Prospective customers often ask, “With all the information I can get on the Internet from sites such as Edmunds.com, TrueCar.com, etc., what does Fighting Chance offer that I can’t find elsewhere for free?” Recognizing that you may have the same question, I decided to provide the detailed answer here.
I am not implying that those automotive sites and others are of little value to new-car shoppers. They do some things very well. They typically list correct, current dealer invoice prices. Some provide very professional reviews of new vehicles that help shoppers narrow their choices. Some offer “chat groups,” where shoppers can talk with others about their experience with specific vehicles. That’s all helpful, and I respect them for their contributions to automotive literacy. (I’m not a real “car guy.” I can’t explain the difference between 4-wheel drive and all-wheel drive, though I’m sure there is one.)
I respect them even more for their business acumen. They’ve got tons more website traffic, media clout and revenue than little Fighting Chance will ever have. (Think David vs. Goliath.)
But there are significant philosophical and substantive differences between us. We’re both in business, albeit on different levels, but we’re not in the same business.
To help illustrate the concrete differences between us, I spent several hours in the first quarter of 2010 analyzing the information offered on two big, high-traffic corporate sites: Edmunds.com and TrueCar.com. As I poured over those sites, I focused on these questions:
Whose side are they really on?
Is their core mission consumer advocacy? Are they there to serve you, or does someone else butter their bread?
How valuable to the consumer is the information they provide?
Is there other important information they should be providing, but aren’t?
Relevant information that any company close to the retail car business (or with a subscription to Automotive News, the industry’s weekly trade journal) would surely know? Does the information provided on their sites create the impression among visitors that they are getting “the inside scoop” which represents the whole truth and nothing but the whole truth? And is the possible withholding of relevant information good for consumers?
How powerful is their negotiating advice?
If followed, how likely is it to turn up the best deal a shopper can get?
Finally, how faithfully are these sites delivering the things they actually promise?
Let’s start with two core facts these sites share in common, along with most other automotive information web sites.
Fact #1: It’s clear that the main objective of virtually all of these sites is to generate advertising and lead referral revenue from auto companies and their dealers.
Those big, complex sites are expensive to update regularly and maintain. You don’t send them money, so how do they cover their substantial costs and earn a profit for their owners? Visit any one of them and you’ll see the answer. Without exception, they are loaded with automaker advertising and/or dealer-sponsored messages that encourage you to click through “to get your free new-car price quote,” for which they typically get $25 to $35.
Their obvious corporate mission, their reason for being, is to attract you as a target audience for auto companies and dealers who write the checks for the ads they bombard you with and the commissions they earn from lead referrals and sales from the price quotes they encourage you to get.
Fact #2: Given their dependence on the automotive establishment, as surely as day follows night, it follows that they can’t and won’t do anything to jeopardize the income stream they enjoy from automakers and dealers.
They know new-car shoppers are hungry for information. And they provide just enough, mainly in the form of dealer invoice prices (a commodity widely available on the Internet), to attract you to their sites as a target audience for car companies and dealers.
But they’ve got a problem, a line they can’t cross.
There’s a limit to the kinds of information and advice they can give you without alienating the customers they care about, the ones who pay their bills. They share that problem with all commercial media companies — TV and radio networks and stations, magazines, newspapers, etc. — none of which can afford to jeopardize the automotive advertising revenue that accounts for a big chunk of their income.
As a consequence, most of the advice they give you is advice dealers hope you will take. If they really provided all the facts and advice on how to shift the balance of negotiating power from the car dealer to you, they’d be sitting on sidewalks with tin cups, selling pencils.
In a word, what those sites are selling is YOU— as a commercial audience for the automotive establishment.
But in this product category, there’s only one critical issue a bonafide consumer advocate would focus on: how to negotiate the best price on a new vehicle, a task that is high on most people’s lists of their least favorite things to do.
As David in this scenario, the only master I serve is you. So I’m free to tell you the whole truth about how the retail auto business works today, much of which I’ve picked up reading Automotive News, the industry’s weekly trade paper, but most of which I’ve learned over 16 years from my 100,000+ customers (who hear it from loose-lipped car dealers), tens of thousands of whom I’ve talked to. And I use that knowledge to outline in detail the most effective way for you to get the best deal available on the new car you want.
