Lexus No-Haggle Pricing Sends Some Buyers Fleeing, But Most Stay
In the seven weeks since his Lexus of Omaha dealership switched to no-haggle pricing, salesman Jim Endebrock has had one customer walk out.
“It was a little disappointing because I had sold him eight cars before this,’’ Endebrock said in an interview at the dealership. “But he considers himself a shrewd negotiator, and he thought he should get something better.’’
Still, Endebrock has managed to sell 40 cars since June 1. Those customers, he says, have been delighted with the no-haggle approach, which means the dealership puts its best offer for new and used vehicles on the window sticker and then refuses to entertain counteroffers. Toyota Motor Corp.’s Lexus division is the first luxury brand to launch a factory-sanctioned pilot program for expanding the idea nationwide, according to Erin Kerrigan, founder of Kerrigan Advisors in Irvine, California.
Since the earliest days of the U.S. auto industry, customers had no way of knowing the actual price of a car except to make a ridiculously low offer, and then wait for the dealer to respond.
All that changed about 15 years ago, when the internet began offering buyers reams of data — not just about the dealer’s costs for delivering each car, but also the prices people were paying for similar models across town and around the country. Among other things, that newfound transparency compressed the profit margins dealers can make on new vehicles to just over 3 percent from 5 percent, said Kerrigan.
As profits in the old system evaporate, more and more individual dealers are now successfully turning to no-haggle pricing, she said, including in big cities where their competitors still use the old-fashioned model.
“They’re not by any stretch the norm, but I do think these no-haggle, one-price policies are becoming a trend,’’ Kerrigan said.
So far, 11 of the 236 U.S. Lexus dealerships have adopted the no-haggle plan, said Matt Kaleba, the brand’s national marketing manager. In the future, additional dealerships will be able to opt in and receive staff training and consulting services from Lexus.
To encourage recalcitrant dealers, the company’s Lexus Plus program comes with an additional set of incentives. As it helps dealers move toward no-haggle pricing, Lexus also helps them reorganize their operations to offer customers additional amenities, such as a salesman trained to also handle their financing paperwork, and a single point-of-contact representative for all their service requests.
In effect, Lexus Plus shifts manpower away from the finance departments that once presided over price negotiations and served as a major profit center for the dealerships, and moves it into customer service.