How does TrueCar make money?

TrueCar makes most of its money from fees paid by dealers whenever a car is sold

There's a later episode of Seinfeld that has a joke I'll always remember: basically that, while mechanics try to screw you behind your back, car dealers do it right to your face. Sadly, that seems to basically be true.

Ok, I don't want any angry letters from any car dealers (or mechanics) so I'll say this: yes, I'm sure there are many honest people in both professions, the fact is that it is easy to get a bad deal, especially when buying a used car. And that type of reputation hurts both the consumer and the businesses that are trying to sell them. 

That is why we have TrueCar, which provides customers with market information on new and used car transactions and by supplies an online communications platform, through which dealers and consumers can communicate with each other. The point is to help dealers move their cars quicker, and to get customers the best deals on said cars.

How does TrueCar make money, though?

The company has two revenue streams: transaction revenue and data and consulting services.

Transaction revenue makes up the majority of the money TrueCar makes. Whenever a dealer sells a car listed on TrueCar, they pay a set price: typically $299 for a new car that is sold. Of the $134 million in revenue it made in 2013, $118.7 million, or 89%, of that came from transaction revenues.

The other $15.2 million came from data and consulting services that TrueCar offers to the automotive and financial services industries, which they then use to determine the value of an automobile at given points in time in the future. Our generally pay for these services as information is delivered to them.

TrueCar's numbers are all heading in the right direction. In 2013, the company has seen its revenue increase healthily over the last few years, rising from just $38 million in 2010. The company also drastically cut its net losses. In 2012, TrueCar ended the year $75 million in the hole; in 2013, it recorded a net loss of $25.1 million.

In addition, the company also saw its monthly unique visitors spike, growing from 1.7 million to 2.8 million, a 67.6% increase.

To tell you the truth, it is kind of amazing that TrueCar now finds itself in such a strong position that is it going public, considering that just a few years ago it was a pariah in its industry.

In 2012, TrueCar began running television ads promoting its services, which wound up landing the company in a legal maelstrom with the auto industry, which accused the company of attempting to drive down car prices. That led to an industry-wide boycott of TrueCar, which resulted in $30 million in losses and, within 60 days of the ad running, half of the company's 6,000 dealers abandoned the platform.

During his keynote speech at Splash LA in June 2012, Scott Painter, founder and CEO of TrueCar, was candid about that had happened, saying that the previous six months had "sucked ass," but that they were also a "right of passage for us."

"Now we really can say that we own this product -- because, really, no one wants to walk into the fire that we just did," he said at the time.

Just a few years later, TrueCar is back and stronger than ever.

The company raised a total of $167 million in funding, most recently picking up $30 million from Vulcan Capital in December 2013. 

(Image source: grist.org)