States wary of TrueCar's methods

TrueCar, the Internet auto shopping service, casts itself as an innovator battling entrenched industry methods. And now it indeed is colliding with many long-standing state laws designed to protect the interests of car dealers and shoppers.

Regulators in Colorado, Wisconsin and Virginia have issued bulletins to dealers or sent letters to TrueCar concluding that legal problems exist with TrueCar's business model of charging dealers for leads that turn into a sale.

And dealer associations in three more states -- California, Kansas and Ohio -- say members who use TrueCar may be violating state law.

The legal questions, which could affect a significant number of TrueCar's dealership clients that represent 5,200 or so franchises in 49 states, come at a critical time for the company. On Jan. 1, TrueCar was scheduled to become Yahoo.com's partner for auto shopping. TrueCar agreed to pay Yahoo $150 million over three years.

The partnership will expand TrueCar's reach greatly, and it is recruiting dealerships to handle the additional business.

But the state regulators and associations say TrueCar dealers could face stiff financial penalties for potential violations of state laws governing advertising and so-called bird-dogging, or paying a third party a fee that is contingent on a sale. And regulators in at least two states say TrueCar lacks the appropriate licenses.

Last week TrueCar said in a statement that it has been contacted by regulators in six states: Colorado, Louisiana, Nebraska, Kansas, Virginia and Wisconsin.

"TrueCar continues to work directly with regulators to ensure that at no time will our dealer partners be in violation of any laws by participating on the TrueCar network," the company said.

"We're in the process of making meaningful changes to the service, which will be completed by the end of January 2012, in order to address specific concerns raised by regulators."

While TrueCar has its critics, some dealers are happy with its service.

Jeff Kotlarek, Internet sales manager at Taylor Chevrolet in suburban Detroit, said he typically offers his vehicles to TrueCar customers at $100 below invoice price.

But vehicle sales from TrueCar leads can generate a substantial profit, he said, when customers buy accessories, warranties or features, such as moonroofs, that they didn't originally request.

A tough month

The intensified scrutiny from regulators wasn't the only bad news in December for TrueCar and Scott Painter, the company's ambitious and charismatic founder and CEO. Group 1 Automotive Inc., the fourth-largest U.S. dealership group, told its 42 dealers who were participants to sever their ties with TrueCar. Group 1 said it objected to TrueCar's access to its dealerships' computer systems and also questioned the cost.

And now the regulatory concerns are causing some dealers to drop TrueCar.

California megadealer David Wilson decided to drop TrueCar two weeks ago because of legal risks. After doing some research, he concluded that any dealer in California who sells a vehicle through TrueCar is breaking the law.

Wilson, who had been using TrueCar's services at three of his 16 stores, also said he had sold just 15 cars through the company in the past six months. He said TrueCar adds no value to a transaction and wants to be paid more than what the dealership nets on a sale.

"Why do I want to put myself in jeopardy for that?" he said.

TrueCar said its service accounted for about 250,000 U.S. auto sales in 2011, about 2 percent of the estimated 12.7 million-unit U.S. market. But the Yahoo agreement should expand TrueCar's influence significantly in 2012.

Here's how TrueCar works: A shopper on TrueCar.com chooses a vehicle and sees information labeled as invoice price and dealer cost. The shopper then specs out a vehicle, and participating dealerships near the shopper's home 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 $299 for every completed new-car sale.

Over the years, consumers or dealers prompted state legislatures to pass laws to ban practices such as bird-dogging, which is paying fees to third parties for leads that turn into sales; brokering, which is charging a fee to a retail customer to find and negotiate the purchase of an auto; and using the word "invoice" in advertising.

Now, in the era of Internet leads and marketing, the question becomes: Is TrueCar merely offering prohibited services in a new form? Or, as the company contends, is it offering a new, and misunderstood, business model that does not violate existing laws?

For instance, is TrueCar a lead service, such as Autobytel, which gathers leads and sells them to dealers? Or is it a different animal that operates like a broker?

TrueCar acknowledges confusion about its business model.

"We are certainly open to changes that enhance our ability to comply with a particular state's needs and to more accurately reflect what we do," the company said. "TrueCar is not a broker, traditional advertiser or lead generation company. We do not arrange or negotiate sales for dealers, nor do we advertise vehicles for sale.

"Rather, TrueCar is an Internet marketing company -- the dealer's window through the Internet to customers searching for vehicles."

