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Car Dealers Wince at a Site to End Sales Haggling

96 points by robg 15y ago

bhickey 15y ago
I used CarWoo to buy my car. The price I paid was a clear $1000 under the "Great Price" that True Car suggested, and under the estimated Dealer Cost. Nevertheless, I don't see these services as viable long term -- it's a race to the bottom. With manufacturer sales incentives, the smaller dealers are bound to get squeezed out by volume/commodity dealers.
- sliverstorm 15y ago
  Yes, but consumers generally like a good race to the bottom, even if everybody loses in the end.
  - bhickey 15y ago
    I'm not one to complain -- I don't sell cars!
dsr_ 15y ago
Car dealers have haggling advantages over purchasers: - You buy a car perhaps once every three years, perhaps once every ten. They sell a car at least once a week. - You are basically alone; they are a team. My sister started buying cars via fax quotes about 12 years ago. When she's figured out what she wants, she sends requests for quotes to every suitable dealer within 100 miles. (Now she uses email, of course.) They still don't expect this minor effort to put them into competition with each other, and it seems to have worked in her favor every time. It's nice that TrueCar is automating this; perhaps more people will use it.
vaksel 15y ago
not really, car dealers make most of their money on their service department. That new Civic might net the dealer a $500 profit....but if that car comes in for a single service, they'll net more than that from the repair. And yes you aren't paying any cash for warranty work...but the dealer gets paid by the manufacturer, so they don't care.
- evilduck 15y ago
  That's for dealerships. There's tons of small used car dealers that operate on empty lots or out of their garage. Their profit is derived solely from car sales.
  - slouch 15y ago
    ..and it's easier for them to make more than 500$ a car. Also, don't forget used car warranties.
- gregpilling 15y ago
  I agree partially. I have been in the auto business for 20 years and have talked at length with dealer principles. My brother ran a dealership for a number of years. The money a dealer makes at the time of sale is in Finance and Insurance (F&I), as well as preloading with accessories before purchase (disclaimer, I sell truck accessories to dealers). It is common to add points to the deal on the financing. I purchased a Jeep last year and the dollar amount was right (went through the internet guy) but they attempted to stick it to me on the finance - 8.99%! So I walked out and told them to call me when it was 4%. A few hours later they called and said we had a deal at 4%, so I had them deliver the Jeep to my work. When I used to sell automotive equipment to dealers ('90-'01), MY finance companies always gave me the option to pad the deal. I could add up to 2% to the interest rate and the finance company would give me about half of the extra interest charge. While I thought this was a sleazy practice and never did it myself, on many of my deals the interest money would have far exceeded the income on the equipment. Besides the service that you mentioned (warranty work and customer pay), there is also a lot of money in parts, especially collision parts. I had the pleasure of spending a plane ride with a dealer principal of 12 dealers, and she said the overwhelming majority of their company profits were on crash parts - especially their domestic brands. She also said accessories for Minis were very strong for the bottom line. Her other significant comment was that they never make any real money from new car sales and they were a pain. She has a lot of headaches with the manufacturers demanding facility upgrades every couple of years (at the dealer expense), and moving cars that the manufacturers occasionally compel the dealers to take (these are the undesirable cars that get sold below cost, a unintended consequence of CAFE regulations). Another less talked about area for dealer profits are used cars. As the old dealer saying goes "All new cars are the same; every used car is unique", and there can be more profit in a used car than the same model new. Many trade-ins at dealers go to auctions like Manheim where they are sold fast and furious in as-is condition for the most part. Used car departments purchase these cars and then sell them on their lots. A friend of mine just purchased a Honda Element that was missing back seats and some windshield trim for $2000 below KBB trade-in. Ebay and the dealer supplied the needed parts for under $200. If you are looking for a deal on a used car, try and find a friend with a dealer license.
tejaswiy 15y ago
As someone who's been through this process recently, I've never understood why car buying has to be this way. The whole process has a sleazy feel of I'll try to rip you off by as much as I can get away with. Car prices go lower as you reach the end of slow months when the sales teams don't reach their targets, they go higher earlier in the month .. it doesn't make any sense at all. Why not just have an MSRP like the on the manufacturer's website and sell all cars at this price? The dealer can get a constant profit on the car price & servicing, buyers can feel less ripped off and everyone wins? It doesn't really have to be a race to the bottom..
- sokoloff 15y ago
