New World Of No-Hassle Car-Buying
Getting a new car is supposed to be fun. But who wants to go through the anguish of buying one?
Buyers spend 20 percent of their shopping time selecting which car to buy, and 80 percent haggling over price, according to studies at Chevrolet dealerships.
But automakers are finally taking steps that will change forever the way Americans buy cars. They are trying to make the buying process easier while at the same time cutting the cost of their dealer distribution network, which makes up as much as 30 percent of the price of new cars.
"It's the biggest issue in the industry," says Donald Keithley, a partner at J.D. Power and Associates, an automotive research firm in Agoura Hills, Calif. Already, big changes are under way:
* Americans bought 40,000 cars last month through a no-dicker Internet service called Auto-by-Tel, which gets discounts from dealerships because overhead costs are reduced.
* Last year, three national chains began selling used cars off huge lots with no-haggle pricing. Their business is growing fast.
* Manufacturers are making plans to consolidate their dealer networks in an effort to reduce distribution and inventory costs that drive up car prices.
* The Big Three US automakers have accepted ownership of dealer franchises by other corporations, a step all three have historically resisted.
For example, Republic Industries, the corporate owner of the national used-car chain AutoNation, just inked deals to buy 16 new-car dealerships in Arizona, Florida, and New York, along with an option to buy more.
Supporters of corporate ownership say it can benefit consumers by giving dealers more power in relation to the automakers. The big dealerships can attract more-skilled managers and give better customer service than small independents can, advocates say. Corporate ownership can also give cash-strapped dealers fresh capital and could even lower car prices by allowing dealers to pay for their inventory at lower-interest rates than the automakers' huge financing wings have been charging them. That's one reason carmakers have fought this change so long.
Behind all this turmoil in the industry, Mr. Keithley says, is a new relationship between customers and dealers. It was never supposed to be so adversarial.
Franchised dealer networks were established in the early days of the automobile - when customers remained loyal to a brand - to be the representatives of the manufacturers. Consumers were well served by outlets that offered a combination of sales and service. And manufacturers stood only to gain market presence by having multiple dealers in the same town.
But today's competition has shaved dealers' profit margins so far that dealerships are failing at a net rate of 50 a year in the US, according to the National Automobile Dealers' Association in McLean, Va., which represents the nation's 22,750 dealerships.
And carmakers have long realized that today's car buyers aren't satisfied with their experience. When General Motors Corp. formed its Saturn Division in 1985, it tried to address these problems. GM placed Saturn dealers far enough apart geographically that they don't bid against each other. This lack of competition helped Saturn win its reputation for friendly, no-dicker pricing.
Other new-car franchises have tried so-called "no-dicker sticker" pricing, but it has never lasted, because customers could always go down the road and buy an identical car from another dealer who would cut the price.
Now, other new brands coming to the US are mimicking Saturn's strategy, as are the national used-car chains.
Some consumer advocates, however, are skeptical of this approach, arguing that customers are paying higher prices than they otherwise would.
"[Dealers] make a lot more money under this exclusive-territory pricing umbrella," says W. James Bragg in his "Car Buyer's and Leaser's Negotiating Bible."
The real need, many argue, is for both hassle-free buying and low prices. A few go-between services are starting to deliver on that promise.
Buying services available on the Internet and at many wholesale warehouse clubs, in effect, do the dickering for car-shoppers. Buyers pick out the cars they want, then order them through these buying services, which have prenegotiated prices. A few local dealers can fill the orders.
Meanwhile, manufacturers are working to pare down the number of dealerships to fit the needs of this new way of buying.
Steve Torok, Chrysler's marketing director, says the company is planning to cut back to 4,000 dealers from 4,612 in the next three to four years by merging all its Chrysler-Plymouth and Jeep-Eagle franchises. It will keep 2,000 of these unified dealers and 2,000 Dodge franchises.
Distribution costs are the biggest component of car manufacturing that has not yet been streamlined, following efforts over the last decade to squeeze down manufacturing costs.
The potential savings are enormous. Under today's industry standard of keeping a 60-day supply of cars on hand, the cost of holding inventory at dealerships runs tens of millions of dollars a day. And usually dealers have even longer supplies of many slow-selling models.
Instead, carmakers are working toward building to order. George Stalk, a prominent auto-industry consultant, is pushing what he calls "the 15-day car," a car that could be built and delivered within 15 days of when a customer places an order.
Chrysler has taken the first tiny step in this direction with its new electronic customer-information system, Plymouth Place, built by Trilogy Development Group. The system allows customers to choose the model, color, and options of the car they want, find out statistics such as towing capacity for trucks, and get a bottom line price. The information is available through computer kiosks in showrooms and shopping malls or through customers' own computers via the Internet.
So far, the system only lists Chrysler's Plymouth brand cars, and users still have to go to the dealership to place an order.
For both Chrysler and its customers, however, the system represents the first step toward consumer empowerment and build-to-order distribution.
Every time a customer makes a selection in Plymouth Place, Chrysler records it. This way the company learns what options and colors customers really want on their cars, not just what they settled for because it was on the dealer's lot.
Eventually the company expects to need fewer dealers to fill customers' more exact orders.
The next challenge will be filling the continuing demand for repair service with fewer dealers. Many automakers, including Ford, GM, Chrysler, Toyota, and Mercedes-Benz, have opened or made plans to build satellite repair centers that would be run by a local dealer but would not do sales. So many dealers might have several service outlets.
Does today's small independent dealer have a place in the retail world of tomorrow? Keithley says yes. It's today's mid-size dealerships with high overhead that will be hit hardest in this new climate. "Small dealers can do fine if they're long on customer service and short on expense."
That's what this car-retailing revolution is all about: making it less intimidating to buy a car. So you can simply walk into a store, check out the selection, and say, "I'll take that one."