The High Cost Of No-Haggle Used Car Pricing

What You May Not Know


We had a perplexed radio show caller who found the perfect car at one of the used-car-only dealerships, but he knew it was overpriced and the dealer would not move on the price.

I canít help but chuckle to myself when someone tells me he or she bought a vehicle from a place that doesnít negotiate prices and had a wonderful experience. My first thought is always: Of course! You can have a wonderful experience at any car lot in America if you pay what the dealer is asking for any given car. The contentious nature of car buying started 100 years ago when some salesperson discounted a car for the first time.

Of course, we all want to have a great car buying experience, and of course, we all want the best possible price. The question of the day is, can you get both?

What To Know About No-Haggle Pricing Dealerships

As I say on the air all the time, places that market themselves as no haggle-no hassle dealerships are often priced higher than traditional dealerships that negotiate. As a consumer, you have to decide if easy and pleasant is worth more to you than saving money. CarMax, for instance, has built a brand around easy purchases and no negotiations, and they have been successful. Remember that all its inventory has to be purchased and to keep as many cars in inventory as it does, they have to pay top dollar, then in turn charge top dollar.

Carvana And Its Vending Machines

Iíve had a lot of questions recently about a place called Carvana. Besides being a no hassle-no haggle place, their niche is they build high-rise buildings that are supposed to be car vending machines, right down to a person putting a large coin into the machine, which sets in motion elevators to bring your car down from the tower and on to a launch pad. Probably a cool experience and there is little doubt it would make for a memorable delivery, but what is that worth to you as a car buyer?

First quarter 2019 financial results for Carvana were dismal. It doubled its sales from first quarter 2018, but the losses skyrocketed to 82.6 million dollars. In other words, the more cars they sell the more money they lose. Not a winning long-term strategy to me, but I digress.

As someone who owned dealerships for many years, I canít help but wonder what it must cost to build one of these high-rise mechanical structures they call vending machines. Make no mistake, the cost of a dealership structure affects the price of every vehicle it sells. Carvanaís CEO has been quoted as saying due to their cost structure, he believes he can save consumers $1500 to $2000 per used vehicle sold. I thought it might be a fun exercise to check that for accuracy.

I went to the Carvana website to pick a vehicle, and found a 2018 Ford F-150 SuperCrew XLT that caught my eye. It was extremely clean, there were plenty of pictures, and the miles were low at 8,700. The no hassle, non-negotiable price was $49,400. It was the 3.5-liter Ecoboost and it was 4-wheel drive. The original window sticker was there and when new, this truck had an MSRP of $53,650 (it is stock #2000305487). Bear in mind, this is a truck that could have been bought brand new at $45,000 tops but good negotiators could have bought the truck new for $43,000 and some change.

Then I moved to AutoTrader.com to search for comparable 2018 model vehicles with similar mileage, also 4-door, 4-wheel drive XLT packages for sale at traditional new car dealerships.

I found a factory certified one at a CarProUSA dealer with 23,000 miles for $36,000. That was the posted price online, I feel confident there was room in the price even though it came with all the benefits of being factory certified.

I decided to check Carvana on an SUV also. At random, I picked a 2016 Nissan Rogue S with 44,000 miles with a price tag of $17,700. A CarProUSA dealer in Central Texas had a 2018 model, also with 44,000 miles for $16,988. That saves you $700 on a two-year newer vehicle comparably equipped. Once again, there may have been room in that price.

Since the Rogue S is a popular SUV, I checked CarMax, too. It had a 2016 with 39,000 miles equipped the same for $17,988 and that is a non-negotiable price.

To be fair, Carvana appears to deliver on its promise of a pleasant car buying experience, the online ratings are very good. The question you must ask yourself is this: is getting your car out of a vending machine and doing no negotiating worth over $13,000 as in the case of the F-150 above?

Iíll let you decide that.



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Andy
I worked at CarMax for a few years in college. What a rip off to buy a car with no negotiating. I bought my last vehicle &12,000 off the asking price and have friends with the same vehicle that paid $10k more than me and think they got a good deal because they asked for $2000 off but got sold all the extra bs warranty that's not worth the paper it's written on. Every time I see a car going down the road with a sticker from a no negotiation place I just look at it as a low IQ badge
The Car Pro
Andy, very good insight, really appreciate you sharing your inside experience. Thanks for making my case!

