TrueCar Inc. may soon be one of the new hot Nasdaq stocks of the year. The private company is set to make its initial public offering (IPO) soon, seeking to raise around $125 million for corporate expenses. TrueCar is an “online auto-shopping service” much like established websites such as Cars.com and AutoTrader.
On May 3rd, TrueCar named John Krafcik the new president of the company, shortly after he was named to the board of directors. Krafcik is the former CEO of Hyundai North America, and TrueCar is hoping he can bring his directorial prowess to their company in its proceedings to become public. As AutoBlog reports, “John Krafcik not only has a deep understanding of the automotive industry, but he also knows how to run an organization at scale – and the timing is right for him to join our team,” says Scott Painter, founder and CEO of TrueCar. In his tenure at Hyundai, Krafcik was able to increase market share at the company by more than 50 percent in North American markets.
While adding Krafcik to the team is undoubtedly a successful move by TrueCar, it certainly appears that they could have done just as well without their new president. TrueCar posted a 68 percent increase in revenue last year which brings it up to $134 million. The company creates a majority of its revenue from connecting customers to dealerships, taking a small amount of the sale, usually $300-$400, as its commission.
While the Microsoft-backed company is certainly not the only player in its market, it is a dominant force. TrueCar was responsible for 3 percent of new car sales last year. It certainly appears that TrueCar and its fellow players have found their way into the future of auto sales. It is becoming more and more evident that there is a trend towards customers finding the exact car they want online rather than visiting a dealership to browse their limited stock. If the trend continues, this could spell the demise of physical dealerships and the rise of direct sales to consumers, much like the Tesla model. New and used car sales can become much more efficient if every used car on the market were sold through large online databases stored by companies such as TrueCar and AutoTrader.
While questions about the future of auto sales remained unsolved, one thing is for sure: TrueCar IPO is soon to be all the rage on Wall Street.
– Zac Durkin
Sources:
http://www.bloomberg.com/news/2014-04-04/truecar-files-to-raise-125-million-in-ipo.html
http://www.autoblog.com/2014/05/03/john-krafcik-truecar-ceo/
Two questions
1. How are they competitive? How will they beat others that sell cars online?
2. When they go public, what will they do with the raised capital?
I won’t attempt to describe how they will compete with their competitors. I cannot sufficiently answer that question nor is it relevant to the theme of our class. I can only give you the facts of the situation, that being they have a auto-savvy President and are backed by some of the most successful companies in the world (Microsoft, Goldman Sachs, etc.). The capital they receive will, like I said, be used for corporate expenses, more specifically working capital, operating expenses, and capital expenditures. For more information, you can check out their filing with the SEC.
https://www.sec.gov/Archives/edgar/data/1327318/000104746914003390/a2219317zs-1.htm
Although it is a fact that the online car shopping is growing and it is a multi-million dollar business, I think there is still a place for the dealership. Some people prefer to be able to check out the product and be able to deal with more human interaction when buying a car. The best example is the fact that shopping malls and stores still exist even when you can buy everything online through web pages like Amazon, Ebay, etc.
The rise of the online market (Amazon, eBay, etc.) has been very detrimental to the shopping mall. All around the country we are seeing these archaic institutions fail. In fact, there is an article in one of the more recent TIME publications (maybe even the most recent) that addresses this issue. Shopping malls everywhere are having to restructure or die, and I believe that the car dealership maybe fall into this same category in the next couple decades.