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Jon L. von Arx,
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a detailed look at

The car market is poised for some major changes. It’s taken a long time for the internet to begin to reshape the auto industry. It’s a big business and relies on a massive web of independent dealers for customer acquisition, service and support.

Technology creates “one way doors”[1] that consumers pass through. Once they do they don’t go back – music on the iPod, online sharing using Facebook, navigation and maps on a smart phone, and instant streaming movies. We’ve seen plenty of these shifts already in established industries like advertising (Google), mutual funds (Morningstar), travel (Priceline), video rentals (Netflix), books & electronics (Amazon), collectables (eBay), restaurants (OpenTable), rental properties (RealPage), timeshares (HomeAway) and residential real estate (Zillow.)

Consumer expectations have changed thanks to Amazon, Priceline, eBay, Apple and scores of other companies that are modernizing old business practices. The auto industry has embraced some elements of the internet and knows that their business practices and strategy will have to change even more.

TrueCar aspires to reshape some aspects of how the industry works and make it more efficient for consumers to buy cars. In doing this over time, it will also add some growth to the total market and for participating dealers.

There is enough inefficiency in the current mode of automobile sales to allow both dealers and consumers to benefit from using TrueCar. Travel is a good example of a business that has become far more efficient. Before online travel sites, it was typical for an airline to spend 20% of sales on customer acquisition. Today that figure is less than 10%. Consumers end up with more convenience and better prices. Airlines avoid cus­tomer acquisition costs, which allows more of them to spring up and expand the market.

Auto dealerships are just now seriously grappling with the reality of internet-driven reform of their business. Almost all of them have added some form of online advertising and CRM to their dealer management systems; but few of these, if any have been considered as part of an overall business process re-engineering. It’s added some cost but few clear benefits.

TrueCar has been a bit of a lightning rod for some of the ire and insecurity that many dealers have regarding change. Even though they know that the current situation is untenable they are worried about the potential impact to their businesses.

Unfortunately, there are many stereotypes about the car business in general, and dealerships in particular, that cloud and confuse the discussions about how to leverage technology and evolve the business to be more effective and profitable. Any large business ends up being a reflection of society. Of course there are bad car dealers and lousy salesman out there; but that doesn’t say anything about the industry as a whole.

It’s really not about technology. It’s about treating customers better and making them happy, even eager, to buy a new or used car. People love cars, so this should be possible. There are some dealerships that have been doing this but the industry is far from there. A recent piece by Becky Quick of CNBC and Fortune highlighted this with the very basic conclusion that since car dealers are now in a service business they should focus on the customer.[2]

Today the customer is better informed, thanks to the internet and resources like the online version of Consumer Reports. They also don’t expect to play a game when they go to buy something. It starts with the fact that the price on the sticker is often not the actual price and mostly goes downhill from there.

This report provides additional background on the industry, an overview of the TrueCar approach and future plans, an analysis of the market and competition, and a valuation discussion. Our preliminary intrinsic value model estimates a TrueCar share price of $8.66 versus the most recent transactions at $5.30.

Cars bought versus cars sold

There’s a big difference between a car bought and a car sold in terms of effort involved and what the cost to the dealer should be. Selling is an art in general and a learned skill for cars in particular. For a potential customer just deciding to “take a look around,” the salesman plays a crucial role. Asking many questions, taking the prospect out for a test drive and making sure that when they get back they park next to the prospect’s old car for a direct comparison. Who wants to get into that same old car after driving this shiny vehicle full of that wonderful new car smell?

Automobile sales people also become adept at working many variables at the same time, including trade-in value, leasing options, dealer financing, and a litany of “extras” from floor mats to prosaic regional options like “pothole insurance” in the Northeast. A sales person can often make a sale occur with even more profit by targeting the monthly payment versus the vehicle price. Aftermarket options are icing on the cake. When all this comes together and a consumer who was “just looking around” ends up with a new car, the salesperson has earned their commission.

Today, many car buyers know exactly what car they want to buy. In many cases they have even used a manufacturer site to fully customize and price out (at least based on MSRP) the one they want. For example, some dealerships like BMW of Ridgefield, Connecticut have customers that line up and wait for an audience with a salesperson who will write up their sales order and take their money. There’s not much “selling” going on there.

We’re picking on BMW here but a large and growing portion of consumers have done their research and simply need to purchase the car they want. They don’t want to be sold. Trying to use the same process on them is a waste of energy and money. The dealer only needs to efficiently complete the transaction.

Even though all this will be fairly obvious to institutional investors, it will take time for the dealers to change their ways of doing business. Old habits don’t go away easily. For example, if one configures a nice little MINI online and shares that with a local dealer this is the result:

Dear [Name],

I received your inquiry on the 2012 MINI Cooper Convertible S. I have to say a great choice! Nothing better than putting the top down on a beautiful summer day. Lightning blue happens to be one of my favorite colors for the MINI. Are you looking for an automatic transmission or a manual transmission? In addition [dealer] currently has some terrific specials that I would like to discuss with you.

I am also happy to answer any questions pertaining to availability, colors, options, timing, etc. which are all items that will affect your final cost. I will try and reach you by phone or you can simply call me @ [dealer main switchboard].

If you prefer, all this can also be accomplished in the showroom, which would be a great opportunity for you to see & drive the vehicle you are considering.

Either way I will do whatever I can to help you get the [dealer name] vehicle you want at numbers that are agreeable to you.

Thank you again for your inquiry and I look forward to working with you.


John Smith

Department Manager

[Dealer Name]

[Main Number]


Notice a few things about the email? It has some of the usual sales techniques like asking the customer about options and getting behind the wheel for a test drive. The contact information is generic, including both the phone number and the email address. Take note of the “” domain name. It’s not even an email at the dealership.

To make matters worse, a follow-up email comes about an hour later from the “business manager” making sure that a reply has been sent. Unfortunately, he doesn’t even customize the email header with a unique name and “reply-to” so it makes it very clear to the trained eye that all the emails are generated by the CRM system to basically say “come on in to the dealership and we’ll sell you a car!” Thanks, but no thanks.

The TrueCar Solution

TrueCar is providing what a significant portion of car buyers want. This includes pricing information on the vehicle, simplified purchasing and, ultimately, other services like trade-in credit, extended warranty, insurance, and financing. In essence, this is the type of customer we’d call an “informed buyer.” They want the best combination of products and services for their needs at a fair price. This isn’t about squeezing out the lowest cost.

Said another way, TrueCar is providing the intelligence that buyers need to complete a transaction. Not all buyers do it this way, but many do and they represent a huge opportunity for the dealers in both increased sales and increased profitability.

The picture below shows how different the experience is for consumers who use TrueCar. The first thing people notice is the price data. Terms like MSRP and “dealer invoice” are artifacts of the old way of doing business. Dealers who participate provide “upfront pricing” that the consumer can rely on to make a purchase decision. Consumers can request a “price certificate,” which they can use at the dealer to buy their car. If (and only if) the consumer purchases the vehicle the dealer pays TrueCar a fee of $299 for a new car or $399 for a used car sale.

This price data is the first part of the one-way door we see TrueCar providing to consumers. Anyone making a large purchase is unlikely to want to do so without having this information. The next step is the “price protection certificate” which can be printed and taken to the dealer. It is basically a reservation to go in and purchase your vehicle. An example of one of these certificates is included at the end of this report.

This is a simple core idea that will continue to spread across the market. TrueCar isn’t stopping with new cars. The company has an aggressive development plan to attack adjacent areas of the market. One of the most obvious is used cars. TrueCar already has a data-based website called ClearBook which gives pricing information. However, the next step is to integrate the used car into a new purchase and get the trade-in value to be part of the overall upfront pricing from the dealer.