  Because (some) people like to get a "deal". And if you move your car brand to "no dicker stickers" and I don't, I'm likely to capture a share of the "likes a bargain" shoppers, though I admit I'll lose some of the "likes a sense of apparent fairness shoppers" to you. Now, what happens when you have a "no dicker" policy and you need to move a car for whatever reason? Maybe the new models are coming out. Maybe the dealer needs to raise some cash to meet his loan payments. Maybe a model is intended for snow/foul weather usage, and you shipped too many of them into New England, expecting a normal winter. How do you entice customers who will eventually need a new car (according to them) into buying your car from your dealer now. Do you lower MSRP across the board for year-end models? That could work. Do you lower your MSRP only in New England? That could work, but smells worse from a globally consistent pricing point of view. Do you allow just the dealer who needs cash to lower his price? Well, you can't really do that and have any notion of consistent pricing. And that's just the problems in the new car market, where a given car could be identical to any other any equivalent car. In the used car market, it gets way, way worse (in terms of complexity and sleaziness).
  - spitfire 15y ago
    This is a flaw in inventory control (too much of it), and it can be fixed. The toyota production system is about getting the car to the customer as quickly as possible. If you were smart you would organize your production/inventory into a Just In Time system. Every car is a bespoke order, each store has a demo of each type of vehicle available for test drives.
VengefulCynic 15y ago
The real interesting point in all of this to me is how hard it is to innovate in this space on account of state legislatures essentially subsidizing car dealerships. "So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. Honda Motor Company also protested loudly, threatening to cut off marketing dollars to dealers that did not follow its guidelines when promoting its brands on TrueCar’s site." While I know that there are a lot of people employed by local dealerships in the sales department, I can't help but thinking that a lot of these jobs essentially add a percentage cost to new cars with no value added. Which, of course, means that since innovation is a threat to these old business models, most of these dealerships will only be doubling down on legislation and protectionist policies that stop or slow genuine innovators like the guys at CarWoo and TrueCar.
- dangrossman 15y ago
  If they don't, there's another 1.2 million jobs lost to technology in a country that has no answer to the growing imbalance between working-age population and gainful employment opportunities. Progress can be a very damaging thing for society on some levels. I'm tempted to delete this comment because of the quick downvotes, but I'm not going to. I think it's a valid thing to think about at the very least.
  - wmf 15y ago
    If people want to bring back the Works Progress Administration, so be it. But special legal favors for certain industries distort the economy (even though they may help).
    - sopooneo 15y ago
      I feel like that is the way this has to go in the end. When almost all our needs are taken care of through automated processes, and only a few people have the skills to contribute to the creation and maintenance of that automation, we are going to need a large orginisation (logically government) to provide the rest of the population with livelihood.
MrFoof 15y ago
"Car dealers have haggling advantages over purchasers: - You buy a car perhaps once every three years, perhaps once every ten." Correct, this is no different than the mattress industry or bridal industry. There has to be a large premium over the price of the product to support the people operating the business. This is because there are established points-of-sale that were established before doing direct business with the consumer was reasonable, or because there is some additional value added during the sale by a physical presence (test drive, testing a mattress, getting fitted for a gown). The remaining issue is eliminating the "icky" feeling that comes with buying a mattress or car. This could be eliminated if franchise laws could be repealed, but that's a hard battle. I believe Chrysler had set up a dealership recently in L.A. (to sell Chryslers, Jeeps, Dodges and Fiats), but dealers pointed out how it was illegal and had the state force that dealership's closure. Imagine if there were brand-owned dealerships, that eliminated the haggle, leveraged their distribution networks to minimize the numbers of actual cars on their floor plan, and allowed customers to buy direct for a flat price. Would be nice, right? Actually, this is possible, but it does involve a bit of legwork. I've bought my last two cars straight from the port of entry, but a lot of legwork is involved, as is developing a relationship with the right individuals. I should blog about that one day, as how to get around the nonsense of the mattress industry.
- philwelch 15y ago
  > Correct, this is no different than the mattress industry or bridal industry. Or, more morbidly, the mortuary industry.
- sixQuarks 15y ago
  Can you briefly explain how you bypassed the dealer franchise laws by purchasing straight from the port of entry. Who actually sold you the cars?
- tommy_mcclung 15y ago
