueCar from others in the sector is its heavy focus on technology. In fact, Ohnsman calls TrueCar "basically a tech company operating in the auto space."

As an example, he points to the company's mobile app. It provides tools to help consumers understand the market price for new cars and trucks as well as the savings they can realize from buying from a TrueCar certified dealer. Ohnsman expects the mobile app to contribute "more business"in 2015.

TrueCar also gets revenue by using its data to help auto manufacturers make better pricing and incentive decisions.

"We have data telling them what brands are popular in certain regions, what incentives are popular," Ohnsman said. "We work directly with automakers to help them develop more targeted incentive programs."

To help finance growth, TrueCar launched its IPO on May 16, priced at 9. Shares currently trade near 24.

The company has strung together six straight quarters of 51%-or-better revenue growth.

During the third quarter it logged revenue of $56.8 million, up from $37.5 million a year earlier. TrueCar posted a small net profit for the quarter, but earnings were break-even on a per-share basis.

The number of average monthly unique visitors during the quarter increased 44% year-over-year to about 4.6 million.

Investors Consider Cars

Stocks of the largest companies by market cap in IBD's Retail/Wholesale-Automobile industry group -- CarMax andAutoNation ( AN ) -- are up strongly this quarter, by double-digit percentages. Shares of the biggest publicly traded carmakers --Toyota ( TM ) andDaimler (DDAIF) -- are also outpacing the S&P 500 Index, after declining over the first three quarters of 2014.

TrueCar, like many involved in car sales, has gotten a lift from a rising rate of car sales. That should continue into the new year. In a Dec. 22 press release, TrueCar said it expects U.S. new auto sales to reach about 17 million units in 2015, the highest level in a decade.

"This year has been remarkable in terms of growth and revenue coming from big gains in pickup, utility and luxury vehicle sales. We think 2015 will be even better," John Krafcik, TrueCar's president, said in a statement.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Investing Ideas
Referenced Symbols: TRUE , KMX , ABTL , AN , TM


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