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TrueCar: Car Buyers, Dealers Have “Trust Gap”

June 24, 2014

SANTA MONICA, Calif. — Consumers believe car dealers make about five times more profit on the sale of a new car than they actually do, according to a new survey commissioned by TrueCar Inc.

Released this week, the first annual TrueCar Buyer Study highlighted the "trust gap" between consumers and dealers. While buyers fear they will overpay on their new-car purchases and believe dealers make about 20% profit on the sale of a $30,000 new car, the reality is that profit margins on new-car sales are shrinking. According to the National Automobile Dealers Association, profits on a new-car sale have fallen from 5.5% in 2003 to 3.8% in 2013.

TrueCar's survey also showed that consumers believe that a "fair" profit margin on a new-car sale would range from 10-12%. In addition, if told that dealers theoretically made zero percent profit on new-car transactions, consumers surveyed said they would be willing to "tip" them 8% on a sale.

"The TrueCar Buyer Study results show that fear and mistrust have a cost in the car-buying process," noted Scott Painter, TrueCar’s founder and CEO. "If consumers believed that they were getting information that they could trust as part of a more transparent process, they would be willing to pay dealers more. These survey results are consistent with the idea that increased transparency in the car buying process can result in higher margins for dealers and greater consumer satisfaction."

The TrueCar Buyer Study was conducted in February 2014 and surveyed more than 3,000 consumers across the United States. The objective of the survey was to identify consumer perceptions regarding perceived profits made by car dealers. The questions were designed to determine what consumers believe a fair profit would be.

According to results, roughly 26% of car buyers feel that they overpaid for their purchase, while 32% of respondents stated that they would not return to the same dealership due to low customer satisfaction with the purchase process. The survey was conducted by Strategic Vision.

"This survey is further validation of something we hold dear at TrueCar — that providing price confidence to buyers and sellers will bridge the trust gap in the car-buying process," says John Krafcik, TrueCar president. "That's what TrueCar is all about — we enable a delightful, negotiation-free car buying experience for car buyers and auto retailers."

Comments

  1. 1. T Baker [ June 24, 2014 @ 02:10PM ]

    All of that sounds wonderful for a self promoting guy like Scott Painter. Remember, he makes money off of the dealer, for trying to squeeze the lowest price out of them. They charge the customer nothing. And make no mistake, TrueCar is a FOR PROFIT business. He does not have the best interests of the customer in mind, only the best interests of his bottom line. He needs to quit trying to sound so noble. He's just in business like everybody else, but without the commitment to customer satisfaction after the sale and during the entire ownership period.

  2. 2. David Ruggles [ June 25, 2014 @ 09:20AM ]

    I'd suggest to Scott Painter that if he REALLY wants to understand consumers he should STOP doing surveys, buy a dealership, be COMPLETELY transparent, disclose his triple net cost, and negotiate the margin. What consumers say in response to survey questions and what they mean and actually do are two completely different things. The average consumer has no idea how business works. Many think the OEM owns the dealership. Others think the new cars are consigned to the dealer. Most don't know the difference between gross profit and net profit.

    TrueCar is so transparent they neglect to inform consumers that a TC deal adds $300. to the dealers cost structure.

    Consumers do NOT want a "negotiation free" car buying experience. They want the opportunity to negotiate but they want a guarantee they will "win" the negotiation. They are like the poker player who demands to see everyone elses cards before placing a bet.

    You can conduct surveys. OR you can observe actual consumer behaviour. There are enough consumers who will buy on a discounted first price to make some think that is a viable way to do business. But the real life full scale experiments with One Price have been miserable failures. Saturn? The Ford Collection? Why would anyone need to conduct a survey when real lab experiments have taken place and the results are available for all to see?

    Auto consumers these days have more information than they ever have. And they have never been as dissatisfied. That should tell us something.

    More and more dealers are having success by using the TC site as a closing tool. Without having to pay TC a fee, the dealer takes the consumer to the TC site to validate his/her own price.

    Painter believes dealers are a needless tier of distribution that doesn't add enough value to exist. This is curious since TC depends on dealers for current revenue.

  3. 3. Andrew Gross [ June 25, 2014 @ 11:43AM ]

    IMO, OEM direct to consumer transactions from Google self-driving vehicles and well-conceived and funded direct to consumer Tesla-like business models will eventually reduce franchised dealers to focus on the used car and parts & service business.

    In the meantime solutions like TrueCar, Edmunds and others try to balance their need for OEM advertising revenue, franchised dealer participation, and, oh yes, the consumer.

    More at www.carczarconsulting.com

  4. 4. Michael F [ June 25, 2014 @ 03:42PM ]

    I think David Ruggles hit the nail right on the head -- The consumer was much happier when the necessary information to make an intelligent buying decision was left to discovery AT THE DEALERSHIP. With the shift of information/data (most of which is inaccurate, at best) to the consumer, they can't possible sift through it all without wondering what's for real, and what's not! So therefore -- Everyone's a liar and we're all losing gross profits (whatever there is, at this point) while paying these services to assist us in getting prospects through the door; Guaranteeing that we all lose money is a joke!

    Ruggles' last comment is super salient......where do these advertising mechanisms think they're going to get their cash when we all decide to drop them and conduct business the way we know that works?

  5. 5. Terry Baker [ June 27, 2014 @ 04:06PM ]

    why is it any of the consumers business what a car dealer makes? Keep something in mind an auto is a retail product and has the lowest % of any retail product that I know of. Please correct me if I am wrong

  6. 6. David Ruggles [ June 29, 2014 @ 08:47AM ]

    @ Terry - So true, on ALL counts! I see a trend of more and more savvy dealers severing their relationship with TrueCar, but using their site to validate their own pricing. Yes, they use TC as a closing tool without having to pay the $300.

  7. 7. jimfrank [ October 06, 2014 @ 03:05PM ]

    the fox in the hen house says... "the hens told me they were much happier being eaten then to just hang around and lay eggs. Seriously, that's what the SURVEY said". true car is TRULY a deal with the devil.

 

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