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No Haggle Pricing Should Become the Norm in Automotive


Joe Tarell, Cobalt Performance Improvement Consultant
by Joe Tarell, Performance Improvement Consultant

Should No Haggle Pricing Become the Standard?

For many consumers, the mystery is gone from the car sales transaction.  The Internet has leveled the playing field for negotiating car deals while dealers and car salespeople find it increasingly difficult to hold gross on a car deal. In the last article in this series,  we noted that the NADA says the current net profit on a new car sale is down to $69 from $111 in 2012. While this is alarmingly low to those who don’t follow the industry, many new car departments were losing money in 2009 and 2010 during the recession. Given the lack of profits and consumers being more educated on the ways in which car dealerships make money, it's surprising that there are still so many car dealers clinging to negotiated prices. What is even more remarkable is that they still pay their salespeople on a percentage of gross. When you marry those two strategies you create the perfect storm for bad customer service. Whenever I argue this point with dealers they tell me, “we can’t just give away our cars.” The numbers in the paragraph above tell me that we already are…

Here's What I've Discovered

In researching this article, I read dealership reviews on Yelp  and Google+ in nine different markets across 13 different brands. In order to understand if there was a correlation between commissioned salespeople and common factors to explain the automotive customer service failures,  I focused on the one-star reviews. After looking at 134 one-star reviews what I found was staggering. 82% of the negative sales-related reviews could be directly tied to the price negotiating tactics of the dealership. I would bet my last dollar that almost all of these stores use a pay plan that pays a percentage of gross and pay straight commission. To be fair, each of these stores also had plenty of five-star reviews too. The consumer reviews I studied tended to lean towards extremes. In the vast majority of cases, customers either rated dealerships at a 1 or a 5. The concern is that the one-star reviewers consistently used terms like, “buyer beware”, “never coming back” and“do not buy here”. This tells me that dealerships are losing future revenues for their other departments when they could actually be making a profit.

The typical car salesperson paid a percentage of gross and asked to be the front line negotiator in a store’s quest for more profits is the last person I would hire for Public Relations.  Then why does it seem okay to create a pay plan and strategic plan that puts these salespeople right in the middle of a public relations nightmare waiting to happen? We know we have a turnover problem, so in addition to the other issues we can assume that many of these poor negotiators are also ill-trained.   And in many stores this group of sales negotiators is led by someone in management that is likely nicknamed the “Hammer.”

Moving to One-Price Selling

I realize that this topic will probably ignite a firestorm of critics, but it is time for dealerships to move to one-price selling.  No-haggle prices and sales people trained to sell cars instead of negotiating gross should become the norm.  The advantages are too great to ignore and the pitfalls of business are mounting every day.  The fear is that the customer will walk next door where they can undercut your price by $100 and make the deal.  This can certainly happen, but it can also be defeated as many stores are learning after they make the switch.  Making the switch does not mean “we tried that for awhile,” it means committing to it and transforming your culture in the store. 

In making this switch, the store sales personnel will likely turn over.  Many car salespeople of old are not really salespeople, they are skilled negotiators.  Selling is a different skill set and some of your people have it and some don’t.  Training them to sell on value, sell against other makes, sell the long term vision of buying a car from people you trust and schooling them in customer service first and foremost will take commitment.  The initial worry that people will leave and go find a better price will be strong and learning the art of inviting them to leave takes time and skills. One of the hidden benefits to this model is the fact that you now pay these people a salary, or more likely an hourly wage.  It is very difficult to get someone working straight commission to do anything beyond what earns them a dollar.  When you pay them hourly you can write a job description that includes all those little things like cleaning up the showroom, moving cars, prospecting the service drive, etc.  No more broom ups, we can now ask that they broom the lot and know it will get done.  We can also find a different type of employee, one who loves cars, one who loves people and hates confrontation, one who will treat their store like it is their home. I realize that many stores already have this and they do it with strong management and a great dealership culture, but having walked into easily 1,000 stores across 31 different states in my career, this is not always the case. 

