When it comes to negotiating a price on a new car, the script has not really changed much over the years: The dealer’s salesman writes down a price, you counter and then he walks to the back of the showroom to talk with the manager to “see what we can do.”
At least consumers no longer have to enter the process blind. Prospective buyers can educate themselves on Web sites like Edmunds and Kelley Blue Book and get suggested retail prices and find out how much their trade-ins are really worth.
Still, the auto industry has not embraced the digital age in the way other businesses, like real estate or travel, have. In part, that is because the auto dealers’ business practices are protected by state franchise laws.
But then, a company called TrueCar.com came onto the scene and tried to shake things up. It started running television commercials late last year, which attracted a lot of attention, and the industry immediately pushed back — hard. Here’s why: Besides showing what other car buyers paid for a particular car, TrueCar also gave an estimate of the dealer’s true cost. But what really alarmed the industry was TrueCar’s promise to deliver a guaranteed price from several dealers, essentially eliminating the need for any haggling.
The auto industry worried, perhaps rightly, that all this would squeeze their already thin profit margins on new cars. So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. Honda Motor Company also protested loudly, threatening to cut off marketing dollars to dealers that did not follow its guidelines when promoting its brands on TrueCar’s site.
“There is a fear that TrueCar might work too well,” said Scott Painter, the company’s chief executive, a serial entrepreneur who also started many other auto-related sites, including CarsDirect.com.
So how long can the car industry continue to operate the way it did when your grandfather walked into the showroom? And does TrueCar really provide the best model for consumers who want a fair price without the hassle?
Clearly, at least some dealers fear that showing their hand will drive them out of business. “Dealers are afraid if they give customers their best price, they will just take that price and go to another dealership and see if they can beat it,” said Jeremy Anwyl, vice chairman at Edmunds, an auto research Web site.
And even Mr. Painter acknowledged that though most of the dealers that his site works with have managed to hold their profit margins steady, dealers in some markets became so incredibly competitive that their business would not be sustainable over the long run. “We have always said it is not a race to the bottom,” Mr. Painter said, adding that for his service to succeed, dealers need to succeed. “But there is no question that dealers’ natural tendency to compete with one another has resulted in extremely low prices.”
To comply with regulators and their patchwork of different state laws, TrueCar initially stopped operating in a handful of states while it tweaked its business. It has resumed operating in those states except for Colorado and Louisiana (it doesn’t operate in Alaska).
Now, the guaranteed prices will be delivered directly from the dealers instead of appearing on TrueCar’s Web site. And depending on where you live, the pricing promises may be called an “upfront price,” which is a guaranteed price that the dealer is willing to sell at. Or in places where upfront pricing is not allowed — because of the possibility it could lead to a bait-and-switch situation — consumers will receive a promise of “guaranteed savings,” say $2,000 off the manufacturer’s suggested retail price.Those changes will be introduced over the next few months, Mr. Painter said, though they are still a work in progress.
Besides watering down the way it presents some of its pricing, the company was also forced to change the way it charged dealers for the sales leads it provided. In most cases, it will continue to charge dealers a fee — $299 for new cars, $399 for used — if TrueCar’s introduction to a consumer leads to a sale. But in places where it is illegal to receive a fee for the sale, dealers will pay via a subscription. The company also turned off its commercials — which promoted its haggle-free, guaranteed pricing — while it creates new ads that focus on things like dealer proximity and service. “The realities of the franchise system and the protection it has at the state level means you have to work with the dealers,” Mr. Anwyl said. “You can’t work around them.”
TrueCar’s critics say its model solves only part of the problem. The site may be able to ensure a fair, haggle-free price, but if that drives dealers to compete too fiercely with one another, they will be forced to find other places to turn a profit. So they may lure you into the dealership with a low price, but then make up for it by giving you a poor deal on your trade-in or on the financing. After all, profit margins on the car itself are not as big as consumers may think. If a dealer can make $1,000 on a $30,000 car, some experts say, they’ve done well.
Others, including Honda, have argued that TrueCar could open the door to unscrupulous dealers trying to sell a more expensive car or more options once they get the customers in the door — which Honda said reflected poorly on the brand. Honda also threatened to cut off marketing dollars to dealers who promoted its cars on the site below the invoice price, a price that is supposed to represent something close to the dealer’s cost (though dealers usually make more money on other manufacturer incentives and programs).
TrueCar said it keeps a close eye on the prices its dealers — the site currently works with about 4,100 of them — present to consumers to be sure they are not below cost.
No matter where you weigh in, TrueCar has certainly nudged the industry forward. It claims that its data is even more granular and accurate than many of its competitors’ because it is pulled from 30 different sources; the site collects its pricing information from lenders, insurers, the state registration office and tax records, among other sources.
Regardless of where the data comes from, the prices I found when searching for a standard-issue 2012 Toyota Camry LE in Brooklyn came pretty close to the ones on the Edmunds and Kelley Blue Book sites. Both Edmunds and Kelley Blue Book listed the manufacturer’s suggested retail price as $23,260 and the dealer invoice price as $21,348. TrueCar had the same M.S.R.P, but its invoice price was $379 higher, at $21,727.
Of course, what consumers really care about is getting a good price. Kelley Blue Book calculated a “fair purchase price” — defined as the price people are paying dealers based on transaction data — of $21,676. The equivalent price at Edmunds, called the “true market value” — or an analysis of what is being sold adjusted for incentives to dealers — was nearly $300 more, at $21,959.
TrueCar provided a “target price” — which it defines as a good price — of $21,927. The site suggests starting negotiations at a “great price,” or the factory invoice of $21,727, but to expect to receive something closer to the “good price.” (It also said there were no customer incentives available, though Kelley mentioned a $1,000 rebate for new college graduates.)
Within seconds of filling out the “contact dealers” form with my information, I received an e-mail from Glen Toyota of Fair Lawn, N.J., with a link to my first quote from a dealer. It came in just between the “good” and “great” prices: $21,848, and was valid for three days. The e-mail offer also included a financing special that would require a $4,995 down payment and cost $311 a month; it carried a 3.99 percent annual percentage rate for 60 months. The dealers are contractually obliged to honor those prices, and if they don’t, they risk being kicked out of the network. And if consumers find they did not get what they were promised, Mr. Painter said, TrueCar will write them a check for the difference.
Even if the idea of a no-haggle seems appealing, experts said you shouldn’t limit your search to any one site, but to survey several.
Both Edmunds and Kelley Blue Book have more detailed information about the cars themselves and their overall longer-term costs (and what if there is a nearby dealer who isn’t in the TrueCar network but is willing to make a better deal?).
You may also be able to save yourself some time by e-mailing the dealership’s Internet sales department. “You can have a deal lined up before you even go into the dealer,” said Alec Gutierrez, senior automotive market analyst, at Kelley Blue Book. “That is a channel that a lot of consumers miss out on.”
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