117 Dealers Suing TrueCar For $250 Million Dollars

March 10, 2015 15 Comments

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A lawsuit in New York has pitted dealers against TrueCar. 117 dealerships have sued TrueCar in New York district court for $250 million dollars over major concerns about their business practices. This suit, first reported on by the Automotive News, alleges that TrueCar engaged in false advertising and created unfair competition.

The lawsuit reads that dealers end up in competition with TrueCar directly and indirectly “in sales of new automobiles to consumers.” The suit reads in part, “TrueCar’s advertisements falsely claim that consumers using its services can purchase an automobile with no haggling and “no negotiation” and that TrueCar benefits consumers by removing surprises at the dealership.” The suit goes on to indicate that TrueCar just provides dealers with leads and customer contact info and that consumers still have to “haggle” with TrueCar affiliated dealerships prior to their vehicle purchase. The allegation is that consumers are turned off by this and leave dealerships where they didn’t expect to negotiate. The result? According to the lawsuit it’s lost sales and “harm to the plaintiffs’ goodwill.”

According to a statement emailed to DrivingSales News, Alan Ohnsman, a spokesperson for TrueCar responded to the lawsuit. In an email this morning, Ohnsman said, “We are aware that a complaint has been filed on behalf of a group of dealers who are not on the TrueCar program. We believe the complaint is without merit. We will vigorously defend the lawsuit and our business practices and we expect to be fully vindicated.”

The dealerships involved in the TrueCar lawsuit aren’t current customers of TrueCar, however it’s reported that some of the dealers are former TrueCar customers. However, the suit does measure perceived losses by the dealerships due to the business practices at TrueCar. The attorney representing the dealers, Lenoard L. Bellavia, estimated the damages to around $432,000 per store over a four-year period. This figure was reached by considering TrueCar cost each dealership three sales per month with a gross profit on each sale at around $2,000. In the lawsuit, the plaintiffs (dealers) are seeking monetary relief in excess of $250 million dollars, reimbursement of attorney fees as well as repayment of perceived damages to the individual dealerships. In addition the suit seeks all of the profits TrueCar earned using alleged false methods of advertisement and creation of an environment of unfair competition.

The website for the firm that Lenoard L. Bellavia, who represents the 117 dealers is a part of, dealerlaw.com, mentions a potentially larger suit. It also seems to seek others to “join the planned mass class action against TrueCar.” This begs the question, is this just the beginning? Will other suits against TrueCar begin to show up? What has your experience been like with TrueCar?

About the Author:

The DrivingSales News team is dedicated to breaking the relevant and the tough stories affecting car dealers. Have questions for DrivingSales News? Reach the team at news@drivingsales.com.

    I’ve been a salesman for years. So here is the Truth! #1 Dealership markup has always been an average of between $800 – $2000 on a car. That Pays the salesman’s commission, the secretaries, the manager’s, the rent, property taxes, inventory taxes and so on. The average salesman sells 8-12 cars per month. That being said; most people that complain have no auto industry experience and or are completely ignorant of the numbers involved.
    True Car takes advantage of the fact that dealerships work on consignment. If we want 200 cars next month we have to sell 200 this month. So we have to meet a quota. True car forces us to bid, and alot of times a dealership on that bidding list will sell under msrp to meet his quota. What does this mean? It means the dealership will lose money on the car. Well I promise that i’snt happening. But a desperate dealer will still bid lower than msrp.

    What ends up happening is the dealer bumps the customer up to invoice price. What does that mean? It means I am working for free because i make money based on the dealerships profit and not the actual sale as most people think.
    So the only one that actually suffers is the sales rep.
    According to a recent national survey, the average commission for car salesmen is $250 per vehicle sold. The average selling price per vehicle is about $1,000 over the invoice cost. And the average number of cars sold is 8 to 10 vehicles per salesman per month.
    Salesmen do not make what you think we do and neither do dealerships. People always talk bad about the car salesmen. The truth is they are angry about the cost of a car. Well…….Blame government regulation and the EPA for that. Catalytic converters, sensors, computers, safety equipment like back up camera and blind spot monitoring are included but not nearly all of the technologies the government has and will require from manufacturers. This cost is passed on to you.
    So the next time you use True Car, who will lie to you because you are not their customer. The dealerships pay them, not you!! Not because we want to but because we have essentially been blackmailed to! Just remember that all you are doing is giving $600 of dealership money you could have saved on the car, giving up on 75% of the nations dealerships who are still not on the true car certified list and could possible meet the true car price fairly instead of being blackmailed into it, and robbing a (believe it or not) perfectly honest salesman of the money he needs to feed his wife and kids, and finally vindicating True Car of the “technically legal” obtaining of dealer crm information (which is personal financial info) from dealerships everywhere.we new car salesmen are not the liars people claim we are. Car salesmen who lie actually get prosecuted for it. (any fraud over $1000 is a felony)
    We are usually very honest and helpful experts on our products that want to make a fair living. In a fair world we would make around $500 per car which seems like alot, but remember we work 5-60 hours a week to sell 8-12 cars per month. So that really comes out to 5000 to 6000 dollars per month. But instead 80% of our leads are now internet leads from companies like true car and our income is now or less than:

    This Internet Statistic Quoted: “According to a recent national survey, the average commission for car salesmen is $250 per vehicle sold. The average selling price per vehicle is about $1,000 over the invoice cost. And the average number of cars sold is 8 to 10 vehicles per salesman per month.”
    This boils down to less the $3000 per month or $500 per week. Try living on that in Chicago and being reuqired to dress up for it as well. Do you still think the salesman’s life is so Glamorous?? Do you still think the salesman took advantage of you??

