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CATA wary of TrueCar methods

January 6, 2012
Dealer associations including the CATA are challenging the recent rise of TrueCar on issues of motor vehicle advertising regulations and suspect use of data in dealers’ DMS systems.
 
TrueCar, the lead generation service which on Jan. 1 partnered with Yahoo.com for online auto shopping, counts a reported 5,200 dealership franchises in 49 states as clients that pay $300 to $400 to TrueCar for any vehicle sale that originates on its website.
 
But the CATA contended to the Illinois Attorney General’s office that TrueCar’s business model might violate several business practices, including the state’s Consumer Fraud and Deceptive Business Practices Act.
 
The attorney general’s office is reviewing the matter but has not issued an opinion.
 
The CATA is not involved in any communications that urge dealers to avoid or sever a relationship with TrueCar. But dealers across the country who signed on with TrueCar in 2011 are reconsidering their relationship. Tepid vehicle closings—and in the face of statutory infractions—have led some to walk away.
 
Shoppers using TrueCar.com choose a vehicle and see information labeled as invoice price and dealer cost. The shopper then specs out a vehicle, and participating dealerships near the shopper’s ZIP code offer prices which can be below TrueCar’s invoice price. TrueCar says the offer includes all fees but no taxes, and has no expiration date. The dealer pays TrueCar for every completed new-car sale.
 
One Illinois dealer accuses TrueCar of acting as an intermediary broker without franchisor or manufacturer standing, and said the certificates TrueCar issues free to customers but sells to dealers amounts to price-fixing and a contract to sell. Other dealers contend that TrueCar adds negative value because it wants to be paid more than what the dealership nets on a sale.
 
The Illinois AG’s office has been asked to examine Internet sales practices that potentially violate state advertising regulations related to coupons and free gifts. If a customer obtains from a lead generating service a certificate to buy a car at a lower price than the price offered to customers who do not use the service, the certificate could violate Section 2J.1 of the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/2J.1).
 
Also, TrueCar enters its car-buying customers into drawings for $5,000 prizes. That could be a violation of Section 475.590 of the Illinois Motor Vehicle Advertising Regulations, which prohibits the use of free prizes, gifts, or other incentives in connection with the sale or lease of a vehicle, except as part of a manufacturer or manufacturer-approved advertising association program. 
 
Other concerns focus on TrueCar’s access to a dealer’s DMS system and what information it extracts. If a third party misuses a dealer’s customer data, the business’s privacy notice may not sufficiently protect it, and the dealership could face a legal complaint over the misuse of customer data.
 
In a recent statement about legal issues that various states have with the company’s marketing methods, TrueCar said, “We have admittedly seen an increase in dealer cancellations, but we are confident that we can earn these dealers back as our active engagement with regulators, coupled with our current and planned product enhancements, will allow TrueCar’s model to conform to the state regulatory schemes.”
 
 

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