On Dec. 15, Colorado regulators issued an opinion that TrueCar's materials and Web site violate several state regulations, including advertising rules, and could lead to "bait-and-switch" scenarios.

Among the advertising problems are use of the term "invoice" and failure to include all costs in the advertised vehicle price, state regulators said.

A bait-and-switch occurs when a consumer who has been quoted a specific price arrives at a dealership to find the vehicle already sold or otherwise unavailable, and the dealer then tries to sell a different vehicle.

The Colorado Department of Revenue said dealers ultimately are responsible for any violations. For dealers, that could mean fines of as much as $10,000 per occurrence and possible license revocation, said Tim Jackson, president of the Colorado Automobile Dealers Association.

The state also said it is concerned that TrueCar could be engaging in unlicensed sales.

"It's very serious," said Jackson, who used the attention-grabbing method of certified, return-receipt mail to send association members a bulletin on the TrueCar issues in mid-December.

"We didn't want it to end up just as another memo on the desk for dealers who may not be aware that this process is putting their dealership's compliance and potentially their dealership licensure and that of their salespeople at risk."

Lee Payne, a Honda and Hyundai dealer in suburban Denver, has stopped TrueCar transactions but did not cancel his relationship with TrueCar when the regulatory challenge arose. He had been using it at his Honda store for just a few weeks.

"We work really hard to be compliant, and if they're not compliant, we need to let that play out and see what the regulators decide," Payne said. "That's our biggest concern right now."

TrueCar acknowledged two weeks ago that some dealers have left recently for various reasons. Group 1 said it did not want to open its dealerships' computers. And Honda has warned its dealers that advertising prices below invoice on Internet shopping sites could put at risk the dealers' payments from the factory for local marketing.

In mid-December, TrueCar said it had 5,840 participating franchises and was recruiting more to handle a surge of leads expected from the Yahoo partnership.

Last week, TrueCar said it had clients representing more than 5,200 franchises and dealers representing 227 more franchises that had agreed to become clients. The company also said that since October it has received a record number of inquiries from dealers interested in joining TrueCar.

Class action

Peter Welch, president of the California New Car Dealers Association, says he is worried about regulatory penalties for his TrueCar members. He says dealers using TrueCar also could be swept into any class-action lawsuits that arise in the litigation-heavy state.

Welch said he believes the TrueCar model violates several points of California law, including advertising and licensing requirements. For instance, dealers in California aren't allowed to use invoice comparisons -- saying, for example, that an offered price is below the dealer's invoice -- and such comparisons are prominent on the TrueCar Web site.

"I don't believe the dealers understand that this whole thing is an advertising medium and they have to comply with all the advertising laws," Welch said.

TrueCar said in its statement that it is not an advertising medium.

The California trade association is completing a legal review and will warn dealers about their potential exposure, Welch said. Dealers can lose their licenses over violations, but Welch estimated that 90 percent of violations are settled with fines.

Bird-dog laws

Some dealer associations and regulators say TrueCar's model violates a ban on bird-dog arrangements.

In Virginia, the state Motor Vehicle Dealer Board warned dealers in October 2010 that it was illegal to pay a fee to Zag.com, the former name for some of TrueCar operations, in exchange for a sale.

Dealers were urged to stop the practice or face a $1,000 fine for each violation and possible suspension or revocation of their licenses. Bruce Gould, executive director of the Virginia Motor Vehicle Dealer Board, says TrueCar's practices violate the state's prohibition on bird-dog fees. On Dec. 20, Gould sent a letter to Painter saying the board would discuss the matter at a Jan. 9 meeting.

If the board agrees with his analysis, Gould says he will remind dealers that their payments to TrueCar are not legal.

"We try to take the position of giving everyone a fair warning, to say, 'OK, you're doing something wrong, you've got to stop it,'" Gould said. "If it continues, we'll have to bring out the guns."

Two weeks ago, the Wisconsin Department of Transportation sent TrueCar a letter saying dealers can't legally use the service. Wisconsin law prohibits bird-dogging.

Wisconsin law also requires licensing of persons and companies involved in selling vehicles in the state, and TrueCar doesn't have the proper licensing, according to the letter.

"It has generated a lot of concern among dealers," said Bill Sepic, president of the Wisconsin Automobile & Truck Dealers Association, which has fielded about 20 calls on the issue since early December.

