SANTA MONICA, Calif. — Third-party lead-generation site TrueCar Inc. has agreed to settle a lawsuit leveled by the California New Car Dealers Association (CNCDA). To persuade the dealer association to drop the case, TrueCar agreed to switch from a per-sale compensation model to a flat subscription model and double the indemnity it offers to California dealers.
“TrueCar is pleased that the litigation has been resolved to the parties’ mutual satisfaction, and we look forward to continuing to serve our dealer customers in the state of California,” said TrueCar President and CEO Chip Perry.
The suit, which was initially filed in May 2015 and amended in January 2016, charged TrueCar with a violation of the California Vehicle Code, which requires auto dealers and brokers to be licensed as such.
In the 2016 amendment, CNCDA’s directors took issue with TrueCar’s “No surprise or hidden fees” advertising claim, noting that the company does charge dealers $299 for the successful sale of each new vehicle and $399 for the sale of each used vehicle — up to a predetermined limit — and accusing TrueCar of hiding those fees from car buyers.
The settlement sets off a transition period that is scheduled to conclude by Jan. 1, 2019. By that time, TrueCar will have switched participating California dealers to a flat-rate subscription fee and doubled their indemnity from $25,000 to $50,000.
In answering the charges, TrueCar’s directors claimed the Santa Monica-based company was a web service, not a dealer or broker, and was not bound by the requirements spelled out in the California Vehicle Code. The company was able to quash an injunction sought by CNCDA which would have prevented TrueCar from doing business in the state, but the settlement suggests it was no longer inclined to fight the charges; Perry offered no public opinion as to the merits of the case or the terms of the settlement.
The CNCDA’s president, Brian Maas, appeared willing to move on from a legal fight that was fast approaching its third anniversary.
“This litigation afforded us the opportunity to thoroughly examine TrueCar’s user experience and business practices,” Maas said. “The agreement reached with TrueCar, together with the other adjustments to its business model made by TrueCar after CNCDA initiated this litigation, satisfactorily resolve our previously expressed concerns regarding the existing TrueCar business model. … We are pleased that we are now able to put this matter behind us.”