CDK's purchase of Auto/Mate may create a major disruption in the dealer management system (DMS) industry. Here is our take. DOWNLOAD
I've heard a number of industry professionals say that cars are now a commodity, usually in the process of explaining why it is so important to price relative to the market. I'm concerned about the use of this exaggeration. In fact, It is because I am a proponent of pricing tools and adjusting prices relative to market forces that I am concerned about any exaggeration used to support the argument.
Let's start with new vehicles. A new Buick Verano with the leather group is not a commodity. Some have sunroofs, spoilers, navigation, all-weather floor mats, and cargo nets. Some come with the $125 pedal covers and some do not. Even if two of these vehicles were exactly configured and of the same color, the deal does not stop there. There is the entire back-end portion of the deal to consider. I know some dealers I'd happily pay $50 more to just to avoid having to deal with other dealers at the F&I stage. Even if the customer is paying cash and not buying anything else in F&I, that does not preclude some dealers from charging an additional processing fee.
It doesn't matter who you buy a bar of gold from, because it is a commodity. But it does matter who you buy a vehicle from, because when we look at the entire bundle of features and benefits delivered by the dealer, it is not a commodity. Not only do some stores have better reputations than others, there are probably many shoppers in your community you have no reputation with. This is why actual photos of the new vehicles produce more contacts than stock photos, many customers don't even trust that you actually have the vehicles you say you do. Preference for the retailer impacts the price paid. In the strictest sense, you can't say that about a commodity.
Two used cars of the same year/make/model/trim and accessories with the same mileage and in the same condition will likely sell in the same market for a similar price. Just how similar can depend as much on how well they are merchandised as it does the slight variations demonstrated by that merchandising. If the basic information is the same, the vehicle with more detailed information may appear to be a better value even if some of that information discloses imperfections. Some imperfections are to be expected, disclosing those that are known can reduce the worry about imperfections that cannot be observed. Vehicle condition reports can build preference for the vehicle and the store.
Commodity means there is no preference, and the word is often misused. Oil is said to be a commodity, but it is not. Only oil that is properly categorized can be called a commodity. Crude oil that is certified to be both light and sweet can be confidently purchased at the same price as other light/sweet crude. If the condition report is the same, then it is a commodity.
Price is an essential element to marketing. Now that consumers have access to market information online, there are many of them you will never even meet unless you have the right car at the right price. But that is not enough. Shoppers buy value. Without detailed information about what that price represents, it cannot be processed into a comparable value. When all dealers merchandise their vehicles the same and have the same disclosed back-end practices, then we can talk about cars being a commodity. Until then, competitive attractive pricing will bring more contacts from online shoppers, but the advantage among comparable cars at the same price goes to the vehicle with the most transparent merchandising from the dealership with clearly disclosed policies.