TrueCar goes off line in Colorado; other states may challenge site

True Car Home PageTrueCar.com, an online auto shopping site, told its Colorado dealers this morning that it has suspended its service in the state. The Colorado warning was followed by concerns about the legality of the TrueCar model issued from regulators and dealer associations in several other states, including Wisconsin, Kansas and Virginia. TrueCar said in a statement that as of late December it had been contacted by regulators in six states: Colorado, Louisiana, Nebraska, Kansas, Virginia and Wisconsin.

TrueCar is an online vehicle-shopping service founded by Scott Painter that consumers use to find new and used vehicles at a discount. WIth some laws dating back to horse trading days, car dealerships are heavily protected in many states and almost have an entitlement business model. This is one of the reasons why companies like Chrysler and GM had to file for bankruptcy protection - to be able to fire dealers that were underperforming in several metrics that the car companies use. 

Participating TrueCar dealers compete for the business by offering a price on a specific vehicle configuration selected by a shopper. That price is below what TrueCar calls “invoice.” The dealer pays TrueCar $299 for every lead that results in the sale of a new vehicle. A used-vehicle sales generates a $399 payment. Obviously this kick back doesn’t come out of thin air but is incorporated into the price the buyer pays for the vehicle. 

Also, some states ban bird-dogging — paying a third party a fee that is results in a sale. Some states ban brokering, which is charging a fee to a retail customer to find and negotiate the purchase of a vehicle.

TrueCar has said will comply with all state laws and is willing to change its Web site and methods.

In a Jan. 4 e-mail to its participating dealers, Stewart Easterby, TrueCar executive vice president of dealer development, said: “TrueCar continues to work directly with regulators to ensure compliance with all applicable laws so that neither we nor our dealer partners are subject to any fines.”

In an e-mail to dealers, a Colorado TrueCar account manager said the suspension is voluntary as the company works with state regulators to “conform to the rules of the road in your state.”

Colorado auto regulators warned in December that participating TrueCar dealers may be violating certain state laws.

“We feel comfortable that we will be able to address any regulatory issues by Jan. 17, at which point we will be reactivating our service, including automatically reactivating your account,” Thuy Adomitis, a TrueCar account manager, wrote in the e-mail, which was obtained by Automotive News whom I ripped this story off from. 

On Dec. 15, the Colorado Department of Revenue said TrueCar’s materials and Web site violate several state regulations, including advertising rules. The TrueCar business model also creates the potential for dealers to violate bait-and-switch laws in the event that the desired vehicle is not available and a dealer attempts to sell the customer a different one.The regulatory agency also said TrueCar lacked required licenses.

Many states study TrueCar

Colorado is the only state in which TrueCar has suspended service.

Dealer associations in Maryland and Indiana have since sent bulletins to their members. In Virginia and Oklahoma, the state regulatory agencies that oversee dealerships plan to discuss the matter at meetings scheduled for next week.

The state laws in question were enacted in previous decades to protect interests of dealers and consumers. For instance, some states prohibit the use of the word invoice in advertising.

TrueCar’s changes

TrueCar said that it will warn shoppers in red type on its site when a price is below what it calls dealer cost. The warning will contain a message that selling cars below dealer cost is not sustainable for dealers, like anybody really cares. 

The statement also said that TrueCar CEO Painter and other executives will be meeting with “numerous dealers and state dealer associations over the next few weeks to listen to and address dealer concerns, plus provide clarity on how TrueCar operates.”

TrueCar’s Easterby adds in the letter that no state has mandated a prohibition of TrueCar services or have lawsuits been filed against TrueCar.

Potential penalties for dealers for running afoul of the various state laws cited by regulators and dealer associations include fines of up to several thousand dollars per occurrence and license suspension or revocation.

In my opinion the entire automobile purchase experience is horrible. Dealers are generally morons who don’t see past the immediacy of the sale they’re making right now and have a sense of entitlement which is borne-out by all these whacked laws that protect them. While any honest business ought to be encouraged and protected to a certain extent, it’s about time that a consumer should be able to go on a website and simply make a vehicle purchase like you can with almost any other item. 

The last two bastions of ancient horse trading is car dealerships and real estate. It’s no wonder that, in many surveys, people say they dislike car sales people, real estate agents and lawyers on almost the same level. It’s seriously time for a change. 

Imagine how great it would be if you could go on a vehicle manufacturer’s website, or even a site like Amazon, and just pick and choose what you want and then have it delivered to your front door or office? If I can buy a refrigerator, computer, chain saw or generator like this why can’t I buy a car like this? Frankly the websites that are the shopping portal for almost all vehicle manufacturers are terrible at best. It’s really time for a change.