Can Car Dealerships Be Disrupted?

I WANT A NEW CAR

I've been looking into purchasing a car recently, and I must say, as I remember, it's incredibly unpleasant experience.

Why is this?

Because the relationship is adversarial by design. The combination of salesperson incentives and quotas along with an expectation of haggling and mutual perception of information advantage makes buying a car a more or less lose/lose situation.

I'm going to give some details of my experience, conclusions, and recommendations and see what everyone thinks.

I apologize for the super long post, but there really isn't a simple way to do this. If you just want to know the conclusions, skip to the end.

 

THIS WILL BE EASY, RIGHT?

First, there's what I want. This is simple. I would like a 2012 Toyota Camry XLE Hybrid. I want the basic package, no leather (about $1,745) and the remote car start ($499). Conveniently Toyota lets me build my own car, just like almost every other site.

You can see my practical dream machine here:

So, the price, $30,539, right? Well... as we all know MSRP doesn't really mean anything other than this is the number the "manufacturer" recommends. It's common knowledge that no one REALLY pays this price. So... the next step in our journey is figuring out what the price SHOULD be. That's where it all gets messy.

A number of internet services help. First, there's CarGurus.

I quickly plug the details of my desire into it's site and it spits this out:

$28.458! Wow. That's a much better number. But wait... CarGurus doesn't let me add the features the same way the Toyota builder does. I included Navigation package, but is that the same thing? I'm not sure. I suppose I could call a dealership to ask, but I know that then I'll be entering the adversarial quagmire I'm trying to avoid in the first place.

 

MAYBE NOT SO EASY... HELP ME INTERNET

Fortunately, there's lots of other sites as well! Edmunds, KBB, Cars.com and so on. They all make the same claims, "actual" prices that you can use to make sure you don't get screwed. Ok, their marketing speak is better than mine, but that's the meaning.

I'll break them down next.

Edmunds "True Market Value:" $28,566

Cars.com "Smart Target Price:" $28,870

KBB "Fair Purchase Price:" $28,124

Consumer Reports Base Invoice Price: $27,404 - I didn't want to subscribe to get more details, but they DO promise to save me $1900 on my next car! Also, this price doesn't include the 1500 or so cost of options, so that would put things close to the $29,000 mark.

 

WHAT TO PAY

I'll stop there. I can tell that the price is right around the mid $28,000 mark. But how can that be? Toyota put it at $30,500 which is about $2,000-$2,500 more... Is Toyota artificially boosting the anchor price by 5-8% so that they can give the dealers and buyers room to find middle ground? Or is that what Toyota truly recommends and market pressures are causing the poor auto dealers to take major cuts into their profits... potentially even losing money.

Armed with this information, am I at a huge advantage?

Obviously not. The dealers know about all these sites and have huge incentives to mine them for information.

 

TRUECAR

I decided to try and use TrueCar's service. It's free, it's fast and it seemed easy. This is where I discovered the next part of the confusing world of car buying. Here's the quick breakdown on how TrueCar works:

1. You got to their site and punch in your dream car.
2. They collect your info before they give you a "Estimated Savings Guarantee".
3. You verify your email and they send your info along to Official TrueCar affiliates who then send you a quote.

All of this by email, so nice and convenient... not in person negotiation... no 3 hours at the dealership while the "finance guy sees what he can do."

So what did I get back?

There it is again... the $2,500 difference. One thing to note is that TrueCar doesn't give me a price, but rather a guaranteed estimated (paradox?) savings from the MSRP. The idea here is that every dealer has completely different versions of the same car with slightly different tweaks, so prices fluctuate. By focusing on the savings amount, the customer is protected from this fluctuation, right?

Well, kinda. The problem is that each of the options don't have a fixed price-feature associate relationship either, so one dealer might charge $465 for the remote start feature, while another might charge $534. Without seeing the detailed invoice and comparing, how can I know?

A few hours pass and I get three offers from specific dealers. I left the names off:

These are direct offers from actual dealers, so I can go out there and just pick the car up for that price. So why not just take the lowest offer? Well, again I run into the whole detailed configuration problem. These are not the same exact vehicles. For example, the 28,774 car includes leather (which I don't what, but it matches all the other features) whereas the $28,024 does not (but it's not the color I want).

 

CONFUSED AND FRUSTRATED

All of this is incredibly frustrating. I have now spent hours of precious free time figuring out what the real price for my car should be? After doing all this work and analysis it appears as though my 10+ hours of research will result in a price differential of +/- 100$. Hardly a good cost/benefit decision.

However, my biggest problem is that because none of the numbers ever agree, I can not shake the suspicion that none of this information is reliable; thus, the 28,500 or so number that keeps showing up could be off by thousands, perhaps more! Or so I tell myself.

This leads me to feel as though I have no choice but to go to the local dealer, armed with my negotiating power and new found information (which they will also have, plus much more) and spend the rest of my day grinding a few hundred dollars.

The thought of that is so unpalatable that I'm now questioning if I even want a new car.

Thus what could otherwise be an exciting experience (I like driving and I like new things) has become tedious and dissatisfying.

 

ROOM FOR IMPROVEMENT

I want to go back to my original problem and do some thinking. I wanted a new car. I wanted a hybrid. I wanted something reliable, not too expensive, someone advanced technologically and powerful enough. I did a lot of research on total ownership costs, reliability, fuel efficiency, space, etc. and knew exactly which car I wanted. I also knew precisely which features I cared about and about what price I wanted to pay (around $25,000-$30,000). At this point I was SOLD.

