Fixed Price Car Buying?

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Buying a car is kind of like buying a house in that what the seller is asking isn’t necessarily what you’ll be paying. There is usually a negotiation before the sale is concluded and – usually – this benefits the buyer, who ends up paying something less-than-advertised.

A long time ago, GM tried to sell cars the way appliances and most other consumer items are sold – by putting a price on the item and hoping people would buy it. The idea – as regards the cars – was that most people would prefer not to haggle over the price, even if if means just paying whatever the seller is asking.

It didn’t work out very well for GM, which abandoned the idea back in the ’90s and went back to the manufacturer’s suggested retail price (MSRP) way of doing it. The sticker – MSRP – says it costs this much. You – the prospective buyer – say you’ll only pay this much.

A buyer willing to haggle will usually end up paying less than MSRP.

On the other hand, maybe not. It depends on how much the buyer knows about how the game – and that’s what it is, after all – is played.

The MSRP – what you see on the window sticker – is whatever the manufacturer suggests. What do you suppose the manufacturer suggests? If you answered: A price that encompasses a substantial profit for the dealer that wants to sell you the car, you’re hip to how the game works. Appliances have the same prices; the difference is they’re not “suggested.”

They just are.

Anyhow, there’s lots of room – to haggle – built into the manufacturer’s suggested retail price. For the buyer and the seller (i.e., the dealer). Put more precisely, the MSRP might be more than high enough to encompass that room to haggle and leave a generous profit for the dealer while leaving the buyer to believe he got a great deal.

And maybe he did – relative to the MSRP.

But it’s hard to know for sure – as opposed to on paper – because of the opacity of the transaction. How much did the car really cost the manufacturer to  . . . manufacture? How much did the manufacturer kick back to the dealer? How much profit is built into the suggested price?

The successful haggle might be more an illusion, if a happy one.

Tesla did away with it, for what it’s worth – and Ford CEO Jim Farley said the other day they are considering doing the same. It has worked – so far – for Tesla. But that may be due to the fact that Tesla is selling appliances and the people who buy them are used to buying them that way.

But will it work for Ford?

And will it work for you?

Much depends on who you are – and what you know. Some people really like to haggle over the price of things because they’re good at it – and because they know about it. They are willing to do the work of researching what the dealer paid the manufacturer, know about most (though it’s hard to know about all) of the “holdbacks,” which are inside baseball deals cut between the manufacturer and the dealer and what a reasonable profit is for a given vehicle. This latter – usually about 3 percent of MSRP – varies according to the specific vehicle and is based, in part, on how popular it is and how many other people are lining up to buy it.

If they aren’t – and you know it – you might end with a really good deal. But if you don’t – maybe not.

The fixed pricing model takes the knowing (and the not) out of the equation, but not the opacity. Does anyone have the slightest idea what it costs Elon Musk to manufacture a Tesla?

There is no dealer network to support – so the cost of that isn’t folded into the price of the car.

But what about all the other costs? You – the prospective buyer – have no idea what they are and even if you did, it wouldn’t matter in that there’s no haggling over the car’s price. You pay what Tesla says you’ll pay if you want to buy the car – and that may be a lot more than you’d have paid if you’d been able to haggle over the car.

Right now, the free market – and the inertia of tradition – give you, the buyer, the alternative. You can pay what Tesla (and maybe soon Ford) says. Or you can tell the seller of some other make what you’re willing to pay for that model.

The one-price-fits-all business model is kind of insolent, when you think about it. Would you like buying a house this way? Yet we buy almost everything else this way.

It’s entirely possible we’ll be buying new cars that way soon, too.

. . .

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26 COMMENTS

  1. Speaking of haggling…

    A couple weeks ago my sister and I drove 93 miles one way to a Honda dealership to test drive a 2023 Honda Civic Sport Hatchback. Why drive so far? It was the only manual transmission hatchback available within 500 miles.

    My sis has been looking to buy a manual car for the past 3 years because she enjoys driving a stick (as do I). Manual transmission vehicles are like purple unicorns…nonexistent.

