In his quest to reinvent the way Americans buy cars and trucks, Scott Painter has infuriated auto dealers (he says he used to even receive death threats) and lost millions of dollars. His infraction? Starting a company, TrueCar, that enables consumers to shop for cars online — and secure guaranteed pricing from dealers. But it turns out that most car salespeople, who want to get customers to pay as much as possible or get them into showrooms to sell them extras, were not impressed. And those dealers who did sign up to be part of TrueCar’s network of sellers were livid that the website let rivals see the lowest prices offered for comparable vehicles. “I became the devil,” Painter recalls.
Yet Painter, a serial entrepreneur with 37 startups under his belt (among them: Pricelock and Advertise.com), was certain that the convenience and transparency of his service would be a hit with consumers — so he needed to ingratiate himself with the country’s 17,000 auto dealerships, not alienate them. In 2012 he embarked on a months-long “listening tour,” traveling across the country to make nice with dealership associations. He switched out nearly half of his executive team, bringing in employees such as the former head of the South Carolina Automobile Dealers Association, who now oversees the company’s relations with dealerships. Painter updated his business model and stopped letting his customers undercut one another through his operation.
Eventually he succeeded in coaxing dealers back to the site (TrueCar now has a network of about 7,000 auto dealerships). Unlike auto-shopping sites such as Edmunds and AutoTrader, which make money selling sales leads to dealerships, TrueCar bills itself as a “buying site” and charges a $300 fee only when an actual sale is made. A buyer prints a certificate to pick up a car at one of the dealers in the network.
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As Painter predicted, customers are embracing the model. In the fourth quarter of 2013 alone, the company sold 115,000 cars — a small fraction of the 3.9 million vehicles sold in the U.S. in those three months, but up from 61,000 a year earlier. The company is spending heavily on TV spots and a radio ad campaign featuring Painter himself. Painter declined to disclose revenue but says TrueCar is now profitable. The company has raised $189.5 million from investors including Allen & Co. and Paul Allen’s Vulcan Capital. More than 300 employees currently work for the Santa Monica-based startup, which is widely expected to go public soon.
And while TrueCar, like many online shopping sites before it, uses the web and smart software analytics to rethink the car-buying process, Painter isn’t cutting out the dealer the way, say, Amazon (AMZN) has done an end-run on the bookstore. Clients still need to go into the dealership to pick up their vehicles, and really great sales reps can presumably still sell service packages and other bells and whistles. “The consumer over the last decade or so has changed the way they shop,” says Painter. “So if you’re a dealer, you have to change the way you market. And you have to change the way you attract customers.” If he’s right, Painter may go from being the dealers’ devil to their savior.
This story is from the March 17, 2014 issue of Fortune.