All cars need to be insured and most are financed or leased. These are two adjacent opportunities for TrueCar that we expect them to deliver on. Combining the new car pricing data with upfront pricing, including a trade-in along with financing and insurance, will allow consumers to complete what used to be a multi-day, complex set of transactions during their lunch hour.

How big is the opportunity?

The vast size of the US auto market supports a baseline revenue opportunity for TrueCar of $5.5B per year.

In round numbers there are between 30 and 40 million new and used cars sold every year by dealers in the US. The new car portion has been in the range of 12 to 16 million with the balance being used vehicles. A naïve starting point is to look at a typical market of 15 million new and 20 million used cars and apply the $299/$399 to compute a sort of “ultimate TAM” of $12.5B ($4.5B for new cars plus $8B for used cars.)  Complicating this picture a bit is the need to use “subscriptions” for dealers in some states because the success payment is outlawed in some areas. Since not all cars will be sold via a TrueCar process, we need to slice the market finer.

Cars are pretty standardized now but there is still a very visceral aspect to experiencing one and buying it. Consumers want to see it, touch it, and drive it. Even though more and more consumers do their homework online and want to buy that way, there will always be people who patronize the local dealer and build relationships with their salesperson over time. Turning to a little data of our own about purchasing consumer electronics, the percentage of consumers who plan to buy their goods from Amazon has been running at a fairly level 35% for the past few years. It’s a reasonable figure to use for online car buying via TrueCar at some point in the future. That would give TrueCar $4.4B annual revenues on car sales fees. As an aside, consumer purchase intentions at Amazon have consistently moved up and stand at 44%, so 35% is by no means a ceiling.

There’s additional market opportunity in related services. A sad but true fact is that the $700B size of the financing market for automobiles is even larger than the market for the underlying vehicles, at least in America. Financing a vehicle via a loan or lease suffers from some of the same opaqueness and inefficiency. Insurance is another facet of automobile ownership that also represents a large (~$200B) annual market.

TrueCar will have products in the financing and insurance markets. Incentive fees on loans, lease financing and insurance are fairly high. At this stage it’s very hard to estimate, but if we use the 35% figure for transactions and the same 35% for the “attach rate” on loans and insurance, TrueCar could be an intermediary in $110B worth of financing and insurance revenue. Using some fairly standard industry figures, this would translate into an incremental $1.1B to $1.25B of TrueCar revenue.

We’re not including any advertising or consumer revenues in these market opportunity estimates. We’re also not factoring in any growth in the overall automobile market or any portion of the international opportunity. Overall, TrueCar has room to generate annual revenues of $5.5B to $5.65B based on the current US market.

The TrueCar Trajectory

In 2009 TrueCar launched their dealer portal, website and an array of data-driven services and deliverables. This helped them illustrate their value and drive awareness of their platform. Data has always been the core element of TrueCar’s strategy, and they continued to build it with new sources and use licensing agreements with media outlets to reinforce the positioning of TrueCar as an authoritative source.

2010 was filled with much of the same and validated the TrueCar plan and business model. This led to a substantial $33.5M financing at mid-year from USAA, Capricorn Investment Group, GRP Partners and Silicon Valley Bank. During the balance of 2010 the company continued to execute their strategy, add to the senior management team and also announced their ClearBook to bring some clarity to used vehicle prices.

In 2011 TrueCar launched ClearBook (Q1), surpassed $1B in cumulative savings for consumers (Q2), acquired social media property (Q2), licensed and incorporated “Black Book” used car values into the ClearBook data (Q2), acquired residual value service ALG from DealerTrack (NASDAQ: TRAK) for equity and warrants (Q3), raised $200M in additional financing (Q3), acquired Carperks, a leading provider of automobile purchasing and leasing as an employee benefit (Q3), and expanded senior management roles including a chief marketing officer and EVP of marketing.

TrueCar has leveraged affinity programs with large organizations like USAA, American Express and AAA to jumpstart customer acquisition and car purchases. USAA is an ideal partner because their members are keen on efficiency and appreciate truth and integrity. These channels are growing rapidly for TrueCar and still have a long way to go. The 150,000 cars affinity members purchased via TrueCar in 2011 are out of approximately 8 million total units. We expect affinity sales to double year on year for the next few years. At the same time, TrueCar has added several new affinity partners (Geico, Bank of America, Nationwide Insurance, PenFed, and Consumer Reports) that will contribute to future growth.

To close out 2011, TrueCar and Yahoo! agreed to a 3-year exclusive relationship, putting TrueCar at the core of the Yahoo! Auto business. This increases the current size of the TrueCar online user base 10-fold to over 10M unique views per month. TrueCar will be paying Yahoo! handsomely for the traffic ($150M over the term) but their high rate of monetization makes the numbers work well for investors. There is also important strategic value because this puts TrueCar at the top of the heap in terms of traffic. It makes it nearly impossible for a dealer to opt out of the TrueCar offer.

In 2012 we expect to see the company become more ubiquitous and to increase the product and service portfolio to cover additional elements of the auto business including trade-ins, insurance and financing.

Online car buying and selling so far

The auto industry has moved their pre-existing practices online. Classified ads in newspapers have moved online. Mainstays like Consumer Reports help consumers online with the best information and analysis. All of the information is there with a few clicks of the mouse or touches of the screen.

There are lots of places to buy, sell and research cars today online. These include general-purpose sites like Craigslist and vehicle-specific ones like Many of these sites have carved out at least an ad-hoc positioning based on how consumers are using these services. For example, Craigslist is a good fit for selling an inexpensive used car quickly and locally. If you have a more special car, sites like eBay Motors or are a better bet.

Many of the online sites provide services that help consumers search for cars based on their own individual preferences like make, model, mileage, options, color, price, and location. They also provide pictures and sometimes include third party information like loan payment calculators and Kelly Blue Book values.

So far, much of the “online” experience has had limited impact on industry practices because in many ways the online initiatives replicated older methods. For example:

  • So how should it work?

    Let’s say I want to buy a 2012 Acura MDX next week to upgrade from my current 2008 model.

    With TrueCar I know that a good price on a new one with the options I want is $44,800. I also know that the target trade-in price for my existing vehicle is $27,035 according to ClearBook.

    Although cars are close to standard they are not quite and used cars can vary quite a bit in terms of the condition of the vehicle. In fact my car has a small dent in the hood, which is estimated to cost $1,400 to fix. I don’t know how much the dealer would have to pay but it’s a real cost.

    On the financial and insurance side of the coin my insurance would need to be updated so some quotes are needed. And whatever financing options are available should be quoted as well.  At the same time the myriad of add-ons from roof racks to extended warranties should be offered.

    As a consumer I can provide all the parameters and even pre-selet details in terms of color choices. If needed I can also and supply detailed maintenance records and pictures of my existing vehicle.

    Having done all this work I’d want a quote on the whole thing and a date and time when I can come in and make it happen. I’d even be willing to pay something to validate it so the dealer knows I’m not just “tire kicking.”

    On appointment I arrive with my car and a bank check for $19,165 (or less if I’ve opted for and and been approved for financing.) I do most of the “paperwork” online and spend a 1/2 hour signing some things at the dealership and another hour doing my “new vehicle briefing” where they show you how to use the new mind-activated windshield wipers and I’m on my way.

    Craigslist replaced the old classified ads in general and for cars in particular. In the Northeast, people used to get something called the “Pennysaver,” which listed items for sale. Craigslist has taken over but it’s still just a listing tool.

  • Specialty publications like Autotrader have simply gone online and added a “.com” to their business. It’s still fundamentally an ad or listing-based business.
  • eBay Motors is also basically a listings business although they have the added element of auctions which only existed for high-end collector cars. That business is still dominated by the auction houses.
  • Manufacturers were actually the first to embrace online, and companies like BMW displayed some early leadership in communicating with customers and allowing them to create and save their own versions of BMW cars. These are useful but in the end the only option a consumer has to move forward is to have their information fed to a dealer “lead management” system in order to be called and sold to.