It wasn't until all the details and confusion around options, prices, and other decisions came into the picture that I became unsold.

Why doesn't this happen with other things?

For example, if I want to buy a new HDTV. I look on-line, maybe I got to Best Buy or Costco. I find the size and resolution I want and all then I purchase one. Sure, I look for the lowest price perhaps, but they are all within a tight cost range, and the options are pretty well set.

Most consumer electronics are the same way: Laptops, Game systems, even Cable and Satellite packages.

Cars appear to occupy a unique space here.

So, my top 10 disruptive dealership ideas would include the following.

New Dealership: Welcome to CarFast - where speed, transparency, and self-service rule.

Pitch: No commissions, no markup, no long, drawn out negotiations. You research, you test drive, you configure, you price, you drive. We help as much or as little as you want.

Our Guarantee: If you don't like it, return it within 24 hours.

Here's what I'd change/include:

1. Unlimited test-drives for a non-refundable payment that can go towards a purchase: so I pay $100, and that allows me to test drive a bunch of vehicle prototypes the dealership has. If I buy a car, it goes towards the price, if not, I lose the $100.
2. Show the profit clearly: Essentially display what the car cost the dealer (at auction, wholesale, etc) and then what the markup is. As a customer I have no problem understanding the businesses need to make a profit, I just want to not feel ripped off. This may not work well because of the built in suspicion I have... how can I trust the dealer? I think that's why this has to be part of the whole package.
3. Non-commission sales people: I think some dealers do this, but I would advertise it prominently. I hate buying things like cars and furniture because I feel like a dying corpse at a vulture party.
4. 24 hour right to rescind: Car dealers HATE giving any guarantee. Why? Because they know that many people are pressured into buying cars they can't afford, end up regretting, etc. By preventing you from returning it, they can bully you. Almost no other purchase has this kind of problem (house buying being a notable exception). By telling customers up-front they can bring the car back, it makes them more willing to buy. I suspect most people are far too lazy to come back and the rescind rate will be low anyway. It's possible that there are all kinds of regulations that make this not as easy to do, but I've actually seen people get this from dealers before (After many hours of negotiation) so I know it is possible.
5. Total Electronic Transactions: Let me do all of this on-line, without talking to people, emailing back and forth, and other forms of protracted negotiation. They cost my time and the dealer's time and because of the environment it makes the entire experience uncomfortable. If all I have to do is go to the dealer and pick up my brand new shiny car, I'm much happier. I understand that some people are the exact opposite here, so obviously personal service is needed.
6. Fixed Payment Ranges: Post very clearly the credit range/APR relationship. I get that if I have shitty credit I pay more. The banking industry has beaten that into our heads. Just tell me in advance instead of making it a mystery and making people feel bad. My social goes into a machine, my score comes out, and I know my APR is x, y or, z.
7. Less Choices: Get rid of all the complex choices: warranties, paint protection, blah, blah, blah. Everyone knows that these are just ways dealers try and increase their margin (which they have to do because of the adversarial relationship). Get rid of both at the same time. Make it easy for me to decide and I will!
8. Speed: Buying a car should only take an hour or so, yet I know it will be a full day affair. Promote speed just like other businesses. If the customer WANTS to spend hours asking questions and deciding, fine. But for pre-sold people that know exactly what they want, give it to them (or as close as possible) and let me go home.
9. Self-Service: Most dealers put their inventory on-line, that's great. But almost none of the vehicles have any pricing info. Let me do ALL of the above on-line or on-site at a kiosk. The only reason I have to go through an intermediary is because of the commission based, adversarial relationship. There's no reason I can't go to a dealer, sit down at a terminal, browse inventory, add options, get a price, qualify for payment, print out the papers and drive away without talking to or negotiating with anyone.
10. Focus on Customer Experience: Everyone says they do this, but I would go out of my way to detail HOW I'm doing this. Hire people who are knowledgeable about the vehicles, train them well, don't be pushy, drive customer satisfaction incentives- and advertise them.

 

CONCLUSION

The over-arching theory is that experience adds value. If I actually had a great car buying experience, I would recommend that dealer to anyone. I'd also always go back there for service, which is where even better margins are - and similar rules can be applied.

On the opposite side I would cut down on the dealership costs by promoting self-service, simple rules, speed of transaction and reduction of conflict. I might bite it on the 24 hour guarantee, but if you put reasonable provisions in (I.e. you can't do it more than once a year, etc) I am sure that it will be a value add.

So that's my amateur pitch for a new kind of dealership. It might be a series of terrible ideas that have all been tried and failed - thus resulting in the current car buying market; but as of today, I'm dreading the prospect of actually finishing off my car buying experience and I feel the entrepreneurial urge to redefine it.

Comments

[Mattpuccio]

One technique I've seen recommended a lot on the car forums that I frequent is to simply email multiple dealers with the exact configuration that you want, letting them know that you're asking multiple dealers for their price, that you're ready to buy, that you know exactly what car and options you want, and that you won't put up with any haggling - you want the best price on the exact car you describe.

I haven't done this (mainly because the last 4 cars I bought have been used) but I've read of guys on the BMW forums who do this with good results. They will often contact 15-20 dealers across multiple states, and with a Toyota there are probably even more in your area. Some dealers will simply not respond, some will reply with junk, but others will be happy to deal with a customer who knows exactly what they want, and who is ready to do a deal with minimal effort on their part.

The best part of this is that you only have to compose the email once, and then just find the dealer emails.