In a word, what I’m selling is EMPOWERMENT — shifting the balance of power in that negotiation from the automotive establishment to you. (A dealer in Missouri admitted to a customer, “This is the only smart way to buy a car. But if everyone did it this way, we’d be out of business.”)
So who’s the real consumer advocate, Goliath or David?
To help with that answer, the balance of this piece is devoted to a fact-based analysis of the information and advice contained on the Edmunds.com and TrueCar.com web sites in early March, 2010.
REALITY CHECK #1:EDMUNDS.COM
There’s a lot to like on this site.
Their dealer invoice data is usually current and reliable. I check it periodically myself to see if there’s anything they have that I don’t, so that I can lean on my pricing supplier. (Sometimes I have pricing Edmunds doesn’t have.)
The Incentives & Rebates section is very helpful. Incentives frequently differ from market to market, and Edmunds is does a better job of tracking that than most other sources. (They ask for your zip code, then show you what’s offered in your area. They’re not always right, but no incentive source is always right.)
Their car reviews are professional, and their forums give consumers an opportunity to talk to each other about their car choices.
That’s all good stuff.
But the proprietary centerpiece of the web site is what Edmunds calls the TMV, or “true market value,” the dollar number they assign to each model as a target price. Let’s examine how valuable that information is to car shoppers.
Here’s what Edmunds says: “Get the car you want at the best possible price. Edmunds calculates what you should be spending, giving you the right price to target with dealers. We call that True Market Value® or TMV.” They then define TMV as “our determination of the vehicle’s current average transaction price (i.e., ‘what others are paying’).” They ask for your zip code, then give you the TMV number for your car in your market.
Let’s examine the fallacious logic here.
How can the "current average transaction price” also be “the best possible price?” Doesn’t an average always mean there are numbers above and below that number? By definition, weren’t about half of the transactions in those markets at a lower price than the TMV? Yet the TMV is the target price Edmunds tells you to pay? Does that logic make sense to anyone who’s gone beyond the fifth grade?
Doesn’t Edmunds understand that their logic is nonsensical boomfog? Do they think we all just fell off the turnip truck?
More to the point, since most people don’t know what they’re doing when they walk into a car store to haggle the price, why would you want to pay “the current average transaction price” that they pay? How empowering is that advice? If I were a car dealer, I’d love it if all those Edmunds-educated consumers paid the TMV price because that would mean my average sales price would be even higher than the TMV.
Let’s examine more closely the actual TMV numbers Edmunds publishes, the implication being that the average price paid your market might be significantly different from the TMV in other markets. If that’s true, it would be worth knowing. Car shoppers might consider buying in a different market if they could save a bundle.
To check TMV prices, on Thursday, March 4, 2010, I picked a popular trim level (the 4-cylinder EX-L) of the second best-selling sedan in America, the Honda Accord, figuring that there’d be lots of transaction price data on such a popular car. I chose 29 different U.S. markets at random, went to Edmunds.com and typed a zip code for each market to check the TMV numbers.
The markets were: Atlanta, Baltimore, Birmingham (AL), Boston, Charlotte, Chicago, Cincinnati, Columbia (SC), Dallas-Ft. Worth, Denver, Hartford, Indianapolis, Kansas City, Los Angeles, Louisville, Miami, Milwaukee, Minneapolis-St. Paul, Nashville, New Orleans, New York, Oklahoma City, Philadelphia, Phoenix, Richmond (VA), Saint Louis, San Diego, San Francisco and Seattle. In total, they accounted for about half of U.S. households.
The results:
The median TMV price (halfway between the high and low) was $24,405, in Boston.
The highest TMV was $24,732, in Minneapolis, $327 (1.3%) above Boston.
The lowest TMV was $24,073, in New Orleans, $332 (1.4%) below Boston.
Looking at all 29 markets and the difference between the high and low TMV numbers, if you started in Minneapolis and moved, one market at a time, down to New Orleans, you’d save an average of $23.54 with each market move. (I have dated printouts of the TMV downloaded for all 29 markets.)
So what do we learn from looking at TMV prices in 29 markets accounting for about half of U.S. households? A fact I’ve known for over a decade: that there are relatively small market-to-market differences in the average prices people pay for a given vehicle. Edmunds' own TMV numbers support that conclusion.
So is there any consumer benefit in having a TMV number, which Edmunds tells you is “the best possible price, the one you should be spending?” In my view, no. Because if you accept it as “the right price to target with dealers,” as Edmunds advises, you will never get “the best possible price.”