In other words, the methods and mechanisms are now online but primarily the same. The consumers and sellers still do the same work and pay the same way.  For example, most new car searching requires a local dealer to respond with a quote. This is where it all breaks down and fails to work. Instead of a simple firm price the consumer faces a delay, after which a deluge of marketing and sales-oriented emails from different dealers appear to explore the “lead.” Consumers, particularly the ones who tend to spend more money, do not want to be subjected to this.

Because lead generation sites sit between consumers and dealers, they tend to block both sides from getting what they want just so they can collect a small fee in the process. Unfortunately, the result is that the lead generator will get a payment but neither the consumer nor the dealer gets what they were seeking. Imagine the case where a consumer is looking at multiple make and model options: every price quote might mobilize a dozen different dealer representatives. The consumer only wants information including pricing, and hasn’t even decided on a make of vehicle. And providing customer name and email might put you in a bad position. The lead generator finds out what kind of money you are likely to spend and could sell the lead for a high price. The dealer who pays for it may do so with the aim of selling at a higher rather than a lower price.

The internet is actually increasing the costs for dealers. Advertising expense per vehicle sold has increased from $314 in 1996 to nearly $600 in 2006. Industry figures for 2007 reflect $13.17b spent on marketing with $2.35b spent online. There are 20,700 auto dealerships in the US but the number is expected to decline over time due to attrition and consolidation.

Dealers hesitate to give a firm price quote online because it weakens their negotiating position. Their real desire is to get a consumer into the dealership. The whole process creates inefficiency and breeds distrust.  The only way to fix this is to start reducing costs that don’t drive sales directly. In other words, paying a fee per sale makes much more sense as long as it is below this $600 figure.

Overall, the process is so bad that consumers are often turning to concierge type services that basically go out and purchase the car for a consumer so they can avoid the entire business. They may not get the absolute best price (because these services charge a fee) but they don’t end up with the worst price and they save time.

There is a trend toward upfront pricing at some organizations like United Auto Group, CarMax, and AutoNation. Lithia is a large dealership that has experimented with clear pricing and even the notion that sales should be replaced with customer specialists. This is similar to what Zappos decided to do in retail with outstanding results.

Some dealers continue to complicate the process by trying to get customers to approach the purchase differently and focus on a “monthly payment threshold” where factors like price, trade-in value, creditworthiness, and financing incentives can be used to control the decision process and avoid a direct price discussion.

Operationally, TrueCar has surpassed 25,000 vehicle sales per month, which puts them in league with the largest auto retail organizations including public companies AutoNation (NYSE: AN $33.50, $7.6B TEV) and CarMax (NYSE: KMX $27.00, $10.4B TEV). To be fair, TrueCar doesn’t sell cars themselves but facilitates the process between buyers and sellers. Depending on the rules and regulations prevailing in each geography they collect success fees or subscription fees for the service.

The car dealers themselves don’t offer the type of secular growth that TrueCar does because the traditional business is mature. Most other leading vehicle retailers have growth rates in the low single digits. Even eBay Motors has been a fairly flat business for the past six quarters at a $2B run rate.

The auto market is so large that there will always be myriad competitors in different segments – new cars, classified listings, auctions, used cars, financing, information & research, insurance, fleet services, etc.

The biggest direct competition for TrueCar is the old way of doing business, which everyone agrees has to change. There are, however, a few existing and potential competitors to TrueCar that are worth a closer look. One is another West Coast startup that is trying to bring a “new model” to the car-buying consumer. In this case, carWoo! is simply acting as an intermediary so a consumer doesn’t have to share their name, email or phone number with the dealers. However, the result is the same as traditional lead generation since the dealers all respond with the same “come on down to the dealership and we’ll talk” approach. CarWoo! also expects consumers to pay a fee to request more bids from dealers. Since a bid is meaningless (not a price certificate), the model seems doubtful.

Detractors and Risk Factors

There has been resistance and controversy around TrueCar that is tied mostly to a misplaced view that the company is somehow “destroying the car business.” Going back to the travel example, we know that companies like Priceline have actually helped the travel industry become more efficient and grow. Similar observations can be made in other industries.

As an innovator and pioneer it’s necessary for TrueCar to deal with the education needed and be flexible about their business practices to ensure that dealers and regulators focus on the long-term and appreciate the value that TrueCar is bringing to the industry.

Most service-oriented businesses don’t like to compete on price. But one must acknowledge that price is a big factor for consumers. Because TrueCar provides price information and also uses dealer-sourced data, the incorrect notion that somehow TrueCar was “using my own data for consumers to negotiate against me” made dealers upset.

As the preceding diagram “How TrueCar Uses Data” shows, TrueCar uses only non-dealer data to generate the price curves that consumers can use to judge how their price stacks up. There are numerous data vendors in the space that aggregate information like retail delivery reports, loan information and insurance policies. Lastly TrueCar also gets some data directly from consumer self-reports of new care purchases.

The dealer-sourced data is limited to what is required to identify referred sales (customer and vehicle information) and kept separate. This data is used to match a dealer sale to a TrueCar lead so the company can invoice and get paid. The sales matching data and supporting process is an operational, not an informational, system.

Actual car sales prices are not hard to come by and the market is far too large and diverse to be “locked down.” So in the end consumers are going to want, and obtain, access to this price data; for dealers, at least TrueCar is on their side. TrueCar only makes money when the dealer is successful.

There are hints that eventually everyone will see to demonstrate that it’s possible to sell to informed car buyers and still be happy and profitable. The fact is that consumers are not homogeneous. People still use local merchants for many purchases while driving to Walmart or Costco for “big shopping.” Even the “cult of Amazon Prime” buyers still enjoy shopping in stores and buying things to take home. By focusing on experience and services, the surviving dealers will thrive.

As we have witnessed with the travel industry, the pricing variety is as great as the different types of travelers. In the case of cars there is always the customer that will take a bus for two days to buy a demo model of a car in an ugly green to get a rock bottom price as well as the female executive who wants sexy black sedan delivered to her house, serviced via pick-up and drop-off from her office (washed and with a full tank every time) from her local dealer. And, of course, there are the millions between the two. They all need to know how much their car is going to cost.

The other area under scrutiny is access to, ownership of, and use of data. Dealers have some data and it gets aggregated to some degree. Some of the controversy above has stemmed from TrueCar “using the dealer’s own data against them,” which is partially true. But auto sales are just that, and the sales data isn’t proprietary. So while car dealers could try to make it more difficult to get data, they can’t keep it from finding its way into the market.

Management, Business Model and Valuation

Many closely associate the founder and CEO, Scott Painter, with the company. Scott has a long history in the industry, which includes the founding of Scott founded Zag in 2005 and TrueCar in 2008 (with co-founder Tom Taira who became Chief Product officer when the two companies were merged into what is now TrueCar in 2010.) Scott’s vision, charisma and passion for improving the industry is well known. The rest of the management team is mature, with many having worked together for years at both TrueCar and prior companies. In addition to earlier auto-related businesses (like Toyota, CarFax, Model E, Zag) résumés include experience at companies like Yahoo!, Fox Networks, Alibaba, Overture, and American Express. Overall, the team appears adequate to handle the current high growth and to continue to improve operating margins.

TrueCar is really a data and online information company, which means they receive increasing returns to scale. It starts with a high gross margin of 80%. This makes it desirable for the company to invest aggressively in growth. Their heavy spending has generated losses, but these have been narrowing and we expect the company to become profitable soon and enjoy improving operating margins that will reach 24% during our forecast period. We expect these margins to continue to go up based on similar models.