Dealers could be penalized as much as $5,000 for each licensing violation and have their licenses suspended or revoked. But regulators aren't planning to take action against dealers now; they want to give fair warning, said John Remy, program specialist in Wisconsin's Division of Motor Vehicles' Dealer and Agent Section.

Don McNeely, president of the Kansas Automobile Dealers Association, said the association believes that TrueCar's model violates the Kansas prohibition against brokering. A broker charges a fee to a retail customer to find and negotiate the purchase of an auto.

In its statement, TrueCar said it has "received an enormous amount of support and encouragement from our dealer partners in recent weeks. They recognize that the facts about TrueCar differ significantly from some of the statements in the press, and that well informed buyers are an opportunity rather than a threat to dealers."

Said Jackson of the Colorado dealer association: "This is not just a witch hunt on TrueCar. For us, it's helping ensure our dealers remain compliant regardless of what platforms and systems they use. So it's TrueCar today, and it could be somebody else tomorrow."

The scramble for scarce tires

Automakers pay more as supply tightens
North American automakers are struggling with a nagging shortage of tires, caused in part by tire plant closings and rising demand for low-volume specialty tires.

Automakers are paying much higher prices -- double-digit percentage increases from a year ago -- as tire makers gain pricing power.

"We have been bombarded from every side for additional tires, and we can't keep up," said David O'Donnell, Continental Tire's vice president of original equipment in the Americas. "We are at maximum capacity, and all shifts are maxed out."

The shortage doesn't appear to have significantly crimped production plans, though automakers are scrambling to secure supplies. Earlier this year, Dan Knott, Chrysler Group's senior vice president of purchasing and supplier quality, said the company was short of premium tires for some nameplates.

"The tire shortage will not clear up over the next year," Knott predicted. "It's going to take awhile."

Automakers pay as little as $75 per tire for low-end models to as much as $300 or more for high-performance tires.

To meet demand, Continental will expand plants in Illinois and Brazil and will build a factory somewhere in North America. But this will take time. The new lines in Illinois and Brazil won't hit full production until 2013, O'Donnell said.

Continental is investing $224 million to expand its plant in Mount Vernon, Ill., plus $210 million to expand its plant in Camacari, Brazil.

Other tire makers also are maxed out. Michelin is running its North American plants at full capacity, although it has met some requests for more tires, Vice President Rob Murray said in a recent interview.

The shortages come at a time when demand is rising. According to a forecast by consulting firm IHS Automotive, automakers in the United States and Canada will buy 62 million tires for new vehicles this year.

That's up from 55 million tires in 2010. By 2016, North American demand for original equipment tires will rise to 79 million units, IHS estimates.

Fewer tire factories
Bruce Harrison, IHS Automotive's director of North American consulting, says the shortage won't be solved any time soon.

"There are a lot more tire sizes in the marketplace now, and it doesn't look like that trend is slowing," Harrison said. Producing extra tire sizes and low-volume specialty lines reduce a standard tire plant's capacity.

To make things worse, tire makers had been cutting back on North American production capacity before the recession. In 2006 and 2007 alone, four U.S. tire plants were closed, according to The New York Times.

Plant closures eliminated about 71 million units of U.S. capacity, John Baratta, president of replacement tire sales for the United States and Canada at Bridgestone Americas Tire Operations, said in a June article in Automotive News' sister publication Tire Business.

Meanwhile, tire manufacturers were opening factories in China that flooded the U.S. market with cheap tires. But in September 2009 the Obama administration slapped a three-year tariff on imported Chinese tires.

The tax started at 35 percent of a tire's value declining to 30 percent and 25 percent in the second and third years. The import tax expires in September 2012.

Tire prices have "moved up very sharply" since 2009, said Saul Ludwig, an auto analyst at Northcoast Research, an equity research firm in Cleveland. Increases in the cost of rubber and other materials used in tire manufacturing, including steel, have tightened supplies and driven costs higher.

Soaring costs
Since 2005, the combined prices of natural and synthetic rubber, carbon black, steel cord, fabric and other materials have risen nearly every year, with jumps of 56 percent in 2010, and 47 percent in 2009, Bridgestone's Baratta said.

Continental, Michelin North America Inc., Goodyear Tire & Rubber Co. and other major tire makers have raised prices several times in the past few years to offset rising raw-materials costs.

