Saturday, February 11, 2012

TrueCar vs. "I'll check with the manager"

Automobiles are mass produced by a limited number of sellers, but historically pricing has been far from transparent.  The sticker price is taken as an upper limit (although there are sometimes two stickers: one from the manufacturer and one from the dealer) and it is up to the individual customer to negotiate something lower.  Some people hate to negotiate and thus pay top dollar.  Others relish the process and sometimes can buy at well below dealer cost (once the car is on the lot, the cost to the dealer is sunk so the salesperson will take the best price they think is attainable in the market -- as MBA 505 students all know). I always use it as my first example of first degree price discrimination. 

Recently has emerged as a useful intermediary.  Potential buyers register at the site and get data on the dealer's true cost along with a guaranteed price from dealers in their area.  Dealers pay $299 to TrueCar for each lead that becomes a sale; customers get multiple bids they can use as leverage before they even enter a showroom.  (I used it recently; the only downside is a continued stream of junk emails from the dealers.)  Of course some dealers are less than delighted with this arrangement, as noted in a story in today's NYT

Ultimately one must wonder when a car company will decide to buy out its dealers and revolutionize the retail process.  You would have showrooms with a limited number of demos; after a test drive, customers would order exactly what they want on the web. 


  1. Very interesting post. The internet is indeed the great leveler. As a Brit living for awhile in the States, I am amazed at Americans' capacity for continuously coming up with new and interesting ways to use the internet to simplify various industries and cut out the middleman. Just as an example, my wife recently showed me this site called "Air B and B" (or something along those lines) that allows people to work directly with each other to rent out their rooms, houses etc. There are other sites like this as well. Anyone who works in an industry in an intermediary function - such as a real estate broker - would be wise to consider how they could eventually get cut out of the business they are inter mediating.

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