Here are five important facts you need to know that Edmunds isn’t telling you:
Undisclosed Fact #1: While there are relatively small differences in the average price paid for a vehicle between one market and another, there are major differences in the prices one dealer and another will sell for in the same market at any point in time.
Example: Using Fighting Chance’s competitive bidding strategy, a customer got these six price proposals for Hyundai’s Genesis luxury sedan: $300 over dealer invoice. $200 over. Right at the invoice price. $250 below invoice. $900 below invoice. And $1,850 below invoice. That’s a $2,000+ difference between the high and the low bidder for the same car. (Customers frequently report similar substantial differences between dealers’ price proposals.)
Edmunds’ recommended TMV prices in that customer’s market: $555 over invoice for the lowest Genesis trim level and $726 over invoice for the highest trim level. And those are “the prices you should target.” Hmmmm. How valuable is that advice?
Undisclosed Fact #2: Today every automaker allocates the vast bulk of its dealer cash incentive budget to "below-the-line" programs that increase dealer profit margins in ways that are not visible to consumer web sites. These programs are “below-anyone’s-radar” because they’re based on objectives set dealer-by-dealer. In some versions, dealers can earn substantial cash bonuses for reaching or exceeding overall sales targets over certain time periods. The payments are typically not tied to the sale of any individual model. (Only Honda/Acura, BMW, Mercedes, Volkswagen and Volvo use vehicle-specific dealer cash incentives with any frequency.) Even if you knew the details of how a program was structured, there’d be no way to learn where any given dealership stood against its targets.
“Below-the-line” programs are often geared to criteria other than straightforward sales targets . . . like a dealership’s customer satisfaction scores from the post-purchase research questionnaires consumers receive asking them to rate several aspects of their dealer experience. Dealers who get accolades from customers can earn big checks, while poor-scoring dealers get nothing.
I learn about many of these programs in Automotive News, the industry’s weekly trade paper. For example, in its 2/22/10 edition, the paper reported an Acura “below-the-line” program that “can trigger incentives as much as $400 per car for dealers who meet ‘easily achieved’ guidelines for training, Internet marketing, customer service and certified pre-owned programs.” As one Acura dealer said, “It’s a great program. About 90 percent of dealers won’t have to do anything different than they already do to collect.”
Surely, someone at each of those big corporate automotive information websites reads Automotive News. But is even one of those sites revealing this important information to consumers? No. If they did, they’d be out of business quickly. They want you to believe the dealer cost numbers and the target transaction prices they’re publishing, walk into a dealership and follow their negotiating advice. Which is exactly what their advertisers want you to do.
The Fighting Chance package includes a 6-page description of how many of these programs work, based on what’s been printed periodically in Automotive News and what my customers have been told by dealers over the years. But it probably just scratches the surface of all the ways automakers can motivate dealers with “below-the-radar” cash incentives.
Undisclosed Fact #3: Given Fact #2, it follows that the dealer who will sell at the lowest price this month may be the high-price dealer next month because he’s in a different place against what he’s trying to accomplish. It also follows that sometimes dealers can be willing to lose a lot of money on deals that get them to a target that earns them extra cash for all the cars they’ve sold previously.
Example: A Fighting Chance customer wanted the all-new, redesigned Honda Accord the first week it arrived on dealers’ lots, when no one was dealing on it. But one of the 8 or 10 dealers he contacted sold him the car for $568 below invoice — about $2,500 less than the next best offer. The owner took the customer aside and quietly told him he was getting close to his Honda incentive target of 1,000 new-car sales. He said, “I’m doing anything I have to do to get that check.” (My guess, based on 16 years’ experience hearing stories like this from customers: The program probably covered 6 months or more. And the bonus was a minimum of $250 per vehicle and more likely $500. That’s a check for $250,000 to $500,000.) That’s the retail car business today.
Why isn’t Edmunds telling you this stuff? (A rhetorical question, of course.)
Undisclosed Fact #4: Given Facts #1, 2 and 3, any automotive web site that claims it can tell you what any new-car dealer ends up paying for vehicle has delusions of adequacy, and its webmaster probably still puts a tooth under his pillow every night.
Let’s assume you and I owned a retail store that sold those $2,000 flat-screen TV sets. And that there were web sites publishing our dealer invoice prices, like Edmunds and others do for new cars.
