Why is TrueCar loosing millions of dollars (+/- $50 M/year) even though they have a very strong revenue (+/-$250 M/year) from car dealers who pay them a fee between $299 and $399 for each vehicle sold?
TrueCar business model utilizes a series of market statistics obtained from third parties. TrueCar pays these third parties millions of dollars a year for the data which is fed into their algorithms to calculate average prices paid by other car buyers. After having the data processed and combined with other data (which TrueCar deems relevant) to each transaction such as demographics and other parameters, this data is then shown on search results when a car buyer is conducting a search. This may help give the car buyer a feeling that they are getting a good price, however not knowing exactly what other parameters the TrueCar algorithms implement to calculate these “averages” there is no way of knowing if these comparisons are reliable.
The way car dealers generate the price they show on a search result using the TrueCar application is very simple: they enter a parameter in their dealer management system which is coupled with the TrueCar servers. This parameter reflects how much the individual car dealer is willing to discount their vehicles under the invoice price given to them by the car manufacturer. This discount can be in a dollar amount ($200-$400) or a percentage (1%-3%). Invoice prices are not the actual cost to the dealers. Dealers and manufacturers have another level of discounts (holdbacks) they get from manufacturer which are not passed on to the car buyers.
TrueCar spends millions of dollars trying to sell their services to car dealers and millions more in IT and customer service reps answering to dealers complaints related to errors made by TrueCar algorithms when generating leads or double leads.
The fact that TrueCar forces car dealers to sell their vehicles at a discount under invoice is not a true supply and demand business model because in cases when an individual dealer is not being compared to a competing dealer (this being the case when the search results return only one dealer in the search area), that dealer discount under invoice is automatically fed to the algorithm anyway. So needless to say car dealers are being forced to sell at discounted prices even when there is no competition and on top of that they have to pay TrueCar a $299 fee for it.
How does Pricesetter business model compares with TrueCar business model?
Pricesetter does not have to spend millions of dollars paying third parties for market statistics and the staff behind their IT department. Price setter Business model gets the same and even better results.. Pricesetter does not force car dealers to sell at a discount under invoice when there are no other competitors in the area.
Pricesetter uses a true supply and demand business model. Pricesetter does not compare to past market statistics on how much other people have paid for similar vehicles. What Price Setter does is it engages multiple car dealers within an area (which can be increased or decreased in radius as necessary by the searcher) and makes them compete in real time using competing parameters, setting limits on how low will their prices go and how close under the closest competitor they want their prices to be. If there are no competitors in the selected area then the MSRP price remains unchanged.
UPDATE: TrueCar posts big 2nd-quarter loss; CEO Scott Painter to step down
from the LA Times
Is it time for TrueCar to consider the Price Setter business model?