  I'll partially agree with you on this. Car buyers do only buy cars once every few years, but the amount of information available to a car buyer is incredible. You can know exactly what a dealer paid for the vehicle you're about to buy if you try. Dealer's are in somewhat of a vacuum from a data standpoint. Most of them have no insight into the buyer's shopping experience... meaning how many dealers are they talking to, were they on KBB/Edmunds, are they cross-shopping, etc... They may be better at haggling, but it's somewhat by necessity at this point to hold what little margin they can. Consumers are armed with information and tools, dealers have a lot of challenges fighting this. Lots of people probably don't realize that at CarWoo! this is one of the issues we're helping dealers with when they use our product to engage with buyers. Only when both sides of the selling equation have an equal chance will the bad buying (icky) experiences go away.
kevinwmerritt 15y ago
As a first time car buyer one and a half years ago TrueCar gave me confidence during negotiations. In my case I didn't use it to determine a no dicker price with the dealer. Instead it was the basis for my walk away price and counter offer.
larrys 15y ago
Car dealers also use pricing to get you to make a decision and buy a car. So another disadvantage to them is if the price is fixed it removes motivation to "buy now". In the past fixed pricing has never worked and it actually works to the disadvantage of anyone who has a clue about negotiation. The fact that someone pays more is one of the reasons another person can pay less (dealers have to move vehicles).
tommy_mcclung 15y ago
Thought I'd give my $.02 on this. I'm CEO of CarWoo! and we are right in the middle of disrupting the space and you guys are right it is extremely difficult, but it is possible. It's not so much of a disruption as it is an effort to level the playing field and bring an online buying experience to car buying. It is possible to innovate here, you just have to do it the right way, within the laws that have been setup to protect the consumer and the dealer. It doesn't have to be a race to the bottom. What we see on CarWoo! are dealers offering market competitive prices and then competing with each other on things outside of the vehicle price. Things like professionalism and responsiveness become extremely important when all other things are equal (price and vehicle). Over half the consumers on CarWoo! buy from a dealer who didn't have the lowest price. A race to the bottom only exists if the only dimension visible to the consumer is price. On CarWoo! we emphasize the customer experience you're likely to get from the dealer which adds another dimension to the decision. Dealers love this, so do buyers. The big issues in question are the brokering laws (getting paid a fee to refer someone who buys a car), privacy issues and dealership advertising laws (all vehicle offers must come with a vin and stock number). From day one at CarWoo! we have been keenly aware of these issues and worked within the rules to provide a highly valuable consumer experience, while working within the laws. It is absolutely harder to do it this way, but it can be done. We don't believe haggling will ever go away, even if manufacturers move to a "single price" system like Scion. There is a distinct advantage for one dealer to break the rules and provide a lower price, so they will and the single price systems break down. We see Scion dealers discounting all the time, by the way. The only way to break out of this if you're a dealer is to be better at customer service and cater to your buyer's specific requests. Automation can not solve that problem, so selling cars will always have a dimension of personal touch and relationship. What needs to be in place is a platform where buyers can shop multiple dealers online and dealers can work out the details of their car purchase before they show up at the store. This let's great dealers shine and helps them keep their margins in a highly competitive market. This is what CarWoo! provides and we've done it within the complex and ambiguos web of rules in this space. Innovation is possible here, and yes it is extremely hard. Harder than I ever imagined. But that's why it's such a huge opportunity.
- robg 15y ago
  I posted this exactly so I could hear your thoughts instead. Thanks!
X-Istence 15y ago
I use Costco's auto sale program. They give me a fair price and I don't have to haggle. Now if only I had the money to buy the car of my dreams!
- mwexler 15y ago
  Note that these programs are often rebadged "aggregators". For example, AAA's "auto sale" program is Zag (Truecar). Costco's is Affinity Development, http://www.affinitydev.com/index.html http://www.affinitydev.com/index.html Not saying that anything is wrong with these, but just saying that if you trust AAA or Costco's internal controls and skills, you aren't getting those in these services. You are getting AAA or Costco's willingness to license their name. As is posted many times in this thread, it's down to time vs. money. These services get you 1/2 to 3/4 of where you could get yourself, at a cost. You could do better, sometimes much better, with more time, but that's for each person to decide.
newman314 15y ago
I actually love car shopping. I enjoy making car salespeople squirm =) Here's what I did the last time I bought a car. ($200 over dealer invoice, tax included out the door) * I figured out the car I wanted ahead of time. Do not do a test drive with the goal of buying the same day. You will not get a good deal * This also included all the options that I wanted. GPS primarily * I started calling around the last week of month to various dealers within 100 miles. * I offered a price, if they didn't want to play, I gave them my number and rang off. * By the last day of the month, I had the price I wanted in hand and probably could have gotten another $100 off but that was at the point of diminishing returns for me. * Took a 2 hr lunch break to go to the dealership to deal with the paperwork. * 0% financing * Nice and stress free. Same deal with mattresses. I shaved thousands off the list price. Thing to keep in mind is that they are always going to win. The goal is not to beat them but to minimize their "win".
