Bark's Bites: What Level of Transparency Can We Expect?
“I’ll tell you something,” the grizzled used car veteran said to me menacingly from across his massive, oaken desk. “The internet has ruined this business.”
Tell me something I don’t know, old man.
It’s a variation of the same thing I’ve heard for five years. The car business used to be a place where men of little to no education or intelligence could make veritable fortunes, simply by preying upon the ignorance of their customers. Pre-internet, it was completely realistic to make $4,000 of front-end gross profit on the sale of a used car — and sometimes even more! Pull up a chair across from the more tenured sales guy at any Cadillac store, and he’ll gladly spin you a yarn about that one time he made $10,000 in gross on a little old lady who was on a fixed income, and he’ll laugh as he’s telling it.
Of course, he’ll have plenty of time to tell you this tale because he’s the guy who doesn’t take ups and instead lives on his book of referrals — and those are dying faster than the baby boomers who made them an integral part of the car business in the first place.
But now? Why, that rotten internet and all of its information has made it impossible for dealers to screw customers. Or has it?
After all, there’s another saying in the car business as old as the trees itself:
“Some people have to pay more so that others can pay less.”
But if dealers are being “transparent,” as they all claim to be, then how can this be true? Shouldn’t everybody be paying the same price, or very close to it?
Unfortunately, transparency — as much as we all want it, as much as the dealers say that they’re giving it to us — is still a myth at the majority of dealers in America. Dealer still want to own boats. F&I guys still want to take vacations to Cancun. So how is everybody still making money if everybody is so informed?
Even though NADA will tell you 86 percent of customers do research online before visiting a dealership, not all research is created equal. Research can mean anything from evaluating a trade-in on KBB.com (a virtually meaningless number in actual negotiations) to looking up dealer reviews ( which are gamed beyond belief) to printing out a map to your local Ford store. (Who still prints maps? Based on my data, a lot of people.)
It can also mean reading reviews of the cars in which you’re interested, but I think the TTAC audience is very aware of my opinion on the value of the modern day car review. Thanks to the Google bot, it’s becoming increasingly difficult for the novice car buyer to know what reviews can be trusted. For all the talk of “Fake News” lately, there’s one industry where fake news dominates, and it’s the car business. All reviews are great. All cars are good. All comparison tests have multiple winners. How is anybody supposed to determine anything from reading any of these fake reviews?
However, it most certainly does not always mean you’ve researched fair market value of your next purchase. It does not mean you understand gap insurance. It does not mean you know your credit score and the loans for which you qualify. It does not mean you know the average auction value is of a 2010 Ford Escape XLT 4WD with option package 300S. (I made that up.)
Combine the lack of valuable research most customers perform with a proliferation of new models available in the marketplace and you have customers that are, in many cases, no more informed than they were in the pre-internet days. What percentage of new car buyers have honestly evaluated all of the vehicles in the class they’re primarily considering? It’s impossible. In the small crossover segment alone there are 12 or more vehicles than one could reasonably consider in any given model year of production.
Still not convinced that the internet isn’t helping anybody buy a car? Let me prove to you how useless most “research” is.
Picture 100 bottles of water in your mind. Don’t break them into groups, just put them all in a big pile. Now, tell me — can you discern how many bottles of water are in that pile? Or does it just look like a lot? Yeah, it just looks like a lot. Okay, try again with 50. 25. Still too many, right? That’s because science has proven over and over again that our brains are too stupid to really understand a number that’s any larger than 5 to 7. Anything more than that is just “a lot.” So when the average consumer has read all the car reviews, searched all the dealer ratings, and crunched all of the numbers, he’s likely to be even more confused than he was when he started.
It’s no wonder, then, that almost 100% of customers hate the car buying experience and want it to be changed. They want to complete F&I paperwork online. They still want to negotiate, but only because they don’t trust car dealers — and quite frankly, they shouldn’t, as we’ve seen time and time again here at TTAC. But dealers could gain the trust of the public back with honest-to-God transparency, if they really wanted to. Here’s how.
