Middlemen don’t like being told to kick rocks

by JT McGee

TrueCar was one of the world’s best websites. It created a reverse auction for any car, requiring dealers bid against one another in an effort to sell cars to its frugal visitors. Visitors who simply wanted the best deal possible could now force dealerships to compete.

Over time, it pissed off the car dealers. Thousands of dealers fled the site, fearing it would expose what dealerships really are — an ineffective, expensive, and piss-poor way to sell a car.

Today, TrueCar operates like any other aggregator. Dealers name their price for their inventory, and TrueCar simply picks the best one for the buyer based on the parameters. TrueCar takes $299 and $399 for each new and used car sold, respectively. Dealers retain some of their pricing power, since it no longer operates on a reverse-auction basis.

It’s still a race to the bottom, but the race isn’t as fast as it was. Conveniently for TrueCar, it has effectively inserted itself into the capital-light part of the business model — the shopping experience. TrueCar stole the best part of the business, and left the worst part (carrying inventory, owning massive car lots) to the dealers.

Cars vs. Homes
Zillow shares similar economics in that it forces transparency into the real estate market, hoping to knock-off real estate agents and expose them for what they are — an ineffective, expensive, and piss-poor way to sell a home.

The only question for online home listing sites is whether the real estate agents of the world are as powerful as the car dealers. Car dealers effectively forced TrueCar to change. Can real estate agents force real estate sites to change?

After all, real estate agents have pricing power and economics on their side. If they invested a mere 1% of their 6% sales commissions into defending their turf, real estate agents and REALTORS® could have a very powerful legal and economic lobby.

Then again, Zillow/Trulia have an incentive to allow real estate agents their beefy commissions, for now. Why not? Zillow/Trulia are just rent-seeking on the backs of rent-seekers. (No pun intended.) Note, though, that their executive rosters were largely responsible for the death of travel agents.

I just wanted to share this because I find it an interesting microeconomic thought exercise. And because it’s a story that needs more attention.

The middlemen don’t like being told to kick rocks.

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