Tag: TrueCar

Raising the Bar

Armchair strategists are feeling vindicated now that AutoNation CEO Mike Jackson has abandoned his “asinine” plan to ground all vehicles under recall.  I see the same argument whenever anyone tries to change dealer operations.  They estimate the reduction in profits and write about that, as if that were the end of the argument.  It’s not.  That’s not how competition works.

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If you talk about disclosing product prices online, you will hear that F&I gross is now $1,500 and who wants to screw that up?  Same story with TrueCar and their diabolical plan to disclose transaction prices.  You even hear this complaint about vAuto and the velocity method, which sounds to me like the most logical thing ever.

My back-of-envelope calculation says that AutoNation carrying an additional 10,000 units of inventory, at maybe 2%, would cost them roughly $5 million per year.  That’s 0.02% of sales.  For comparison, the related “Drive Safe” ad campaign was $10 million.

AutoNation, with investment-grade credit, enjoys a lower carrying cost than its private dealer competitors.  Selling diverse brands, they are less exposed to a recall by any one manufacturer.  They can also exploit their scale to mitigate the cost of such a policy, not to mention the PR benefits.

If federal regulators had followed Jackson’s lead, this would have raised the bar for all dealers.  Two senators, now disappointed, were lined up to make that happen.  Jackson’s policy, a minor challenge for AutoNation, might have proved fatal for smaller dealers.  That’s how competition works.

It is a mistake to look at process change only in terms of the costs.  Athletes training hard for a competition don’t think about how much it hurts.  They think about how much it’s going to hurt the other guy.

Update:  Motley Fool estimates the cost to AutoNation at $0.06 of EPS, a little higher than my estimate (and Jackson’s) due to the Takata debacle.

How to Save TrueCar

My title is somewhat facetious, but “how to position TrueCar so that it makes dealers less hostile and invites fewer lawsuits” was too long. The Auto News forum is not exactly laden with objectivity. People see the headlines and the share price, and then they crow about TrueCar going out of business.

Complaints or negative publicity about our business practices, our compliance with applicable laws and regulations … could diminish users’ and dealers’ confidence in our products and adversely affect our brand

Investors are more objective, as in Why I’m Buying TrueCar despite the Sell-Off. You can look at the Morningstar rating (undervalued) and the quarterly report. TrueCar is making twice the revenue of Autobytel, and growing faster. Still, there is the hostility. Here are my thoughts:

  • Enhance the site to support online buying, as I have described previously.
  • Add features like the ability to sell protection products. This feature alone would compensate for foregone gross on the front end.
  • The platform should help individual dealers to compete with consolidators. Make it a “community” that includes dealers, affinity groups, and finance sources.
  • Prepare for a world of one-price dealers. Look at Scion, for example. The histogram for a Pure Price dealer has only one bar.
  • Use out-of-market data, consumer data, and statistical inference to provide a more detailed pricing picture. This feels less like “ratting out” the dealers.
  • Make the database a research tool, as Zillow is for homes. TrueCar owns ALG, so they already have the machinery.
  • Update the revenue model, to avoid legal classification as a broker. The current model, ironically, becomes less effective as more dealers adopt it.
  • Think about pay per lead, or monthly. I can’t state the details, but I understand the AutoNation deal could have been saved.

These measures should allay the hostility that some dealers have toward price transparency, and the TrueCar business model. If all else fails, and litigation persists, there is the “nuclear option.”

I can think of a few ways to end price obfuscation, for good. The practice is obsolete anyway (not to mention unfair and deceptive) and would not survive six months of concerted attack. Of course, that would also damage the TrueCar model, as presently constituted. I recommend doing the strategy alignment first.

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Why Price Transparency Matters

About a year ago, the McKinsey report came out, Innovating Auto Retail. It looked at how traditional dealerships will fare in a world dominated by online shopping, and how the business model needs to change. McKinsey has some good ideas, which they tested using a simulated dealer network. In the simulation, one dealer in six had to close.

