In dropping John Elway as its pitchman and rebranding the Colorado auto dealerships that bear his name, retailer AutoNation Inc. is bowing to market forces and seeking to create a new kind of car sales operation.
The new program, which the company tested in Florida and plans to expand to all 272 of its nationwide dealerships, is intended to provide customers with a simplified pricing sheet that details vehicle price, rebates, taxes, fees, trade-in value and multiple financing options.
At other dealerships, buyers must negotiate each portion of the transaction separately.
While company officials tout the process as a revolution in car buying, analysts say the move is another step in a process that has seen car buyers increasingly gaining the upper hand in negotiations as a result of the Internet.
Customers “have the ability to look at multiple dealer sites rather than spending the whole day going from dealership to dealership to dealership,” said Art Spinella, president of auto-industry tracker CNW Marketing Research Inc. of Bandon, Ore. The Internet “has made it easier to compare prices and request a price rather than sit down and haggle.”
As it revamps the way it sells cars, the company is also renaming its dealerships Go. It calls its news sales program SmartChoice.
Because AutoNation is the country’s largest auto retailer, other retailers will closely watch the results as it embarks on the new program, analysts say.
AutoNation president and chief operating officer Mike Maroone said his company’s SmartChoice program is largely a response to consumer demand.
After testing SmartChoice earlier this year in south Florida, the company said it gained market share. While he acknowledged that there’s still some wiggle room in the pricing, Maroone said the prices are already low enough that the space for negotiation is narrower.
“It’s driven by customer research and the fact that our industry is one that is not known for satisfying the customer,” he said. “It’s a way of leveling the playing field between the dealership and the customer.”
But for customers like Tim Streeb, the playing field is already more level than it once was.
Streeb, a senior account executive at PR firm Linhart McClain Finlon, trolled the Internet two years ago to gauge what he should expect to pay for a 2002 Audi A4. He regularly checked websites including Cars.com and AutoTrader.com for several months until he found a private dealer offering the car at his $20,000 price point.
“I got the exact car I wanted and I didn’t have to go into a dealership and deal with the pressure,” he said.
While buyers like Streeb use the Web to ace dealerships out of the process, others use the same information to squeeze the price as low as possible.
Armed with knowledge
Most of the consumers who come into Gebhardt Volkswagen have done at least some research on the Internet, said Marco Castillo, the dealership’s sales manager.
Frequently they know how much the dealer has paid for the car – the invoice price – and don’t hesitate to demand that price for themselves, Castillo said. “It is tougher to make a buck,” he said.
Other shoppers arrive at the lot with a price they received from another dealer. “They say, ‘They will sell us this for $200 over invoice, and what can you do to beat that?”‘ Castillo said.
Many demand a price lower than the invoice price, he said. In deciding how low to go with a customer, Castillo said, dealers consider whether the consumer will use its service facilities regularly or buy another car from the dealership later.
“If you look at the total picture, it does make sense to take a skinny deal or no money-making deal and hopefully you can make the money in the service department,” he said.
The average profit on a new- car sale is under $100, said Tim Jackson, president of the Colorado Automobile Dealers Association.
“It used to be fairly common to have salespeople making $100,000 or more (per year) at a time when that was a whole lot of money,” said Spinella of CNW Marketing Research. “Today a really good salesperson may make that, but the average salesperson is not making that.”
The switch to SmartChoice will not change the way AutoNation salespeople are paid, which is based on both the number of vehicles sold and customer satisfaction.
Shopping via e-mail
Shoppers who not long ago would have gone from lot to lot seeking a vehicle now send e-mail to a number of dealers, asking each to bid on the car they want. Dealers who respond quickly with accurate information are the ones who make the sales, Castillo said.
“You ask them to submit a bid and they know that they are bidding against other dealers, so there is kind of a self-leveling,” said Philip Reed, senior consumer advice editor for Edmunds.com, which provides pricing information on vehicles.
The website gives shoppers the information they need to make shopping for a vehicle a more tolerable experience, Reed said.
“What we try to present most clearly is true market pricing. Profit margins have sunk and salesmen are somewhat under attack in terms of what they make, but the dealer is still making a profit,” Reed said.
The true market price, which factors in how much demand there is for a vehicle, is generally somewhere between the manufacturer’s list price and the price paid by the dealer, he said.
While the Internet has driven down commissions, Spinella said auto manufacturers have also had a hand in the process by reducing the margins they will allow dealers to make on vehicles from 25 percent to roughly 11 percent.
Spinella believes the SmartChoice program marks the next step in this process.
“In effect, it’s getting the price to the point to where it’s simply as close to what the transaction price would be,” Spinella said. “It makes it a lot easier to do it on a mass scale and eliminates a lot of the hassle on the dealer side. You don’t have to spend 45 minutes figuring out what the price will be. It will become more like Wal-Mart than a traditional auto dealership.”
Other dealers may follow
Spinella suspects that other dealers will likely follow AutoNation’s lead. In the meantime, AutoNation regional president Todd Maul thinks the move will help the company gain customers here.
“The SmartChoice menu and the empowerment it provides for our customers … along with our sales associates gives us an incredible advantage over our competition,” he said.
Staff writer Kristi Arellano can be reached at 303-954-1902 or karellano@denverpost.com.
Staff writer Tom McGhee can be reached at 303-954-1671 or tmcghee@denverpost.com.
