The Future of the Car Dealership

By sheer coincidence, two of my favorite bloggers released entries on subsequent days about recent negative car-buying experiences. I’ll highlight certain details and similarities below, but if you want to read the full entries, go here for Scott Adams’ (creator of Dilbert) and Simon Sinek’s (speaker on one of the best TED talks ever.)

As I read those entries, I started wondering: Is there a better way to sell cars at dealerships? Do some dealerships do it the “right” way? And, most importantly: Is it possible for you to walk out of a car dealership feeling better than when you walked in?

That’s the big question. It comes up several times in those articles. Both Adams and Sinek were genuinely excited about buying their cars, just like any of us would be. It’s a major expense. It’s something that you’ll use almost every day, and in many ways, it’s your outer layer of skin when you’re on the road. It’s a big deal.

And yet both Adams and Sinek walked out of the car dealerships feeling trained, manipulated, and frustrated. Does it need to be that way?

In preparation for this entry, I interviewed Bill Straatmann, owner of Straatmann Toyota in Washington, Missouri. Washington is a pretty small town–population 14,045–so Bill has focused on finding lifetime customers. As a result, his dealership was #1 in customer satisfaction based on surveys of all 1200+ Toyota dealerships across the US in 2010. So we’re comparing one of the best dealerships to the disappointing dealerships that Adams and Scott encountered.

I also took to Facebook to ask for tips and stories. Special thanks to Jen, David, Eisley, Ali, Carole, Orianna, Tim, Virginia, and Kelly for sharing their thoughts and insights there.

So let’s start with the bad. Based on the stories I read about today, here are the most bewildering frustrations experienced at car dealerships:

  1. Sleazy Salesmanship: The oddest thing is that it seems like car salesmen want to make you feel bad for trying to negotiate a lower price. At every turn of the negotiations they say things like “my boss is going to kill me for giving you this price” or “I sure hope my kids can still go to college.” Rather than make the customer feel guilty, why not find ways to make them feel good?
  2. Incorrect Inventory: Across the board, everyone I talked to researched cars online before going to the dealership, and they knew exactly what they wanted before they got there. Several of them even corresponded with the dealer in advance to make sure they had the car in stock that they wanted. And yet when they showed up, the car wasn’t in stock, or the components weren’t right.
  3. Bait and Switch: This might be the most sleazy aspect I heard about. After you solidify the deal with your primary salesman, a secondary salesman steps in…but his numbers are different, and it’s up to you to realize that. Of course you do, so this is just insulting and a waste of time. This isn’t the exception to the rule–rather, the exception to the rule seems to be when a dealership doesn’t do this.
  4. Financing: I remember the last time I bought a car. After talking with the first two salesmen, they sent me into the depths of the dealership to deal with the finance guy. Up until that point I was told that I’d get great financing. But everything changed when I got to the finance guy. Suddenly I had terrible credit (I didn’t), and I had to talk him down to the correct rate that I had researched in advance. Jen had a similar experience.
  5. Extra Features: Finally, you get to the last guy, and he wants to sell you all these extra features. By this point you really just want to get into your car and drive away, so the only thing this does is worsen your overall experience.
  6. Total Time: Sinek walked into the dealership with a reasonable price in mind and was prepared to buy a car that was on the lot. 4 hours later he was allowed to leave. It was even worse for Jen–she spent 9 hour at the dealership! It’s almost as if their strategy is to wear you down until you’ll give into their pushiness.

When I read that list, I’m simply bewildered. Why is this the norm for car dealerships? There must be a better way, and yet it seems like most dealerships gravitate towards these tactics. Perhaps they’re profitable in the short term, but they do nothing to create long-term, loyal customers.

A lot of those issues gravitate around the negotiability of the price. For the vast majority of things we buy, there is no haggling. You go to the grocery store, you pick up a gallon of milk, and you pay the price on the label. I asked Bill Straatmann why that isn’t the case with cars, and he said that although the factory price is a set, actual number, the actual price to the dealership of a car fluctuates based on things like service contracts, whether the car is a trade-in or not, and the insurance the dealership pays to keep the cars on the lot. And he said that the other costs of the dealership–marketing, base salaries, overhead, etc–have to be factored in.

I must admit, as forthcoming as Bill was in the interview, that was the one answer I wasn’t satisfied with. After all, back to the milk example, any grocery store has to pay insurance, salaries, overhead, and marketing in addition to the base price for the product. Having extraneous costs doesn’t justify the need for a variable price.