Jerry Reynolds,
George Anderson
I m looking for a Chevy Silverado. 2500. Or a GMC 2500
The Car Pro
Hi George! Can you give me any more details about where you are located and if you are looking for new or used? Feel free to send me an email amy@carprousa.com.
Thanks so much! Amy
Scot D.
I came across this post and I think this is a really skewed analysis. First, the comparisons are done on the asking price of the vehicle only. The dealerships are more than willing to lower the price of their cars, however, they require you to finance with them (of course with some exceptions but that isn't the norm, in my experience dealing with several hundred dealers). They also know they will get you with all the "add-on" options. You don't have to get them but the point is, when you are sitting in the dealership you have to endure the hard-sell of all of that, and it isn't just a hard sell, it is often much more contentious. It takes HOURS to sit there and endure all of this, with bait and switch pricing and the different people you go through as part of the process. This is why online car buying is so popular; otherwise they wouldn't have the business. Carmax and Carvana must make a profile, but the dealerships also have to make theirs, and they are going to get it either on the car price, the financing, the options, etc. While you have the options and fees online as well, it is up-front and you know what you are most likely to pay from the beginning. I have had dealers say that they allow you to bring your own financing, but they will require you to fill out a credit application because it is "required" (shouldn't be if you have a cashiers check for the amount) and then treat you like a second class citizen if you decide not to go with their financing. It is hard to believe that if you go into the dealer, you negotiate a car price that leaves them little, no options, not their financing, etc., that they are going to treat you the same as someone they know they can make more money on; that all factors into your "experience" in the car buying process. There are people that LOVE haggling and will do this for hours on end, but convenience is a huge factor.
The Car Pro
Scot, I would need to know your qualifications for dealing with ďhundreds of dealershipsĒ but that aside, the numbers donít lie. CarMax and Carvana and many of the other simply charge more for those who donít want to negotiate. Thatís fine, if they are willing to pay thousands of more for that, itís their business.

Whether at a dealership or one of these used car palaces, whatever add-ons are optional. NO dealer has the time for people to ďspend hoursĒ as you allege, that is BS. Also, no dealer will turn down or argue with a Cashierís Check.

It you want to overpay for a car with CarMax or Carvana, that is not a problem since they donít negotiate, but it is not unlike paying MSRP for a new car, thatís the quickest way to get in and out of a dealership.

Jerry Reynolds
That is true
In the market for a car for my daughter... tried many traditional dealerships, when getting in prices ended up being up to 15/20% higher than advertised due to "fees" not disclosed in their online pricing.
I understand for a new car, easier to negotiate with the dealership, but for a 3-5 yr old car, you end up paying about the same with Carvana or Carmax without the EXTREMELY bad experience of hard selling and fee pushing. I'm done with traditional dealerships for used cars, and will not miss them when they are gone.
The Car Pro
I appreciate your opinion, but can see youíve never used my process to buy a vehicle. None of my dealers will play that game with you. If you want to save money, choose one of my Certified Dealers at www.CarProUSA.com.

Jerry Reynolds
.
Jerry - Long time fan and follower of your newsletter. I've bought two cars from Shannon in Austin over the years.

Any thoughts or comments on the quality of a Carvana vehicle vs. a Car Pro Dealer? The thought of buying a car from my couch (I'd take the free shipping over a Car Vending Machine) and saving hours waiting around a dealership is worth the extra cost to me. Do the 100 warranty or the "Inspections" really mean anything?

Thanks!
Amy P.
Honestly I'm not impressed with the quality of Carvana cars, I see what they buy at auction and they are not overly picky. However, if you want to buy from your couch, just know it will likely cost you. Read this:

https://www.carprousa.com/The-High-Cost-Of-No-Haggle-Used-Car-Pricing/a/27

Good luck.