 

Another requirement to making this model work is a very strong marketing and advertising plan.  It is paramount that the marketing department has a strong say. That way every part of the dealership and the culture being created permeates the entire organization.  It is also necessary to coordinate all advertising channels and make sure the message is carried consistently.  Consumers do not trust car dealers so they will look for any inconsistencies that prove this is just another ploy to get you in and work a deal.  With Google stating that the average automotive consumer uses 24 different research points along their consumer journey, consistent marketing with a strong online presence is vital. The time is now to move to a better way of selling cars and become salespeople again.  I have worked in sales almost my entire adult life and know that employees work their pay plan.  I think poorly written commission based plans are the product of lazy managers and inattention from senior leadership.  In today’s Internet world where the planet keeps getting smaller and the knowledge keeps getting larger it is time to get in alignment and end the one-star reviews that are plaguing our industry.  Let the debate begin.

About the Author

 

Joe Tarell is a Performance Improvement Consultant at CDK Digital. He brings a rare blend of offline advertising, agency management and over 15 years of automotive digital advertising expertise. He spent nearly two years as an Internet marketing consultant including working with Gulf States Marketing helping Toyota’s Signature dealers improve their marketing and lead handling processes. He has presented to NADA 20 groups, OEM regional teams for Hyundai, General Motors and Toyota and worked directly with some of the largest dealer groups in the country. Feel free to reach out to Joe at joe.tarell@cdk.com.

Views: 1481

Tags: customer, dealership, haggle, no, one-price, price, pricing, reviews, selling, service

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Comment by Alexander Lau on July 22, 2015 at 6:34am

Comment by Paul Rushing on December 10, 2014 at 7:25am
No-haggle prices and sales people trained to sell cars instead of negotiating gross should become the norm.


Bahahahahaha....  If sales people are trained to sell cars properly they will have the confidence to ask for all of the money and sell cars using the F.L.E.E.T. (Full List Each and Every Time) program.

A properly trained sales person does both. Sell the car and asks for all the money every time.  I know when I am a Menswearhouse or JOS Banks the sales people there ask for all the money each and every time. Go buy furniture they ask for all the money. Cars should not be any different. The manufacturer sets the prices and incentives. There is no foul asking for all the money and holding back on the trade. Its the right starting point. This reminds me of a situation that came up recently..

Presented numbers to a customer at full list plus addendum holding 2 K on their trade,

Customer: Do you think I am crazy?

Me: I didn't want to miss you if you were.

Sold the customer a new Honda Accord EX and made a 2K gross payable. That would of never happened if I did not ask for all the money on the first pencil. If I had not done a proper job of selling the car and the dealership prior to that he would of walked. I did my job as a salesperson and built value in the car and in doing business with us. He wanted that more than he wanted the money. That is what salespeople are supposed to do.

Comment by Brian Bennington on December 7, 2014 at 7:25pm

Attention: Anyone who sells anything.  I get lots of sales and motivational solicitations and would never repost anything unless it was "outstanding."  The following message truly is outstanding.  It's from S. Anthony Iannarino and, if you want to get on his list, he's at Iannarino@gmail.com.  I'm giving him full credit for this so I doubt he'd be upset for me sharing it:

How your sales technique helps you win
Happy Sunday Morning Brian,
Today I received a text message from my younger brother, Jake. He is a professional comedian, but when he is not on the road he is practicing jiu jitsu. He will argue that is the “best” and “most effective” martial art and dismiss all others (He is wrong; the right art is the one that you choose to practice). His text message was about a small, jiu jitsu practitioner with a purple belt destroying bigger, stronger, meaner, and tougher competitors at a big tournament. Jake was watching him win match after match, despite his diminutive stature.

The small martial artist defeats the larger martial artist because he has better technique. He is patient. He takes his time. He looks for his opening, and he capitalizes on his competitor’s mistakes.


The same is true for salespeople. Your technique matters.

  • You will compete against salespeople with better products and some with cheaper products. You won’t beat them with features and benefits, and you won’t beat them on price. You have to win with your sales technique.
  • You will also compete against salespeople who happen to be smarter than you, and some who have an amazing ability to develop rapport. These are dangerous attributes to go up against, and it might be difficult to believe that anyone could be smarter or more likable than you, but there may be a few of them out there. You are going to have to beat them with your sales technique.

