Car buying is changing, especially among sharing-oriented millennials. Dealers, facing the threat of ride-hail and a growing sharing economy, must adapt. Add to that many Americans whose credit lacks the sheen to qualify them for the kind of irresistible offers that might get them onto the lot, and you have a traditional dealership model becoming obsolete.

Now Fair wants to offer dealer inventory via an iPhone app, without requiring you to purchase. If millennials buy (or non-committally lease) in to the concept founded in 2016, the Santa Monica, California-based startup could cut off traffic to car shopping websites, and possibly membership models of car use too. 

Digitizing the dealership 

The idea is "pro consumer, but it also collaborates with dealers," says Co-Founder and President Georg Bauer. The BMW and Tesla consumer finance alum didn't elaborate on how exactly he made partners in the business he's disrupting, but the numbers in Fair's white paper present some compelling math to turn over dealers resistant to adaption. 

The typical lifespan of a loan is is five to six years. If you're a dealer, that's up to 72 months until a past customer is back on the sales floor. That is, assuming the experience was positive enough to retain a buyer.

Fair's shorter term moves customers through the dealership more often, and those leases get used cars off the lot. When those cars come back after a shorter term, they have less miles and so are easier resales to a secondary market. That is, the traditional sales model is obliterated, but new profit opportunities are available at different points in the selling, trade-in, and re-selling cycle. Dealers can also cut the cost of processing paperwork and staffing salespeople. 

The whole transaction is in the app, which is currently iOS only. You photograph your license and give Fair's algorithm permission to look at your primary bank account. Machine learning assesses your transportation budget, and you get back a monthly payment you can afford. Then you browse cars at or below your budget. When you find the right one, you pick it up at a participating dealer. Like a standard lease, there is a drive-off fee. But unlike a standard lease, you can cancel your contract with just five days' notice.

Pulling ahead of existing models

The customers wanting an easier car buying or leasing experience of course exist; Fair just needs to get them from websites and apps offering shopper tools (Cars.com, TrueCar, Carvana, AutoTrader, Edmunds) and from dealer review sites (DealerRater, Yelp).

Meanwhile, the rest of the industry is watching. Bauer's partner, Fair's other Co-Founder Scott Painter, himself founded car shopping site TrueCar. Before that he pioneered the concept of direct sales with CarsDirect's 1998 launch. TrueCar is just out of a legal battle with the California New Car Dealers Association, a trade association that forced TrueCar, via a lawsuit, to change its billing model.

There are other possible speed bumps. First, Fair must expand beyond Los Angeles and 100 or so dealerships. But it is noteworthy some of those dealers are in the Penske Group umbrella. Penske is a Fortune 500 company with U.S. and international reach. Bauer's pitch was winning enough to make the company an investor. BMW's venture capital arm has also invested. Then, just this week, Fair acquired Uber's leasing portfolio.

Fair will have competition in a new subscription model, which also offers no-commitment monthly use of a car without credit inquiry to drivers willing to sacrifice equity for flexibility. Anointed by Techstars Mobility as a selectee for its showcase at the North American International Auto Show's tech-focused pre-show next month, Carma offers monthly use of an economical compact car.

Carma charges a monthly subscription fee to the credit card you register when you sign up for the service. You'll get a choice of a Ford Focus, Honda Civic, Chevy Cruze, or similar for $399, $449, or $499 per month for 500, 1000, or 1250 miles respectively. Insurance is included. Going over monthly mileage allowance yields a charge of 40 or 50 cents per extra mile, depending on subscription plan. How and where Fair and Carma will compete remains to be seen: Carma has not publicly announced the U.S. cities where it will offer subscriptions.

Capturing millennial buyers

Market research suggests Fair could beat traditional dealerships by keeping the entire transaction in the app. An eMarketer report, US Millennial Shoppers 2017: How a Digitally Native Generation Is Changing Retail, crunched the numbers on how millennials shop differently. Importantly, they prefer digital shopping even while in a brick-and-mortar store.

And while as a generation they're more oriented toward sharing than acquiring, 43 percent of millennials nationwide said they are either very or completely likely to buy a car in the next five years. Meanwhile 80 percent of millennials disagreed with the statement "Owning a vehicle is not worth the hassle." Put a different way, four in five still want their own cars. 

Published on: Dec 29, 2017