Many consumers dread the new car shopping experience, complete with the hard sell, price haggling and anxiety about overpaying for their vehicle. A revolution, however, could be on the way with TrueCar’s negotiation-free car purchase and sale platform, which offers buyers insight into what other individuals actually paid. Megatrends spoke to TrueCar President John Krafcik about the company’s latest efforts to bring transparency to the car buying process.
Price confidence
“Our product is price confidence,” explained Krafcik. “We believe car buying should be fair, fast and fun. We like to be beacons of transparency.” This transparency covers a fair price for buyers and for dealers.
While consumers are concerned about being cheated on price, dealers are struggling to make a living. A recent study by TrueCar indicated that most consumers believe dealers are making much bigger margins than they really are. While most of the study respondents estimated dealer margins at about 20%, data from the ADA indicates the truth is closer to 3.8% front-end gross profit. “It means there is definitely a problem to solve,” Krafcik said. At the moment, new car dealers in the US are losing money on about one out of four car deals.
“What if we were able to, with our access to different streams of data, present that data and share with consumers real time transaction data for prices that folks paid for cars configured just the way they are configuring it?” said Krafcik. “What we are really doing is enabling negotiation-free transactions for buyers and sellers by providing price confidence.”
From greed to anxiety
TrueCar’s consumer facing promise is ‘Save time, save money and never overpay’, but it didn’t used to be. A couple years ago, the slogan was ‘Pay the lowest price’, an approach that proved unviable for dealers. “It was an unsustainable model,” explained Krafcik. “The TrueCar model at that time made it easy for dealers to essentially press one button on our interface with them to re-price all their inventory to be the lowest price in a market area. If one dealer did that, another dealer wouldn’t be too happy about it; they would do the same thing. It quickly spiralled with prices going down and down. It was definitely an unsustainable model. We had to step back because dealers were dropping off our programme. We tried to understand their points of view and we got a good education.”
TrueCar adjusted its model in several ways, yielding data tools for consumers and dealers that “helped them judge the right price, the market clearing price, for their inventory so there could be balance,” explained Krafcik. “With this transition we’ve gone from appealing to the consumer’s sense of greed to trying to alleviate the consumer’s anxiety about paying too much. It allows us to create an umbrella under which consumers are confident they are getting a great price but that they are not going to put the dealer in a situation where they’re losing money on a deal.”
New innovations
The new car buying journey very often also involves the sale of an older model to make way for the new one. Getting a fair price for this model poses a challenge and many shoppers are convinced they won’t get a fair price from the dealer. In the US, in 75 out of 100 new car purchases, the customer needs to dispose of an older car. In about 35 of those instances, the consumer will trade in the car at the dealership where he is buying the new one. The other 40 times, buyers take on the hassle of selling the older model themselves.
“Car shoppers feel that they’re not going to get a fair price,” explained Krafcik. “The ironic part is that new car dealers really want late model used cars because that’s the biggest margin.” He noted that the dealer margin on used cars is about 12%, compared to just 3.8% for new cars.
TrueCar is once again here to help, said Krafcik. It recently developed a mobile application called ‘Sell My Car’, which enables consumers to receive an upfront offer on their current vehicle. A consumer needs only to download the Sell My Car app, complete a 10-15 minute survey on the car details and provide photos. The information is then submitted to participating dealers, and within 24 hours the consumer will receive offers for the car from TrueCar Certified Dealers.
This is the first application to come out of the newly established TrueCar Labs incubator, and additional innovations for the automotive ecosystem will follow. The latest one under development addresses buyers that are in the market for an upgrade. The app would take in information regarding the consumer’s current model and those vehicle models in which the consumer is interested. The app could alert the buyer should a specific new model become available with a monthly payment within a certain range of what he is already paying. “The acquisition of a new product could be as simple as pressing an Upgrade option, pressing ‘I’ll take that one’, driving to the dealer and coming out in an hour with the new car,” said Krafcik.
This application is still “something for the future,” cautioned Krafcik, with no launch date yet on the cards. In terms of preparing for the future, TrueCar is working in various ways to respond to the numerous market trends at work. So far, it is making solid headway in its mission towards transparency.
The company has been in place for about ten years and had its IPO on 16 May this year. Of the 32,000 franchised dealers in the US, TrueCar has about 8,000 dealer partners. “Investors seem to understand our mission,” said Krafcik. “Consumers certainly seem to get it, and our dealer partners really embrace our model.”