We’re not stupid, are we? Would it take us more than a week or two to make the following phone call to Sony, Samsung, Sharp, Panasonic, JVC, Sanyo and the others? “Hey guys, we’re getting killed here. You’ve got to find ways to put money in our pockets that no one can find out about, or you won’t have a store to sell your products!”
The idea that that didn’t happen ten or fifteen years ago in the new-car business would be incredibly naive, wouldn’t it?
Undisclosed Fact #5: Given Facts #1, 2, 3 and 4, only a fool would walk into a car store to negotiate the price. And only a solid, gold-plated fool would make an offer.
It’s Attitude Adjustment Time.
You are shopping for a commodity. The car you want is the same vehicle with the same basic price structure at every franchised dealership. (The dealer’s invoice will include a regional advertising assessment, typically 1% to 2% of the total invoice or retail price, which will often differ from market to market. For Honda, there’s a line on the dealer’s version of the invoice dubbed “HDAG” for the Honda Dealer Advertising Group.)
You will always get the best price on any commodity by making suppliers compete for your business.
You will never get the best price that by walking into a car store and wasting two hours haggling with some car salesman and his boss.
And you will never get that price by making an offer.
As soon as you do, you put a floor under the price. How do you know some dealer wouldn’t sell you the car for much less, even lose a lot of money in a competitive bidding situation because he needs a few more sales to reach a target that gets him more cash for every other car he’s sold?
There’s another reason dealers will sell some cars for little or no profit: Many of them make more money on parts and service than they do selling new cars. So they have to keep car sales up to provide an ongoing stream of service business. (A similar analogy in a cheaper product category: Gillette virtually gives away razors because blades are where the real bucks are.)
I am not anti-dealer. My objective is not to help you beat them out of every last dime. But sometimes they will do that to themselves in a competitive bidding situation in order to reach a target that gets them a big incentive check. (No dealer ever made a deal if it wasn’t better to make it than not to make it.)
Your objective should be to get the best deal available for the car you want at the time you’re shopping, and in the part of the country you’re in. My objective is to help you do that.
Let’s look at another of those big corporate sites:
REALITY CHECK #2:TRUECAR.COM
This is one of the new Goliath wannabes.
TrueCar tells us what its true mission is on its “About Us” page, where it lists the venture capitalists that have invested in it in hopes of getting richer when it turns into a gold mine. On that page the company solicits advertising revenue from automakers and dealers, promising placement “within the pricing research area of TrueCar.com.” (Sound familiar? Note the ads that are showing up in quantity when you click for a free Price Report. And the suggestions that you contact the “Highly Rated Certified Dealers” dealers who have posted selling prices . . . and obviously agreed to pay referral commissions to TrueCar.)
Here’s an abbreviated version of how the company introduces itself on that same page:
“TrueCar is the authority on new car pricing.”
“(We) show buyers and dealers how much people actually paid for a particular car in their geographic area.”
“Our vision is that consumers (will) walk into a dealership with our Price Report in hand, knowing how to strike a fair deal.”
“And dealers (will) offer TrueCar Price Reports right back at potential car buyers because buyers who understand dealer cost and price structure will know when to stop negotiating and buy with confidence.”
“TrueCar helps both buyer and seller get a better deal.”
Does the logic in that sentence make sense to you, or are you rolling your eyes as you read it? How can both the buyer and the seller “get a better deal” concurrently? Isn't a better deal for the seller, by definition, a worse deal for the buyer? And vice versa? (Is there an echo in here from the Edmunds site?)
Note also in the “About Our Data” section on the same page, TrueCar reveals that it obtains transaction price data “directly from (1) car dealers, (2) respected dealer management system (DMS) providers and (3) well-know data aggregators within the automotive space” (whatever that boomfog means). In other words, dealers can decide which transactions to report and which to hide. Hmm. If you were a car dealer, and you sold some cars at substantial losses to reach sales targets that would get you big bonus checks from automakers’ frequent “below-the-line” incentive programs, would you want those deals reported to TrueCar? I didn’t think so. So isn’t it reasonable to assume they don’t make it into TrueCar’s transaction database? (Duh!)
So here’s another web site telling you to walk into a car store to do your negotiating and make an offer with a price target they’ve given you, based on what they say others have paid. They’re playing the role of the authority figure, telling consumers to “Use the TrueCar Price Report to get the best deal on your next new car.”
