Michigan dealer is first in U.S. to offer Groupon deal
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Chicago-based Groupon - testing America's appetite for bigger online deals - offered its first voucher on a new car or light truck today at a Michigan dealership.
The company, already known for popular restaurant and hotel vouchers, launched its first auto dealership deal at LaFontaine Buick GMC Cadillac in Highland Township, Mich.
Robert Milner, general sales manager at the dealership, said he was a little reluctant to be the first dealer in the country to try the Groupon deal but likes the idea of setting a precedent.
"We're dipping a toe in it," he said.
Consumers spend $199 for a voucher worth $500 toward the purchase of a car, redeemable this year. LaFontaine and Groupon split the consumer's money.
Between giving up $300 to consumers and $100 to Groupon, each sale will cost the dealership $400.
Unsure of how much demand there will be, LaFontaine capped the deal at 150 vouchers, Milner said.
"But if I get 150 people and it costs $400 per commitment, I'm all in on that," he said.
Milner said the typical advertising expense per car is $350 to $400, putting the Groupon cost in line with budgeted expenses.
Groupon, in a statement issued through its Chicago-based public relations firm SS PR, said car dealerships are a next step for the company.
"Since the beginning, Groupon's goal was to give service and structure out of the norm to local businesses so that local users would be able to shop with a discount," the statement said. "Groupon started with local businesses and went to spas and hotels. We thought the next step would be to go to a car dealership."
With the deal running for the rest of today and into Wednesday, Milner said it's too early to say whether the strategy will work. If the deal goes well, he said, he'll consider proposing it for other dealerships within the 14-franchise LaFontaine Automotive Group.
Groupon, with more than 80 million members, typically takes 50 percent of revenue generated by deals. Branching out into bigger purchases means that 50 percent cut will be bigger in dollar terms.
"The prospect of opening up markets like new cars and leases is attractive," said Ben Edelman, an associate professor at Harvard Business School who has been critical of Groupon. "To the extent they can still take 50 percent revenue share that's more money."
Groupon has done some other big-ticket deals recently, such as $500 off closing costs for real estate purchases, Edelman noted.
The car offering may be more problematic, he added.
"This voucher is for a very small portion of the cost of a car or lease, so it's basically an agreement to buy or lease a car from LaFontaine," Edelman said. "That's poor negotiating because the dealer could take advantage of that by offering the same car for more money."
In many Groupon offers, like restaurants and spas, prices are posted already, so customers know what they are getting, Edelman noted. In the case of the car voucher, it may not be clear what the discount will be applied to, he explained.
"They need to fix that before this part of the model can take off," Edelman said.
Reuters contributed to this report
You can reach Daniel Duggan at dduggan@crain.com.