    Ed Brooks

    Isn’t USAA car buying done thru Zag, and aren’t Zag and TrueCar the same company?

    Mark Dubis

    Let’s look at some fact about TrueCar & Auto Industry

    • Latest NADA stats said new car dealerships sold 15.5 new and 9.9 used (retail) vehicles
    • TrueCar says consumers bought over 600,000 vehicles from TrueCar dealers in 2014. That means using NADA numbers, they were directly or indirectly responsible for only 2.4% of vehicle sales last year from new car dealers.
    • So 97.6% of new and used vehicles sold by new car dealers are NOT sold via TrueCar
    • While they run the auto buying program for USAA reports have shown that more than 66% of USAA members buying cars do not use TrueCar
    • Scott Painter, CEO of TrueCar also was the founder of CarsDirect who offered consumers a way to bypass dealers. Their financial statements showed they lost about $250 on every vehicle sold. Someone figured out that was not a sustainable business model and the company was sold. It is now a classified auto shopping website.
    • TrueCar’s Income Statement indicates they lost $48.43 million in their last fiscal year. Publicly owned auto dealer groups did a bit better. Lithia had a profit of $135 million, Penske Auto Group profits were $305 million, Sonic shows $98.2 million, AutoNation shows $419 million and Group 1 Automotive shows $89.3 million. Clearly auto dealerships know how to make money.
    • While TrueCar indicates they have 9,000 dealers history tells us that not all of them are active in any given month or year
    • TrueCar exists because auto manufacturers and retailers do not have the will to initiate a concerted effort to improve the reputation of our industry or the customer experience and marketing process. 92% of the public do not trust auto salespeople.
    • Unless there is a systemic change TrueCar and other auto shopping sites will continue to provide value to auto shopping consumers.

    Tom Croxton

    We are an ex True Car dealer. We are ex because of what has already been mentioned. I’m surprised dealers continue to do business with them after listening to all their anti-car dealership ads on the radio and TV. We found their price guarantt certificate was just the start of further negotiations. They do not produce additional sales in any market, just create an additional expense for subscribing dealers. They do not provide a better service nor a better price than a customer can get at any time at our dealership. They exist only to generate profit for themselves.

    F&I Master

    Yes We have seen this Incorrect and double billing as well. These guys are double dipping the dealers as well as their customers, Services such as Costco and Usaa are much better avenues to use when purchasing

    Terrible to deal with they try to bill you to death
    (former customer)

    John Henesy

    As a BDC/Internet Sales Director I see this EVERYDAY! Customers either come in or call claiming they have TrueCar price quotes. I do not know where TrueCar comes up with the prices they quote, because 100 percent of the time, the quotes do not include destination charges, and include hold back and reserve. What dealer wants that deal? The only one making money is TrueCar.

    I predict TrueCar either settles this, or loses this case, then when other dealers learn of the victory, TrueCar is out of business within a year.

    GM

    These guys are a double-edged sword. Their leads are strong and one of our highest converters. When you look at the cost of leads per SALE they are actually quite competitive. However, their process of charging for leads is a nightmare. You can show them CRM records, customer testimony, and even medical records if you want to prove you worked that customer every day for 30-days. If that customer double checks pricing on TrueCar before your DMS registers the deal then you get a pretty bill from TrueCar claiming they were the reason they bought…

    G Morris

    Please allow me to add, that I have never purchased Truecar’s services, due to being an insider in the industry. I am unaware of the pricing for this service.

    G Morris

    As a customer and a former Sales and Leaaing Professional, I can only say this..with great confidence, dealerships hate any internet service that causes them to lose profit, period! This is not about the consumer or what is best for the buyer. As a buyer I love Truecar! As a salesperson, I absolutely hated it. As soon as a customer came in with this pricing, I knew I would be making a ‘mini'(minimum commission paid to a sales person). The pricing Truecar gives it’s customers is better than the employee discount offered at most dealerships. And some customers have been known to take the pricing to their preferred dealership for an opportunity to match. In my opinion it has changed the way consumers buy vehicles. For better if you are the buyer, but at a loss of profit for the dealer. Dealerships are not out to lose that profit! As a former sales professional I myself have assisted a number of buyers to achieve great savings and minimal negotiations. To my great joy I may add! This is a ridiculous lawsuit aimed solely, in my opinion, to discredit Truecar’s reputation. And as I pointed out earlier, goes right in line with the typical finacial raping of someone for more profit somewhere.