Since an epic crash earlier this year, Santa Monica’s TrueCar.com has been in the shop, tinkering with its business model to repair the damage.

Late last year, the car-pricing website was flooded with complaints from dealers who said TrueCar was driving down prices to the point where they were losing money. Regulators in several states piled on, saying the company’s practices were illegal.

The company ultimately had to stop working with dealers in some states and lost other dealers who were furious about the whole affair, for a total cut of about 40 percent of its dealer network. TrueCar swung from making a profit to losing money.

Now, sales are growing; the company is close to profitability; and Scott Painter, TrueCar’s chief executive, said he’s ready to rev up once more.

Next month, the website will start a national ad campaign, its first since last year’s advertisements that helped set the company’s troubles in motion.

“Our ad campaign at the end of last year was very focused on saving as much as possible,” Painter said. “In a lot of ways, that incited a bit of a riot.”

TrueCar collects and analyzes vehicle sales data and lets consumers see what others in their area have paid for a particular model. It also lets dealerships offer “no-haggle” prices for vehicles.

Last year’s ads focused on the notion that customers could save thousands of dollars by taking advantage of offers from competing dealers.

But now the company is changing its tone. The new ads focus less on getting the lowest price and more on getting a fair deal.

Painter said it’s the difference between appealing to greed – saving thousands of dollars – and appealing to fear – nobody wants to be a sucker by overpaying.

“It’s much more about truth, transparency – and understanding that we’re all about not making a mistake,” he said.

There’s another big change, too: TrueCar is showing the ads to auto makers and dealers and asking for feedback.

The changes at TrueCar appear popular with the auto industry, as about 2,000 dealers have signed up with the company in the past several months.

“You don’t have to be the lowest price to participate in the TrueCar program,” said Bill Eggert, general manager of Day Apollo VW-Subaru near Pittsburgh. “It used to be a race to the bottom, absolutely. I like the new structure.”

But consumers might not be so supportive since they likely won’t get the same kind of low-price deals that made TrueCar a hit last year. Already, Painter said prices paid by consumers who go through TrueCar are noticeably higher than they were in the first quarter of the year.

Thilo Koslowski, an automotive analyst at the San Jose office of research firm Gartner Inc., called the changes at TrueCar a compromise between helping consumers and helping dealers, with the latter coming out on top this time around.

“The consumer value proposition has softened, no question,” he said. “The idea of leveraging the Internet to find the absolute lowest price, that mentality doesn’t yet apply to (cars). I wonder at what point consumers will demand a change.”

Broken model

Painter is a veteran of the online car sales industry, launching companies such as CarsDirect.com and the now-defunct 1-800-Car-Search.

He founded TrueCar in 2006, and the privately held company’s co-owners include Painter; GR Match LLC, a division of Santa Monica direct-marking company Guthy-Renker; Century City venture capital firm GRP Partners; and United Services Automobile Association, an insurance and financial services firm for military members.

Most of the company’s 303 employees are in offices – some with ocean views – in a building near the Santa Monica Place mall.

When TrueCar was a small player, relations with the car dealers weren’t problematic. Customers who came to dealers via TrueCar referrals accounted for a small fraction of a dealer’s sales.

But when the service’s national ad campaign started driving more TrueCar bargain hunters to showrooms last year, dealers started taking notice.

Those shoppers were getting very good deals: In the first quarter of this year, Painter said prices paid by TrueCar users were in the bottom sixth percentile, meaning they were lower than 94 percent of prices for the same vehicles.

TrueCar’s old system allowed participating dealers to see the prices offered by other dealers before they posted their own. So if one dealer was willing to drop prices below his cost and make up the difference on financing, trade-in or future service charges, he could force others to race to the bottom.

“What ends up happening in that situation is that Crazy Eddie now sets the price for the market,” Painter said. “That’s not supply-and-demand equilibrium. It’s a market-maker setting a new low.”

So TrueCar changed how dealers interact with the site. Instead of seeing what other dealers are offering, they now see only what regular consumers see: the recent sale prices for a particular car. That means dealers are making offers that are competitive with the overall market, not Crazy Eddie.

TrueCar has made other changes as well. Under its old business model, TrueCar dealers paid the company a flat fee for every sale the site referred to them – $299 for a new car, $399 for a used car. Dealers liked the arrangement because they didn’t have to pay unless they closed a sale, but regulators in some states said that was illegal.

So for those states, TrueCar created six additional business models. In four states, dealers pay for the names and e-mail addresses of local buyers who register with TrueCar. In other states, the company sells buyer contact information with a guarantee that those leads will result in a certain number of sales.

Spreading word

At its peak last year, TrueCar had a network of 5,700 dealers. That number fell to about 3,200 this spring. But now that the company has complied with laws in 49 states – TrueCar doesn’t have any dealers in Alaska – and made other changes aimed at appeasing dealers, business is rebounding.

The company now works with 5,200 dealers and made about 170,000 referrals through the first three quarters of this year, about 10,000 more than in that period last year, according to figures supplied by the company.

Painter hopes the new ad campaign, which will roll out next month, will accelerate that growth.

Two of the ads that Painter previewed for the Business Journal, before they were finalized, explained that TrueCar customers can make sure they’re not paying more than they should. That constitutes a definite shift in focus from getting the lowest possible price.

One ad shows three suburban homes with identical Toyota Priuses in the driveway. The purchase price for each car is then shown, with the implication that the buyer with the best price used TrueCar.

That best price isn’t what it used to be, however. Instead of getting a better deal than 94 percent of car buyers, TrueCar users are now paying less than about 75 percent of buyers.

Gartner’s Koslowski said higher prices could be a turnoff for consumers.

“The potential savings won’t be as dramatic,” he said. “The appeal might not be the same anymore.”

Painter said he didn’t have a choice.

“Will someone at TrueCar get, objectively, as good of a deal as they did a year ago? Probably not,” he said. “But the idea that cars ultimately have to be sold at sustainable prices is an economic reality.”

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