The idea behind TrueCar (NASDAQ:TRUE) is simple: The company is the middleman between millions of car buyers on its website searching for vehicle pricing information, and its more than 10,500 certified dealerships looking for strong sales leads. When TrueCar connects the dots, dealerships fork over about $300 for every completed sales lead.
In theory, consumers get valuable information and a less hassling car purchasing situation, dealerships get strong sales leads at low costs, and TrueCar gets paid. It's an extremely scalable business with potential to branch out internationally as well as into different large-ticket purchase segments.
Recently, I was fortunate enough to interview Alan Ohnsman, TrueCar's senior vice president & chief communications officer, who talked with me about the company's new projects and its competition and how it's set for success.
Daniel Miller: TrueCar is attracting millennials, a generation more adept at using technology to solve everyday solutions, at an accelerated pace. Will there be more focus on improving TrueCar's mobile app?
Alan Ohnsman: The car-buying process is inherently mobile. We recognize this and are preparing an enhanced version of the TrueCar app, increasing its look and functionality through a series of updates this year.
Major improvements will include the addition of high-resolution, detailed model images to present vehicles to consumers in a more dramatic fashion, and the creation of new communication tools for direct interaction between consumer, the dealer and automakers. We've recently added a "Price Check" feature to the app that lets consumers get pricing for a new vehicle on a dealer lot simply by scanning the VIN.
Miller: The automotive industry is very competitive, and one brand conquesting a competitor's consumer can be difficult, yet extremely valuable. Will TrueCar ever enable specific automotive brands to target an online consumer researching a competing product?
Ohnsman: We want to work with automakers to grow their market share. The purpose of Private Targeted Offers is to help automakers more efficiently deploy the $46 billion they currently spend annually on incentives.
"Targeted" means the ability to have lots of insights about the customer and allow an automaker to apply the best incentive for that particular person. We believe doing so can maximize the probability of closing a vehicle sale.
Miller: It's clear that TrueCar has plenty of opportunities to grow its business through new projects such as Private Targeted Offers and TrueTrade, but what advantages does TrueCar offer consumers over competing products such as Edmund's Price Promise? What makes it difficult for competitors to clone your business model?
Ohnsman: TrueCar has several competitive moats: It's a trusted and growing brand. We have long-term, strategic relationships with affinity partners (USAA, PenFed, American Express, a majority of AAA clubs, Geico, etc.). The company has a robust data and proprietary analytics platform. We have a nationwide network of TrueCar Certified Dealers.
For dealers, we provide an accountable billing model for the service: They only pay us if a sale occurs.
U.S. automotive franchise laws are complex and vary by state. TrueCar has invested significant time, effort and funds into designing a nationwide regulatory compliance strategy that is well tested. TrueCar also has significant intellectual property.
Finally, the company has a very experienced management team.
Miller: It certainly appears TrueCar has the ability to fend off competition, but how much would business suffer during a prolonged period of weaker automotive industry sales?
Ohnsman: Even if there is a slowdown, TrueCar is in excellent shape, and we would expect continued growth because (1) We have significant market share headroom, and (2) The strongest dealers will gain, as will those that can control costs.
Miller: Lastly, one of my biggest concerns is that TrueCar's estimated savings appeared inflated due to some automatically checked options, such as a $500 rearview camera on a base model. Do you feel that pre-selected options and MSRP are the closest resemblance to a base model found at dealerships?
Ohnsman: We show consumers the most popular trim configurations and the price savings are based on what the customer configures. The Guaranteed Savings available through the TrueCar platform are based on the base model of the vehicle, without options. A user's configured options may result in additional estimated savings, but the addition or removal of options doesn't increase or reduce the Guaranteed Savings.
Essentially, what Ohnsman was saying was that despite those pre-selected features inflating MSRP, they also equally inflated the target price, and thus estimated savings weren't inflated. Just as a follow-up, I went and used TrueCar the same way I did about a month ago, and I noticed one change: this dialog box.
Beforehand, I didn't notice when the extra options were added in (as I thought I was getting a bare-bones base model and had clicked no options myself). Now, TrueCar has made that very clear, and you can remove those options by clicking the link in the bottom left-hand corner. That might not seem like a big deal, but it was one of the best takeaways from this interview. The dialog box now adds more transparency, which is a huge deal when your business model relies on consumers trusting the information and service you provide.
Ultimately, TrueCar has a good thing going for it, and the business model seems poised for a successful and profitable future. The good news is that if the company capitalizes on its potential, this is very early in the company's story, offering investors a potentially long ride to the top.
Daniel Miller owns shares of TrueCar. The Motley Fool recommends American Express and TrueCar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.