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Car Dealer Pricing: Are You Charging Enough?

This article is re-posted with Brian Hoecht's permission from:

When setting up the Ai-Dealer ecommerce shopping cart for vehicles, many dealers find themselves pricing their inventory for the first time. Having been asked by new dealer clients four times this week "what would you recommend?" I felt the makings of this week's newsletter.

I'll get rid of any shred of doubt about how I feel on this topic.

I believe very strongly in premium profitability and premium vehicle pricing by car dealers.

I believe in being the best, in providing the best experience and that requires a price premium to be able to profitably afford to do so. I shop at Nordstroms when buying something where I need high trust and service. I shop at Walmart when I don't. A few hundred dollars on a car purchase makes very little difference to a consumer within a monthly payment, but all the difference in the world to a dealership's profitability and Internet Manager's pay plans.

Yes, being a car dealer is very difficult these days, especially if you believe we are headed for a 15M new vehicle sales year and / or have a Big 3 franchise where over-dealering is destroying margins. In my opinion, those are the excuses of lazy marketers and weak managers.

As one of Ai-Dealer's dealer clients wrote about before the holidays, you don't have the gross margin to buy trust online. So stop trying. If you make $1,500 on a $30,000 car, can you really give away enough that the consumer now trusts you? How will they know? Will they believe you? If they aren't going to know, believe you and trust you, stop trying, be creative and have premium grosses because you are worth it.

Make this message part of your sales process:

Don't buy a car here if all you want is the lowest price. Go somewhere else, put up with their badger experience and get what you pay for.

But if you want a great car, a great experience and a dealer who will look after you not only for your purchase but for your ownership needs, then please consider us.

Take away the price objection. Don't be ridiculous about it, but don't give away your margins unnecessarily just because you don't know what else to say. This will also negate the (pardon the expression) "Price Whore" who always is in every market selling cars for less than invoice. I have yet to find happy customer experiences at those stores. Caveat Emptor (buyer beware).

Margins are profitability. Margins pay for looking after customers who have unexpected problems. Margins keep the lights on. Margins pay for solid commissions, quality training, great managers, great staff and the programs for a happy, positive workplace.

Now all that being said, you can't just waive a magic want, raise your prices and not hurt your volume and overall profitability.

If you want to pursue a price premium, there are two challenges which must be tackled simultaneously:

  1. Are you charging enough?
  2. Do you manage yourself to be able to charge a premium?

While getting caught up from my readings over the holidays, I came across this excellent post which I have reprinted most of below...

One of the fastest and easiest ways to generate more income in your business is to raise your prices.

Most business owners are afraid to test the price elasticity of their offerings but surprisingly most businesses are undercharging for what they offer and with better marketing their prices can become even more elastic.

We've not only found this to be true through personal experience in our own business but also consulting with many clients as well. Very frequently we find that prices can be raised immediately which can create an automatic cash surge in net profit and with the implementation of some good marketing the price can go even higher in a short period of time with minimal loss in customers but a huge increase in customer value.

For those of you out there that are saying, "I can't raise my prices, you're crazy." Think again. Most likely you have a lot of customers who are price shopping you and haggling over price. This happens because you've put yourself in the commodity game by not demonstrating WHY your product/service is better. You've delivered no buying preference to the market. With no buying preference you've given your prospects no way to choose you besides comparing prices. When there's no other deciding factors, it comes down to cost.

You're most likely just selling the same widget as someone down the street and not creating any value in your expertise or uniqueness. Only talking about the features of the widget you offer which are the same features everyone else who sells similar widgets are using is a recipe for low grosses and a mating call for tire kickers, price shoppers and annoying customers.

Stop selling products and start selling you, your expertise and the experience of doing business with you. It's not as hard as you think and there are lots of people out there who are willing to pay significantly more for something that seems just a little better...

So what does this look like in a dealership? Well to me it doesn't sound like things that any dealership can say. All dealers have experienced sales staff, convenient service hours, etc. Unless you have something truly spectacular you'll need to come up with things you can afford to say and that consumers care about. Try:

  • 3-7 day right of return / exchange. No questions asked.
  • Unlimited car washes when your vehicle is in for service
  • $500 extra if you trade in the vehicle you are now purchasing for a second vehicle at the dealership
  • Basic window etching as theft protection
  • Valet service if your margins permit it... or at a reasonable per mile charge
  • For used car customers, free oil changes with other recommended maintenance
  • 10% off all parts and accessories
  • Rave books... every salesperson keeps letters from prior customers on her desk and encourages prospects to look at them.
  • Other? Be creative. I hardly have a lock on good ideas.

Online what does it look like?

  • Well it sure isn't the same website experience they can get from any other dealer. Generic VIN decoder data with an email us form? That is not a buying experience, or at least not one you can charge a premium for.
  • Video doesn't change how I feel about having to email to inquire.
  • Online credit approvals and trade appraisals are okay, but seem a bit out of place until / unless I am thinking that as a consumer. Is that all you want them to do, then "Come on in!"
  • Make sure anything to do with your OEM's brand is organized appropriately. Consumers go to the OEM's for vehicle research. They go to dealers to buy.
  • Add transactional website capabilities that support your brand message of "a better buying experience":
    • Yes, get a shopping cart and move the whole vehicle purchasing experience online (price, rebates, credit, interest rates, trade in, accessories, extended warranties, protections, tax, title, fees, accurate monthly payments).
    • You'll sell way more cars from unsold shopping cart follow up than from direct buys anyway + you'll have more and higher quality chances to do so.
    • You'll also have a great new message to use both offline and online in your advertising.
    • Online service scheduling... confirmed, self-serve service appointments. Again no lead forms. Get a proper progam.
    • Online parts + accessories. Ditto.
    • Review each page of your website. Ask yourself, should that be there? Does it speak to my brand? Does it speak to the conversation I should be having with my consumers? What should I sound like? How well do I do it? Need some inspiration on this, try this link.

And don't just apply this premium thinking to the vehicle price. Apply it to finance markups, do a proper job marketing accessories in your showroom, have a full suite of protections and quality extended service contracts (ensure you monitor quality of customer service, coverage and your profits).

Price premium is not a right, it is earned. So is trust. Having been a dealership General Manager and a CFO, I know what a huge difference having price premiums makes to the bottom line.

Please share your thoughts, opinions and any additional "we are worth a premium" ideas on our forum.

(c) Copyright 2005-2007 Ai-Dealer LLC - All rights reserved.

Views: 37

Tags: Car Dealer, cost, invoice, new car, pricing, quote, transaction, used car, vehicle pricing


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