Jerry Reynolds
George B
Had a similar experience at Texas Direct Auto Sales, now ZOOM. With TDAS yes the prices were higher, but you could negotiate. Now with Zoom, the price is the price unless you are a first responder or military and than it is only $250.00.
I am sure that TDAS prices were above even after negotiating drive out cost. Thanks for all you do.
Amy P.
Thanks for the info George, that is very helpful.

Jerry Reynolds
.
I share your view of "no-haggle" dealers, but I am confused about your comparison to your CarPro dealers. When comparing a CarPro quote with a fixed price you say, and there might be more room in that. Are you saying the CarPro quote is not the best price available and should be negotiated further?
The Car Pro
No, I was saying the ONLINE price at one of my dealers could have room in it, not the price you get when you go through my website to speak to my contact.

Jerry Reynolds
.
Personally, I avoid any dealership that post no haggle pricing. Along with watching out for other gimmicks car dealers put out there to sell cars. Like True Value stickers. :-( Always shop around and compare prices to get the best price for the car you need/want. Then show up at the dealer and haggle for a better price! lol
Amy P.
This is the essence of my Radio Show: best price up front, no games or gimmicks.

Jerry Reynolds
Sonny
But Carvana doesn't charge the thousand in finance and delivery fees that get tacked on to the dealership prices. We looked at the Mazda CX-5 at a dealer. Price starts at 21k , by the time you're out the door with all of the dealer fees you are up to 25k out the door. Which seems ridiculous.
Amy P.
Sonny comparing a NEW Mazda 5 to something used at Carvana is not a good comparison at all. Not to mention, dealers don't charge for transportation. The dealer fees go to the State and Carvana has to charge the exact same fees by the way.

Jerry Reynolds
John V.
About 6 months ago I was looking to buy a fairly new smal car and went to Carmax. They had a 2017 Hyundai Electra Limited with all bells and whistles for $18995. I then went to Car Gurus and found the same car and lower miles (10000) at a Houston Dealership (Sterling MacCall) for $18500, and much cleaner and certified! I bought it right on the spot. Very happy with it, by the way.
John
I agree with Sonny. We were just looking at used cars for my daughter and the dealer had an internet 'final price' posted on a 2017 Hyundai Elantra. Great! We went and test drove the vehicle and really liked it. "Let's do the deal" I said. Going in to sit down with the finance guy at the Hyundai dealership I was expecting the price to be what's posted as 'final' on their website plus taxes and title. 'Whoa there' I was told....there was a $297 'Dealer prep fee' and then another $300 anti-theft fee to be added. I was told the anti-theft fee was to put the VIN on 7 different places of the vehicle. So the 'final price' was NOT the final price. Those fees are non-negotiable and on every car on their lot. We were lucky enough to find a car at a Toyota dealer that had just come in and wasn't even up for sale yet so they didn't have time to add their 'anti-theft' fee, we only had to pay for dealer prep.

I get that the dealer has to service and inspect the vehicle and get it ready for sale, but then that is what is ALREADY taken care of at Carmax dealer and others. There are no surprises. That's what's the most frustrating dealing with car dealers is the slight of hand that they try to pull. I was told the internet site discloses that the 'final price' excludes additional fees (way at the bottom of the site in tiny print). Very deceiving.

I think that's the draw of the non-negotiating places. There are no surprises....the price is what the price is. It may not be the best deal but with the Internet you can quickly check like Jerry mentioned. You just have to know that you 'may be able to lower' the price at the dealer.....maybe not. The stress of not having to deal with that and your time is worth something. Imagine if you went to a grocery store to buy a pound of hamburger that they advertised for 3.99 a pound and then at the checkout they said there was an additional 50 cents a pound 'refrigeration fee', a 75 cent a pound 'preparation fee' and a $1 a pound packaging fee. That 'sale' price really isn't that good of a deal then is it?
The Car Pro
Good work John, it's smart to shop and not just accept the price from the no-haggle places.

Jerry Reynolds
The Car Pro
John, I assume you didn't go through my website to use my process. I don't know over a single one of my dealers that does the add-ons you describe.

Even with the $597 phony add-ons, I'd be willing to bet money was saved at a dealership versus CarMax.

Jerry Reynolds