TrueCar Investors Anxious to See if New CEO Can Lift Stock Price
Investors will scrutinize more closely than usual TrueCar's (TRUE) - Get Report first-quarter results on Thursday for clues on whether the company's new CEO has been remedying the troubles that shredded the stock.
On Friday, TrueCar shares briefly jumped 20% higher on the news that No. 1 vehicle retailer, AutoNation (AN) - Get Report , once a key TrueCar client, was thinking of restoring the relationship it abruptly halted last summer. TrueCar operates a digital vehicle buying platform for consumers at dealerships such as those operated by AutoNation.
The end to that relationship last summer slashed the price of TrueCar shares nearly by half. The episode was precipitated by vigorous disagreement between Mike Jackson, AutoNation's chief executive, and Scott Painter, TrueCar's CEO and a founder. A few months later, Painter announced that he was stepping down as CEO. In November, TrueCar's board named Chip Perry, an industry veteran, the new CEO.
Perry came into office vowing to forge amicable relations with car dealers, many of whom objected to TrueCar's business practices. Shoppers on TrueCar's platform can discover the selling prices of new and used vehicles; if they find a dealer willing to sell a vehicle at an agreed-upon price, they are issued certificates that they present to dealers. TrueCar is paid a commission upon sale.
Like other online services, TrueCar uses transaction data -- provided by dealers -- to estimate what the market says new and used models are worth, a trend that has cut deeply into dealers' profit margins.
TrueCar has an affiliate relationship with USAA, a financial services giant that caters to the U.S. military. AutoNation was interested in gaining access to USAA members who were shopping for cars, Jackson told AutomotiveNews.
"That's a fantastic clientele," Jackson told the trade publication. "Having that again is very worthwhile."
Another reason for the reconciliation between the two companies was Painter's exit. Evidently, the chemistry between Jackson and Perry has been positive. Finally, the size of the commission for TrueCar -- estimated last year at $550 -- has been reduced.
As shoppers have relied more heavily on the Internet for information about vehicles, an industry has grown up around providing leads to dealers in return for payment. AutoNation has said it is investing $100 million to develop its own digital platform for capturing shoppers and allowing them to buy vehicles entirely on line.
For the moment, Jackson hasn't definitively committed to remaining a client of TrueCar, only to test the service once more. He told Automotive News he would decide by the end of the second quarter.
Meantime, following Friday's announcement that the two companies had patched up relations, TruCar's share price sank back to its previous level. The stock, which went public in May 2014 at $9 a share, raising $70 million, traded as high as $24 a share later that year. Shares closed Tuesday at $6.14.
Doron Levin is the host of "In the Driver Seat," broadcast on SiriusXM Insight 121, Saturday at noon, encore Sunday at 9 a.m.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