- Turn the screen around. Show customers what you’ve got invested in a car, including acquisition costs, reconditioning costs, advertising fees — everything. Most customers aren’t unreasonable, and they don’t mind the dealer making a reasonable profit. It’s only when they feel like they’ve been screwed that customers are unhappy. In the minds of most customers, “being screwed” equals “I don’t really understand why I paid what I did.” Studies have shown that many buyers who actually got great deals and paid far below market value still say that they felt screwed by the dealer. As a dealer, that has to be hideously frustrating — to lose money on a car and lose a future sale. But they could avoid all that by simply telling the customer the following; “I’ve got $12,780 invested in this car, and I’d like to make $1,100. Therefore, I’ll sell it to you for $13,880. Fair?” Most customers would be thrilled to take that sort of deal.
- Stop lying in the F&I office. I know that the F&I guy makes more money for your dealer than anybody else in the store, but we’ve gotta rein him in just a bit, ok? Why not go the Progressive insurance route here? Show the customer his credit score, and then show him a list of financing options from various lenders. My car loan on my Ford Focus RS is from Wells Fargo. I found out after the fact — upon receiving letters from a gazillion different lenders — that my dealer ran me with at least ten banks. Why did he pick Wells Fargo? Probably because he made the most money selling the note to them. Is it possible that he bumped me a point or two? Sure is. He beat my personal bank, but for all I know, WF was willing to go lower. Now I don’t feel so great about my loan, and that damages the chances that I’ll return to that dealer.
- Go One Price across the board. It’s coming — whether we like it or not. CarMax has already done it to great success. AutoNation stores are moving that direction, as well as Berkshire Hathaway, Sonic, Penske, and others. I know all TTAC readers are amazing negotiators, but you’re 1/100 of one percent of car buyers. Rather than letting some people pay waaaaaaay too much and having some people pay waaaaaaaaay too little, let’s just call it even in the middle — like we do for every other single thing that we buy. If the customer feels the price is too high, then let him shop around. Don’t let car buying be an all-out war. Make us all feel happy.
It’s simple, right? But dealers, especially smaller volume dealers, just don’t get it. Information didn’t kill the radio star, guys — if anything, it’s tilted the game in favor of the dealers who do get it. That’s why consolidation is happening, and your local franchise store is likely to be acquired in the next year or two by one of the big groups, if it hasn’t already. The dinosaurs who think that “some people have to pay too much” are slowly dying. And while that’s a bad thing if you’re one of those master negotiators who pays too little, for most people who just want to buy a car as quickly and easily as possible, it’s a very, very good thing.
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I truly believe if car dealers were somehow forced to give up BS cold turkey they would get the shakes and start to scratch at imaginary spiders just like any other junkie in withdrawal - they are addicted to the flim-flam and sleazy marketing as if it were crack. Case in point: a CJDR dealer here on Long Island had been advertising Durango leases with the feature "Includes 7.5 extra gallons of gas!" Curious as to what they were talking about, I called and asked. First they told me that the new models were so much better MPG-wise that it was "the equivalent" of 7.5 gallons. When I called BS given that the MPG ratings for this year and last were identical, they replied that they do not fill the tanks on delivery but the factory puts in 7.5 gallons, and they were giving it to me for FREE!
Why should the dealers show customers what the car cost them? Why should this be expected? We all know what MSRP is in just about any product we buy. Do we walk into any big box store and ask what they have in a TV? Do we ask Amazon the same question? When I used to sell paint we had a price for the contractors and a price for the average Joe retailer. On occasion we'd get a high volume contractor asking what our price was. While we had a price we paid for a gallon of paint, that price didn't include many other intangible costs. What I would like to see is bottom dollar a dealer is willing to sell a car for on the hood. I hate haggling on the price of a car. Some say that would put dealerships out of business. Some say there are those that would still try to haggle. I don't know, but I hate haggling.