Locked Out: Dealers Shunning Businesses
November 2013, Auto Dealer Today - Cover Story
If car dealers don’t want to work alongside a company, they’ll typically make it known.
This was the case for droves of car dealers when it came to TrueCar in late 2011, and it’s the scenario now with Tesla Motors and even, to an extent, Carfax. That’s why the dealer community’s eyes are fixed on the Federal Trade Commission (FTC). They’re awaiting the outcome of an investigation that began in early September, when the agency sent letters to dealers and firms who spoke out against TrueCar’s business model almost two years earlier.
Dana Frix, partner at Washington, D.C.-based Chadbourne & Parke LLP
Dana Frix is an attorney and partner with Chadbourne & Parke LLP in Washington, D.C. He specializes in antitrust claims, and he is assured the FTC must have cause to investigate this topic. Otherwise, he reasons, the agency would allocate its time and budget to other cases.
“They have to prioritize their enforcement activities, and they have to go after something that appears most likely to be a violation,” Frix explains. “The fact that this investigation is occurring now suggests that something has come to the agency’s attention that suggests this was not about mere blogging, but rather there could have been information suggesting that the activities were part of a concerted effort to engage in offending discriminatory conduct.”
TrueCar’s Bumpy Road
In a letter dated Sept. 5, FTC attorney Melissa Westman-Cherry informed Jim Ziegler, dealer trainer, industry firebrand and new Auto Dealer Monthly columnist, of a “non-public investigation to determine whether firms in the retail automobile industry may be engaging in, or may have engaged in” violating the FTC Act “by agreeing to refuse to deal with TrueCar Inc.”
Late 2011 marked the start of a testy relationship between TrueCar and the auto retail industry. Dealers from across the country and state associations brought TrueCar’s practices to the attention of regulators and lawmakers in several states, including California, Colorado, Indiana, Louisiana, Nebraska, Ohio, Oklahoma, Virginia and Wisconsin. In some states, the point of contention was whether TrueCar’s business model violated prohibitions against “bird-dogging.” In others, the company’s advertising practices were called into question. The Colorado Department of Revenue, for instance, alleged that TrueCar was in violation of state advertising rules for failing to include stock numbers of vehicles for sale, expiration dates and all costs associated with the sale, among other issues.
TrueCar’s Scott Painter said he was unaware of the FTC’s plan to launch an investigation.
After suffering losses
of close to $40 million and more than 2,000 dealer clients (which it later regained) in the first half of 2012, TrueCar Founder and CEO Scott Painter
opted to smooth things over with dealers. One of the changes made was the elimination of “dealer cost
” in TrueCar’s controversial pricing curve, a figure critics said created an inaccurate reference point for negotiations.
The public scrutiny arguably erupted on Nov. 27, 2011, when Ziegler posted the earliest notable blog entry lashing out at TrueCar. Ziegler maintains it was never his intent to put the company out of business. In a February 2012 post, he wrote, “When I started the TrueCar blogs back on Nov. 27, it was the beginning of a movement. Hard to believe I was able to get thousands of people involved.”
Kelly Automotive Group also received a letter from the FTC about the ongoing investigation, according to a report from Automotive News. Mike Warwick, director of digital marketing for the Massachusetts-based group, told the media outlet he didn’t know why he was personally named in the letter, except that he criticized TrueCar’s business and pricing model on dealer blogs in late 2011 and early 2012. He declined to comment further on the investigation for this article.
Phone Ninjas CEO Jerry Thibeau posted a series of videos in late 2011 that were critical of TrueCar’s business model.
The argument that this investigation’s premise is grounded solely on social media rants bashing TrueCar could be a stretch, though. One of the most vocal opponents of the company was and is Phone Ninjas CEO Jerry Thibeau, who in late 2011 posted a series of YouTube videos showing him make bold statements such as, “If a group of mafia bosses had to sit down and talk about ways they could extract money from car dealers, well, TrueCar would be that brainchild.”
Thibeau, however, has yet to receive a letter from the FTC. “I was surprised, because I was pretty vocal [online],” he admits.
Unlike Ziegler and other outspoken critics, Thibeau has not made amends with TrueCar, nor has he changed his stance on the lead-generation site. “The more customers use TrueCar, the more leverage TrueCar has over dealers, and the more money they’re going to expect from them,” he says. “TrueCar is saying they didn’t initiate it, but when you’ve got that much money behind a company … and then they had a little negative publicity recently (related to a new write-off policy the company implemented in September), why would you let that happen again?”
TrueCar’s Painter denies those claims. “At no time did TrueCar ask for this investigation,” he says. “Until we received a letter from the FTC, we were unaware of its existence.” He referred to a statement from the company that reads, in part: “We’ve had no prior contact with the FTC concerning the investigation. … TrueCar values the support of its thousands of dealer partners.”
Prior to the government shutdown, Mitchell J. Katz, a spokesperson for the FTC, commented only that he “can’t say anything about this matter. It’s entirely nonpublic.”
It is unclear why the investigation is underway now, considering that roughly a year has passed since TrueCar altered its business model to comply with each state’s laws and largely mended its relationship with car dealers.
Frix points out that it is not unusual for the FTC to investigate an issue for as long as two or even four years following a specific incident that impacts the marketplace. The FTC’s main concerns in regards to competition, Frix says, are first to protect any company that did suffer anticompetitive violations, then to protect the marketplace structure. “You can think of the FTC as sending a message to the marketplace, and that’s really what the bigger effect of their enforcement activities generally are,” he says.