Lexus has announced a pilot program that would turn a dozen dealerships into what is referred to as “one price” dealerships. The prices are clearly marked on the car, and the dealership will not come off a penny. They will not even throw in window tinting. For many years, consultants have sold this idea to dealerships (for a fee of course) but stress that if you come off your price even a penny, the selling system will break down.
Lexus thinks this will be a huge advantage for them, but then again, so did Saturn, which was never a success for General Motors or the dealerships. Lexus has committed twelve dealers to the concept and says they will do it for a year, starting in January 2016. I predict they will pull the plug sometime next summer because the dealers will not be able to stand it.
To a consumer, it sounds wonderful doesn’t it? No haggling, pleasant experience, and a fair price. A small percentage of people will love this, but for the vast majority, they will leave and go somewhere else. You see, they just won’t know that they got the best deal.
Used car retailer CarMax has done well with no-haggle selling. The difference is no two used cars are just alike, and there is no factory MSRP on the window to compare it with. I get really tickled when radio show listeners tell me what a great experience they had buying a car at CarMax. Of course they did, they paid exactly the price CarMax wanted, how could it not be pleasant?
It is different with new cars, however. People can shop the price of the same car online, at multiple dealerships. The “one-price” dealer will have to post its prices online too, and you can bet the other dealers in the area will be monitoring those prices, and putting lower prices online. The “one-price” dealer cannot move on price, so it loses the deal and the customer.
Consumers will find out too, that they can go to the “one-price” dealership and get their price without even going inside the building, and it will be easy to take that price to the next nearest Lexus dealership and save $500 to $1000 or more very easily and with no hassles.
One thing Saturn owners told me when Saturn was still around was they expected no haggling at all. There was no movement on the price of the new car, but they still ended up negotiating the price of their trade-in, the interest rate, the extended warranty price, and any accessories they wanted for their car. So the “no hassle” way of buying a car wasn’t really no-hassle after all.
Lexus buyers are a smart and savvy group for the most part. They like the experience of beautiful showrooms, terrific service, and amenities like loaner cars when they need service. They also want to get the best price they can get, and that will not be at the “one-price” dealerships. This experiment is doomed for failure.