I also asked Bill about the line we’ve all heard when the salesman says, “Let me go check that price with the manager.” I flat out asked Bill, “Is there any substance behind that line? I mean, doesn’t the salesman know what he can reasonably offer you?” Bill said that salesmen don’t have the authority to approve final prices without the consent of the manager. Again, I’m not quite sure about that answer, but I’m okay with it because it’s one of the few car dealership ploys that makes the customer feel good instead of bad.

One of the big questions I had was: Do solutions to this problem already exist? The answer: Kind of.

Solutions:

  1. Straatmann Toyota: Bill’s dealership gets fantastic customer ratings, so he must be doing something right. He keeps a small sales staff, and it sounds like he picks people who believe in the type of business he’s trying to run, not just the sale. He only offers one avenue for financing so customers aren’t given the runaround at the end of the day. He doesn’t employ bait-and-switch tactics. And most impressive at all, I asked Bill how long he could get a customer in and out the door if they walked into Straatmann Toyota knowing that they want to buy a car on the lot. He said that he understands that people have other things they want to do, and he claims that he can get them out the door in 10-15 minutes.
  2. E-mailing internet departments at dealerships first: I heard this advice from a lot of people, and it makes sense. Rather than spend your day running from dealership to dealership, lay the groundwork up front without leaving the house.
  3. Truecar.com: Tim suggested this site–you can see a screenshot on the right. The site pre-negotiates prices with dealerships so you don’t have to haggle, and you have all the information right there in front of you to assure you’re getting a good price.
  4. Costco: Costco uses their size and buying power to pre-negotiate haggle-free prices with dealerships. Simply go to a dealership, flash your Costco card, and get the Costco price. Several people said it’s quite effective.
  5. CarLotz: This is an interesting model for used car dealerships I heard about a while ago. It’s basically a place for people to sell their cars. CarLotz charges a set fee to sell your car–their goal is to get it off the lot for the price you set.

These are decent solutions, but I have to say, I’m not satisfied. None of these solutions get me excited about buying a car. They still make me dread the process–the haggling, the possibility of incorrect inventory, the bait-and-switch, the potentially long day at the dealership…

Buying a car shouldn’t be about all that. It should be about the thrill of possibility when you test drive the car. It should be about the excitement of a fresh start. You should walk away from a car purchase feeling better than when you first arrived.

So I’m going to propose a few potential solutions:

  1. The Dell Model: Remember when you bought your last computer online? I bet you customized it, didn’t you? You can currently do that for cars, but it might be months before you get your car. However, a new car can be built in a few minutes. Imagine a car dealership where you show up, pick and choose the exact components you want, and right in front of you they’ll build your car. It would be like Minority Report, except you’d watch from a safe distance. Sure, there are issues with this–such factory dealerships couldn’t fit into some metropolitan areas–but it’s an idea to consider.
  2. The Redbox Model: Let’s remove salesmen from the equation altogether and restructure car dealerships like vending machines. You check online to see which cars are available, and when you see a few that intrigue you, you head out to the dealership. You can your credit card, hop in a car you like, and take it for a test drive under 15 minutes. Anything more than that, and you start to pay a very high price per hour until you return it. When you find a car you like, you sign a few touchscreens and drive away. The price is based on the same markup formula as your average consumer item, and the financing is standard (why does the finance guy even exist? That should be automated immediately).
  3. The Enterprise Model: Instead of you going to a dealership, they come to you. You spend some time e-mailing or calling the salesman in advance, and once you have a rough idea of what you want, they drive the car to your house for the test drive. If you like it, you negotiate a price right then and there and sign an iPad for the financing. The pressure is on the salesman, because at any time, you can walk back into your house and continue watching The Great Food Truck Race.
  4. The CarLotz Model: Sell all cars for the factory price, and charge a flat fee for the service of stocking and selling a car. There’s no mystery as to how good of a deal you’ve bargained–in fact, there’s no negotiation at all. The dealership would include all necessary expenses in the fee–insurance, overhead, marketing, and salaries. Salesmen would have no incentive to upsell you or sell something that you don’t want, because their only goal is to sell you a car. Any car. The fee is the same for any car on the lot.

Those are just a few ideas–what do you think? Do you have any terrible or great experiences at car dealerships?