Automakers and tire companies don't disclose original-equipment prices. But rising prices for replacement tires suggest what's going on in the original-equipment market.

For example, Michelin said the company has raised prices three times over the past year on car and light-truck replacement tires: an 8.5 percent increase on May 1; a November 2010 increase that the company wouldn't quantify; and a 6 percent increase last June.

Despite the headaches, automakers appear to be muddling through. During an interview last week, Tony Brown, Ford's group vice president of global purchasing, said Ford's vehicle production plans this year will not be affected by tight supplies of tires or other components.

"We have enough tires," Brown said. "We will deliver the production plan, with the tires to support those plans."

Manheim used-car price index hits another record high

Tighter new- and used-vehicle supplies and increased retail demand helped push the Manheim Used Vehicle Value Index to another record in April.

The index, which measures used-vehicle prices, stood at 126.6 last month, up from 124.2 in March and 120.7 in April 2010. The previous record was set in January 2011 at 124.9.

“Wholesale used vehicle prices are also now being supported by the new-vehicle market’s tight inventories, steady demand and higher net transaction prices,” Manhiem said in its monthly commentary.

The index started in January 1995 at 100 and is adjusted for vehicle mileage, model mix and time of year.

Citing data compiled by CNW Marketing Research, Manheim said used-vehicle sales by franchised and independent dealers rose to 7,158,917 units in the first four months of 2011, up 10 percent from the year-earlier level. Sales rose 14 percent to 2,650,619 in April.

Manheim also said certified used-vehicle sales are on pace to set a new record in 2011.

GM to raise U.S. vehicle prices 0.4% as raw-material costs rise

Here we go again, in a time that dealers are just starting to get back on there feet the manufacturer is going to reach into there pockets and the consumers and raise the prices. Lets see, sales are finally starting to come back so lets raise the price and slow the buying down... Do these Execs even think before acting????

DETROIT -- General Motors Co. plans to raise prices on most of its vehicles starting next month in response to escalating raw-materials costs.

Today, GM notified its 4,500 U.S. dealers that the increases will average $123, or 0.4 percent, starting May 2.

"The increase is a response to the continued rise in materials costs, which has been driven by an increase in commodity prices," GM spokesman Tom Henderson said.

The price increases will be widespread across Chevrolet's portfolio, according to the notice sent to Chevy dealers today. The memo said prices are slated to rise on the Camaro and Corvette sports cars, the Malibu and Impala sedans, the Avalanche truck, the Traverse crossover and the light-duty Silverado and Colorado pickups.

The memo did not mention the Equinox crossover or the Cruze compact, two of Chevy's hottest-selling vehicles.

GM's move echoes a boost by rival Ford Motor Co. On April 1, Ford lifted its prices on 2011 models an average of $117, or 0.4 percent.

Toyota Motor Sales U.S.A. Inc., coping with a rising yen and an earthquake-shattered supply chain, is also raising prices an average 1.7 percent on many 2011 Toyota, Scion and Lexus models, starting next month.

Henderson cited rising oil prices as a factor but declined to say which materials are raising GM's costs the most. He also declined to say which vehicles would see price increases, citing competitive reasons.

As of the end of March, GM had a U.S. inventory of 574,000 vehicles, or about a 75-day supply. Henderson said the price increase was unrelated to parts shortages from Japan, which have crimped production at Japanese automakers and some Detroit 3 operations.

Ford to ask buyers to pay more for smaller engine in new Explorer

New Ford Explorer

When Ford Motor Co. starts selling its re-engineered Explorer sport-utility vehicle, it will ask U.S. buyers to do something unusual: Pay more for less.

Bucking an automotive tradition of charging extra for more horsepower, Ford will ask buyers of its redesigned 2011 Explorer to pay a premium for a small, 4-cylinder engine when the vehicle goes on sale in December. The Explorer's standard engine will be a 3.5-liter V-6 with 290 horsepower, 53 more ponies than the optional 4-cylinder.

The V-6 version of the new Explorer will have a base price of $28,995, including delivery, or about $1,000 below the current Explorer. The Limited model will have a starting price of $37,995. Pricing on the optional EcoBoost engine, which will be available in early 2011, has not been released.