The one sure result of your taking that advice: It would definitely help dealers get a higher price than they’d get in a competitive bidding process. They’d love it if every prospect walked into their stores with the TrueCar Price Report, because if they’re there, they can’t be somewhere else, buying a car from another dealer.
In contrast, Fighting Chance customers never walk into a car store to negotiate the price. They walk in only to sign the paperwork and pick up the car from the dealer who’s offered (and confirmed) the best price available in the market. Period. End of process.
OK, let’s examine more closely the “Average Paid” prices TrueCar published on March 4, 2010 for the 2010 Honda Accord sedan’s 4-cylinder EX-L model in the same 29 markets in which we checked Edmunds’ TMV prices.
The results:
The median “Average Paid” price (halfway between the high and low) was $25,067, in Boston (which, coincidentally, was also the median market for Edmunds TMV).
That was right in line with the “Average Paid” price nationally: $25,064.
The highest “Average Paid” price was $25,297, in Milwaukee, $230 (0.9%) above Boston.
The lowest “Average Paid” price was $24,692, in Los Angeles, $375 (1.5%) below Boston.
Looking at all 29 markets and the difference between the high and low “Average Paid” price numbers, if you started in Milwaukee and moved, one market at a time, down to Los Angeles, you’d save an average of $21.61 with each market move. (I have dated printouts of the “Average Paid” prices I downloaded for all 29 markets.)
Again, as with Edmunds’ TMV prices in these 29 markets, TrueCar’s “Average Paid” prices show there are relatively small market-to-market differences in the average prices people pay for a given vehicle.
In each market TrueCar also publishes a “Great Price.” Nationally, that price is “less than $24,512,” or $552 below national “Average Paid” price. However, looking at the “Curve” chart, you’ll see that price applies to only a small percentage of the deals reported. (Eyeing it in, it looks like about 10% to 15%.)
Then, when you click on “Read The Price Review,” you see this downer under the heading of Price Negotiability: ”The 2010 Honda Accord Sedan has a TrueCar Price Flexibility Score of 67, which indicates a marginal amount of negotiating room with the car dealer. TrueCar shoppers should expect to get a price discounted not too far below the TrueCar Average Paid price.”
In other words, “There have been a few ‘Great Price’ deals reported, but you shouldn’t expect to get one.” (Do you think they put that there to avoid angering their advertisers?)
I was surprised by that statement because pricing in the retail new-car business is typically a function of supply and demand. Honda sold 19,022 Accords nationally in January 2010 and there were 71,100 in inventory on February 1st, 69 Accords per dealer, on average, a hefty 82-day supply. 50 to 70 days is the ideal range, providing plenty of choices for consumers. In general, Fighting Chance customers find Honda dealers very flexible on transaction prices in a competitive bidding process. It stands to reason they’d be much less flexible when they have you where they (and apparently, TrueCar) want you — in their store, playing an away game on their turf.
I then compared TrueCar’s and Edmunds’ median, high and low market numbers, with these results:
TrueCar’s median “Average Paid” price was $25,067, $662 higher than Edmunds’ median TMV price of $24,405.
Hmmm. (The median market was Boston for both!)
TrueCar’s highest “Average Paid” price was $25,297, in Milwaukee, $565 above Edmunds’ highest TMV price of $24,732, in Minneapolis.
Hmmm.
TrueCar’s lowest “Average Paid” price was $24,692, in Los Angeles, $619 above Edmunds’ lowest TMV price of $24,073, in New Orleans.
Hmmm.
Puzzled by these significant differences, I did a market-by-market comparison of TrueCar’s “Average Paid” prices with Edmunds’ TMV prices. After all, both claimed to be publishing the average prices paid for the same car in each market.
The result: TrueCar’s average transaction price numbers were higher than Edmunds’ in all 29 markets by an average of $588! That’s greater than the difference between the median markets and the highest or lowest markets on either web site.
We’re talking about supposedly-reliable reports from different markets of the actual prices new-car buyers have paid. How can these two different “expert sources” report average transaction prices so far apart in the same 29 markets at the same time?
Which one is right? Or at least closer to the truth?
TrueCar defines its “Average Paid” price as follows: “This is the average price paid for your particular configuration of vehicle, taking into account incentives currently available in your local region.”
