Cars

Why Volvo’s car subscription service Care is a bad deal for consumers

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You just got a bad
deal.

Volvo

• Care by Volvo is a new premium subscription alternative
to buying or leasing a vehicle.

• It eliminates price negotiation.

• No-haggle pricing is almost always a bad deal for
consumers because it takes away one of their only negotiating
advantages.

Volvo is rolling out a new alternative to traditional car buying
or leasing, called
Care by Volvo
.

It’s essentially an elaborate rental arrangement, eliminating
loan/leasing down payments and insurance requirements while
adding a suite of concierge services. Volvo described it as a
“premium subscription” and will offer it when a new compact crossover
SUV, the XC40
, hits the market. The vehicle was unveiled on
Thursday in Italy.

In a statement, the Swedish-Chinese carmaker said that “Care by
Volvo also removes the practice of price negotiations,” pointing
out that “[c]ustomer research shows that this is one of the
elements of the car-buying process that customers dislike the
most.”

A no-haggle deal is nothing new; consumers have
long agitated for it, and some automakers have responded,
most famously Saturn in the 1980s.

Why no-haggle is no good


car dealership
It’s really not that
hard.

KELENY /
Shutterstock.com


But to anyone with experience buying or leasing vehicles,
no-haggle is a non-starter. Yes, the buying/leasing process
through a traditional dealership can be annoying and
time-consuming. But by surrendering their ability to negotiate on
price, consumers give away their biggest economic advantage when
obtaining a set of wheels.

This matters because car payments are typically most peoples’
second largest fixed monthly expense, after rents or mortgages.
Lease and loan payments are determined by several factors, but
price is the most important: what you end up paying begins with
the big number on the sticker.

The manufacturer’s suggested retail price (MSRP) is suggested for
a reason — it’s merely a baseline. Unpopular but perfectly good
new vehicles — think Volkswagen’s small sedans, for example,
which have been losing out to SUVs — can be had for far less than
MSRP. But you have to be willing to wheel and deal a bit.

It’s hard to understand why this freaks people out so much. You
don’t even have to go to the dealership. You can simply call
around to various dealers, focusing on the vehicle you want, and
say something like, “I’d like to spend this much, what have you
got?”

The dealer’s mission in life is to sell cars, because if he or
she doesn’t, the dealership can’t profit from generating
financing and insurance opportunities, as well as servicing the
car down the road and setting the customer up to buy more
vehicles later.

Bad deals


car dealership
Consumers should have some
say in the final price.

Justin
Sullivan/Getty


No-haggle deals, in this well-understood framework, are always
going to be bad for the consumer. They’re also not so great for
the dealer, who wants to be able to buck the MSRP when warranted.
They’re good for carmakers, because, for the most part, they
collect their cut when an assembled vehicle is “purchased” by the
dealership, often via what is called “floor plan” financing,
whereby a carmaker extends credit to a dealer to create
inventory.

So why do consumers want bad deals?

Fear, plain and simple. Car dealerships are intimidating, and
even a cheap car will set a buyer back $20,000. A lot of folks
are willing to sacrifice thousands of dollars in savings to avoid
the unpleasant experience.

It doesn’t help that most people buy or lease a car only every
three-to-five years. The experience is newly unpleasant every
time because it happens so infrequently. 

As we shift our ownership priorities with new, younger
generations of car buyers coming into the market, we’re likely to
see more services like Volvo’s. The upshot is that buying or
leasing a car will be more “frictionless.”

Unfortunately, the friction of the older system is what made
getting a good deal on a new car possible. Consumers should be
careful before they trade that away. 

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