April 2014, Auto Dealer Today - Cover Story
Simpson Buick GMC has enjoyed increased volume and CSI scores since switching to fixed prices — as well as a drop in average gross profit. “I’d rather take a skinny deal than no deal,” says sales manager Ali Ahmed.
With an increasing number of third-party vendors such as TrueCar and Edmunds delivering non-negotiable prices to car shoppers, some dealers are growing keen to the idea of a one-price system. That would come as good news to consumers, at least according to a 2013 survey from Lab42, a Chicago-based market research firm. Lab42’s analysts found that 73% of car buyers would prefer to pay a fixed price. In 2012, a CarFinance.com survey found that nearly two-thirds of respondents ranked negotiating the price as the worst part of buying a new car.
The owners of Simpson Buick GMC in Buena Park, Calif., adopted a no-haggle pricing system after partnering with TrueCar a few years ago. Last summer, the dealership joined a pilot program for Edmunds’ Price Promise, a set-price system customers can depend on when visiting a particular dealership program. Ali Ahmed has worked as a sales manager at the Orange County dealership for two years. He says the one-price system has done wonders for the store’s customer satisfaction index (CSI) scores, which consistently rank in the 90s.
“Customers respond to it very well, because they can see that everything’s consistent,” Ahmed says. “I noticed CSI was usually an issue compared to the transaction customers go through now.” Since the dealer was already accustomed to fixed prices, he adds, transitioning over to Price Promise was seamless. Ahmed believes no-haggle pricing could be adopted industrywide. “We’re all having to adjust, because it’s the way that everything’s going. It’s what consumers are responding to. If we had done it, and nobody had responded, we would have gone back to the old way of doing it. But it’s working.”
Edmunds CEO Avi Steinlauf believes that no-haggle pricing can help foster trust between customers and dealers. He has found that some dealers are hesitant to change models. “I think what they find, when they dip their toe in the water, is that price is only one of the elements that you need to sell a vehicle. You’ve got financing, service, and all sorts of other things that go along with that, so it’s important to be able to have that trust and I think this acts as that first step.
“If they’ve got a lot of inventory, it could be a little bit of a task to start the initial pricing [of their inventory online], but they find that’s really what acts as a hook to be able to get consumers super interested in it,” Steinlauf adds.
TrueCar’s executive vice president, Mike Timmons, agrees that price is not the only factor in a consumer’s car-buying decision. Timmons previously served as vice president of operations at AutoNation, the massive, Florida-based dealer group. AutoNation employed a no-haggle pricing system during Timmons’ tenure and continues to do so. “I know our competitors were selling cars [for] less, but they liked our process. … They could go in, they have all the information they need; they knew their trade value, they knew their payments. They could go in, sign their contract and go home.”
Ahmed reports that, while most customers are on board with fixed prices, some still prefer to haggle — at least a little. “It really just boils down to if they want to negotiate a little more once they get here. We’re consistent with the price they see online vs. when they come in,” he says. “If they call us and they don’t feel like the price is adequate — or they like the way the transaction’s being handled but they’ve offered something more aggressive — of course, we’re open to it.
“From what I’ve seen, there have only been a couple of major franchisers that have been able to get away with just ‘no-haggle, this is it.’ And the other ones I’ve seen just kind of flop.” For cases in which the customer and dealer do negotiate further, he says it’s usually not too large of a difference. “We usually put our best foot forward when it comes to that pricing, so it’s going to be something pretty compelling. All those lead sources require you to give your contact information upfront to get them, so we feel comfortable giving that pricing out.”
Take the Deal
Ali Ahmed says Simpson Buick GMC has “shifted into the volume game” since switching to fixed prices, creating more customers for the service department.
Ahmed acknowledges that there is a downside to the competitive edge afforded by no-haggle pricing: The dealership is most certainly taking a hit on average gross profits. “We’ve really shifted into the volume game anyway, so it all kind of washes out. I know that our average gross is still good, something we’re comfortable with as a dealership,” he says, stopping short of providing hard figures. “We can try to hold out and not advertise and not do the one-price thing, but the next [dealer] does. I’d rather take a skinny deal than no deal.”
Better yet, he says, Simpson’s sales team benefits from the reduced pressure. “It definitely shifts their focus from being able to negotiate with the customer,” Ahmed says. “We’re aware that most customers have gone online; they’ve done their research. The salesperson is able to present the vehicle, assume there’s going to be a sale and just act like a real consultant throughout the process.”
Ahmed often has to coach his sales staff to avoid getting into anything resembling a confrontational position. “Now, they’re not the guy arguing across the table. Not that they have been in the past, but it definitely completely takes away the idea that that’s going to be an issue for the customer.” It’s even helpful for the finance office, he adds, since the monthly payments can also be viewed online prior to the customer’s showroom visit. “It makes things a little easier for F&I, because the pricing offered online is consistent before they go into finance and when they go in there.” As a result, he says, the time it takes to get each customer in the showroom and off the lot is substantially reduced. “If we have just a straight transaction that works through, for instance, Price Promise or one of the other programs, it really just boils down to the amount of time it takes them to take a test drive and fill out paperwork.”
One perk to PricePromise in particular, Ahmed says, is that the no-haggle prices are listed on the dealer’s actual inventory. Leads from the manufacturer and other vendors that allow shoppers to build their own vehicles tend to be “a little more complicated.” “We still have to go find that unit for the customer. But with [no-haggle pricing], the customer now has a price based on this car that they registered in my inventory. It tends to be a more qualified lead, and the closing percentage reflects that.
“Price Promise just backs up the atmosphere we try to create here, which is very no-pressure. We don’t like to do the back and forth. It makes it very clear for customers that we’re not trying to switch things up when you get here.”
Stephanie Forshee is the former senior editor of Auto Dealer Monthly and has expertise in dealership operations, sales and F&I.