Now more than ever, car buyers are craving that "no hassle" experience. They no longer want to deal with the "let me talk to my manager" back and forth in order to get a good price. Enter TrueCar, the website that is supposed to "bring more transparency to car-buying", and even promises that you will "never overpay." Using a barrage of advertising, TrueCar has been picking up serious momentum lately. They have recruited former Hyundai CEO John Krafcik to their board of directors and have recently filed for an IPO. TrueCar is set to make a big impact, but who is going to benefit most, consumers or dealerships?
Before I begin I would like to disclose that I am a car-buying consultant. People pay me a fee to help them choose the right vehicle, and negotiate on their behalf to get the best deal. I am providing a service that people could do themselves, but for whatever reason, be it time or confidence would rather have an expert do it for them. I do not view TrueCar as a competitor because we are serving different clients; I am paid by the car-buyer ($150-500 depending on package) and TrueCar is paid by the dealerships. I use TrueCar as a tool among many tools to get the best deal possible. That being said, if a consumer is going to use this tool they should know how effective it is.
When TrueCar first hit the scene, they dropped a bomb on how cars were sold. Dealerships would fight tooth and nail to out low-bid each other. Buyers in the early days ended up with serious savings, and dealers were often taking losses on a car just to "win." If customer used TrueCar back in 2012, they would see a chart something like this-
Notice the the disclosure of "dealer cost" and that the "average paid" for this particular car is below the "factory invoice." Car buyers using TrueCar expected to pay somewhere between invoice and dealer cost. This was powerful stuff. It was great for consumers, but bad for dealers and manufacturers. At one point Honda threatened to pull advertising from dealers who were offering to sell under invoice via TrueCar. Then the dealerships got wise and realized this was hurting their bottom line. They pushed back and pressured TrueCar to alter the model to no longer discuss savings under "invoice" but rather savings compared to MSRP.
You will still save money by using TrueCar, as to how much is another story. Let's take a look at some recent shopping I did for a customer wanting a 2014 Nissan Rogue SL AWD (MSRP 30,280)
According to TrueCar, I should expect to pay about 28,314 or about $1966 off MSRP. Not too bad when you consider that 28,314 is the dealer invoice price for that given vehicle. You will also notice that in this new chart "dealer cost" is no longer disclosed and the "average paid" is higher than the "factory invoice." Giving car-buyers the impression that if you get purchase for invoice you are getting a better deal than most people. However, once you actually look at what some of the dealers are offering for this car the situation changes a bit.
One of the "certified dealers" has agreed to sell the car at the TrueCar price, the other is slightly above but still a decent buy. The top dealer is actually selling for above MSRP! At this point you have to "view your certificates" in order to get exact pricing. Once you select this step, TrueCar sends your email to multiple dealerships who will immediately bombard your inbox with generic contact letters. The emails will be non-stop for several days, and if you gave your phone number they will be calling and calling.
You probably noticed that TrueCar only gave me a choice of 3 dealers to pick from, only two of which were willing to honor the discount. But there are at least a half-dozen or so other Nissan dealers within a reasonable drive from Philadelphia. I contacted a dealership that was not on the TrueCar "Certified dealer" list this is what they sent me-
Keep in mind that Classic Cars Nissan is not a dealership I had contacted nor worked with on any prior deal. I was not getting any "special discount" because of repeat business. The internet sales manager sent me these quotes without hesitation after I emailed the dealership to see if they had any SL AWDs in stock. Yet Classic Cars Nissan still was able to offer a price $709 less than the TrueCar dealer price. If you look at the first second again on what TrueCar considers an "unusually low price" it says 27,908. So Classic's price of 27,605 must be a one in a million! Not really, as two other dealerships were within a few hundred dollars of Classic's price.
This was not the first time I solicited quotes from TrueCar only to have a non "certified TrueCar" dealer still come in with a better offer. A few months ago I had a client shopping for a new Subaru Outback; I found a dealer willing to beat TrueCar by $900. I've even shopped some luxury cars was able to best TrueCar dealers by several thousands of dollars. I should also mention that when I was shopping for that Outback, TrueCar "spammed" my email to several dealerships regarding cars I had not inquired about. Within minutes of my submission, I got a dozen emails (and phone calls) from Lexus, Acura, VW, and Infiniti dealers. I would imagine your average car-buyer would not be happy being hounded by dealers on a car they don't even want.
It is worth mentioning that TrueCar is powering car-buying services from some well respected organizations such as Consumer Reports, AAA and soon AARP. Some car-buyers are even paying a fee to these organizations to get this "insider pricing."
In regards to that "guaranteed savings," the fine print says, "In certain states members receive Estimated Savings instead of Guaranteed Savings." When it comes to a purchase that is tens of thousands of dollars, estimated savings is very different than guaranteed. Of course this "insider pricing" is really just selling a car for invoice, something the vast majority of dealers are willing to do anyway.
TrueCar dealerships would be happpy for you to print out your "savings certificate" and stroll on in with that price, because many of them still have a healthy margin to work from. Also, do not forget that vehicle sale price is just one of several ways dealerships will try to get every penny out of you. Most of them understand that in this digital age they have to compete on price or you won't even bother showing up. But once you are there you still have to contend with the loan/APR manipulation and all those bogus extras like warranties and service plans they will try to tack on to make up for the discount. TrueCar cannot defend buyers against the "hassle" of tricks that dealers will play once you are in the showroom.
Dealerships love TrueCar because it gives them solid leads complete with contact information about potential customers and it gives buyers the illusion of a no hassle experience so folks are more likely to walk in with their guard down. TrueCar and Tesla Motors are two companies that industry experts talk about "changing the car-buying game." But one of these companies embraced by the dealers while the other is feared. Does that mean you should avoid TrueCar? No, but the TrueCar price should be the start of your negotiations not the end of it.
I'm Tom and I run AutomatchConsulting.com; I also write articles about car buying. If you have any questions about the car-buying process feel free to drop me a line in the comments or find me on Twitter @AutomatchTom and Facebook.com/AutomatchConsulting
(special shout out to Photoshop ninja Arch-Duke-Maxyenko for the lead image)