Car price transparency program mirrors auto industry shift
November 21, 2013 11:59 PM
Darrell Sapp/Post-Gazette photo
GMC showroom in Robinson. Below, vehicles for sale outside the showroom.
Darrell Sapp/Post-Gazette photo
Sales Mmanager John Mann shows comparisions of cars on a kiosk in #1 Cochran’s Buick
By Teresa F. Lindeman / Pittsburgh Post-Gazette
Rob Cochran braced for the possibility that some salespeople at #1 Cochran's 21 dealerships in the Pittsburgh region might hate the company's new system of pricing deals so much that they would quit.
"We went into that with our eyes wide open," Mr. Cochran said. The trade-off was worth it, he decided, if the dealerships could sell more cars by assuring customers that they don't need to cope with hard-ball negotiating to get a fair price.
So, earlier this year, Cochran rolled out its new "Clearly Better Car Buying" program, which draws on data from third-party providers to show customers what prices others in the region are charging for comparable vehicles. It's using information from another third-party source to help set guaranteed offers for trade-ins.
"I believe this is the future of the industry," Mr. Cochran said.
Customers have long been turning to technology to help ease the painful process of buying a new vehicle.
Now, dealers like Cochran are fighting back by using the same reams of information accumulated online to prove to consumers that they are offering a straightforward, rational deal.
"We believe that data transparency is here. It's never going to go away again," said Larry Dominique, president of ALG Inc., a consulting service owned by Santa Monica, Calif.-based automotive pricing service TrueCar.
The growing availability of data on transactions around the country already has helped narrow price swings, said Mr. Dominique, who noted in 1990 there was a 20 percent swing between the highest and lowest price paid for the same vehicle.
"Nobody ever knew whether they were being treated fairly or not," he said.
That could be good for dealerships and salespeople who got a higher price, but there are also times when dealerships lose money on the sale of a car, Mr. Dominique said. Some view closing a sale as a way of fending off other dealerships and maybe landing a lifetime customer for the service department.
With about 33,000 dealers selling 16 million cars, there's not a ton of sales to go around, by ALG's calculations.
Even if dealerships did manage to negotiate higher prices, the hours-long process may have contributed to Americans willingness to hang onto their cars as long as possible.
"The customers have been loud and clear that they never liked the traditional process," Mr. Cochran said.
He's also seeing a new generation of employees disinclined to embrace old-style, hard-driving negotiations. "The whole back and forth, the customers don't like it," he said. "For the most part, the salespeople don't like it."
Still, the experiments continue on how to best use the growing piles of real-time data.
There are a lot of websites that offer to help shoppers, from CarSoup to AutoTrader to CarsDirect.
TrueCar, for example, has linked a network of 6,700 certified dealers who will give customers using the website a guaranteed price on a car. Customers pick the offer they want and then are given information on which dealership will guarantee the deal.
A quick check of that website -- using a 15222 ZIP code for Downtown -- brings up several offers for Pittsburgh shoppers, indicating that more than one local dealer is part of the service.
TrueCar charges a fee for delivering customers, and some dealers have grumbled that it is collecting on customers that a dealership had already connected with.
Mr. Dominique counters that TrueCar can save dealers money on marketing, because it typically delivers customers who are within a week of making a purchase. That, he said, means dealers could shift dollars away from traditional advertising and from buying leads from manufacturers and services like Edmunds.
AutoRef, a Pittsburgh start-up that worked with South Side incubator AlphaLab, attempted to provide a similar service. That company has closed, according to CEO Craig Younkins, who did not give more details.
Meanwhile, mega dealerships like AutoNation, which has been rebranding more than 200 dealerships around the country under the company name, and used car company CarMax continue to grow using price guarantees and third-party information.
For Cochran, the switch to a more transparent process started on the used car side, where it became possible a few years back to pull comparison information for customers on what similar vehicles were priced at in the region, Mr. Cochran said.
On the new car side, the technology took a little longer to work out. But now the dealerships have systems to tap into third-party data collected by Edmunds and Kelley Blue Book that shows how comparable vehicles are being priced at in the region.
Experienced car buyers know getting a good price for a new vehicle isn't enough, because dealers sometimes adjust what they offer on trade-ins to make up for money shaved off the car price.
"It's not just what you pay," Mr. Cochran said. "It's what you get on your trade-in."
Under the new process, his dealerships will give buyers two offers on their old vehicle, one from the dealership and one from an outside party. The offer stands even if the customer doesn't buy the new car, he said.
Car prices will still vary, since what people pay can depend on incentives from the manufacturer, demand for a particular model and the number of nearby dealers carrying the same product.
When gas prices soared a few years ago, the hybrid Toyota Prius cars in Los Angeles were selling above the manufacturer's suggested retail price, said Brian Terr, vice president for business development at Edmunds, based in Santa Monica, Calif.
"It's all based on market conditions," he said.
Mr. Cochran said the introduction of third-party pricing information has lowered the profit margin on car sales but he's counting on his salespeople to sell more cars to make up for the lost margin in a higher volume of sales.
As for the Cochran sales staff, Mr. Cochran said there wasn't a mass exodus, and he thinks the change even will help with recruiting, adding, "We're highly convinced it's going to open up doors for us in terms of young people, millennials."
Teresa F. Lindeman: firstname.lastname@example.org or 412-263-2018.
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