There is nothing more important than who you are at your core and how you sell. How you sell is more important than what you sell. How you sell can differentiate and define you in a crowded market. How you sell can create more value for your clients and dream clients than any of your competitors. And how you sell can stack the deck in your favor, creating relationships of value, the kind of relationships that give you an unfair advantage.

 
Comment by Brian Bennington on December 7, 2014 at 6:34pm

Hey Paul, Thank you for your candid, confident and concise answer.  As to your question, "Where Saturn is today?," in orbit around the sun where it belongs.  GM's always had a problem with names, as witnessed by such natural disasters as "Typhoon" and "Avalanche."  You did make me think about planet names for cars, though.  There was "Mercury," but we all know what happened to them.  The best "Venus" has done is a dealership and car rental company.  So far, they've left "Earth" alone.  "Mars" is better know for bars, but Apple did make a computer game called "Mars Cars."  The long forgotten Jowett "Jupiter" was built in England from 1950 thru 1954. "Neptune" is another dealership name.  Even "Pluto," which has lost its ranking as a planet, has been claimed by Pluto Automobiles in Germany.  However, my personal favorite is "Uranus," which thinking about it, is more of a place to keep a car (or the guy who wrote this post) you're unhappy with!      

Comment by Nate Wiener on December 7, 2014 at 4:44pm
Not related to Anthony, Brian. And hopefully I make better life decisions. ;)
Comment by Brian Bennington on December 7, 2014 at 3:57pm

Kudos to Joe Tarell for delivering the kind of "flat earth" post that got our members riled up enough to comment en masse, which proves that when the s*** gets deep enough, they will respond.  Reviewing it all today, I noticed Nate Wiener (don't know if he's related to Anthony or not) said his dealership just made the switch to "one-price" in October.  Reading his bio, it says he sells Lexus!  No kidding, that's gotta be the weakest luxury car sales force I've ever heard of.  (Does anyone know of a M-B or BMW store doing "one-price"?)

I sold Lexus when they first arrived, and on two occasions received regional recognition for CSI as well as being featured on the Lexus closed-circuit training channel for my follow-up methods.  Of note, my grosses were exceptional and my referrals far outnumbered the rest of the sales team.  I still have literally hundreds of written testimonials commenting I was a "true professional" and "the best sales rep" my customers had ever worked with.  (Just can't throw them away!)  The idea that one-price has anything to do with customer satisfaction or trust is ridiculous.  Anyone who's sold anything knows that customers who pay the least are more inclined to be the least happy, and often the inverse is true.

I'd say off hand, that uninvolved management is a big reason for "one price."  With it, they just don't have to work as hard.  That's always the case when you "set the bar" low!  

       

Comment by Paul Rushing on December 7, 2014 at 9:38am
As a sales person I would want to be straight commission with weekly washouts and no draw.
Comment by Paul Rushing on December 7, 2014 at 9:37am
I've had clients that were one price and from talks with their upper management and their onsite dealer principals there is no way in hell that I would want to sell or manage in a one price environment.

I understand and get the conceptual advantage of one price. So did Saturn, where are they today?
Comment by Brian Bennington on December 6, 2014 at 5:20pm

Your response to this post, either written or just kept to yourself, generates only one question that, to me, is totally intriguing.  But, please let me preface it by acknowledging the "one-price" owner/management advantages (simplification of the buying process, less commission for reps because the talent to increase profit isn't needed and easier to "mass-train" for that reason, plus addition comments in this post).  As to the primary disadvantage of less profit potential, that sets-up the question, which has no right or wrong answer.  It only defines how much you believe in yourself as a sales person. Please consider your answer as an either-or: 

With all else being equal, at least as much as possible, would you personally prefer to sell in a one-price situation or a commission-only situation? 

Comment by Paul Rushing on December 6, 2014 at 11:51am

Tony if we appraised our own trades that would not be fair to the other competitor or the dealer that would allow us to use their inventory. To make it a true challenge though we would need to work as a salesperson only just like any other salesperson at the store, but if you want to include spinning the paper too I will let you buy out now for 5K.

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