For online shoppers, the primary motives are convenience, the expectation of lower prices, and avoiding certain unpleasant elements of the sales experience at dealerships, such as “haggling over the price” – McKinsey

Recently, Auto Trader conducted a survey of modern buyer behavior. It is more dealer friendly, but it reaches some of the same conclusions. The core function of a dealership is to provide expert assistance in choosing a vehicle, and to do test drives.

What does not belong in a dealership is the hour-long F&I ordeal. Customers, according to the survey, are ready to leave after ninety minutes. Spending sixty of them in the box is a non-starter. The more of this process that can be completed online, the better.

Vroom No Haggle

One finding in the Auto Trader survey that differs from McKinsey is the assertion that customers actually prefer to haggle over price. I see an editorial like this about once a week, and I just don’t buy it. It’s obviously self-serving for expert sales people to insist that customers enjoy the process – even as they argue against price transparency.

My purpose here is not to make a moral point about Sales, but a practical one about F&I. Pricing is the key obstacle to completing virtually all of the transaction online. You have all of this time consuming activity around financing and products – backed up, waiting for the price.

I would suggest that the opportunity to play games with the sale price is not worth what it costs F&I in lost profits and efficiency. Someone is going to figure this out. Here are a few possibilities:

  • Use no-haggle pricing, like Vroom.
  • Use transaction prices, like TrueCar.
  • Do the haggling online, like MakeMyDeal.
  • Use some hybrid approach, like AutoNation.

AutoNation recently had a falling out with TrueCar, but they have always been a leader in trying to solve the pricing problem, probably because they are aware of the efficiency issue (and the CSI issue). I understand that many sales people still consider haggling to be an important part of their job. Times change.

Ahead of Its Time

I like TrueCar.  I have used the service myself, and recommended it here before.  So, I was sorry to read that they are being forced out of Group 1.  My vision of Online F&I, in a nutshell, is that customers will someday desk their own deals.  That’s why I applaud AutoNation for their persistent efforts to move away from the antiquated “secret pricing” approach.

Group 1 had also been in the vanguard, but now Honda is pressuring them to drop the TrueCar relationship.  The comments from Honda remind me of some I heard way back when MSRP data first appeared on the internet.  “Unacceptable,” stormed Herr Heitmann, “must be stopped!”  Meanwhile, Edmunds was already publishing our invoice prices.

Of course, as an e-commerce guy, I am biased.  You can’t just say information wants to be free, to an angry factory exec – or a struggling GSM.  Except that it’s true.  Transaction prices, like invoice and MSRP, are going to be out there.  We might as well get used to it.

BMW Dealer Visit

TruckIn my business, you can never spend too much time in the dealership.  I bought a new car over the weekend, and took the opportunity to study their software (they didn’t believe me, that I had invented the InfoBahn).

“Hey, can I sign this waiver electronically?”  No.

“Does this desking system push to ADP?”  Not exactly.

Aeros is a slick little system, certified by BMW two years ago.  I gather they’re in a couple hundred dealerships.  I liked Aeros a lot, but noticed the F&I Manager rekeying between it and ADP.  Just user error, I hope.

The same goes for the menu presentation.  Scratching out the GAP row with a Sharpie is probably not what Maxim intended.

I enjoyed using Zag.  They have a good, web-friendly process, and it gets you close to invoice before the first phone call.  Of course, this cuts into gross – but hey, I drove past the other BMW dealer.  Like many BMW drivers, I will order a car sight-unseen. This makes BMW a prime brand for online selling, and Zag.

Upfront Pricing

AutoNation is going to have another try at no-haggle pricing.  This time, I think they will succeed.  I think the market is ready for it.  By coincidence, I had just read Zag’s white paper when Mike Jackson made the announcement.   He was talking about no-haggle in the showroom, but this has important implications for my field, e-commerce.

Zag’s argument is that if you’re the only dealer in town not giving a price on the internet, then you’ll be left behind.  The flip side is that if you’re the only dealer who is doing it, then your competitors can easily undercut you.  The trick is to create a movement in the industry – and AutoNation has the scale to do that.  The article also cites Sonic, Asbury and Lithia.

Mr. Jackson says pricing is the last frontier in auto retail, and this is doubly true on the internet.  It’s the one thing preventing true, business-to-consumer, online F&I.