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Why TrueCar's IPO Looms as a Bear-Market Test

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NEW YORK (TheStreet) -- I stumbled across TrueCar twice -- both times unexpectedly -- during the last two weeks.

The first was when I went car shopping, and the fast-growing Internet car-buying service turned up at the top of Google results for "Hyundai Sonata hybrid pricing." The next was when I saw that Santa Monica, Calif.-based TrueCar is going public in a deal expected to price this week.

I loved TrueCar the first time. Meaning, the service is a winner with a lot of promise. I like the deal, too -- but in a much more qualified way.

TrueCar is a pretty solid-looking company going public at a time when it is growing fast and has just started making positive cash flow -- typically the best time to catch a startup on the rise.

But it's going public at a time when the market is wary of IPO candidates that make little, if any, money, which could limit the stock's short-term prospects. After all, more than half of this year's IPOs are below their debut prices, which in TrueCar's case is expected to be between $12 and $14 a share.

Put them together, and the TrueCar deal may tell us what kind of market -- fearful or greedy? -- we really have right now.

TrueCar is something like the next generation of what Auto-by-Tel and set out to become -- a combination of buying service that organizes car dealers to honor the so-called "TrueCar price" and the database on new-car transactions and prices that let TrueCar make a smart market that saves consumers money.

The company claims that by making pricing more transparent, it can help dealers build customer trust and help consumers by delivering low prices without negotiating.

Dealers, theoretically, make up any price concessions in volume, sales of financing and maintenance business, and volume incentives from manufacturers.

Consumers seem to like the idea. TrueCar gets most of its revenue from collecting $299 per car its customers buy from the dealer. Unlike with lead-generation car pricing Web sites in earlier Web times, it doesn't get paid just for delivering the customer's e-mail address and phone number.

The company claims that it is now involved in about 3.2% of U.S. new car sales, and says it has delivered $3 billion in savings to consumers.