Going back to the TrueCar Price Reports in each of the 29 markets and clicking on “Read The Price Review,” in each market, under “Incentives Watch,” I read this: “No Incentives Available. There are no incentives or rebates currently being offered for the 2010 Honda Accord sedan.” (I have dated printouts showing this claim for each market.)
That’s not true.
Fact is, there was a $900 national dealer cash inventive on the 2010 4-cylinder EX-L sedan in January and February, and it was increased to $1,200 in March. I have copies of the bi-weekly CarDeals incentive reports that have been included in our information package this year, and they listed those offers. In addition, on 3/6/10 Edmunds.com’s “Incentives & Rebates” pages showed that $1,200 March incentive in effect in each of the 29 markets, making it seem that Edmunds’ transaction numbers are closer to the truth. (Customers got their choice of that cash or cut-rate financing. Edmunds’ TMV numbers seem to indicate that consumers split relatively evenly between the cash and the APR.)
Why didn’t TrueCar report these dealer cash incentives? Didn’t they know about them? If they knew, did they choose not to list them to avoid upsetting Honda dealers?
Why TrueCar’s “Average Paid” prices were higher than Edmunds’ TMV reports in all 29 markets by an average of $588 is puzzling. How recent were the transaction reports they used to come up with those prices? With a $900 to $1,200 dealer cash incentive on all Accords sold in January, February and March, wouldn’t you think those incentives would be reflected in the “Average Paid” prices published on 3/4/10?
The purpose of those cash incentives wasn’t to increase dealers’ profit per deal, but to help dealers sell a vehicle that’s not selling as well as Honda would like. In effect, they reduced the dealers’ true cost, enabling them to knock $900 to $1,200 off the transaction price and still make the same dollar profit. In a competitive bidding situation, every price proposal will include that incentive. The dealer who won’t include it won’t participate because he knows he won’t win the customer’s business.
I’ve spent 16 years and 48,000 hours focused on deals in the retail auto business, and I have never seen Honda (or Acura) use a customer cash rebate. The company believes rebates foster a “deal of the month” mentality among consumers, and that once you paint yourself into that corner, you can’t get out. But Honda is one of a tiny number of brands that still uses dealer cash incentives tied to the sale of specific vehicles that aren’t performing up to their objectives. (Does TrueCar know this?)
Just for kicks, I decided to check what TrueCar had to say about other Honda incentives on 3/7/10, when there were national dealer cash offers in effect on four additional Honda vehicles: the Fit ($500), Civic ($1,000), Odyssey ($1,250) and Pilot ($1,500). Remember, TrueCar defines its” Dealer Cost” number as “Factory invoice total, minus Holdbacks, customer incentives and any applicable dealer incentives.” Yet for each of these other four Honda vehicles, TrueCar indicated “There are no incentives or rebates currently being offered.” Hmm.
Curious about what TrueCar was saying about one of these other Honda vehicles, I checked their info on the 2010 Odyssey. A Fighting Chance family had recently reported purchasing the EX-L model via the “Email/Fax Attack” competitive bidding process in Madison, Wisconsin, where TrueCar said the “Average Paid” price paid for an EX-L ("taking into account incentives currently available in your local region") was $32,006 and a “Great Price” (that would be "difficult to achieve") would be “Less Than $31,386.” TrueCar's advice: "Always start your negotiation with a Great Price, but expect to receive a (higher) Good Price."
This family received seven price proposals on the Odyssey EX-L from Wisconsin and Northern Illinois, all of which beat TrueCar's "Great Price" by a country mile. The winning bid (before sales tax and license fees) was $28,629, a whopping $2,756 below TrueCar’s “Great Price,” the one it recommended as a starting point in the negotiation! The highest of the seven bids was $30,490, $895 below TrueCar's “Great Price."
Obviously, the $1,250 dealer cash incentive in effect impacted those price offers. Remember, TrueCar indicated “There are no incentives or rebates currently being offered” on the 2010 Odyssey. Hmm. That $1,250 dealer cash was not a hidden, "below-the-line" incentive that no one could learn about. Edmunds.com and just about every other credible source of new-car incentive info reported it. TrueCar knew about it, too, because it was reflected in their $29,386 "Dealer Cost" estimate of "what a dealer really paid." Yet they didn't report it, and their "difficult to achieve" "Great Price" of $31,385 was an amazing $1,999 above their estimate of "what the dealer really paid!" (The $28,629 winning bid in Madison, WI was$757 below "what the dealer really paid," and three other price proposals were also below that number, suggesting that there were additional "below-the-line" Honda incentives in effect.)
