Automotive News - December 17 2012 - 27

DECEMBER 17, 2012 • 27

ONE-PRICE
Proponents say Gen Y shoppers hate to haggle
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will change over next month and the others will follow in 2013. “We want to embrace the Internet as our friend,” says the young executive, who joined the company five years ago. “What’s valuable to consumers now is their time and how they feel like they were treated.” It is unclear how many dealers are on the one-price retailing path. The National Automobile Dealers Association says it does not track one-price selling among its members. Mark Rikess, a retail consultant who promotes no-haggle retailing around the country, estimates that 150 to 200 new-vehicle dealerships have or are pursuing one-price plans. That’s a tiny percentage of the more than 17,000 new-car dealerships in the nation. Clearly, more retailers are committed to traditional sales practices than to changing them. But even among dealers who are skeptical of one-price, there is some sense that consumer pricing expectations are evolving. “I don’t see a lot of people going to a true one-price model,” says Mike Maroone, president of the country’s biggest retail group, AutoNation Inc. “We’ve spent the past 40 years educating consumers that our prices are negotiable.” But Maroone adds that AutoNation is experimenting with new pricing strategies, including one called market pricing. “It’s a move to a fair price, but with a little margin left in for just a little negotiating,” Maroone says. “We’re still in test mode on it.”

about everything they like and don’t like on Facebook and Yelp, no-haggle prices can make customers happier. “We’re doing it because it’s what our customers want us to do,” says one Ford dealer in the Southeast who just converted his fourth store to haggle-free selling in November. He asked not to be named because the organization is so new to the sales approach that he wants his managers to become more practiced at the craft before falling under public scrutiny. He has not even mentioned the practice in his advertising. “But I can tell you this — it’s working for us,” he offers. “Sales at the first two hagglefree stores we converted last year are up by double-digit increases. And our first-time closing rates are up considerably.”

Asbury expands test
If one-price is gaining a new look, it is due mainly to the Internet. Internet shopping was not even around in 1990 when Saturn arrived. It is now ubiquitous in vehicle shopping. Advertising used cars with no-dicker stickers has become common for many dealerships. And online vehicle pricing services offer consumers shopping assistance based on prices calculated from real dealer transaction data. Asbury Automotive Group, the industry’s seventh-largest retailer with 77 stores, said last month that its year-old experiment with one-price selling at three stores in Richmond, Va., has been a success. This year it expanded the concept to a BMW store in Decatur, Ga., and intends to bring other stores into the practice. Dealers who have adopted no-dicker stickering say it has broad benefits. It can bring down store operating costs and increase unit sales despite lower per-vehicle grosses, they say. Others say that removing haggling allows a dealership to attract a different kind of sales staff, including younger people and more women. More important, they say, in an age when consumers blab

“You can probably sum all this up in two words,” he adds: “‘Gen Y.’ The young buyers today find the whole traditional retailing process sort of distasteful.” It is also a matter of facing up to reality, says Larry Dominique, president of ALG, TrueCar Inc.’s vehicle residuals unit. Internet data have ripped away most of the old secrecy involved in determining what a new vehicle really costs. “Whether you’re shopping for a stereo or a camera or a car, the reality today is that people know what’s reasonable for a price,” Dominique says. “So why not use the transparency to your advantage?” ALG surveys show that consumers are happier with their experience if they walk into the showroom already satisfied with the price, he says. Big in Minnesota This isn’t the first time the retail industry In the St. Paul-Minneapolis market, it is has started down this road. common for new-car shoppers to buy at noMore than 20 years ago, the concept haggle dealerships. All of Walser Automogained ground with Saturn’s arrival. Saturn tive’s 14 area franchises are one-price. So are dealers — many of them among the nation’s all of Morrie Automotive Group’s 10 rooftops most prosperous retailers — embraced the there — except for its Bentley franchise. idea of assuring shoppers that there would “We probably have the greatest concenbe no further negotiating on the sticker tration of one-price dealerships in the naprice. tion here,” Morrie group President Morrie Ford Motor Co. took a swing at one-price Wagener calculates. “Walser really piowhen it tried to consolidate store ownership neered it here. We followed Walser, in some major markets in the 1990s. and others have followed us. CusFord’s hope was to get away from tomers here like it. price-undercutting among fellow “We made the decision to go this Ford dealers. But for a variety of rearoute in 2009, just as the economy sons, the consolidation plan, inwas crashing,” he recalls. “My atticluding the one-price portion of it, tude was we might as well try somefailed. thing new. Some of our people Toyota’s Scion brand was didn’t like the idea at first. They told launched in 2003 with a version of me, ‘I’ve got to keep negotiating so I Dominique: Use one-price that it calls pure pricing — can make money.’ And I thought, transparency as and is in some ways the surviving what does that say about how we an advantage. standard-bearer for the approach. view our customers?” Scion launched with pure pricing as Rikess says three larger factors are fueling a way of appealing to young, first-time buythe trend: the Internet, the quest for young ers, says Owen Peacock, Scion’s national buyers and the growing desire to make car marketing and communications manager. dealerships better places to work. There are nuances to the practice, but it is “People are used to the kind of shopping written into the Scion franchise covenant. experience you get in an Apple store, where Despite the early sizzle, the practice moststaffers are knowledgeable about the prodly went cold in the 2000s. Those big-volume uct and they aren’t trying to pressure you,” years put pressure on retailers to move metRikess says. al to help manufacturers clear oversized facCreating a new sort of workplace was the tory inventories. It was a decade of deal-cutkey reason Harr Motor Group in Worcester, ting and price slashing. Mass., converted its Toyota and Dodge But some independent retailers didn’t let group to one-price last year, says Mike go of the idea. Gross, the general manager. Saturn retailer Joe Serra of Grand Blanc, “Young people just don’t want to work in a Mich., for example, found Saturn’s philosotraditional negotiation dealership,” Gross phy attractive as “the way everybody should says. “And frankly, I was tired of always runbe doing business.” In the 1990s, he took the ning help-wanted ads and getting the same daring step of spreading no-haggle selling to old applicants who had the same old pricehis family’s high-volume Chevrolet store. negotiation skills.” Many of the store’s sales personnel reToday, he says, the store has a better-edusponded by giving notice. cated sales force and better gender balance. Serra has stuck with the concept for two Before his one-price conversion, Gross decades, and now operates all eight of his was lucky to have two female salespeople on Grand Blanc import and domestic franchishis Toyota store’s sales staff of 18 — a critical es as one-price — including his Cadillac issue for dealerships that want to attract festore. This year he acquired local Chrysler, male shoppers. He now has seven. Dodge, Jeep and Ram franchises, moved

