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What’s The Point of a “Fair” Price for a New Car?

What’s The Point of a “Fair” Price for a New Car? post image

I was watching TV a few nights ago and up popped an advertisement for the TrueCar car-buying service. I was struck by the shift in terminology compared to previous TrueCar commercials—they now promote a “fair” price instead of touting great deals or big savings. The commercial implies that the dealer and the buyer magically agree on a mythical “fair” price. The dealer is happy, the buyer is happy, and all hassle and haggling is eliminated.

The reality is that this “fair” price is simply whatever a particular dealer will guarantee to TrueCar customers, and the company is hoping we’ll be OK with that. A “fair” price is likely not the dealer’s best price, and it’s certainly not the best market price. It may, in fact, be thousands of dollars higher.

So what’s the point of this carefully chosen terminology? Actually, it’s all about the car dealers.

Car-buying sites like TrueCar, Edmunds.com, and Kelly Blue Book (and many others) make the lion’s share of their revenue by referring potential car buyers (or “leads”) to dealers for a fee. The bottom line is that these companies would cease to exist without the fees paid by dealers. The auto industry has boomed over the last five years, and as it has grown, car dealers have become increasingly demanding of these lead generating businesses.

The most visible example is the 2012 dealer boycott of TrueCar. Dealer’s felt that TrueCar was, in effect, driving down prices and reducing profit. The dealer boycott pushed the company to the brink of bankruptcy and didn’t ease up until TrueCar adjusted their business model to be more dealer friendly. The shift toward dealers was evident in a recent briefing to investors by the new TrueCar CEO, Chip Perry:

…We evolved through all of these different stages in my old life and when you look at the customer support and service model, how well is it set up to scale? It wasn’t at TrueCar before. It is starting to get set up better now. We are creating a service team and a sales and service model with content delivery by salespeople and service people that it enables dealers to get better service and improve their performance…

Even Edmunds.com, considered to be consumer friendly (by both consumers and the auto industry), has made a visible shift toward dealers. When I published the book Power Shift in November of 2013, I included the following mission statement from Edmunds.com:

To empower automotive consumers by providing complete, clear, timely, accurate and unbiased information needed to make informed purchase and ownership decisions.

Impressively consumer focused, right? Unfortunately, that mission statement seems to be either abandoned, or “papered over” with new content.

If you go to the Edmunds.com About Us page today, you’ll find the following opening statement:

Hello, and welcome to Edmunds.com! We’re proud of the hard work we do, both for car shoppers and with the good people of the automotive industry….

Given the dependency on dealers, and the growing revenue potential, I suppose the shift toward dealers shouldn’t come as a surprise. However, these businesses are also gambling that consumers will go along for the ride. The bet is that consumers so dislike the typical car buying process that they are willing to pay a premium (“fair”) price for a better experience.

Only time will tell if their gamble will pay off.

My prediction is that consumers will become increasing aware of just how easy it is to get a better buying experience without the price compromise of car-buying services. If that happens, car-buying sites, once again, will have to adjust their business models to survive.

How about you? What do you think about car-buying services? Are they here to stay, or simply a passing fad? Have you used a service, and would you do it again? Comment below and let us know!

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