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.
), a May
, 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
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
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 (
) 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
Others in the online car sales sector includeAutobytel (
) 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
"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
"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
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
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
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
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
) -- are up strongly this quarter, by double-digit percentages.
Shares of the biggest publicly traded carmakers --Toyota (
) 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.