NEW YORK (TheStreet) -- TrueCar Inc. (TRUE - Get Report), the online vehicle-buying website whose shares have been traded publicly for a little more than a year, is facing a spate of lawsuits from dealers, shareholders and trade organizations.
The legal assault is symptomatic of the turmoil in automotive retailing as more and more consumers rely on the Internet -- as opposed to browsing at dealerships -- for shopping information, price discovery and, in some cases, vehicle purchasing. As such, profit margins on vehicle sales have shrunk, and dealers have been forced to adjust.
TrueCar shares were priced at $9 a share in mid-May 2014, well below the expected range of $12-$14. Since peaking at near $24 in late 2014, the share price has declined steadily to the current level of about $13.
In March, car dealers representing 117 franchises in New York filed a lawsuit accusing True Car of falsely advertising that consumers can buy vehicles without haggling or price negotiations. Some of the dealers formerly cooperated with TrueCar as affiliates. A TrueCar spokesman said the lawsuit, which seeks $250 million in damages, is "without merit."
Another lawsuit, filed in California in May by the California New Car Dealers Association, accused TrueCar of acting as a dealer and a broker without the requisite license. The action asked the court to enjoin the company from operating without a license. The company plans to "vigorously" defend itself and expects to be vindicated, a spokesman said.
In late May, a class action lawsuit by TrueCar shareholders was filed in federal court in Los Angeles, claiming that the company had misled investors about the way it conducted business by way of false statements about its compliance with the law.
As in the other lawsuits, the company vowed to defend itself in the class-action suit by shareholders. "Disruptive technology and business models like Uber, Airbnb, and now TrueCar, have been challenged on many fronts, including legal," said Johnny Stephenson, TrueCar's chief risk officer.
TrueCar calls itself a "negotiation free" site for buying vehicles, which lets consumers find out what prices others have paid for vehicles similar to the ones that interest them, based on recent transactions. TrueCar has business relationships with about 11,000 auto dealers nationwide, about a third of the total. After submitting the specifications of a desired vehicle, a shopper may buy a vehicle from a TrueCar dealer at an agreed price; if a sale is completed, the dealer pays TrueCar a commission.
Edmunds.com, Kelley Blue Book and other online vehicle-buying sites dispense information about cars, including the market value of specific new and used models. They sell advertising and generate revenue by providing sales leads to dealers derived from visitors to their sites.
Mike Jackson, chief executive officer of AutoNation (AN - Get Report), the biggest publicly owned chain of dealerships, has said that the traditional means of buying vehicles, by shopping at dealerships is ripe for disruption. In Jackson's view, shoppers should be able to begin researching potential purchases online, visit dealerships to test drive and inspect vehicles -- then complete the transaction online. AutoNation has been rolling out a site for its dealerships called SmartChoice Express.