Startling New Findings on Auto Dealers and Buyers! Or Maybe Not

Recent studies claim what some people have been trying to prove for decades, that consumers prefer not to negotiate.

A 1993 J. D. Power survey results said something similar in predicting the Saturn no-negotiating way of doing business would take over auto retail. 

At the time, Saturn dealers were doing well, but parent General Motors was losing money. Unfortunately, many people failed to realize that for the “Saturn Method” to work, over-production can’t be part of the equation and true success includes OEM profit.

Also in 1993, an Arizona research firm claimed its study showed the exact opposite of what the Power survey had said. The different results were achieved by merely changing the wording of survey questions. 

The marketplace eventually proved who was right and who was wrong. Saturn proved many things. It proved that fresh product enthusiastically received by the consuming public is essential. And ultimately GM starved Saturn of product. 

Saturn proved some consumers like its business model. It also proved there aren’t enough of them to make for a viable brand. Saturn introduced a stellar vehicle in the Aura. Yet, consumers voted with their feet. Instead of buying the very competitive Aura at a friendly store, they stampeded to Toyota and Honda to get abused by the so-called traditional sales model. Go figure.

Both of the recent surveys ignore the elephants in the room. While criticizing the old methods, as if there is such a thing, they failed to tell us exactly how to do what consumers want us to do, yet still make money. 

I started in the business in 1970, selling in a 1-price store, although it wasn’t called that back in the day. The anecdotes related by those who try to demonize the old ways might describe some stores, but certainly not all of them.

There has never been a single way for dealers to run their sales operations.  Auto retail always has been about relationships and satisfying customers. This hasn’t changed. As a consultant and  trainer more than 20 years ago, we taught sales people to open dialogue with prospects by saying, “Before you leave, we want to make sure we provide all the information you need to make a practical purchase decision, including some numbers to think about.”  

Sorry, Consumers Today Know Less, Not More

Even though consumers today have ready access to all sorts of information, they actually know less today than they ever did because of the complexity of it all.  Much of that complexity was created by OEMs when they curtailed dealer markup and hid gross profit behind invoice, something I seriously doubt consumers would call increased transparency.

The vast amount of information available today is like drinking from a fire hose for consumers. Auto buying consumers have more information, yet really know less.  Over the last few years I have visited hundreds of dealerships. I’ve seen a consistent pattern of salespeople attempting to deal with consumers who think they know a lot more than they do. 

There is an art to correcting potential buyers on their misconceptions, while still maintaining a business relationship. Many salespeople fail miserably at this.  

I do my own research. Since it is informal, I don’t try to calculate a margin of error or use lofty terms to describe my methodology. I am regularly in front of groups of college students.  My own personal study group consists of 22 Gen Y nieces and nephews. 

Further, I am regularly in front of a group of retired millionaires at a retiree forum in my home town. This gives me the opportunity to conduct show-of-hands surveys. 

Example: “How many of you think an auto dealer is entitled to a return of 10% on the sale of a new vehicle?”  Everyone in the room raises their hand. Later, I’ll ask, “How many of you, after you get home after buying a new car, would be upset if you find out you paid the dealer a $3,000 profit?” Everyone raises their hand for that one. Well, 10% profit on a $30,000 vehicle is…

A Dallas company specializing in lease comparison software, Cybercalc.com, recently did extensive surveying which “proved” consumers prefer to get deals structured and “locked in” before revealing their identity. 

The initiative was called AutoBids Online and a small fortune was invested to create a software platform to enable consumers to anonymously enter a marketplace where dealers would bid for their business, thereby locking in an offer before the consumer’s identity was revealed. 

CyberCalc CEO Jeff Cook says he learned an expensive lesson regarding auto buyers. “I have some great software for sale if anyone thinks the market is now ready for this. When we did this a few years ago, it clearly wasn’t, despite our extensive surveying.” 

Perhaps it was the $29 consumers had to pay to enter the marketplace that way?  But one would think that’s a small price to pay for avoiding the old method’s grind, right?

This is not to say the Internet hasn’t forever changed some things about our business. Dale Pollak and others have definitively shown that if a dealer prices vehicles wrong, consumers using search engines typically won’t see their inventories. That’s because they are so far down on the search results for the many people who sort searches by price. That’s proven by actual consumer behavior, not surveys.

In our bid to thrill consumers, we should consider how we answer the phone.  A valued relic from the past, Jackie B. Cooper, used to point out that the dealership telephone operator talks to more potential gross profit than any other employee. “And who gets paid the least?” Jackie would ask. 

These days many telephones are answered by an interactive voice-response system.  Gen Y calls them “bots.” They are universally reviled.  

Here's another sore point: Even the best sales process can turn counterproductive when executed crudely. Pros on the sales floor make things go well. But our industry has cut the upfront markup, increased the holdback, increased the pack, taken away demos, cut fringe benefits, instituted full retail markup internal charges and more. And we wonder why we have a turnover problem.

Million in Lost Auto Sales?

A dubious claim stemming from surveys is that our industry is losing millions of sales a year because consumers don’t like our processes. Another way claimants put it is that the industry would sell millions of more vehicles by making the dealership process more customer friendly.

This assumes a lot of things. One of them is that consumers who don’t like the first dealership they encounter, will exit the market instead of exiting that store and visiting another. 

I have run this claim by a number of industry economists. Their unanimous response is akin to Gen. Norman Schwarzkopf’s reference to “bovine scatology.” 

The AutoTrader study says consumers want a change from the old car-buying process. There is no such thing as the old process. 

Dealers used to compete with other dealers to provide an experience acceptable enough to consumers to gain their fair share of sales and gross profit. It seems like any new process would work the same way.

Is there a universally acceptable new process that would accommodate the 30% of buyers who are in below-prime categories, take negative trade equity and fast-track credit buyers into consideration and still allow for dealers to make money? If so, we’d all like to hear about it. 

AutoTrader says surveyed consumers want to test drive new vehicles at a central location without salespeople present. What wasn’t asked is how much more consumers would be willing to pay for this. 

Consumers dislike the process as it is today. Perhaps the government could allow dealers to fix prices so everyone could pay the same. Why not ask them how they would like that?

The AutoTrader study says consumers prefer to remain anonymous until they lock in a deal. Of course they do. So what? 

Dealers always have been free to adapt to whatever they believe consumers really want. 

A lot of money has been invested in attempts to do business based on what consumers say they want in surveys.

At a DrivingSales conference in New York, Maryann Keller mentioned the Priceline car-selling experiment, which didn’t work. She should know. She ran it and is completely upfront about the experience. 

Who better to tell us about the difference between what consumers say and how they actually behave than arguably the world’s leading auto analyst who also spearheaded a well-financed attempt to appeal to consumers based on their stated preferences? 

What has changed since those expensive experiments failed? Why keep trying to prove consumers will behave the way they say they will?

What seems inevitable is the continued attempt to predict consumer auto-buying behavior based on survey results. Auto retailing has many talented and experienced experts who are in the trenches daily. Why not ask them what they think?    

David Ruggles is an automotive consultant and former dealership general manager. He can be reached at [email protected].