Los Angeles Times

BRASH CEO OF TRUECAR TO STEP DOWN

Scott Painter’s abrupt announceme­nt comes amid disappoint­ing earnings and growth.

- By Jerry Hirsch

Scott Painter, the often blunt founder and chief executive of TrueCar Inc., plans to step down as the company’s head this year after a search is conducted for a successor.

Painter has long been the public face of the Santa Monica company, which has roiled the car business by allowing consumers to buy vehicles at lower prices without the traditiona­l haggling with dealers.

The abrupt resignatio­n, announced Thursday, follows disappoint­ing earnings, a slowing of TrueCar’s once rapid growth and other setbacks, including the loss of a key source of business. It comes a little more than a year after the firm’s May 2014 initial public offering.

“After a decade of building TrueCar from an idea into a public company, I have come to the conclusion reached by many founders and entreprene­urs in my position: It is time for a change,” said Painter in a conference call after the earnings release. He expects a successor to take office by year-end.

Painter, 46, will continue as chairman of TrueCar’s board of directors. He owns almost 12% of the company, a stake worth $59 million as of Thursday.

TrueCar, founded in 2005, operates a digital platform that helps consumers shop and price cars. Buyers can enter a vehicle’s make and model to generate three firm offers from participat­ing dealers. TrueCar takes a $299 cut from each new-car transactio­n and $399 for used vehicles. It has about 10,000 car franchises in its network.

That business model has made TrueCar controvers­ial in the auto industry. Newcar dealers have complained that its pricing system drives down profits. They also have objected to Painter’s strong personalit­y and his mantra that cars were merely commoditie­s and consumers should make their purchase decision solely on price. That was at odds with dealers, who

pitched the value of their community-based businesses and service.

“His confidence clashed at times with the dealers, who by nature think they are center of automotive universe,” said Jesse Toprak, an auto industry consultant and a former general manager of a dealership who has worked for TrueCar and some of its competitor­s.

Painter acknowledg­ed Thursday that he sometimes had a “strained relationsh­ip with the very dealer community we exist to serve.”

“I do not believe that I have always communicat­ed our value propositio­n to investors as effectivel­y as I could have. Those things are on me.”

But he added, “TrueCar was born from my love for cars and my entreprene­urial passion for solving real problems.”

The resignatio­n came as TrueCar reported another big quarterly loss. The company lost $14.7 million in the second quarter, compared with a loss of $15 million in the same period a year ago.

Revenue increased from $50.5 million to $65.3 million, but that was seen as a disappoint­ment. TrueCar had projected revenue of $67 million to $69 million. It now says that sales for the rest of the year would be lower than expected.

The company now says its revenue for the full year will come in at $252 million to $258 million, a 10% to 11% decrease from the previously announced range of $280 million to $290 million.

“As the CEO, I bear the ultimate responsibi­lity for our performanc­e and falling short of expectatio­ns, including my own,” Painter said Thursday.

TrueCar took a big hit last month when AutoNation, the nation’s largest dealer group, said it would no longer use TrueCar to route clients to its stores, a move expected to cost the company about $7 million in annual revenue.

TrueCar also faces a Los Angeles County Superior Court lawsuit filed by the California New Car Dealers Assn. in May. It alleges that TrueCar violates state car sales regulation­s by acting as a dealer and broker in car sales transactio­ns but doesn’t have the proper licensing for the business.

That triggered a shareholde­r lawsuit filed in federal court in Los Angeles claiming that investors have lost money because TrueCar’s business practices don’t comply with sales laws in some states. TrueCar says it is in compliance.

“We still think that TrueCar is a dealer and auto broker and should be licensed as such. Perhaps a new leader will understand their obligation to comply with the law,” said Brian Maas, president of the New Car Dealers Assn., after learning of Painter’s planned departure. Still, Toprak, the auto industry consultant, noted that thousands of dealers choose to work with TrueCar because it streamline­s price negotiatio­ns and the time it takes to buy a vehicle, leaving happy customers.

Sameet Sinha, an analyst with B. Riley & Co., said it is an open question whether Painter’s resignatio­n will assuage dealers who are not in TrueCar’s fold, or are considerin­g AutoNation’s lead and might leave.

It was not only Painter’s self-admitted “strained relationsh­ip” with dealers that created difficulti­es for TrueCar, but the company’s practices, she said.

AutoNation severed its relationsh­ip in part because TrueCar wanted to cull all of its sales informatio­n to see if any of its customers had visited TrueCar’s digital platform during their car search. TrueCar argues that is required to make sure it gets paid correctly. But dealers see it as intrusive and results in them paying TrueCar transactio­n fees it doesn’t deserve.

“The business practices will also have to undergo a change,” Sinha said.

TrueCar shares have fallen about 75% this year. They slipped 37 cents, or 6.3%, to $5.54 prior to Thursday’s earnings announceme­nt and news of Painter’s departure.

 ?? Al Seib
Los Angeles Times ?? “IT IS TIME for a change,” said CEO Scott Painter. He expects a successor to take office by year-end.
Al Seib Los Angeles Times “IT IS TIME for a change,” said CEO Scott Painter. He expects a successor to take office by year-end.

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