For most people, car buying is an awful ordeal.
Truth be told, I’m one of those people.
I want the best deal for the car I’m buying — but I have little patience for the games of salesmanship.
As you know, dealerships — particularly of used cars — have carried the stigma of being the playgrounds of slippery salespeople that rip off hapless customers.
Car buying is such a wretched experience that 75% of car buyers worldwide would rather skip the dealership and execute the entire process online, according to a recent study from Accenture. That includes the financing, the price negotiation and the obvious issue of home delivery.
The same study found that 80% of prospective buyers are doing due diligence online ahead of a purchase.
In other words, the internet has armed buyers with more information than ever before, but many people still hate haggling with dealers.
And over the last decade, a growing legion of tech companies have popped up to level the playing field for buyers even more.
Savvy tech firms have married up big data analytics with car shopping experience to give customers a hassle-free buying experience.
Here’s one such small-cap name leading the way…
Truecar Inc (NASDAQ:TRUE) is one of the nation’s largest auto pricing and information companies.
The company has partnered with thousands of dealers around the country — which pay TrueCar for sales leads. In return, the dealers provide TrueCar with the prices customers are paying for vehicles at their shops.
TrueCar aggregates this data and provides customers with the “average” cost buyers are paying for cars versus MSRP and the bottom-line figure.
Customers can find the car they want, print out a certificate and take it to the dealer for a “guaranteed” price.
To be fair, the company’s relationship with dealers hasn’t always been the best.
While buyers love TrueCar’s service, many dealers have complained that the fees they pay to TrueCar are eroding their razor-thin margins and encouraging a price race to the bottom among shops.
After surviving a major revolt by dealers in 2012, the company embarked on a major overhaul of the business.
Founder and CEO Scott Painter was fired in 2015 and replaced with former AutoTrader chief executive Chip Perry, who stepped in to aggressively rebuild relationships with its dealer-clients.
The company also shifted advertisements from touting the “lowest prices” to a “fair” price guarantee.
Thus far, the efforts have paid off…
Pedal to the Metal
TrueCar has posted losses in the last five years, but revenue has grown at nearly twice the rate of the software and IT services industry.
And the stock currently trades at 4.5 times forward enterprise value to sales — a slight premium to the industry (4.1).
Over the last three consecutive quarters, TrueCar has narrowed its losses and outperformed analyst expectations on the bottom line.
The company added 392 franchise dealers in the fourth quarter, bringing to the total dealer count to 13,748 — a 23% year-over-year increase and an all-time high.
It also logged an average of 7 million unique visitors — a 19% improvement over the same period last year.
And investors have piled into this turnaround stock in droves. The stock is up 174% in the last year, compared with a 26% gain for the NASDAQ Composite.
With a market cap of $1.6 billion, the company still has plenty of room to grow.
As buyers shun dealerships for the ease of online shopping, the old model of car selling is destined to die.
TrueCar faces an uphill battle as it changes the game, but the long-term rewards for investors far outweigh the risk.
And now is the perfect time to load up on shares.