- mhb 15y ago
  What kind of mattress costs thousands?
  - Dove 15y ago
    The kind that saves you money. ;) Joking aside, a quality mattress can last for decades (and will often have a manufacturer's guarantee of such). The price of the mattress is surprisingly non-correlated with the annual cost of ownership: http://www.us-mattress.com/durability.html http://www.us-mattress.com/durability.html
  - newman314 15y ago
    Simmons World Class and above. I used to pooh-pooh a nice mattress but years of sleeping in horrible hotel foam beds ruined my back. So while it may cost more, a good mattress is definitely worth the money.
  - starfox 15y ago
    talalay latex
- praptak 15y ago
jarrett 15y ago
If the article has it right, the car dealers and manufacturers are complaining that making the market more transparent and open will kill the industry. These companies seem to believe the basic laws of economics don't apply to them. If you assume a simplified, econ 101 model, a competitive and transparent market will drive prices down to the point where most firms are making a low but sustainable profit. It should never drive prices down to the point where most firms are losing money in the long run. Now, the real world is more complex than econ 101. But even so, I can't imagine a scenario where transparency and competition would have the long-run effect of putting an industry out of business. If all car dealerships were totally transparent about their pricing, and buyers could easily view pricing data from every dealership, how would that force dealerships to price cars below cost? A race to the bottom does not assume a bottom of zero, or even a bottom that's below sustainable levels. Rather, it should imply a bottom where companies make a small, but reasonable profit.
- winstonm 15y ago
  Interestingly, dealers already sell some of their new cars below cost. But they make their money back with service and financing charges, so the basic laws of economics still apply. http://blog.truecar.com/2009/04/24/more-than-ever-dealers-are-losing-money-on-new-car-transactions/ http://blog.truecar.com/2009/04/24/more-than-ever-dealers-ar... http://www.justice.gov/atr/public/eag/246374a.jpg http://www.justice.gov/atr/public/eag/246374a.jpg (from http://www.justice.gov/atr/public/eag/246374.htm http://www.justice.gov/atr/public/eag/246374.htm)
- ScottBurson 15y ago
  It could, however, put some of the less-well-run dealerships out of business. The equilibrium number of dealerships might be smaller than it is now, as reduced margins support fewer salespeople. I'm not saying that's necessarily a bad thing overall, but I can see why the dealers might not be too keen on it.
  - Retric 15y ago
    Hardly, they have great marketing, but not exactly bare bones pricing. They cost the dealer 300$ for the sales lead which means their price is always higher than what a dealer will do directly. Last time I checked they where 600$ above what the dealer was willing to offer after a few minutes of haggling. Though, it's not a bad price if you hate haggling. Hint, most dealerships make more money from their service departments than their sales floors. Use that to your advantage when buying a new car.
otterley 15y ago
It's not really that difficult to get a good deal on a car. The key is knowing which car you want ahead of time: make, model, color, and accessory packages. Then, all you have to do is call all the local dealers in your area and ask for the "fleet manager." Tell the fleet manager your requirements, and ask for a selling price. (I've never had a fleet manager renege on the deal.) As you call around, tell the fleet manager the lowest price you've been offered (don't lie) and see if they'll make a better deal. Continue this process until you've exhausted your options. Then walk in, complete the sales paperwork, go to the finance office, refuse all extras politely, and you're done.
- dedward 15y ago
  yup. this works because it keeps the sales guys free to do their thing and the company would be stupid to turn down an already done sale.
api 15y ago
Startup formula: 1) Identify a place where a middleman is taking a cut. 2) Find a way to disrupt or go around the middleman. 3) Profit.
digikata 15y ago
I'm in California and my credit union, and Costco have both offered this type of service for decades. You call up the service, tell them what type of car with what options and you'll get back some no haggle prices. I've purchased a car this way and the dealers that responded were mostly "fleet" dealers. I took this to mean that they didn't really deal with a lot of walk-in traffic and most of their sales was to businesses. Both sides save a lot of time this way. If you wanted to go further, you could take the price you get back from the service and call around to dealerships to see if they'll go lower but, for me, it didn't seem to get better unless the model was in particularly short supply. I really don't see much fundamental disruption going on here, with the exception of maybe establishing this process in some states vs others with more limiting legislature, and possibly the amount of volume that goes the traditional way vs dealer competitive bids.