Ford hopes to convince consumers they should spend to save when it unveils the Explorer at events in New York, Chicago and other locations today. The smaller engine has technology Ford said will give the seven-passenger SUV the same fuel economy as Toyota Motor Corp.'s Camry sedan that gets 19 mpg in city driving and 26 mpg on the highway. That's more than 30 percent better than the 2010 Explorer.

“We really want to make a statement that the old baggage on fuel economy with the Explorer is gone,” Jim Holland, the Explorer's chief engineer, said in an interview. “To get great fuel economy it takes technology, and it's our view that people will pay for that.”

The automaker will be challenged to command a premium for the more efficient engine because U.S. gasoline prices have fallen 34 percent from their peak of $4.11 per gallon two years ago, said Jim Hall, principal of automotive consulting firm 2953 Analytics in Birmingham, Mich.

“Why would you want to pay more for fuel economy when gas prices are going down?” said Hall. “People have very short memories.”

Smallest ever

Ford won't say how much extra it will charge for the smallest engine ever to power an Explorer. Ford charges a $3,000 to $6,000 premium on its Flex model for V-6 engines using the same direct-fuel-injection and turbo-charging technology as the 2.0-liter, 4-cylinder going into the Explorer, Hall said. The Explorer engine is likely to be less because it won't be packaged with all-wheel-drive like on the Flex, he said.

“The market will determine which really is the base engine,” Hall said. “If the market says, ‘Forget it,' they may have to lower the cost of this engine.”

The Explorer's 4-cylinder engine won't tow as much as the V-6, Ford said. The front-wheel-drive, 4-cylinder version that is most fuel efficient will have the least off-road capabilities, traditionally a key characteristic of the model.

Buyers of the Explorer will be willing to make those trade- offs for better fuel economy, Holland said. Ford says poor gas mileage is the No. 1 reason shoppers reject the Explorer, which saw sales fall 88 percent during the past decade, from 445,157 in 2000 to 52,190 last year.

‘More Responsible'

“The impact of rising gas prices has really stuck with people,” Holland said. “People now buy more expensive light bulbs to be more efficient. We're moving to a point where people make the choice to be more responsible.”

The Explorer's improved fuel economy will be central to a marketing campaign that will reach more than 50 million people through social media such as Facebook, said Jim Farley, Ford's global sales and marketing chief.

“Fuel economy is the core truth we have to get at,” Farley said at a recent media briefing on the Explorer. Many of the 140,000 Explorer owners who trade in their SUV annually are “disappointed and want more on fuel economy.”

Wind tunnel

To improve the Explorer's mileage, Ford cut its weight by about 100 pounds by switching the SUV from a heavy pickup-truck frame to the same chassis as the Taurus sedan. Designers also sculpted the shape in a wind tunnel to lower wind resistance.

The Explorer with the 4-cylinder engine will be the most fuel-efficient mid-sized SUV on the market, according to Derrick Kuzak, Ford's product-development chief.

In the 1990s, the Explorer was the top-selling utility vehicle in the U.S. market and earned as much as $10,000 per vehicle for the Dearborn, Mich.-based automaker.

“As goes the Explorer, to some extent, so goes Ford,” Farley said. “It's the backbone of the brand.”

Ford expects to sell more of the new model, especially with optional equipment such as the 4-cylinder engine, Farley said, while declining to reveal a sales goal. Analysts estimate annual sales for the new Explorer may top 100,000 units.

“What's more important than the number we sell is that people see the value and that they're willing to buy the better, more highly equipped versions,” Farley said. “That's the key for us.”

2011 Honda CR-Z

2011 Honda CRZ

It’s true that hybrids are fantastic when it comes to fuel economy. But is it too much to ask for driving enjoyment to go along with bragging rights at the fuel pump? Luckily for us, Honda provided the 2011 CR-Z hybrid with sharp handling to match its miserly fuel consumption. This futuristic-looking 2-passenger coupe is a genuine delight on a twisty road – so long as you don’t put a premium (pun intended) on horsepower.

A 113-bhp 1.5-liter 4-cylinder is coupled to a 13-hp electric motor, whose battery pack is located beneath the cargo floor. The CR-Z is high-tech, but not rapid. Expect a 0-60 mph time of approximately 9 seconds—the same ballpark as many economy cars. Yet the ride and nimble handling make up for the lack of straight-line punch.

On sale in late August, and priced under $20,000 for the base model, the Honda CR-Z hybrid won’t be gathering dust on dealer lots.

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