them into his Serra Auto Plaza and converted them to one-price selling. Some sales personnel stayed with Serra, but most left. “You’re always going to lose some people over this,” Serra says of the shift to oneprice. “They won’t even give you time to prove that they can still do very well under one-price. But you have to tell them — you can’t expect to make your paychecks off of negotiating inflated prices.” But even Serra doesn’t force the issue. His retail group also owns 13 dealerships outside Michigan, and Serra leaves it up to local managers to embrace or reject no-haggle. Not one of the 13 has embraced the practice, Serra reports. “And that’s fine,” he concedes. “You have to believe in one-price for it to work. If the local manager doesn’t really believe it will work for him, then it will never work.”

Faster sales process
There are pros and cons, dealers say. Chief among the cons: Some customers simply leave when a salesman refuses to dicker. “You do lose some deals,” says Minnesota dealer Wagener, but “I also lost deals when we were negotiating prices.” Offsetting that is a faster sales process, enabling the store to conclude more deals per day. The Southeastern Ford dealer who requested anonymity cites the example of one of his veteran salesmen who reluctantly agreed to stick around and give one-price a shot. “In the negotiation system, he was an 8to-10 cars-a-month sales guy. He’s now doing 30 a month,” the dealer reports. Harr’s Gross adds that if negotiation is removed from the deal, a new salesperson can routinely closing 14 to 15 sales a month. “Even a new employee can get you in and out of here in two hours,” Gross says. The cost of sales comes down as a result, says Doug Sprinthall, director of new- and used-car operations at Walser Automotive. Salespeople are on salary, or paid on the number of closings, and perhaps given incentives for customer satisfaction — and are not paid commissions based on transaction grosses. “In a negotiating store, it’s normal to have salespeople making commission salaries in the low $100s,” Sprinthall says. “When it’s one-price, the salary range is going to be in the $40,000-$50,000 range.” But the sales process moves faster, meaning that sales staffers can close more deals and potentially earn additional performance incentives — not through inflated transaction prices but by meeting store sales targets. Some one-price operations also have salespeople handle their own finance and insurance sales, offering them additional compensation if they hit targets on service plans, insurance options and other products. “You’re still going to have a few salespeople who will make $100,000 through bonuses and high customer-satisfaction results,” Sprinthall says. “But it’s not because they’re getting high gross on transactions. Those days are gone.” c

UNION
For some suppliers, changes come soon
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King said the UAW and other unions fought hard to prevent the legislation because right-to-work undermines wages and benefits and suppresses workplace democracy. Michigan Republican Governor Rick Snyder signed the legislation last week after it was fast-tracked through the Republican-dominated state legislature in a matter of days, with no committee hearings, during a lame-duck session. King said the best way to keep members from leaving the union is

to bargain hard for wages and benefits and continue to represent worker interests in health, safety and work rules. “That’s why there’s solidarity in the workplace,” King said. In addition to representing about 115,000 Detroit 3 auto workers across the country, the UAW represents tens of thousands of workers employed by parts suppliers. An exact number was not available from the UAW. But as supplier contracts expire sooner and workers can choose to leave the union, the true value proposition of the UAW will be put to the test, said Neil De Koker, president of the Original Equipment Suppliers Association in suburban Detroit. The association represents about 430 parts suppliers, includ-

BLOOMBERG

UAW President Bob King, with protesters in Michigan, says he expects few defections. ing most of the largest ones that do direct contracting and engineering with the carmakers, the so-called Tier 1 suppliers.

De Koker said right-to-work laws in many Southern states have proved a magnet to automakers and their suppliers desiring to operate without unions. He said right-to-work in Michigan will make the unions more accountable for how they spend the dues of members because those members will be in a position to leave the union if they disagree with that spending. He said the UAW spends heavily on the political campaigns of mostly Democratic Party candidates despite a membership that includes many conservatives and Republicans. In 2011, the UAW collected about $122 million in dues passed through to the International, ac-

cording to the union’s most recent regulatory filing. “The unions are really going to have to focus on the priorities of their members,” De Koker said. Adam Forman, a Detroit lawyer with Miller Canfield, said Michigan parts suppliers with union contracts that expire soon need to make preparations for right-to-work. They’ll need to have a mechanism for turning off the collection of union dues for workers who leave the union, Forman said. He said they also have to be careful about communicating the rights of workers under the new legislation so as not to conflict with regulatory prohibitions against swaying workers to belong or not belong to unions. c

Automotive News - December 17 2012

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