96 points by robg 15y ago

I used CarWoo to buy my car. The price I paid was a clear $1000 under the "Great Price" that True Car suggested, and under the estimated Dealer Cost. Nevertheless, I don't see these services as viable long term -- it's a race to the bottom. With manufacturer sales incentives, the smaller dealers are bound to get squeezed out by volume/commodity dealers.

sliverstorm 15y ago
Yes, but consumers generally like a good race to the bottom, even if everybody loses in the end.
- bhickey 15y ago
  I'm not one to complain -- I don't sell cars!

dsr_ 15y ago

Car dealers have haggling advantages over purchasers: - You buy a car perhaps once every three years, perhaps once every ten. They sell a car at least once a week. - You are basically alone; they are a team. My sister started buying cars via fax quotes about 12 years ago. When she's figured out what she wants, she sends requests for quotes to every suitable dealer within 100 miles. (Now she uses email, of course.) They still don't expect this minor effort to put them into competition with each other, and it seems to have worked in her favor every time. It's nice that TrueCar is automating this; perhaps more people will use it.

vaksel 15y ago

not really, car dealers make most of their money on their service department. That new Civic might net the dealer a $500 profit....but if that car comes in for a single service, they'll net more than that from the repair. And yes you aren't paying any cash for warranty work...but the dealer gets paid by the manufacturer, so they don't care.

evilduck 15y ago
That's for dealerships. There's tons of small used car dealers that operate on empty lots or out of their garage. Their profit is derived solely from car sales.
- slouch 15y ago
  ..and it's easier for them to make more than 500$ a car. Also, don't forget used car warranties.
gregpilling 15y ago
I agree partially. I have been in the auto business for 20 years and have talked at length with dealer principles. My brother ran a dealership for a number of years. The money a dealer makes at the time of sale is in Finance and Insurance (F&I), as well as preloading with accessories before purchase (disclaimer, I sell truck accessories to dealers). It is common to add points to the deal on the financing. I purchased a Jeep last year and the dollar amount was right (went through the internet guy) but they attempted to stick it to me on the finance - 8.99%! So I walked out and told them to call me when it was 4%. A few hours later they called and said we had a deal at 4%, so I had them deliver the Jeep to my work. When I used to sell automotive equipment to dealers ('90-'01), MY finance companies always gave me the option to pad the deal. I could add up to 2% to the interest rate and the finance company would give me about half of the extra interest charge. While I thought this was a sleazy practice and never did it myself, on many of my deals the interest money would have far exceeded the income on the equipment. Besides the service that you mentioned (warranty work and customer pay), there is also a lot of money in parts, especially collision parts. I had the pleasure of spending a plane ride with a dealer principal of 12 dealers, and she said the overwhelming majority of their company profits were on crash parts - especially their domestic brands. She also said accessories for Minis were very strong for the bottom line. Her other significant comment was that they never make any real money from new car sales and they were a pain. She has a lot of headaches with the manufacturers demanding facility upgrades every couple of years (at the dealer expense), and moving cars that the manufacturers occasionally compel the dealers to take (these are the undesirable cars that get sold below cost, a unintended consequence of CAFE regulations). Another less talked about area for dealer profits are used cars. As the old dealer saying goes "All new cars are the same; every used car is unique", and there can be more profit in a used car than the same model new. Many trade-ins at dealers go to auctions like Manheim where they are sold fast and furious in as-is condition for the most part. Used car departments purchase these cars and then sell them on their lots. A friend of mine just purchased a Honda Element that was missing back seats and some windshield trim for $2000 below KBB trade-in. Ebay and the dealer supplied the needed parts for under $200. If you are looking for a deal on a used car, try and find a friend with a dealer license.

tejaswiy 15y ago

As someone who's been through this process recently, I've never understood why car buying has to be this way. The whole process has a sleazy feel of I'll try to rip you off by as much as I can get away with. Car prices go lower as you reach the end of slow months when the sales teams don't reach their targets, they go higher earlier in the month .. it doesn't make any sense at all. Why not just have an MSRP like the on the manufacturer's website and sell all cars at this price? The dealer can get a constant profit on the car price & servicing, buyers can feel less ripped off and everyone wins? It doesn't really have to be a race to the bottom..

