With a former OEM chief executive officer joining its board and paperwork filed for an initial public offering, activity is buzzing at TrueCar. That IPO paperwork filed with the Securities and Exchange Commission offered a glimpse as to what’s going on underneath the hood of the lead-generation website.
TrueCar indicated the number of common shares to be offered and the price range for the proposed offering have not yet been determined. But according to the registration statement on Form S-1 filed with the SEC, the company is coming off of a year where it generated revenues of $134.0 million and recorded a net loss of $25.1 million.
Of the $134.0 million in revenue, TrueCar noted that 89 percent consisted of transaction revenues with the remaining 11 percent derived primarily from the sale of data and consulting services to the automotive and financial services industries. Transaction revenues primarily consist of fees paid to the by its network of TrueCar Certified Dealers under its pay-for-performance business model where the company generally earn a fee only when a TrueCar user purchases a vehicle from them.
TrueCar mentioned in its SEC filing that its dealer network consists of more than 7,000 dealerships, primarily franchised stores as well as a smaller amount of independent operators.
“We typically charge TrueCar Certified Dealers $299 upon the sale of a new car to a TrueCar user,” company officials said. “In 2013, the overall industry average advertising expense per new car across all forms of media was $616, according to NADA.
“By helping dealers better target their acquisition efforts to in-market consumers using our platform, we believe that dealers can improve their close rates, which results in other operating cost efficiencies such as savings on selling expenses and inventory carrying costs,” they continued.
TrueCar recapped the challenges it has experienced with its dealer network. At the end of 2011 and the beginning of 2012, due to certain regulatory and publicity-related challenges, officials acknowledged many dealers cancelled their agreements with TrueCar, and its franchised dealer count fell from 5,571 on Nov. 30, 2011 to 3,599 on Feb. 28, 2012.
“TrueCar Certified Dealers have no contractual obligation to maintain their relationship with us. Accordingly, these dealers may leave our network at any time or may develop or use other products or services in lieu of ours,” TrueCar officials said in the SEC documents.
“Further, while we believe that our service provides a lower cost, accountable customer acquisition channel, dealers may have difficulty rationalizing their marketing spend across TrueCar and other channels, which potentially has the effect of diluting our dealer value proposition. If we are unable to create and maintain a compelling value proposition for dealers to become and remain TrueCar Certified Dealers, our dealer network would not grow and may begin to decline,” they continued in the filing section that described their risk position.
TrueCar went on to acknowledge that larger dealer groups not choosing to use its services and have a significant impact on its growth possibilities as well as its stock value.
“Although the automobile dealership industry is fragmented, a small number of groups have significant influence over the industry,” TrueCar said. “These groups include state and national dealership associations, state regulators, car manufacturers, consumer groups, individual dealers and consolidated dealer groups. To the extent that these groups believe that automobile dealerships should not partner with us, this belief may become quickly and widely shared by automobile dealerships and we may lose a significant number of dealers in our network.
“A significant number of automobile dealerships are also members of larger dealer groups, and to the extent that a group decides to leave our network, this decision would typically apply to all dealerships within the group,” the company continued.
“We cannot assure you that we will maintain strong relationships with the dealers in our network of TrueCar Certified Dealers or that we will not suffer dealer attrition in the future,” TrueCar officials went on to state in the IPO filing. “We may also have disputes with dealers from time to time, including relating to the collection of fees from them and other matters.
“We may need to modify our products, change pricing or take other actions to address dealer concerns in the future. If a significant number of these automobile dealerships decided to leave our network or change their financial or business relationship with us, then our business, growth, operating results, financial condition and prospects would suffer. Additionally, if we are unable to add dealers to our network, our growth could be impaired,” TrueCar added.
Nonetheless, TrueCar reiterated that it is poised to capitalize the growth potential of rising vehicle sales, referencing some new solutions in the company pipeline.
“In the future, we intend to introduce additional products and services to improve the car-buying and car-ownership experience. For example, we are developing TrueTrade to provide users with an estimated daily market value for their existing cars and a guaranteed trade-in price,” the company said.
“In addition, we are developing TrueLoan and TrueLease to provide users with a more convenient way to finance their cars at TrueCar Certified Dealers,” officials continued. “We are also in the process of launching a number of new services for our dealers designed to enable them to make better informed inventory management and pricing decisions and to close transactions more efficiently.”
With those elements in place, TrueCar decided Friday was a good time to launch the IPO. Goldman, Sachs & Co. and J.P. Morgan Securities will act as the joint book-running managers for the offering.
TrueCar Adds Ex-Hyundai CEO Krafcik to Board
In other company news, TrueCar announced last week that the former top boss at Hyundai Motor America has joined its board of directors.
John Krafcik, former HMA president and chief executive officer, was at the helm of HMA from 2008 to 2013, and will now become a director at TrueCar and serve as a member of the board’s operating committee.
“Very few people are credited with elevating an emerging brand to top-tier status within the automotive industry,” said Scott Painter, founder and CEO of TrueCar.
“John Krafcik is one of those remarkable leaders who has done just that over the last five years. At the heart and soul of his success at Hyundai was the trusted relationship the brand developed with its dealers and customers,” he added.
Krafcik noted: “I believe transparency is a better business model that builds trust between consumers and retailers. I want to help retailers in automotive and other industries build a bridge of trust with consumers, and joining TrueCar lets me get fully immersed in doing exactly that.”