Our initial IV model does not fully factor in the Yahoo! transaction, but already yields a valuation over 60% higher than the last funding round. If TrueCar executes well on the Yahoo! opportunity and maintains their high monetization rate, our revenue and IV estimates will be moved up much higher.

We’ve also included two groups of peer companies. Fundamentally, TrueCar fits into a category of “data and internet-focused disruptors” which are shown in one peer group. On average this group generates 69% gross margins and trades at nearly 8x revenues. The other peer group is auto industry companies, mostly dealers and distributors. The conventional auto business is lower gross margin (average 31%) and trades at a much lower 1.3x average ratio of price/sales. It’s worth noting that one company focused on auctions exhibits some features of the internet group and trades at a more respectable 3.9x sales.


The internet wave is coming to the automobile industry and we know that the business processes, practices and financial models are going to change. It’s a safe bet that the consumer is going to be a winner but dealers and manufacturers will also benefit if they face the future and put their time and energy into embrace the changes.

We also know that consumer acquisition costs are going to go down and that increased efficiency will drive more car sales. We expect the best dealers to master the internet over the next few years but progress will be uneven and vary by geography.

TrueCar is a key enabler for this transition and stands to benefit by providing the tools and services that will allow consumers and dealers to do business more easily. Dealers have good back end systems but almost nothing on the front end. TrueCar is a good example of a solution that will enable them to automate and optimize their business. Dealers will lower their selling cost per car, increase inventory turns and sales volumes.

TrueCar will capture a small portion of this efficiency improvement as revenue. Because of the large market size and opportunity in ancillary services (finance, insurance, etc.), they can grow rapidly to public company size and enjoy expanding margins.

Our IV analysis suggests 60% upside to the most recent valuation of the shares.

[1] For more on one way doors –


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this FTC policy addresses unfair competitive advantage being employed by disruptive technology used car sales models

FTC Policy Statement on Unfairness


Appended to International Harvester Co., 104 F.T.C. 949, 1070 (1984). See 15 U.S.C. § 45(n).

The Honorable Wendell H. Ford
Chairman, Consumer Subcommittee
Committee on Commerce, Science, and Transportation
Room 130 Russell Office Building
Washington, D.C. 20510

The Honorable John C. Danforth
Ranking Minority Member, Consumer Subcommittee
Committee on Commerce, Science, and Transportation
Room 130 Russell Office Building
Washington, D.C. 20510

Dear Senators Ford and Danforth:

This is in response to your letter of June 13, 1980, concerning one aspect of this agency’s jurisdiction over “unfair or deceptive acts or practices.” You informed us that the Subcommittee was planning to hold oversight hearings on the concept of “unfairness” as it has been applied to consumer transactions. You further informed us that the views of other interested parties were solicited and compiled in a Committee Print earlier this year.1 Your letter specifically requested the Commission’s views on cases under Section 5 “not involving the content of advertising,” and its views as to “whether the Commission’s authority should be limited to regulating false or deceptive commercial advertising.” Our response addresses these and other questions related to the concept of consumer unfairness.

We are pleased to have this opportunity to discuss the future work of the agency. The subject that you have selected appears to be particularly timely. We recognize that the concept of consumer unfairness is one whose precise meaning is not immediately obvious, and also recognize that this uncertainty has been honestly troublesome for some businesses and some members of the legal profession. This result is understandable in light of the general nature of the statutory standard. At the same time, though, we believe we can respond to legitimate concerns of business and the Bar by attempting to delineate in this letter a concrete framework for future application of the Commission’s unfairness authority. We are aided in this process by the cumulative decisions of this agency and the federal courts, which, in our opinion, have brought added clarity to the law. Although the administrative and judicial evolution of the consumer unfairness concept has still left some necessary flexibility in the statute, it is possible to provide a reasonable working sense of the conduct that is covered.

In response to your inquiry we have therefore undertaken a review of the decided cases and rules and have synthesized from them the most important principles of general applicability. Rather than merely reciting the law, we have attempted to provide the Committee with a concrete indication of the manner in which the Commission has enforced, and will continue to enforce, its unfairness mandate. In so doing we intend to address the concerns that have been raised about the meaning of consumer unfairness, and thereby attempt to provide a greater sense of certainty about what the Commission would regard as an unfair act or practice under Section 5.

This letter thus delineates the Commission’s views of the boundaries of its consumer unfairness jurisdiction and is subscribed to by each Commissioner. In addition, we are enclosing a companion Commission statement that discusses the ways in which this body of law differs from, and supplements, the prohibition against consumer deception, and then considers and evaluates some specific criticisms that have been made of our enforcement of the law.2 Since you have indicated a particular interest in the possible application of First Amendment principles to commercial advertising, the companion statement will include discussions relevant to that question. The companion statement is designed to respond to the key questions raised about the unfairness doctrine. However, individual Commissioners may not necessarily endorse particular arguments or particular examples of the Commission’s exercise of its unfairness authority contained in the companion statement.

Commission Statement of Policy on the Scope of the
Consumer Unfairness Jurisdiction

Section 5 of the FTC Act prohibits, in part, “unfair … acts or practices in or affecting commerce.”3 This is commonly referred to as the Commission’s consumer unfairness jurisdiction. The Commission’s jurisdiction over “unfair methods of competition” is not discussed in this letter.4 Although we cannot give an exhaustive treatment of the law of consumer unfairness in this short statement, some relatively concrete conclusions ran nonetheless be drawn.

The present understanding of the unfairness standard is the result of an evolutionary process. The statute was deliberately framed in general terms since Congress recognized the impossibility of drafting a complete list of unfair trade practices that would not quickly become outdated or leave loopholes for easy evasion.5 The task of identifying unfair trade practices was therefore assigned to the Commission, subject to judicial review,6 in the expectation that the underlying criteria would evolve and develop over time. As the Supreme Court observed as early as 1931, the ban on unfairness “belongs to that class of phrases which do not admit of precise definition, but the meaning and application of which must be arrived at by what this court elsewhere has called ‘the gradual process of judicial inclusion and exclusion.'”7

By 1964 enough cases had been decided to enable the Commission to identify three factors that it considered when applying the prohibition against consumer unfairness. These were: (1) whether the practice injures consumers; (2) whether it violates established public policy; (3) whether it is unethical or unscrupulous.8 These factors were later quoted with apparent approval by the Supreme Court in the 1972 case of Sperry & Hutchinson.9 Since then the Commission has continued to refine the standard of unfairness in its cases and rules, and it has now reached a more detailed sense of both the definition and the limits of these criteria.10


Unjustified consumer injury is the primary focus of the FTC Act, and the most important of the three S&H criteria. By itself it can be sufficient to warrant a finding of unfairness. The Commission’s ability to rely on an independent criterion of consumer injury is consistent with the intent of the statute, which was to “[make] the consumer who may be injured by an unfair trade practice of equal concern before the law with the merchant injured by the unfair methods of a dishonest competitor.”11

The independent nature of the consumer injury criterion does not mean that every consumer injury is legally “unfair,” however. To justify a finding of unfairness the injury must satisfy three tests. It must be substantial; it must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and it must be an injury that consumers themselves could not reasonably have avoided.

