

The tragedy of TrueCar - mles12

Problem: how to determine the lowest possible purchase price for a new car.
Problem solved -- emphatically -- by TrueCar’s reverse-auction process, where buyers, and competing dealers who couldn’t help themselves, watched as new-car prices plunged. That was in 2011. Then, within months, thousands of car dealers across the country suddenly stopped dealing with TrueCar. The dealers claim they arrived at this decision individually. The FTC, however, is currently investigating possible illegal collusion and price-fixing.
In any case, TrueCar’s money came from fees charged dealers who “won” reverse-auction bids to sell cars for less than the other guy. So that model was abandoned in order to protect dealers from themselves. Now, only buyers are able to view bids. Car prices, and TrueCar’s profits, have moved back up.
TrueCar’s original business model apparently contained a contradiction, asking those who stood to lose the most to also pay for the privilege. 
But instead of abandoning the efficiency of the reverse auction, perhaps all we need is another revenue model. With TrueCar having lost its nerve, why shouldn’t another company offer reverse-auction automobile pricing -- this time supported by advertising on web and mobile?
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ryetoasthumor
I was the COO at AutoRef.

I am a little unclear what you mean by an advertising revenue model. There are
two ways to implement this model: 1\. Have dealers pay you to advertise their
inventory on your site - similar to AutoTrader and traditional classified
sites.

2\. Run AdWords or some other advertisements on the site to earn money.

We had a true reverse auction platform where customers selected 3
identical/similar new/used vehicles and we initially pushed for a charge per
car sold model (ie TrueCar). But many dealers had been turned off by TrueCar
bad reputation and it's struggles with charging a similar brokering fee, so
they weren't interested in AutoRef's service at all.

After that we went for a flat monthly fee but ultimately it was too little too
late. So it's possible that your idea could work but we sure had a tough time
implementing it.

TrueCar has always had a consistent revenue stream from its acquisition of Zag
- which ran the car buying program for many car insurance company's, AAA, etc.
This is a definite edge over a startup bootstrapping ad revenue.

Story about AutoRef: [http://techcrunch.com/2013/04/11/like-a-carwoo-for-used-
cars...](http://techcrunch.com/2013/04/11/like-a-carwoo-for-used-cars-autoref-
raises-850k-seed-round-led-by-european-car-buying-marketplace-autoscout24/)

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gregcohn
I tried shopping with TrueCar as an end-user (while seriously in the market
for a car) and found the experience not very good. I put in the make/model I
wanted and got a bunch of dealers calling me -- woohoo.

Car dealers seem to exhibit cartel-like behavior in various ways, so it seems
like it will be difficult to drive real participation in a marketplace like
this without proprietary demand (ie buyers at large scale that dealers
wouldn't otherwise have access to).

The used car market might make a better entry point, because it's actually
difficult to fully market a used car as a consumer, and aggregators like
Carmax are known bottom-feeders, and their bid-ask spread is too high for the
value they provide.

Another approach might be to do a hybrid involving car brokers or a merchant
model, something more like what Zillow and Stubhub do.

If you do this, please invite me to your beta!

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sixQuarks
TrueCar was never a true "reverse auction" process. At its peak, they had
close to 6,000 dealers participating. There are 17,000 new car dealerships in
the US. To have a true reverse auction process, you need to have all dealers
participating. Some high volume, low margin dealers refused to participate in
TrueCar. If you didn't get a bid from them manually, you would have missed the
best deal.

CarWoo attempted to create a better system. They actually came close, but
ultimately failed.

It's easier said than done. One of the most difficult parts is to get dealers
to participate.

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Slimjimz
It says TrueCar has 7000 dealers now here:
[http://money.cnn.com/2014/02/27/leadership/truecar-
painter.p...](http://money.cnn.com/2014/02/27/leadership/truecar-
painter.pr.fortune/)

~~~
sixQuarks
Sorry, I meant at its peak BEFORE dealers revolted.

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Slimjimz
Yes. All TrueCar claims now is "Don't overpay", the idea is just that TrueCar
makes sure you don't get ripped off. It doesn't necessarily push the dealer to
the limit on price. Dealers should have incentive to offer good deals though,
because they make money through volume.

I think a reverse-auction situation could work very well on a small scale.
Maybe you could make a simple app/system for running your own reverse-auction
effectively/simply? Keep it relatively small so dealers don't put up a boycott
or similar.

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serg_chernata
We already do that at haggledaddy.com :) Actual reverse auction.

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bdfh42
Pardon me for being prickly - but is this a blog post, a question or a call to
arms?

Not sure this is the correct format for any of those options.

