GM and Discriminatory Pricing (not price discrimination)

The biggest thing to hit the airwaves this summer has been every car manufacturer under the sun offering bare bottom employee discount pricing to everyone. But it turns out that when GM says, "Employee discount for everyone. You pay what we pay," they may be attempting to stress everyone as much as discount.

The ThirdWay Ad blog points out that the, "the spot announcing this
discount is weighted towards non-white male speakers. Of the 7 spokespeople in
the spot (all employees), only two are white men. There are two more men - one
Hispanic and one Black and three women, one white, one Asian and one Black." Now I am not proposing that this is something unusual, almost every non-gun company tries very hard to seem diverse and multicultural. The interesting thing is that this may be a tactic to combat discriminatory pricing.

Anyone who has ever met the unique race of salespeople knows how they can treat certain groups, namely women and minorities. Car dealers are no different; on average they tend to sell identical cars at higher prices to women and minorities as opposed to white men. If you disagree with this assertion, discussions of the various quantitative studies can be found in Blink and Pervasive Prejudice.

For a more intuitive explanation, salesmen work on commission and tend to belong to a certain socioeconomic group with certain preconceived notions. Also, women tend to be more reluctant to negotiate in the same way that men are (if you disagree, that is fine, just don't make a Larry Summers out of me). Regardless of the reasons, on average women and minorities pay more.

ThirdWay blog contends that this may be the reason that sales are booming so much, women and minorities are being encouraged to buy cars at a significantly lower price than they were paying before (when you take into account the higher price they were paying for before).

Obviously we will have to wait and see if this is really the reason, but I am willing to contend that offering the same price for everyone is huge incentive to, well, everyone. Dealing with car dealers can be a supreme pain in the ass and probably can end up discouraging buyers at the margin. The combo of lower prices and no price finagling must also encourage interested buyers on the margin to take the plunge and get that new car.

Whether discrimination or the benefit of less hassle is the reason for GM and other manufacturers offering the employee discount, an important question is why do car manufacturers use the pricing scheme they have now. By allowing whites and men to pay less for a car, they are forgoing profit, and forcing those who have less money to pay more. GM and others may be better off by attempting to get those who have the money to buy the more expensive car at flat rates. That way they could also employ fewer salespeople and require less from their salespeople. It’s an odd economic model that may be costing car companies money.

Interestingly, Saturn has begun to use a flat pricing scheme with salespeople that do not work solely on commision. Maybe we are witnessing a revolution of car sales in progress, maybe not. I know I would be OK with the death of the slimy car salesman.

-Mr. Alec