First of all, the injury must be substantial. The Commission is not concerned with trivial or merely speculative harms.12 In most cases a substantial injury involves monetary harm, as when sellers coerce consumers into purchasing unwanted goods or servicesl3 or when consumers buy defective goods or services on credit but are unable to assert against the creditor claims or defenses arising from the transaction. 14 Unwarranted health and safety risks may also support a finding of unfairness.15 Emotional impact and other more subjective types of harm, on the other hand, will not ordinarily make a practice unfair. Thus, for example, the Commission will not seek to ban an advertisement merely because it offends the tastes or social beliefs of some viewers, as has been suggested in some of the comments.16

Second, the injury must not be outweighed by any offsetting consumer or competitive benefits that the sales practice also produces. Most business practices entail a mixture of economic and other costs and benefits for purchasers. A seller’s failure to present complex technical data on his product may lessen a consumer’s ability to choose, for example, but may also reduce the initial price he must pay for the article. The Commission is aware of these tradeoffs and will not find that a practice unfairly injures consumers unless it is injurious in its net effects.17The Commission also takes account of the various costs that a remedy would entail. These include not only the costs to the parties directly before the agency, but also the burdens on society in general in the form of increased paperwork, increased regulatory burdens on the flow of information, reduced incentives to innovation and capital formation, and similar matters.18 Finally, the injury must be one which consumers could not reasonably have avoided.19 Normally we expect the marketplace to be self-correcting, and we rely on consumer choice-the ability of individual consumers to make their own private purchasing decisions without regulatory intervention–to govern the market. We anticipate that consumers will survey the available alternatives, choose those that are most desirable, and avoid those that are inadequate or unsatisfactory. However, it has long been recognized that certain types of sales techniques may prevent consumers from effectively making their own decisions, and that corrective action may then become necessary. Most of the Commission’s unfairness matters are brought under these circumstances. They are brought, not to second-guess the wisdom of particular consumer decisions, but rather to halt some form of seller behavior that unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decisionmaking.20

Sellers may adopt a number of practices that unjustifiably hinder such free market decisions. Some may withhold or fail to generate critical price or performance data, for example, leaving buyers with insufficient information for informed comparisons.21 Some may engage in overt coercion, as by dismantling a home appliance for “inspection” and refusing to reassemble it until a service contract is signed.22 And some may exercise undue influence over highly susceptible classes of purchasers, as by promoting fraudulent “cures” to seriously ill cancer patients.23 Each of these practices undermines an essential precondition to a free and informed consumer transaction, and, in turn, to a well-functioning market. Each of them is therefore properly banned as an unfair practice under the FTC Act.24


The second S&H standard asks whether the conduct violates public policy as it has been established by statute, common law, industry practice, or otherwise. This criterion may be applied in two different ways. It may be used to test the validity and strength of the evidence of consumer injury, or, less often, it may be cited for a dispositive legislative or judicial determination that such injury is present.

Although public policy was listed by the S&H Court as a separate consideration, it is used most frequently by the Commission as a means of providing additional evidence on the degree of consumer injury caused by specific practices. To be sure, most Commissi6n actions are brought to redress relatively clear-cut injuries, and those determinations are based, in large part, on objective economic analysis. As we have indicated before, the Commission believes that considerable attention should be devoted to the analysis of whether substantial net harm has occurred, not only because that is part of the unfairness test, but also because the focus on injury is the best way to ensure that the Commission acts responsibly and uses its resources wisely. Nonetheless, the Commission wishes to emphasize the importance of examining outside statutory policies and established judicial principles for assistance in helping the agency ascertain whether a particular form of conduct does in fact tend to harm consumers. Thus the agency has referred to First Amendment decisions upholding consumers’ rights to receive information, for example, to confirm that restrictions on advertising tend unfairly to hinder the informed exercise of consumer choice.25

Conversely, statutes or other sources of public policy may affirmatively allow for a practice that the Commission tentatively views as unfair. The existence of such policies will then give the agency reason to reconsider its assessment of whether the practice is actually injurious in its net effects.26 In other situations there may be no clearly established public policies, or the policies may even be in conflict. While that does not necessarily preclude the Commission from taking action if there is strong evidence of net consumer injury, it does underscore the desirability of carefully examining public policies in all instances.27 In any event, whenever objective evidence of consumer injury is difficult to obtain, the need to identify and assess all relevant public policies assumes increased importance.

Sometimes public policy will independently support a Commission action. This occurs when the policy is so clear that it will entirely determine the question of consumer injury, so there is little need for separate analysis by the Commission. In these cases the legislature or court, in announcing the policy, has already determined that such injury does exist and thus it need not be expressly proved in each instance. An example of this approach arose in a case involving a mail-order firm.28 There the Commission was persuaded by an analogy to the due-process clause that it was unfair for the firm to bring collection suits in a forum that was unreasonably difficult for the defendants to reach. In a similar case the Commission applied the statutory policies of the Uniform Commercial Code to require that various automobile manufacturers and their distributors refund to their customers any surplus money that was realized after they repossessed and resold their customer’s cars.29 The Commission acts on such a basis only where the public policy is suitable for administrative enforcement by this agency, however. Thus it turned down a petition for a rule to require fuller disclosure of aerosol propellants, reasoning that the subject of fluorocarbon safety was currently under study by other scientific and legislative bodies with more appropriate expertise or jurisdiction over the subject.30

To the extent that the Commission relies heavily on public policy to support a finding of unfairness, the policy should be clear and well-established. In other words, the policy should be declared or embodied in formal sources such as statutes, judicial decisions, or the Constitution as interpreted by the courts, rather than being ascertained from the general sense of the national values. The policy should likewise be one that is widely shared, and not the isolated decision of a single state or a single court. If these two tests are not met the policy cannot be considered as an “established” public policy for purposes of the S&H criterion. The Commission would then act only on the basis of convincing independent evidence that the practice was distorting the operation of the market and thereby causing unjustified consumer injury.


Finally, the third S&H standard asks whether the conduct was immoral, unethical, oppressive, or unscrupulous. This test was presumably included in order to be sure of reaching all the purposes of the underlying statute, which forbids “unfair” acts or practices. It would therefore allow the Commission to reach conduct that violates generally recognized standards of business ethics. The test has proven, however, to be largely duplicative. Conduct that is truly unethical or unscrupulous will almost always injure consumers or violate public policy as well. The Commission has therefore never relied on the third element of S&H as an independent basis for a finding of unfairness, and it will act in the future only on the basis of the first two.

We hope this letter has given you the information that you require. Please do not hesitate to call if we can be of any further assistance. With best regards,

/s/Michael Pertschuk Chairman

/s/Paul Rand Dixon Commissioner

/s/David A. Clanton Commissioner

/s/Robert Pitofsky Commissioner

/s/Patricia P. Bailey Commissioner


1Unfairness: Views on Unfair Acts and Practices in Violation of the Federal Trade Commission Act (1980) (hereinafter referred to as “Committee Print”).

2Neither this letter nor the companion statement addresses ongoing proceedings, but the Commission is prepared to discuss those matters separately at an appropriate time.

3The operative sentence of Section 5 reads in full as follows: “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful.” 15 U.S.C. 45(a)(1).

4In fulfilling its competition or antitrust mission the Commission looks to the purposes, policies, and spirit of the other antitrust laws and the FTC Act to determine whether a practice affecting competition or competitors is unfair.See, e.g., FTC v. Brown Shoe Co., 384 U.S. 316 (1966). In making this determination the Commission is guided by the extensive legislative histories of those statutes and a considerable body of antitrust case law. The agency’s jurisdiction over “deceptive acts or practices” is likewise not discussed in this letter.

5See H.R. Conf. Rep. No. 1142, 63d Cong., 2d Sess., at 19 (1914) (If Congress “were to adopt the method of definition, it would undertake an endless task”). In 1914 the statute was phrased only in terms of “unfair methods of competition,” and the reference to “unfair acts or practices” was not added until the Wheeler-Lee Amendment in 1938. The initial language was still understood as reaching most of the conduct now characterized as consumer unfairness, however, and so the original legislative history remains relevant to the construction of that part of the statute.

6The Supreme Court has stated on many occasions that the definition of “unfairness” is ultimately one for judicial determination. See, e.g., FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 249 (1972); FTC v. R..F. Keppel & Bro.,291 U.S. 304, 314 (1934).

