Groupon vouchers for cars? No
Why dealership discount deal flopped
The Groupon juggernaut rolled into auto retailing last week, and dealers around the nation watched intently to see whether the online coupon phenomenon could drive herds of shoppers into showrooms.
So far, no.
Only four consumers agreed to pay $200 for a $500 discount voucher on a new-vehicle purchase at LaFontaine Buick-GMC-Cadillac in Highland, Mich. Groupon and LaFontaine had set 10 as the minimum required for the vouchers to be issued.
In an effort to turn things around, the dealership and Groupon extended the offer from the original two days to four and considered lowering the number of consumers needed.
But the tepid response showed that the online coupon craze isn't a natural fit with auto retailing.
Groupon's success so far has come from offering its more than 80 million members daily deals at local small-ticket retailers, spas and hotels. Many discounts are for 50 to 60 percent off. Here's how it typically works:
On Monday, a Groupon e-mail alert offers a coupon good for $12 worth of goodies at a local bakery for $5. The bakery will honor up to 400 coupons through Thursday -- but only if at least 50 consumers sign up. The bakery knows it will lose money on the baked goods but hopes to draw enough new customers who will return later and make the discount worthwhile.
If enough folks sign up, Groupon charges $5 to their credit cards and pays the bakery $2.50. If not enough people sign up, nobody is charged or gets the coupon.
The auto industry has used Groupon successfully to promote service business. So interest was high to see whether it would work for vehicle sales.
"We did get a lot of chatter," says Robert Milner, LaFontaine's general sales manager. He received media calls and inquiries from other dealerships interested in Groupon promotions. He also sold new cars to two of the four Groupon customers, honoring the vouchers even though Groupon is canceling the deal and refunding their money.
Consumers were to pay Groupon $199 for a voucher worth $500 toward the purchase of a new car, redeemable through the end of 2011. Half of the $199 would go to LaFontaine. LaFontaine capped the deal at 150 vouchers but needed to entice at least 10 customers during the two-day offer on July 12-13 for the promotion to go forward.
Here are some reasons that didn't happen:
-- Negotiated prices. Most of the products promoted through Groupon, of Chicago, have fixed prices of less than $100. When Groupon says the price of a restaurant meal is half off, consumers can verify that against the menu price.
Milner says consumers were skeptical, thinking the dealership would boost the price to offset the $500 discount. On the Groupon Web site, he told people to negotiate their best deal, then bring the voucher for a down payment.
He also told them that if they decided not to buy a car, they could use the $500 on other products and services the dealership sells. Later, Groupon, which has been eager to move into high-ticket items, broke with its usual rules and offered to refund the cost of the voucher if a consumer didn't use it by year end.
-- Skimpy discounts. Consumers expecting a Groupon-like half-off deal may have dismissed $500 off on a $30,000 car as not enough.
-- Not an impulse purchase. Many Groupon discounts are offered on impulse buys, such as a massage or flowers. Cars don't fit that mold.
Neil Stern, senior partner with retail consulting firm McMillan Doolittle in Chicago, points out that instant offers work better on frequently purchased items.
For Groupon retailers to break even on the deep discounts, "You need 20 percent of your customers to come back," Stern says. "You lose money on the Groupon offer so you have to get return customers."
And someone who buys a car isn't going to come back next week or next month to buy another one.
Milner still views the $500 offer as cost-effective and has not given up on using Groupon for car sales. The dealership normally spends an average $370 in advertising per car sold.
Dave Zuchowski, Hyundai Motor America's vice president of sales, says he is "intrigued" by Groupon.
"We have not yet tried anything on the sales side, but I am certainly open to it because of the very targeted and limited-time nature of the offer," Zuchowski told Automotive News in an e-mail. "It can be used for month-end pushes or heavy-up on a particular vehicle."
Within the past few months, Groupon has offered two service discounts. Publicly held auto retailer Group 1 Automotive Inc. of Houston offered a service special at a Texas Volkswagen store. And the central region of Hyundai Motor America coordinated a maintenance discount at 10 Chicago-area stores.
In the Hyundai promotion, more than 1,300 consumers paid $29 for an oil change, tire rotation, multipoint inspection and car wash. The deal was promoted as a 63 percent discount off the regular price of $79.95.
Erin Frank, service manager of McGrath City Hyundai in Chicago, says about half the people who bought Groupon vouchers were new customers and some of them owned non-Hyundai makes.
Groupon says that future car-sale promotions will need to be modified in light of the LaFontaine experience.
"It was not a bad deal, but typically our deals involve fixed prices," says Groupon spokesman Chad Nason. "We'll look at what this deal did and tinker with what we can do in the future."