sokoloff 15y ago
Because (some) people like to get a "deal". And if you move your car brand to "no dicker stickers" and I don't, I'm likely to capture a share of the "likes a bargain" shoppers, though I admit I'll lose some of the "likes a sense of apparent fairness shoppers" to you. Now, what happens when you have a "no dicker" policy and you need to move a car for whatever reason? Maybe the new models are coming out. Maybe the dealer needs to raise some cash to meet his loan payments. Maybe a model is intended for snow/foul weather usage, and you shipped too many of them into New England, expecting a normal winter. How do you entice customers who will eventually need a new car (according to them) into buying your car from your dealer now. Do you lower MSRP across the board for year-end models? That could work. Do you lower your MSRP only in New England? That could work, but smells worse from a globally consistent pricing point of view. Do you allow just the dealer who needs cash to lower his price? Well, you can't really do that and have any notion of consistent pricing. And that's just the problems in the new car market, where a given car could be identical to any other any equivalent car. In the used car market, it gets way, way worse (in terms of complexity and sleaziness).
- spitfire 15y ago
  This is a flaw in inventory control (too much of it), and it can be fixed. The toyota production system is about getting the car to the customer as quickly as possible. If you were smart you would organize your production/inventory into a Just In Time system. Every car is a bespoke order, each store has a demo of each type of vehicle available for test drives.

VengefulCynic 15y ago

The real interesting point in all of this to me is how hard it is to innovate in this space on account of state legislatures essentially subsidizing car dealerships. "So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. Honda Motor Company also protested loudly, threatening to cut off marketing dollars to dealers that did not follow its guidelines when promoting its brands on TrueCar’s site." While I know that there are a lot of people employed by local dealerships in the sales department, I can't help but thinking that a lot of these jobs essentially add a percentage cost to new cars with no value added. Which, of course, means that since innovation is a threat to these old business models, most of these dealerships will only be doubling down on legislation and protectionist policies that stop or slow genuine innovators like the guys at CarWoo and TrueCar.

dangrossman 15y ago
If they don't, there's another 1.2 million jobs lost to technology in a country that has no answer to the growing imbalance between working-age population and gainful employment opportunities. Progress can be a very damaging thing for society on some levels. I'm tempted to delete this comment because of the quick downvotes, but I'm not going to. I think it's a valid thing to think about at the very least.
- wmf 15y ago
  If people want to bring back the Works Progress Administration, so be it. But special legal favors for certain industries distort the economy (even though they may help).
  - sopooneo 15y ago
    I feel like that is the way this has to go in the end. When almost all our needs are taken care of through automated processes, and only a few people have the skills to contribute to the creation and maintenance of that automation, we are going to need a large orginisation (logically government) to provide the rest of the population with livelihood.

MrFoof 15y ago

"Car dealers have haggling advantages over purchasers: - You buy a car perhaps once every three years, perhaps once every ten." Correct, this is no different than the mattress industry or bridal industry. There has to be a large premium over the price of the product to support the people operating the business. This is because there are established points-of-sale that were established before doing direct business with the consumer was reasonable, or because there is some additional value added during the sale by a physical presence (test drive, testing a mattress, getting fitted for a gown). The remaining issue is eliminating the "icky" feeling that comes with buying a mattress or car. This could be eliminated if franchise laws could be repealed, but that's a hard battle. I believe Chrysler had set up a dealership recently in L.A. (to sell Chryslers, Jeeps, Dodges and Fiats), but dealers pointed out how it was illegal and had the state force that dealership's closure. Imagine if there were brand-owned dealerships, that eliminated the haggle, leveraged their distribution networks to minimize the numbers of actual cars on their floor plan, and allowed customers to buy direct for a flat price. Would be nice, right? Actually, this is possible, but it does involve a bit of legwork. I've bought my last two cars straight from the port of entry, but a lot of legwork is involved, as is developing a relationship with the right individuals. I should blog about that one day, as how to get around the nonsense of the mattress industry.

philwelch 15y ago
> Correct, this is no different than the mattress industry or bridal industry. Or, more morbidly, the mortuary industry.
sixQuarks 15y ago
Can you briefly explain how you bypassed the dealer franchise laws by purchasing straight from the port of entry. Who actually sold you the cars?
tommy_mcclung 15y ago
I'll partially agree with you on this. Car buyers do only buy cars once every few years, but the amount of information available to a car buyer is incredible. You can know exactly what a dealer paid for the vehicle you're about to buy if you try. Dealer's are in somewhat of a vacuum from a data standpoint. Most of them have no insight into the buyer's shopping experience... meaning how many dealers are they talking to, were they on KBB/Edmunds, are they cross-shopping, etc... They may be better at haggling, but it's somewhat by necessity at this point to hold what little margin they can. Consumers are armed with information and tools, dealers have a lot of challenges fighting this. Lots of people probably don't realize that at CarWoo! this is one of the issues we're helping dealers with when they use our product to engage with buyers. Only when both sides of the selling equation have an equal chance will the bad buying (icky) experiences go away.