7FTC v. Raladam Co., 283 U.S. 643, 648 (1931). See also FTC v. R.F. Keppel & Bro., 291 U.S. 304, 310 (1934) (“Neither the language nor the history of the Act suggests that Congress intended to confine the forbidden methods to fixed and unyielding categories”).

8The Commission’s actual statement of the criteria was as follows:

(1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-whether, in other words, it is within at least the penumbra of some common- law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen).

Statement of Basis and Purpose, Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8355 (1964).

9FTC v. Sperry & Hutchinson C.., 405 U.S. 223, 244-45 n.5 (1972). The Circuit Courts have concluded that this quotation reflected the Supreme Court’s own views. See Spiegel, Inc. v. FTC, 540 F.2d 287, 293 n.8 (7th Cir. 1976);Heater v. FTC, 503 F.2d 321, 323 (9th Cir. 1974). The application of these factors to antitrust matters is beyond the scope of this letter.

10These standards for unfairness are generally applicable to both advertising and non-advertising cases.

1183 Cong. Rec. 3255 (1938) (remarks of Senator Wheeler).

12An injury may be sufficiently substantial, however, if it does a small harm to a large number of people, or if it raises a significant risk of concrete harm.

13See, e.g., Holland Furnace Co. v. FTC, 295 F.2d 302 (7th Cir. 1961) (seller’s servicemen dismantled home furnaces and then refused to reassemble them until the consumers had agreed to buy services or replacement parts).

14Statement of Basis and Purpose, Preservation of Consumers’ Claims and Defenses, 40 Fed. Reg. 53,506, 53522-23 (1975).

15For an example see Philip Morris, Inc., 82 F.T.C. 16 (1973) (respondent had distributed free-sample razor blades in such a way that they could come into the hands of small children) (consent agreement). Of course, if matters involving health and safety are within the primary jurisdiction of some other agency, Commission action might not be appropriate.

16See, e.g., comments of Association of National Advertisers, Committee Print at 120. In an extreme case, however, where tangible injury could be clearly demonstrated, emotional effects might possibly be considered as the basis for a finding of unfairness. Cf. 15 U.S.C. 1692 et seq. (Fair Debt Collection Practices Act) (banning, eg., harassing late-night telephone calls).

17See Pftzer, Inc., 81 F.T.C. 23, 62-63 n. 13 (1972); Statement of Basis and Purpose, Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures, 43 Fed. Reg. 59614, 59636 n.95 (1978).

When making this determination the Commission may refer to existing public policies for help in ascertaining the existence of consumer injury and the relative weights that should be assigned to various costs and benefits. The role of public policy in unfairness determinations will be discussed more generally below.

18For example, when the Commission promulgated the Holder Rule it anticipated an overall lowering of economic costs to society because the rule gave creditors the incentive to police sellers, thus increasing the likelihood that those selling defective goods or services would either improve their practices or leave the marketplace when they could not obtain financing. These benefits, in the Commission’s judgment, outweighed any costs to creditors and sellers occasioned by the rule. See Statement of Basis and Purpose, Preservation of Consumers’ Claims and Defenses, 40 Fed. Reg. 53506, 53522-23 (1975).

19In some senses any injury can be avoided–for example, by hiring independent experts to test all products in advance, or by private legal actions for damages-but these courses may be too expensive to be practicable for individual consumers to pursue.

20This emphasis on informed consumer choice has commonly been adopted in other statutes as well. See, e.g.,Declaration of Policy, Fair Packaging and Labeling Act, 15 U.S.C. 1451 (“Informed consumers are essential to the fair and efficient functioning of a free market economy”.)

21See, e.g., Statement of Basis and Purpose, Labeling and Advertising of Home Insulation, 44 Fed. Reg. 50218, 50222-23 (1979); Statement of Basis and Purpose, Posting of Minimum Octane Numbers on Gasoline Dispensing Pumps, 36 Fed. Reg. 23871,23882 (1971). See also Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976).

22See Holland Furnace Co. v. ETC, 295 F.2d 302 (7th Cir. 1961); cf Arthur Murray Studio, Inc. v. EW, 458 F.2d 622 (5th Cir. 1972) (emotional high-pressure sales tactics, using teams of salesmen who refused to let the customer leave the room until a contract was signed). See also Statement of Basis and Purpose, Cooling-Off Period for Door-to-Door Sales, 37 Fed. Reg. 22934, 22937-38 (1972).

23See, e.g., Travel King, Inc., 86 F.T.C. 715, 774 (1975). The practices in this rase primarily involved deception, but the Commission noted the special susceptibilities of such patients as one reason for banning the ads entirely rather than relying on the remedy of fuller disclosure. The Commission recognizes that “undue influence” in advertising and promotion is difficult to define, and therefore exercises its authority here only with respect to substantial coercive-like practices and significant consumer injury.

24These few examples are not exhaustive, but the general direction they illustrate is clear. As the Commission stated in promulgating its Eyeglasses Rule, the inquiry should begin, at least, by asking “whether the acts or practices at issue inhibit the functioning of the competitive market and whether consumers are harmed thereby.” Statement of Basis and Purpose, Advertising of 0phthalmic Goods and Services, 43 Fed. Reg. 23992,24001 (1978).

25See Statement of Basis and Purpose, Advertising of ophthalmic Goods and Services, 43 Fed. Reg. 23992,24001 (1978), citing Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976).

26Cf. Statement of Basis and Purpose, Advertising of ophthalmic Goods and Services, supra; see also n.17 supra.

27The analysis of external public policies is extremely valuable but not always definitive. The legislative history of Section 5 recognizes that new forms of unfair business practices may arise which, at the time of the Commission’s involvement, have not yet been generally proscribed. See page 4, supra. Thus a review of public policies established independently of Commission action may not be conclusive in determining whether the challenged practices should be prohibited or otherwise restricted. At the same time, however, we emphasize the importance of examining public policies, since a thorough analysis can serve as an important check on the overall reasonableness of the Commission’s actions.

28Spiegel, Inc. v. FTC, 540 F.2d 287 (7th Cir. 1976). In this case the Commission did inquire into the extent of the resulting consumer injury, but under the rationale involved it presumably need not have done so. See also FTC v. R.F. Keppel & Bro., 291 U.S. 304 (1934) (firm had gained a marketing advantage by selling goods through a lottery technique that violated state gambling policies); cf. Simeon Management Corp., 87 F.T.C. 1184, 1231 (1976), aff’d, 579 F.2d 1137 (9th Cir. 1978) (firm advertised weight-loss program that used a drug which could not itself be advertised under FDA regulations) (alternative ground). Since these public-policy cases are based on legislative determinations, rather than on a judgment within the Commission’s area of special economic expertise, it is appropriate that they can reach a relatively wider range of consumer injuries than just those associated with impaired consumer choice.

29A surplus occurs when a repossessed car is resold for more than the amount owed by the debtor plus the expenses of repossession and resale. The law of 49 states requires that creditors refund surpluses when they occur, but if creditors systematically refuse to honor this obligation, consumers have no practical way to discover that they have been deprived of money to which they are entitled. See Ford Motor Co., 94 F.T.C. 564, 618 (1979)appeal pending, Nos. 79-7649 and 79-7654 (9th Cir.); Ford Motor Co.,93 F.T.C. 402 (1979) (consent decree);General Motors Corp., D. 9074 (Feb., 1980) (consent decree). By these latter two consent agreements the Commission, because of its unfairness jurisdiction, has been able to secure more than $2 million for consumers allegedly deprived of surpluses to which they were entitled.

30See Letter from John F. Dugan, Acting Secretary, to Action on Smoking and Health (January 13, 1977). See also letter from Charles A. Tobin, Secretary, to Prof. Page and Mr. Young (September 17,1973) (denying petition to exercise § 6(b) subpoena powers to obtain consumer complaint information from cosmetic fu-ms and then to transmit the data to FDA for that agency’s enforcement purposes).

what language do they speak ???

