Can online car sales benefit from the infomercial treatment?
That’s what prominent infomercial producer Guthy-Renker LLC and L.A. entrepreneur Scott Painter are betting on.
The duo teamed up last week when the TV commercial company made an unusual equity investment in Painter’s TrueCar Inc. website, which offers shoppers recent sales data from nearby dealerships.
Guthy-Renker’s transaction is part of a larger group of investments in TrueCar that the website company expects will reach $100 million by the end of the year.
Guthy-Renker has grossed billions of dollars hiring high-price celebrities to promote products such as exercise equipment and self-help DVDs. Its biggest hit has been pimple cream Proactiv, which has been pitched by Jessica Simpson and other celebrities who are paid big sums.
With TrueCar, the Santa Monica-based marketing giant is stepping out of its comfort zone and getting heavily into the Internet business. The equity investment will help fund TrueCar’s expansion, and pay for a print, radio and TV ad campaign that will cost up to $75 million annually.
“There’s a really good chance to become the market leader,” said Guthy-Renker Chief Executive Ben Van De Bunt.
Santa Monica-based TrueCar is the first site of its kind that allows would-be car buyers to browse real sales prices without having to provide personal contact information that can be used as sales leads.
Comparable companies like Kelly Blue Book Co. Inc. make money from selling dealers the personal information of its site visitors, but TrueCar makes its money by charging a dealer $300 for each car sale the site facilitates. TrueCar customers must ultimately provide personal information to either accept a dealer’s lowest posted offer.
The site is the brainchild of Painter, whose 36 other startups have also mostly been in the automotive industry. They include first-generation online car site CarsDirect.com and 1-800-Car-Search, both of which were bought by larger companies. He currently operates a site similar to TrueCar called Zag.com, which is not open to the public.
The five-year-old TrueCar had its first profitable year last year, generating $40 million in revenue. It is preparing to expand services nationwide as well as open similar websites for car loans and car trade-ins. The company also plans to announce two acquisitions within the next couple of months.
“This is an opportunity to bring transparency and data to the table in a way that levels the playing field and helps the buyer,” said Painter. “(TrueCar) actually has a real opportunity to change the way people buy cars forever.”
Louise Manfe, director of marketing for L.A. consultancy Expert Marketing, said the deal could spur big growth for TrueCar.
“It’s smart of them to do this. They are the first ones out to market with something like this. There are going to be a lot of people to follow,” Manfe said. “Amazon is king because they were first to market with it. There’s a lot of wealth in that.”
TrueCar advertises exclusively on the web today through e-mail, search and display ads. However, its companion site Zag has found niche success by partnering with the Automobile Association of America. However, unlike Zag, which restricts access to its site to affinity groups, TrueCar is open to the public.
The website sees 650,000 unique visitors a month. Online car sales site CarMax Inc. reports seeing about 5.5 million unique visitors a month.
Last month, TrueCar facilitated the sales of approximately 20,000 cars, Painter said. That’s more cars than the largest publicly traded online car sales company, AutoNation Inc., sells on an average month.
AutoNation controls just more than 1 percent of the car sales market. Painter said he believes he can eventually corner 10 percent of the market in America.
But competition is stiff. There are dozens of comparable private online auto sales companies like Santa Monica-based Edmunds.com Inc. and AutoTrader.com Inc. In addition, there are 10 publicly traded auto sales companies with large online presences such as AutoNation and CarMax.
“I don’t know how many people know about TrueCar right now,” said Bill Magarity, president of Inglewood-based Two Minute Marketing. “It certainly could help for Guthy-Renker to use their magic in something national.”
The advertising campaign will begin with a series of radio commercials in four markets across the United States at the end of the month. It will eventually grow to 16 markets across the country. In three months, the campaign will feature several 30- to 90-second TV commercials.
Some time early next year, Guthy-Renker plans to test its signature 90- to 120-minute infomercials for the TrueCar site. Painter and analysts anticipate the ad campaign is the key to turning the local startup into a national brand.
“Anytime you take a product to the masses your opportunity to be successful is greater,” said Expert Marketing’s Manfe.
The campaign will target people who are in the market to buy a car and not feature advertising for the sake of the brand. But neither company would say what the advertisements would include. Based on previous campaigns, it’s more than likely a famous face will be attached.
Guthy-Renker is diversifying its portfolio for the first time in years. Until now, its clients have been predominantly in the health and skin care industries.
Founded in Palm Desert in 1988 by Bill Guthy and Greg Renker, the company generates about $1.8 billion in sales a year from 17 products, which include the Malibu Pilates machine and “Dean Martin Variety Show” DVDs. The products reach up to 61 countries. The company also controls dozens of 1-800 numbers. ProActiv Acne Solutions, its most successful venture, has brought in about $800 million in sales.
Much of its success has come from working with entrepreneurs, so TrueCar –and Scott Painter – felt like a natural investment for Guthy, Van De Bunt said.
“It’s exciting to see new services enter into mature markets,” he said. “It’s exciting to be part of something that has the chance to be so big.”
The timing for a new investment also appears right. Vehicle sales in general and online sales specifically have been picking up. Both Auto Nation and CarMax reported increased demand by up to 30 percent in the fourth quarter for compact and midsize cars.
“Everything (Guthy-Renker) has touched has made money,” Painter said. “Having that skin in the game is a powerful statement about where we are headed and how valuable we can be.”
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