Groupon offers first car deal, targets bigger items

Groupon Inc. recently offered its first car coupon which is a sign the largest online daily deal company is expanding into bigger-ticket items. Groupon offered a $199 deal good for $500 off the purchase or lease of a new or pre-owned vehicle at LaFontaine Auto dealership in Detroit.

Groupon, with more than 80 million members, usually offers discounts on smaller items, such as restaurants and spa visits. The company typically takes 50 percent of revenue generated by deals. Branching out into bigger purchases means that 50 percent cut will be bigger in dollar terms.

"The prospect of opening up markets like new cars and leases is attractive," said Ben Edelman, an associate professor at Harvard Business School who has been critical of Groupon. "To the extent they can still take 50 percent revenue share that's more money."

Groupon has done some other big-ticket deals recently, such as $500 off closing costs for real estate purchases, Edelman noted. The car offering may be more problematic, he added.

"This voucher is for a very small portion of the cost of a car or lease, so it's basically an agreement to buy or lease a car from LaFontaine," Edelman said. "That's poor negotiating because the dealer could take advantage of that by offering the same car for more money."

In many Groupon offers, like restaurants and spas, prices are posted already, so customers know what they are getting, Edelman noted. In the case of the car voucher, it may not be clear what the discount will be applied to, he explained. "They need to fix that before this part of the model can take off," Edelman said. Bob Milner, who runs LaFontaine Auto dealership, did not return phone calls or an email seeking a comment about the Groupon deal on Tuesday.

Groupon filed to sell shares to the public last month, saying it hoped to raise at least $750 million. The company has been called into question by critics who say its business -- essentially a coupon service -- can be easily replicated both by startups and existing Web powerhouses. Google Inc has already begun such a service and  Amazon.com Inc started a similar effort called Amazon Local this month.