Term Definition
ACV Actual Cash Value of a trade-in.
Back-End Profit generated from a car deal other than the amount between dealers cost and the selling price.  Usually from Financing.
Be-Back-Bus Describing an imaginary vehicle that will magically deliver all the customers that promised they would be back.
Be-Backs A customer that promises the salesperson that they will be back.
Bubble A purposely low price or payment given to a customer to prevent the customer from buying elsewhere.
Builder A vehicle in very poor condition.
Bump When a customer increases their offer during the negotiation.
Buried Describes a customer who owes far more than their trade-in vehicle is worth.
Butter-Nose The act of convincing a customer to keep his trade while still buying a new car.
Closer An experienced salesperson that is brought in to complete the negotiation.
Cream-Puff A vehicle in excellent condition.
CSI “Customer Satisfaction Index”. A dealership and salesperson rating system measuring the customers buying experience.
Curbing When a salesperson is selling cars outside of the dealership in which they are employed. Often by negotiating secretly with the customers they meet at the dealership.
Desk The sales manger.
Ether The customers excitement of a new car purchase.
F&I “Finance and Insurance” the department that arranges the financing and signs the paperwork.
Finance-Reserve Profit made by the car dealer when they charge the customer a higher rate or a leasing money-factor.
Front-End Profit made from the sale of a vehicle that is base on the vehicle cost.
Gold-Balls Describing a customer with excellent credit.
Green-Pea A new inexperienced salesperson.

Gypsy A wholesaler that buys used cars from a dealership.
Hanger-Queen Describes “burnt-out” salesperson that rarely talks to customers.
Hanging-Paper When the dealership (usually the F&I manager) convinces a bank to finance a customer with marginal credit.
Jick Describing a salesperson or customer that is untruthful.
Killing-Bugs Described a vehicle that is sold.
Kink Salesperson that steals deals from their colleagues.
LA&H Life, Accident and Health Insurance.
Lay-down An easy customer that pays full price.
Leg Amount of money in a monthly payment over the agreed upon purchase price that allows the “F&I” department to increase their profit.
Liner A Salesman,  “on the front lines”
Mini Minimum commission that is paid to the salesperson when there isn’t enough profit in the deal to pay a percentage.
Monroney The window sticker produced by the factory on a new car.  Named after Senator Mike  Monroney who sponsored legislation in 1958 requiring discloser of content, mileage and options on a new car’s price sticker.
Mooch A customer that makes unreasonable offers.
Mop-and-Glow Refers to a paint sealant that is sold as an accessory.
Mouse-House A secondary finance source usually at a high interest rate used to borrow additional money for a down payment.
Nickel Five Hundred Dollars.
Pack Amount a dealer adds to their invoice cost.
Pencil A written counter offer from the sales manager.
Phone-Pop An incoming sales phone call.
Play-House-90 When the salesman is acting. Like when a salesperson pretends to have a difficult time convincing the Sales Manager to discount a car.
Term Definition
Point Describes a good location at the dealership for salesmen to meet customers.
Pounder Represents a $1000 in profit. A “two-pounder” is $2000, Etc.
Rat Describes a vehicle in poor condition.
Roach A customer with bad credit.
Roasted-the-app The act of changing the customer’s information on their credit application to make it more favorable to the lender.  Also, can mean to critique the application with the customer to improve the “closing” environment.
Second-Baseman A person that helps a customer negotiate the deal.
Sideways Describes a customer reversing  their commitment to purchase a car.
Skate When a salesman steals another salesman’s customer.
Sled A vehicle in poor condition.
Slide-Rule A cautious customer that constantly double checks the pricing during the negotiation and does extensive research.
Sneakers Tires.
Spiff Extra bonus paid to a salesperson.
Spoon A free deal given to a salesperson from the sales manager
Stroke A customer that wastes time visiting a dealership with no plan of buying a car.
Strong Describes a skilled salesperson.
tripped Reported the vehicle as sold to the factory and DMV.
Trunk-money Describes factor to dealer incentives that are not advertised to the buyer.  Because they are not known to the customer, they are “hidden in the trunk”.
Turn When a salesman introduces the customer to another salesman. Usually occurs when original the salesman is unable to sell a car.
Under-Allowance When a dealer tells the customer their trade-in is worth less than it’s actual cash value.
Up A customer. Or to meet a customer
Uped To greet a customer.
Upped The act of meeting a customer for the first time.
Ups Customers.
Upside-Down Negative equity in a car.
Walk-Around The act of demonstrating the features of a vehicle as you “walk around” the car
Wash-Out-Check Commission check paid at the end of the month.
Weak Describes an ineffective salesperson.
Whiskers Describes a car that has been the the dealer’s inventory for a long time.
Wrench A Service technician or repairman.
Wrinkle Dent or body damage on a vehilce.
Write-Up The document and technique used to produce an offer from a customer.

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Beepi was founded last year by Alejandro Resnik, MIT ’13, and Omer Savir, Stanford ’13. We’re post Series-A (with a top-tier VC firm), and our angel investors include Fabrice Grinda ( and Jose Marin, GSB MBA ’97. If you want to be blown away by Beepi’s awesomeness, visit

Job Description

You can cut through legal jargon like a surgeon. You’re a master of maneuvering through red tape. You’re an experienced government-relations specialist who’s ready to help Beepi spread nationwide! There will come a day when there are Beepi cars motoring about in all fifty states (and even beyond!), but in order to get there we need to work together with government agencies, especially the Department of Motor Vehicles. You will be our tireless advocate and defender in the face of a tangled web of regulations.


  • Coordinate with government agencies to advocate for Beepi and to understand the best way to help Beepi comply with national and local regulations.
  • Stay constantly up to date on all legal and regulatory issues that may effect Beepi’s operations.
  • Proactively pursue new practices to minimize the friction in Beepi users’ interaction with the DMV.


  • Masters level degree in relevant field.
  • Minimum of three years working experience in government relations.
  • Must have endless determination. Never take “No” for an answer.
  • Must have boundless energy.
  • Must be passionate about the disruption of the current automotive industry.
  • Must have sharp attention to detail.
  • Must work well with others and understands what it means to be a team player.

Additional Information

Oh, yes, the perks:

  • A fast-paced startup experience in a high growth company. What more could you want?
  • Work with an astonishing team who will fight beside you in the trenches to accomplish the amazing.
  • Super-competitive salary, benefits.
  • Obligatory startup ping pong table and enjoy weekly happy hours with the team (because what self-respecting startup doesn’t offer that?).
  • And everyone matters, no matter what your role is!

file your DBA online to get your car dealer license


once you have taken the car dealer class

once you have met with the dmv inspector and passed the test

you will download the dmv car dealer application

all owners of the dealership must:

take the class

pass the test

and be listed on the car dealer application

all owners must be listed on the DBA


filing a DBA ( doing business as )

is required by the DMV to complete

your car dealer license application


you will need the DBA to open a car dealer bank account


you will need to present it to the dmv inspector

good luck



get your car dealer bond quickly


Car Dealer Bond FAQ…

What is a dealer bond?

The car dealer bond protects your customers against fraudulent or unethical actions by a dealer. The bond assures the dealer is financially secure in cases where a customer is cheated by a dealer. The DMV and flooring company can also make claims against this dealer bond.

Can I make a down payment and then pay monthly for the dealer bond?




for the best rates on a car dealer bond

Ask about our 30% down payment option.

All surety bond carriers ask for payment of the bond in full,

however Your Car Dealer Bond

has set up a financing program to give

California dealers access to a payment plan for their DMV bond.

The DMV needs the OL-25 form signed – what is this and where do I get it?

The OL 25 is your surety dealer bond.

The original bond that will be sent from your bond carrier will meet this requirement.

