The High Cost Of No-Haggle Used Car Pricing

The High Cost Of No-Haggle Used Car Pricing
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 can't help but chuckle to myself when someone tells me he or she bought a vehicle from a place that doesn't 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

I've 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 can't 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. Carvana's 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?

I'll let you decide that.

 
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