Do you think there’s a chance that TrueCar was telling us less than the whole truth because they didn’t want to upset the automakers and dealers who provide their revenue? Would they really do that, then call their blog “The Truth?” You think? (Note: Dictionaries define hypocrisy as "the practice of having standards to which one's own behavior does not conform" and "feigning to be what one is not.")
Let's look at how well TrueCar is delivering on its promise that its “Average Paid” is “the average price paid for your particular configuration of vehicle, taking into account incentives currently available in your local region?”
I chose the 4-cylinder 2010 Honda Accord EX-L sedan for the basic analysis because it’s one of the most popular models of the second best selling sedan on the market. If the information TrueCar has published on this model is a typical representation of the company’s work product, how much credibility would you assign to the information it provides on less popular vehicles for which there are many fewer transactions?
There's a long list of vehicles that sell very poorly — one per month per dealer or fewer. Example: the Toyota Sequoia SUV, which comes in both 2WD and 4WD and several base trim levels. In the first two months of 2010 Toyota's 1,235 dealers sold just 1,365 Sequoias nationally — about one per dealer in two months. So I went to the TrueCar site on 3/12/10, entered zip codes for a dozen markets and found a different “Average Paid” price for the RWD SR5 model in each market. But when I clicked on "Details," there was this message: "TrueCar only shows actual data if there are sufficient recent purchases of your particular configured vehicle. Expanding to a regional or national report sometimes helps." So in those dozen markets, TrueCar published a different “Average Paid” price in each, based on what actual data? Hmm.
Then I checked the National “Average Paid” price, clicked on "HISTORY," and learned that national price on the Sequoia RWD SR5 model was based on 148 transactions over a 6-month period between 9/6/10 and 3/7/10. That's about 25 per month on average. There are 210 Nielsen Designated Market Areas (DMAs) in the U.S. 148 transactions in 6 months is less than one per market. So how true are the dozen market-by-market “Average Paid” prices I downloaded on this vehicle? Hmm.
But here's the strangest finding from this exercise: In those 12 markets TrueCar listed 10 different National “Average Paid” prices for the Sequoia RWD SR5, ranging from $37,676 in Los Angeles to $38,391 in Atlanta. How can that be true? Isn't a national average price one number, regardless of which market you're in? Hmm. (Yes, I have dated copies of downloads for each of these markets.)
A major issue with TrueCar is the “Dealer Cost” dollar number the company publishes for each car. Here’s what TrueCar tells us about that: “Understanding the dealer cost structure is essential to negotiating the best deal. Dealer Cost is an estimated value of what a dealer really paid for a specific vehicle. Dealer Cost is determined as the Factory invoice total, minus holdbacks, Customer incentives and any applicable dealer incentives.”
These “Dealer Cost” estimates are several gas stops short of the whole truth. Here’s why:
As noted above, the bulk of the money automakers spend on dealer cash incentives is allocated to below-the-line programs that are also “below-anyone’s-radar” because they’re based on objectives set dealer-by dealer, and there’s no way to know exactly how they’re structured, what a given dealer’s objectives are or where the dealership stands against its targets. Often these payments are related to overall sales, but based a dealer’s performance against criteria unrelated to sales numbers.
For example, under the below-the-line Acura program detailed above in the Edmunds analysis, Acura dealers can earn as much as an extra $400 per car sold if they meet ‘easily achieved’ guidelines for training, Internet marketing, customer service and certified pre-owned programs.
In another article in the same 2/22/10 issue of Automotive news, John Mendel, Honda Motor Company’s Executive Vice President, speaking at the Honda brand meeting at the National Auto Dealers Association February convention in Orlando, said the company will give dealers “more below the line” in terms of profit margins not visible to consumer web sites. He said, “Whether it’s CSI (Consumer Satisfaction Index) or service absorption payouts, we’re looking at something like Audi, where there’s a 6 percent dealer discount (from MSRP in the invoice price), then another 5 percent below the line. Volvo kicked these tires 20 years ago, and they’re still doing it now.”