How long does it take to receive the initial dealer bond quote?

Approximately 24 hours,

unless your FICO score is below 650.

Then the process usually takes 2 days.

How long does it take to receive the

originally-signed dealer bond needed to obtain my license?

From the time we receive your payment,

it’s typically a week to 10 days

before your receive your bond in hand

depending on where you are located in the country.

We’ve invested in check-by-fax and check-by-email to help expedite our service.

What if I have had some credit issues (bankruptcies, short-sales, foreclosures, etc.)

Most dealers these days have encountered credit issues of some sort.

We have the most competitive surety carriers for all credit levels

so no worries if your credit is less than perfect!

I started with a $10,000 bond because I am a wholesale dealer

and thought I would sell 24 vehicles or less per year.

Will the surety company increase the limit of my bond from $10,000 to $50,000

for additional premium if I will

sell 25 or more cars or I want to retail or auto broker?

Unfortunately not. Once your DMV inspector accepts your bond


issues your dealer license,

the surety company will not make any refunds whatsoever.

The $10,000 bond would have to be canceled and a $50,000 bond

would need to be written without a credit or refund.

Can I pay with a credit card?

You sure can.

For your convenience, we accept Visa, Mastercard, Discover, and American Express.

A standard convenience charge of 5% will be applied.

While we hope you don’t need to incur this additional expense,

some of our customers have found this option extremely helpful.

More Important Info

about Your Car Dealer Bond…

RIDER Process: needing a rider can be very frustrating if it’s only needed because your app was incomplete or something was incorrect. One of most common reasons for a rider that we see is the dealer forgot to put his middle name on the app. The cost is $100 and having to go through this process will add on 2 – 3 weeks to the time before you can be licensed. We are here to help and would rather spend 10 minutes answering your questions to provide you with the best possible experience with respects to your bond acquisition.

The two (2) most time-consuming steps of the car dealer licensing process are:

  • getting the LiveScan fingerprints into the Department of Justice system. This takes about 45 days and costs about $70; and
  • forming a corp. or LLC (if applicable). This also takes about 45 – 60 days, although the Secretary of State offers an expedited service for about $375 vs. about $100.

dlr plate

free car dealer website from

( $ 500 VALUE )
A Car Dealer Website
Will help you sell more cars!

To remain competitive in the used car marketplace you need to have an online presence. We make it easy to do so. Get a dealer website, put your cars online, spread the word about who you are and what you sell.

Our out of the box dealer website solution requires absolutely no work on your part and appropriate customizations are handled by our staff. For dealers that want to dig a little deeper and get more involved, your dealer site is customizable by you with just a few clicks. The site style, the content, the header design, the cars that rotate and appear in the header, the background colors, the keywords, the page descriptions, the page titles, the search engine optimization – it’s all in your hands if you want to take the reins. If not, it’s taken care of for you by our staff.

You can load your inventory into Dealer Jump by deocding each VIN and clicking 1 button to add up to 100 pictures from your computer. Before you know it you’ll start gaining visibility online, generating more traffic, talking to more leads, and selling more cars!

It’s no surprise that auto dealers with a dealer website sell more vehicles than their competition without one. As a dealer you need to promote your business by displaying your vehicle inventory online. You’ll reach people you never knew were your customers and you’ll gain business credibility. We’ll provide you with a cutting edge design for your dealership that encourages customer interaction.

Summary of our dealer website offering:
  • Clean, easy navigation so users can browse your inventory and find the car they’re looking for
  • Phone number present on every page so site visitors can call you easily
  • A contact form on each vehicle page so site visitors can write to you with inquiries because not every person wants to pick up the phone. Sometimes it’s easier to just type a simple question and click SEND.
  • Clear display of the vehicles in your inventory with pictures and other pertinent details.
  • A location map so site visitors can figure out how to get to your lot and visit you in-person if they like what they see online
  • Search engine optimized pages that get indexed and organically placed in the search results of the majr search engines
  • Load dozens of pictures from your camera or computer (max 100) for each vehicle with 1 click
  • Decode the VIN of your vehicles and load them on your website in seconds.
  • Be up and running, live and online within a couple days.
  • We buy your domain name and provide the hosting
  • We provide you with a real email address that ends in your domain so you can look more credible and professional. Instead of a yahoo, gmail, hotmail, live, msn or other free email account, you can gain credibility with an e-mail address that is a part of your web domain (i.e.

Every dealer has a competitive advantage and a reason or two why the consumer should spend money in their dealership and not the other dealers down the block, but remember that no matter how many reasons you give your customer to buy a car from you, consumers have choices. There is great value in a customer having a good experience with you both online and in-person. So get started with a website for your auto dealership and get yourself out there. Make in impact. Showcase your inventory. Get more leads and sell more cars.

The sites we design for dealers are to-the-point and get the job done. Dealers all over the United States are enjoying using our dealer websites. Each site is designed to engage your customer and to convert them from just a website visitor into a web lead. You’ll have site visitors writing to you and calling you

Get a dealer website and sell cars online

To get started with a new dealer website for your business, click here >>

car dealer license training in spanish now available from

we are the leaders in

dmv certified car dealer education


in response to high demand

we are now offering a spanish language car dealer class

in modesto at crows landing for those who prefer a spanish teacher

we offer a downloadable spanish handbook after the class

Click here for Crows Landing class dates

you may call the instructor direct

Jorge Elizalde

El Tio Auto Sales



cheat the government…..go to prison

Prison Time For Two Car Dealership Owners Convicted For Bank Fraud

October 01, 2013

A joint investigation including DMV and DOJ

Two Modesto brothers, owners of several car dealerships in Stanislaus and Merced Counties, are heading to prison for more than four years each as a result of their conviction for conspiring to commit bank fraud.

“These men, along with several of their employees falsified the information of potential car buyers in order for the potential buyers to acquire financing,” said Alan Barcelona, president of the California Statewide Law Enforcement Association (CSLEA).  “Our CSLEA members who are investigators with the Department of Motor Vehicles (DMV) and special agents with the Department of Justice (DOJ) investigate these types of crimes in which unscrupulous people put their own financial gain over the law and over unsuspecting consumers who would not have qualified for loans in the first place.”

Together, the FBI, DOJ and DMV Investigations Division conducted a lengthy investigation into the actions of Abdel Jawad, aka Fred Jawad, 38,  and his brother Abdul Jawad, aka Manny Jawad, 39.

The two men  were found guilty after a three-day trial by a federal jury in January 2013. According to evidence presented at trial, the Jawad brothers owned and operated various used automobile dealerships including Own-A-Car, The Auto Store, and Auction 2 U in Modesto. Employees of the dealerships would help  customers to find a vehicle to purchase. Many of the  customers, however, were unable to qualify for a vehicle loan.   The Jawads, and others acting at their direction and on their behalf, conspired to assist the customers in preparing misleading and false financial information for submission to a financial institution in order to obtain financing.

In some instances the defendants conspired to enter fictitious information on loan applications including the names of employers for whom the customers did not work, or, if the customers were employed, inflated earnings amounts. Some of the customers signed these loan applications, while others had no knowledge of how their signatures appeared on the applications.

Because of the defendants’ conduct, financial institutions approved loans to customers who otherwise should not have received financing. As customers were approved for loans, the dealerships received the money as payment for the purchased vehicles.

The two Jawad brothers were sentenced to prison for more than four years each  and ordered to pay approximately $601,000 in restitution to the victims of their fraud.  The pair were ordered to surrender on November 18, 2013 to begin serving their sentences.

Three other defendants in this case have been sentenced after pleading guilty. Armando Fathic Abdallah was sentenced March 4, 2013, to 18 months in prison. Hussein Ali was sentenced to 27 months in prison on March 18, 2013, and Husam Sarama was sentenced in February 19, 2013 to three months in prison.