AutoNation shifts to no-haggle prices
AutoNation, the largest U.S. retailer of new cars, is abandoning old-school haggling in favor of an online storefront and set pricing on new and used cars.
The move is the latest sign that consumers, empowered by a torrent of online data, are demanding a simpler, more efficient process for one of their most important purchases — along with a fair deal.
AutoNation's new Web portal mimics that of car-buying conduits such as TrueCar.com and CarGurus.com, which have carved out a thriving business as middlemen between dealers and buyers.
AutoNation's customers will be able to research prices that reflect current market values — usually discounted from the sticker price — and put a deposit on a car. Later, the company will offer online bids for trade-ins and arrange auto loans.
Such services threaten to end the era of tortuous dickering sessions, in which a salesman runs back and forth clearing offers and counteroffers with a sales manager. With 225 dealerships nationwide — none in Michigan — AutoNation could ramp up the pressure on other dealers to transform the way they serve customers.
"The car dealer should not be a time machine that moves backward," said Mike Jackson, AutoNation's chief executive. "This is just the beginning. We will buy your car online, will do your credit work online, and ultimately do a great deal of the documentation online."
AutoNation recently launched its SmartChoice Express digital sales tool in Florida and will roll it out next year to California and other states where it has clusters of dealerships.
Other dealers are carefully watching AutoNation's program.
"We are interested to see how they do with it," said David Conant, whose Conant Auto Retail Group owns 14 car dealerships that go head-to-head with AutoNation stores in California and Florida.
Conant sees the potential for a competitive threat but said other dealers could adopt a similar process without much time and effort, with the help of software vendors that serve the industry.
"It won't be exclusive to them for long," he said. "This is the next logical evolutionary step in car sales."
Brian Maas, president of the California New Car Dealers Association, had a similar take.
"It is a smart strategy for AutoNation," he said. "It would not surprise me to see other large dealer groups launch similar initiatives."
Others believe it won't be so easy to replicate. AutoNation has spent more than $100 million putting all of its dealerships under one brand name and developing the technology for the sales tool.
"Not everyone can invest $100 million in an effort like this," said Jesse Toprak, an auto industry analyst. "It will give the company a competitive advantage."
With a more knowledgeable and demanding consumer, AutoNation and other dealers must embrace digital sales technology quickly or lose business, said Thilo Koslowski, vice president and automotive practice leader at Gartner Inc.
Santa Monica-based TrueCar, for example, has quickly grown a business taking the negotiation out of car buying. It offers consumers a database of recent sale prices for specific models, along with competing offers from local dealers.
TrueCar charges the dealers a fee for each sale — $299 for a new car, and $399 for a used car. Founded in 2005, the company arranged 448,000 sales through the first nine months of this year, generating $138 million in fees.
AutoNation would just as soon avoid paying car-buying services by offering a similar service directly to its buyers.
The National Automobile Dealers Association said AutoNation's move is a sign of larger competitive forces in the industry.
"Fierce competition in automotive retailing — driven by a network of new-car dealerships, as well as other online services — benefits car buyers," said spokesman Charles Cyrill.
Finalizing the price of a vehicle — including the hours typically spent in negotiations — is regularly ranked as one of the most distasteful aspects of car shopping, according to automotive market research firm J.D. Power and Associates.
The AutoNation system will review recent sales data to determine prices for each model, usually with a discount off the manufacturer's suggested retail price, the typical starting point for negotiations.
All the cars are priced at the company's headquarters in Fort Lauderdale, Florida, and the prices can change daily or even hourly depending on the market.
A no-haggle price isn't necessarily the lowest price a smart consumer could negotiate. Based on AutoNation's track record of fiercely protecting profit margins, it's unlikely to be the low price leader in any given market, said Scott Painter, TrueCar's chief executive.
Moreover, consumers tend to distrust auto dealers, Toprak said. AutoNation should expect consumers to shop its prices against other dealers and other car-buying services. At each point, the company could lose a sale, he said.
AutoNation's challenge will be to build trust in its system, Jackson said. One method the company is exploring is whether it can post competitors' prices along with its own, he said.
It also wants to change the car-buying atmosphere so customers will pick AutoNation over other sellers.
"Consumers see dealers as confrontational," Jackson said.
He said AutoNation's sales staff will need a different set of skills.
"They won't be negotiators," Jackson said.
"They will have to be product experts and customer service specialists."