AMERICANS looking for a new car nowadays often use online price-comparison sites such as AutoTrader, Edmunds and eBay to find the best deal. Most such sites charge dealers a small fee for passing on sales leads from shoppers who have submitted their details. TrueCar, a relative newcomer, does things differently. It charges dealers $300, but only when its introduction of a customer results in a sale, and it makes its dealers guarantee to honour their quotes, no excuses.
TrueCar taps into data from state vehicle-registration offices, car-loan providers and other sources to compile what it says are the most accurate figures available for what motorists pay for the same car locally. This can be several hundred dollars less than the sticker price, and is often below “invoice”—the price that, according to the paperwork sent by the carmaker, represents the wholesale price the dealer paid. In fact dealers receive various rebates from carmakers, and make money from such things as loans and service contracts, so a modest profit is still possible.
But such heavy discounting alarms carmakers. Honda’s American arm recently told dealers it would cut off their marketing allowances—which can be worth hundreds of dollars for each car sold—if they did not stop offering sub-invoice prices on TrueCar and other sites. Honda insists dealers can sell at whatever price they wish, but it will not pay them to market its products as “cheap” or “low-end” cars. It also suggests that some dealers use such sites to “bait-and-switch”, offering tantalisingly cheap cars they do not have, to reel in suckers, a practice many states ban.
TrueCar insists that the contracts it makes dealers sign commit them to deliver the cars they promise at the price quoted. David Wilson, who recently told the 16 dealerships he owns in California to stop using TrueCar, says he has reason to share Honda’s scepticism: he plays back to The Economist a voicemail from a rival dealer who had quoted him an attractive price via TrueCar on a new Lexus, calling to say that they did not have it in stock but could try to find one for him. TrueCar says there had been no hiding of the fact that the model concerned might no longer be available, and thus no question of “bait-and-switch”; that this was a one-off case and that TrueCar has had few complaints so far. But it is awkward that a critic had so little trouble catching a dealer quoting for a car it did not have.