TrueCar suspends service in Colorado

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TrueCar suspends service in Colorado

TrueCar.com, the online auto shopping site, told its Colorado dealers this morning that it has suspended its service in the state.

In an e-mail to dealers, a Colorado TrueCar account manager said the suspension is voluntary as the company works with state regulators to "conform to the rules of the road in your state."

Colorado auto regulators warned in December that participating TrueCar dealers may be violating certain state laws.

"We feel comfortable that we will be able to address any regulatory issues by Jan. 17, at which point we will be reactivating our service, including automatically reactivating your account," Thuy Adomitis, a TrueCar account manager, wrote in the e-mail, which was obtained by Automotive News.

On Dec. 15, the Colorado Department of Revenue said TrueCar's materials and Web site violate several state regulations, including advertising rules. The TrueCar business model also creates the potential for dealers to violate bait-and-switch laws in the event that the desired vehicle is not available and a dealer attempts to sell the customer a different one.The regulatory agency also said TrueCar lacked required licenses.

Many states study TrueCar

The Colorado warning was followed by concerns about the legality of the TrueCar model issued from regulators and dealer associations in several other states, including Wisconsin, Kansas and Virginia. TrueCar said in a statement that as of late December it had been contacted by regulators in six states: Colorado, Louisiana, Nebraska, Kansas, Virginia and Wisconsin.

Colorado is the only state in which TrueCar has suspended service.

Dealer associations in Maryland and Indiana have since sent bulletins to their members. In Virginia and Oklahoma, the state regulatory agencies that oversee dealerships plan to discuss the matter at meetings scheduled for next week.

The state laws in question were enacted in previous decades to protect interests of dealers and consumers. For instance, some states prohibit the use of the word invoice in advertising.

TrueCar is an online vehicle-shopping service founded by CEO Scott Painter that consumers use to find new and used vehicles at a discount.

Participating TrueCar dealers compete for the business by offering a price on a specific vehicle configuration selected by a shopper. That price is below what TrueCar calls "invoice." The dealer pays TrueCar $299 for every lead that results in the sale of a new vehicle. A used-vehicle sales generates a $399 payment..

Also, some states ban bird-dogging -- paying a third party a fee that is results in a sale. Some states ban brokering, which is charging a fee to a retail customer to find and negotiate the purchase of a vehicle.

TrueCar has said will comply with all state laws and is willing to change its Web site and methods.

In a Jan. 4 e-mail to its participating dealers, Stewart Easterby, TrueCar executive vice president of dealer development, said: "TrueCar continues to work directly with regulators to ensure compliance with all applicable laws so that neither we nor our dealer partners are subject to any fines."

TrueCar's changes

In a statement to Automotive News about upcoming changes, TrueCar said that it will warn shoppers in red type on its site when a price is below what it calls dealer cost.

The warning will contain a message that selling cars below dealer cost is not sustainable for dealers.

The statement also said that TrueCar CEO Painter and other executives will be meeting with "numerous dealers and state dealer associations over the next few weeks to listen to and address dealer concerns, plus provide clarity on how TrueCar operates."

TrueCar's Easterby adds in the letter that no state has mandated a prohibition of TrueCar services or have lawsuits been filed against TrueCar.

Potential penalties for dealers for running afoul of the various state laws cited by regulators and dealer associations include fines of up to several thousand dollars per occurrence and license suspension or revocation.

You can reach Amy Wilson at awilson@crain.com.

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