kevinwmerritt 15y ago

As a first time car buyer one and a half years ago TrueCar gave me confidence during negotiations. In my case I didn't use it to determine a no dicker price with the dealer. Instead it was the basis for my walk away price and counter offer.

larrys 15y ago

Car dealers also use pricing to get you to make a decision and buy a car. So another disadvantage to them is if the price is fixed it removes motivation to "buy now". In the past fixed pricing has never worked and it actually works to the disadvantage of anyone who has a clue about negotiation. The fact that someone pays more is one of the reasons another person can pay less (dealers have to move vehicles).

tommy_mcclung 15y ago

Thought I'd give my $.02 on this. I'm CEO of CarWoo! and we are right in the middle of disrupting the space and you guys are right it is extremely difficult, but it is possible. It's not so much of a disruption as it is an effort to level the playing field and bring an online buying experience to car buying. It is possible to innovate here, you just have to do it the right way, within the laws that have been setup to protect the consumer and the dealer. It doesn't have to be a race to the bottom. What we see on CarWoo! are dealers offering market competitive prices and then competing with each other on things outside of the vehicle price. Things like professionalism and responsiveness become extremely important when all other things are equal (price and vehicle). Over half the consumers on CarWoo! buy from a dealer who didn't have the lowest price. A race to the bottom only exists if the only dimension visible to the consumer is price. On CarWoo! we emphasize the customer experience you're likely to get from the dealer which adds another dimension to the decision. Dealers love this, so do buyers. The big issues in question are the brokering laws (getting paid a fee to refer someone who buys a car), privacy issues and dealership advertising laws (all vehicle offers must come with a vin and stock number). From day one at CarWoo! we have been keenly aware of these issues and worked within the rules to provide a highly valuable consumer experience, while working within the laws. It is absolutely harder to do it this way, but it can be done. We don't believe haggling will ever go away, even if manufacturers move to a "single price" system like Scion. There is a distinct advantage for one dealer to break the rules and provide a lower price, so they will and the single price systems break down. We see Scion dealers discounting all the time, by the way. The only way to break out of this if you're a dealer is to be better at customer service and cater to your buyer's specific requests. Automation can not solve that problem, so selling cars will always have a dimension of personal touch and relationship. What needs to be in place is a platform where buyers can shop multiple dealers online and dealers can work out the details of their car purchase before they show up at the store. This let's great dealers shine and helps them keep their margins in a highly competitive market. This is what CarWoo! provides and we've done it within the complex and ambiguos web of rules in this space. Innovation is possible here, and yes it is extremely hard. Harder than I ever imagined. But that's why it's such a huge opportunity.

robg 15y ago
I posted this exactly so I could hear your thoughts instead. Thanks!

X-Istence 15y ago

I use Costco's auto sale program. They give me a fair price and I don't have to haggle. Now if only I had the money to buy the car of my dreams!

mwexler 15y ago
Note that these programs are often rebadged "aggregators". For example, AAA's "auto sale" program is Zag (Truecar). Costco's is Affinity Development, http://www.affinitydev.com/index.html http://www.affinitydev.com/index.html Not saying that anything is wrong with these, but just saying that if you trust AAA or Costco's internal controls and skills, you aren't getting those in these services. You are getting AAA or Costco's willingness to license their name. As is posted many times in this thread, it's down to time vs. money. These services get you 1/2 to 3/4 of where you could get yourself, at a cost. You could do better, sometimes much better, with more time, but that's for each person to decide.

newman314 15y ago

I actually love car shopping. I enjoy making car salespeople squirm =) Here's what I did the last time I bought a car. ($200 over dealer invoice, tax included out the door) * I figured out the car I wanted ahead of time. Do not do a test drive with the goal of buying the same day. You will not get a good deal * This also included all the options that I wanted. GPS primarily * I started calling around the last week of month to various dealers within 100 miles. * I offered a price, if they didn't want to play, I gave them my number and rang off. * By the last day of the month, I had the price I wanted in hand and probably could have gotten another $100 off but that was at the point of diminishing returns for me. * Took a 2 hr lunch break to go to the dealership to deal with the paperwork. * 0% financing * Nice and stress free. Same deal with mattresses. I shaved thousands off the list price. Thing to keep in mind is that they are always going to win. The goal is not to beat them but to minimize their "win".