With essentially all auto companies having below-the-line programs, anyone who believes that TrueCar’s Dealer Cost estimates are any dealer’s true bottom-line cost should get ready for a visit from the Tooth Fairy. The Fighting Chance package includes a 5-page description of how many of these programs have been structured over the years, but you and I could brainstorm all the “below-the-radar” ways manufacturers can compensate dealers and barely scratch the surface of the possibilities.
There are more issues to examine with TrueCar’s Dealer Cost estimates.
TrueCar says they’ve subtracted “Customer incentives” to determine the Dealer Cost. The truth is that customer incentives (rebates, also dubbed “cash back”) are not related to dealer cost in any way.
They reduce the customer’s cost, but not the dealer’s. You negotiate a final, out-the-door price, including the agreed-upon price of the car, sales tax, registration fees and any other dealer fees. Let’s say there’s a $1,000 rebate. When you sign all the papers required, one of them will authorize the automaker to credit that $1,000 to the dealer’s account as part of your payment, and you and your finance company will pay the dealer the remaining balance. The dealer’s cost is the same, with or without a customer incentive. An incentive changes your cost, not his. (TrueCar doesn’t know this? Hmm.)
Regarding holdback, some auto brands have none.
Among them: Audi, BMW and Land Rover. All three surely have periodic below-the-line dealer incentives, but not holdback. Yet it appears to me that TrueCar has made holdback assumptions when calculating their Dealer Cost numbers. (Incidentally, Honda’s holdback is 2 percent of the base sticker price (MSRP). But for vehicles on dealers’ lots more than 3 months, the holdback is increased to 3 percent. It's a safe bet that other automakers have similar policies.)
I don’t invent the news, I just report it and analyze it. And I believe that if you’re going to claim to be “the authority on new car pricing,” you’d better have your act together. In my view, TrueCar doesn’t. (If you position yourself as a consumer advocate, but have mediocre standards in that area, it's amazing how often you meet them. "Good enough" isn't good enough for consumers.)
This lengthy analysis is based solely on facts gleaned from these corporate sites: the clear evidence of who provides their revenue and how that affects the information they do and do not give; the fallacious logic in their basic premise; and how whom they really serve impacts the quality of their negotiating advice.
By promoting “dealer cost” (which no one can tell you definitively because of all the below-the-line dealer incentives) and “what others have paid” (based on reports that come importantly from dealers) as the bases for determining what you should pay, these sites create a mindset designed to get you into a car store (bad idea #1) with a specific price target in mind (bad idea #2).
You end up focused on a price instead of on an opportunity — the opportunity to get the car at the best price available from the dealer in your geographic area who’s most anxious to sell when you’re ready to buy.
THE BOTTOM LINE: BEWARE OF THE FREE INFORMATION AND ADVICE YOU GET FROM ANY WEBSITE THAT GETS ALL OR MOST OF ITS REVENUE FROM THE AUTOMOTIVE ESTABLISHMENT BECAUSE HELPING YOU GET THE BEST DEAL AVAILABLE IS NOT THEIR REASON FOR BEING.
In contrast, that’s why Fighting Chance exists.
Yes, our information package includes current invoice prices and tells you about the “holdback” money most (but not all) auto brands build into the invoice price, then return to dealers. We include the current issue of the biweekly CarDeals incentive report. Plus a “Big Picture” analysis telling you how your vehicle has been selling and whatever we’ve heard about what other customers have paid for it. But we don’t talk about meaningless “average prices” or tell you what you should pay. Instead, we focus you on the real objective: getting the best deal available in your market.
The centerpiece of the Fighting Chance package is a comprehensive set of instructions on how to solicit competitive price proposals from several dealers for the car you want, working from the comfort of your home or office, and without walking into a car store until you sign the papers and pick up the car. We teach you exactly what to do and when to do it and what to say to dealers each step of the way, including how to ensure there will be no unpleasant surprises when you walk in to sign those papers and pick up your car. And we’re here to talk to if you’ve got any questions along the way.
I don’t claim to know more about this subject than anyone else, but I may be the only one with this much knowledge who’s in a position to share the whole truth with you without risking my livelihood. I’m a consumer advocate, not a big corporation dependent on auto companies and their dealers for my very existence. And I’d gladly stack up my 16 years experience and what I’ve learned from more than 110,000 customers and over 48,000 hours focused solely on negotiating the best price against any so-called “expert” from any of those corporate automotive web sites.
I look forward to helping you. (As it says in that old James Taylor song, “That’s why I’m here.”)
