Car buyers are still waiting for the no-haggle revolution

May 14, 2014, 2:01 PM UTC

“One-price Car Selling Catches On” read the headline in the San Francisco Examiner. The elimination of haggling with the sales manager and his sharp pencil was “a revenge fantasy come true for anyone who’s ever suffered through a high-pressure sales pitch.” The article went on to report that a Chrysler Buick dealer in St. Petersburg, Fla. claimed that his sales had doubled since he fired his sales staff and began slapping a dollar amount on the window of every new car on his lot and told customers, “That’s our price. Take it or leave it.” The article went on to assert that “a growing number of dealerships across the U.S. have replaced haggling with fixed, non-negotiable prices.”

That news appeared in 1992 — and the number of dealers offering fixed, non-negotiable sales stopped growing almost immediately after it was published. With the economy growing and the SUV boom about to explode, dealers saw no reason to rock the boat and change the long-established practice of using the MSRP as the starting point in establishing the final price. Today, more than 20 years later, one-price, no-haggle car buying remains a curiosity. Auto retailers, traditionally resistant to change, have consistently argued that settling on prices the same way it is done in a Persian souk is beneficial for both buyers and sellers.

So it became big news in the auto world when Sonic (SAH), the nation’s fourth-largest dealer group with 105 stores, announced recently that it would eliminate all dickering at its outlets by 2015. “Negotiations going back and forth and all that crap — we want to get out of all that,” executive vice president Jeff Dyke told Automotive News. “We don’t see a need for it, and neither does the consumer.”

We’ll see. No-haggle pricing amounts to a revolution in an industry that has long resisted attaching fixed prices to vehicles out of the fear that customers would merely using them as the opening bid in negotiations with a competing dealer down the street. The worry is it just creates another excuse that turns a potential customer into a dreaded “be-back,” as in “I’ll be back later.”

Flexible pricing is a difficult habit to break and requires an overhaul of dealership practices and retraining of the sales force. Sonic has been moving toward one-price for more than a year and is leaving itself some loopholes, such as allowing a manager to cut a price to meet a competitor’s offer. And it will still continue to adjust its prices weekly or even daily to make sure they reflect demand in a local market.

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The change is overdue. The current system is so 20th century — like the New York Stock Exchange back in the era of specialist posts and paper tickets. Today’s car buyers are brainiacs compared with previous generations. They have access to volumes of data and can walk into dealerships armed with information on invoice prices and the cost of accessories from sources like Edmunds.com and Kelley Blue Book, as well as retail and wholesale prices for their trade-in.

Dealers have long maintained that some customers simply like to negotiate, and they continue the practice to satisfy them. But others are moving away, gradually. One popular dealer alternative is to negotiate three price levels: a top one for full sticker, a bottom one for sharp pencil, and a third in-between.

Until the passage of the Automotive Information Disclosure Act in 1958, there was no such thing as a manufacturer’s suggested retail price. Dealers were allowed to crayon any amount they wanted on the windshield of a new car to use as a starting point for price negotiations. There was also a poorly understood transaction — which continues today — called the “hold-back,” in which the manufacturer rebated 2 or 3% of the price of the car to the dealer after the sale — a payment that wasn’t disclosed to the buyer.

The most-extensive and longest-lasting experiment in fixed-price selling involved General Motors’ Saturn Corp., which operated from 1990 to 2009. The system worked at first because GM (GM) had awarded exclusive territories to Saturn dealers so there was no direct competition and the cars were in hot demand. Once the demand cooled and dealers found the cars harder to sell, they bent the fixed-price rules by burying discounts in lavish customer trade-ins.

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Today the largest user of one-price is probably CarMax (KMX), the used-car superstore, which advertises a “no-haggle price” with the explanation that “you shouldn’t have to argue to get a fair price.” It goes on to claim that “you’ll get a great car at a great price, without all the stress and worry of traditional used-car sales.” A great price, perhaps, but not the best price. CarMax offers a wide selection of vehicles from multiple manufacturers and a money-back, five-day guarantee. As a result, customers pay more than they would in a typical transaction for a used car.

And that is what it is going to take to make one-price selling industry-wide. The dealer has to offer the customer something he can’t get somewhere else. That could be anything from a nicer showroom to a popular model not available elsewhere. If the dealer has nothing extra to offer and has to compete on price alone, then he better have the flexibility to negotiate.

As for Sonic, it hopes that by eliminating time-consuming price negotiations and its tiresome theatrics, it can attract customers by streamlining the car-buying process. Unlike two decades ago, car selling may actually be ready to make the leap into the 21st century. Offering better service is a far better incentive for customers than “That’s our price — take it or leave it.”