mhb 15y ago
What kind of mattress costs thousands?
- Dove 15y ago
  The kind that saves you money. ;) Joking aside, a quality mattress can last for decades (and will often have a manufacturer's guarantee of such). The price of the mattress is surprisingly non-correlated with the annual cost of ownership: http://www.us-mattress.com/durability.html http://www.us-mattress.com/durability.html
- newman314 15y ago
  Simmons World Class and above. I used to pooh-pooh a nice mattress but years of sleeping in horrible hotel foam beds ruined my back. So while it may cost more, a good mattress is definitely worth the money.
- starfox 15y ago
  talalay latex
praptak 15y ago

jarrett 15y ago

If the article has it right, the car dealers and manufacturers are complaining that making the market more transparent and open will kill the industry. These companies seem to believe the basic laws of economics don't apply to them. If you assume a simplified, econ 101 model, a competitive and transparent market will drive prices down to the point where most firms are making a low but sustainable profit. It should never drive prices down to the point where most firms are losing money in the long run. Now, the real world is more complex than econ 101. But even so, I can't imagine a scenario where transparency and competition would have the long-run effect of putting an industry out of business. If all car dealerships were totally transparent about their pricing, and buyers could easily view pricing data from every dealership, how would that force dealerships to price cars below cost? A race to the bottom does not assume a bottom of zero, or even a bottom that's below sustainable levels. Rather, it should imply a bottom where companies make a small, but reasonable profit.

winstonm 15y ago
Interestingly, dealers already sell some of their new cars below cost. But they make their money back with service and financing charges, so the basic laws of economics still apply. http://blog.truecar.com/2009/04/24/more-than-ever-dealers-are-losing-money-on-new-car-transactions/ http://blog.truecar.com/2009/04/24/more-than-ever-dealers-ar... http://www.justice.gov/atr/public/eag/246374a.jpg http://www.justice.gov/atr/public/eag/246374a.jpg (from http://www.justice.gov/atr/public/eag/246374.htm http://www.justice.gov/atr/public/eag/246374.htm)
ScottBurson 15y ago
It could, however, put some of the less-well-run dealerships out of business. The equilibrium number of dealerships might be smaller than it is now, as reduced margins support fewer salespeople. I'm not saying that's necessarily a bad thing overall, but I can see why the dealers might not be too keen on it.
- Retric 15y ago
  Hardly, they have great marketing, but not exactly bare bones pricing. They cost the dealer 300$ for the sales lead which means their price is always higher than what a dealer will do directly. Last time I checked they where 600$ above what the dealer was willing to offer after a few minutes of haggling. Though, it's not a bad price if you hate haggling. Hint, most dealerships make more money from their service departments than their sales floors. Use that to your advantage when buying a new car.

otterley 15y ago

It's not really that difficult to get a good deal on a car. The key is knowing which car you want ahead of time: make, model, color, and accessory packages. Then, all you have to do is call all the local dealers in your area and ask for the "fleet manager." Tell the fleet manager your requirements, and ask for a selling price. (I've never had a fleet manager renege on the deal.) As you call around, tell the fleet manager the lowest price you've been offered (don't lie) and see if they'll make a better deal. Continue this process until you've exhausted your options. Then walk in, complete the sales paperwork, go to the finance office, refuse all extras politely, and you're done.

dedward 15y ago
yup. this works because it keeps the sales guys free to do their thing and the company would be stupid to turn down an already done sale.

api 15y ago

Startup formula: 1) Identify a place where a middleman is taking a cut. 2) Find a way to disrupt or go around the middleman. 3) Profit.

digikata 15y ago

I'm in California and my credit union, and Costco have both offered this type of service for decades. You call up the service, tell them what type of car with what options and you'll get back some no haggle prices. I've purchased a car this way and the dealers that responded were mostly "fleet" dealers. I took this to mean that they didn't really deal with a lot of walk-in traffic and most of their sales was to businesses. Both sides save a lot of time this way. If you wanted to go further, you could take the price you get back from the service and call around to dealerships to see if they'll go lower but, for me, it didn't seem to get better unless the model was in particularly short supply. I really don't see much fundamental disruption going on here, with the exception of maybe establishing this process in some states vs others with more limiting legislature, and possibly the amount of volume that goes the traditional way vs dealer competitive bids.