
Car Dealers Wince at a Site to End Sales Haggling - robg
http://www.nytimes.com/2012/02/11/your-money/car-dealers-wince-at-a-site-to-end-sales-haggling.html
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tommy_mcclung
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.

~~~
tommy_mcclung
One other thing I'd like to point out is the laws surrounding dealership
advertising and brokering are extremely important to protect the consumer,
therefor the scrutiny in the article. We agree with the laws and they do need
to be in place. Here is why.

Dealership advertising laws require a vin/stock number and an expiration date
to come along with all price offers. This protects the consumer from bait and
switch problems which are rampant in this space. Without these protections
dealers and vendors can simply make up prices to draw people into the store
and when they show, switch them to something else.

I understand in depth the challenges involved in doing this right from a
product standpoint and it would be orders of magnitude easier to provide a
product that doesn't include a vin/stock number (a topic for another post).
But the problem is consumer perception is wrong and misleading. If someone
comes to my product and car buyers can get prices on a vehicle that may or may
not exist (no vin/stock number) you are enabling bait and switch scenarios. On
CarWoo! you will not have this problem, all offers have a VIN/Stock number and
an expiration date.

Brokering laws (getting paid a referral fee from the dealer when someone you
sent to the dealership sells a car) are also in place to protect the consumer.
I had one of our ex-dealers that work for us explain this to me, because at
first I didn't understand why this was a consumer protection issue. He used
this example. It may be a bit out of date, but it illustrates the point. Let's
say you're in a town with three or four car dealerships and the preacher in
the town establishes a relationship with one of the dealers where the dealer
will pay the preacher $500 for every customer the preacher sends their way
that buys a car. On Sunday this preacher uses his influence to recommend
people should buy from his favorite car dealer. The people in the congregation
listen and when they go to buy a car, they go to the preacher's favorite
dealer. The preacher gets paid, the dealer marks up the car $500 to pay the
dealer and the consumer essentially paid $500 more than they had to. The
brokering laws are in place so disclosure about the financial relationship
between the buyer, the dealer and the broker are transparent.

Essentially you can get a better deal as a buyer without a broker and you
should know upfront that's the case.

Hope this helps, it's taken me four years to understand all this stuff.

~~~
nohat
The article mentions franchise laws. What is your opinion on those?

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VengefulCynic
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
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.

~~~
jedberg
I think about it all the time. Especially at the supermarket when I see the
automated checkout line.

Then I head directly for the automated checkout line and tell my wife that the
main reason I use those is because I like the idea of computers putting
unskilled labor out of work, because I'm a bastard like that.

All the more reason we need to support education from an early age and more
importantly get back to supporting journeyman and trade education -- so we
have less unskilled labor.

~~~
felipemnoa
Is a pain in the A. to use the automated checkout line though. It just ends up
taking me longer so I don't really see the benefit.

~~~
jedberg
The main benefit for me is that because most people are afraid of them or
don't see the benefit, the line is shorter. When the regular line is shorter,
I still use them.

~~~
felipemnoa
If you have two or three items sure. But when you do a full shopping is a
pain.

~~~
nmcfarl
This is probably a style thing - I shop 3-5 days a week on my way home, which
means I never buy more than a bag or 2 of grocs and the automated machines are
always faster. It also keeps things lighter on the walk home, and food
fresher.

This is probably not a choice i'd make if I didn't live in a city and commute
by bus and bike.

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jarrett
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.

~~~
ScottBurson
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
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.

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MrFoof
"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.

~~~
toomuchtodo
How is Tesla getting around franchising laws?

~~~
SeanLuke
I don't believe Tesla has franchises.

------
newman314
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
What kind of mattress costs thousands?

~~~
Dove
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>

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tejaswiy
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
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).

~~~
polyfractal
I mostly agree with your response, but it isn't entirely accurate. You can
sale-price items that have a constant retail value.

If you see a sale in a supermarket, you don't think the price is inconsistent
or that you need to haggle over cereal prices. You just realize it is a
temporary sale, a discount on the normal price.

~~~
sokoloff
Agreed, but once you do that, you get away from tejaswiy's idea of just "sell
all cars at that price". I don't have an issue with negotiated prices or
sales, but some do.

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dsr_
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.

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bhickey
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
Yes, but consumers generally like a good race to the bottom, even if everybody
loses in the end.

~~~
bhickey
I'm not one to complain -- I don't sell cars!

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otterley
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
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.

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X-Istence
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
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>

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.

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vaksel
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
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
..and it's easier for them to make more than 500$ a car. Also, don't forget
used car warranties.

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digikata
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.

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kevinwmerritt
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.

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api
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.

------
larrys
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).