    The dealership had the car priced at $27,400 online which is the MSRP. The dealer did not have the window sticker online, and silly me I should have called to verify the price was $27,400. Not that they would tell me the true price on the phone as they want to lowball you to get you in the dealership.

    So we make the drive to the dealership.

    We walk up to the blue 2023 Honda Civic and notice there is a second sticker next to the window sticker. The window sticker says $27,400. The second sticker lists $3,000 of upgrades added to the car. Now the price is $30,400.

    Nice.

    I point out to the salesman that the online price says $27,400 and if they are trying to sell the car with crappy add ons (that no one wants) they need to put the real price of $30,400 online. The salesman feigned confusion and stated there was small print on their online ad that stated the price may be different.

    Whatever. After that bait and switch, me and my sis were put off from buying any vehicle from this Honda dealership.

    We did the test drive anyway, and determined we both did not like the 2023 Honda Civic sport hatchback. The shifting was notchy (not smooth). The road noise inside the car was louder than my crappy Mazda3. We didn’t like the open wheels (salt roads and brakes are NOT happy bedfellows). The outside had weirdly placed ugly plastic on the front, trying to make it look sporty, but it just made the car lower to the ground where it was a magnet for road damage. The infotainment system was high on the dash, placed perfectly for the sun to heat it up. The blue paint was faded in the door interior, etc.

    After the test drive we determined the car was not a $30,400 car, but closer to $23,000 (on a good day).

    We didn’t buy the car, although the dealer tried to take $1,400 off thinking we would jump at buying it for $29,000.

    Nope. The quality of the Honda wasn’t even worth $29,000.

    Long boring story short, price haggling for new/used vehicles will probably always be a part of purchasing a vehicle. Fixed price buying is good for people and dealerships who don’t want to haggle. Now that vehicles are priced closer to home values ($35,000-$100,000) buying a vehicle will be on par with home buying. Most people haggle with realtors when buying homes and the process of buying the home is a long drawn out procedure that no one enjoys. Same is true of car buying.

    • The greatest irony is the fixed price model for new cars will actually truly permanently INCREASE the price of used cars, not like a scamdemic, which is a temporary bump.

      When people are forced to pay increasingly outrageous prices for “Gov’t Approved” new vehicles, and all the plebes have no $$$ to buy, well, used ones will be all they can afford, and hence, inevitably increase in price…Supply and Demand, anyone???

      And the (((US FEDGOV))) will support this, ultimately, watch and see.

      Anything to fleece the sheep and ensure they have nothing, and be happy!!

  2. You’re already at a disadvantage becuase you went to them. They know you’re there to buy a car so of course they’re going to make it look like you’re getting a deal. I don’t think I’ve ever had a salesperson acknowledge my presence, let alone pitch me a deal on a new car when I’ve had the disfortune to have to take my car to the dealer for service. Seems to me that’d be prime time to start selling…

    “Hey Ready, looks like you’re back again! I can take that old bucket off your hands and put you in a brand new Fruzenglassen Mark V today! Here’s the keys, take her out for a spin.”

    • You are also at a disadvantage, because they know the lowest price they will settle for and you don’t. Plus they have the ability to stick it to you (often in subtle ways) on the financing.

      • Forget sticking it to you on the financing, Publius. How about having to pay extra for Spotify, for the music, ’cause there are no CD players in new vehicles any longer? Or (as Eric as mentioned) charging you “extra” for the heated seats (or whatever they want to charge you extra for), for the privilege of enjoying in YOUR car)? They are going to nickel and dime you, the consumer, to death long after you have paid your vehicle off. And wait, there’s more!! That does not include the year-after-year cost of having to pay for the license plate on the vehicle, too. And if you are really a sorry bastard living in such a state, paying for that “inspection sticker”, as well. Feel screwed yet?

          • Oh…I have worked nights and been on a night shift my whole life. Yeah, it is bad for you but so are a lot of things, haha.

            • Me also, Shadow!

              Back in the day, I used to be at my desk at the paper by 4 in the morning; the joint was empty and the quiet helped me think. It’s a habit I’ve carried along with me all my adult life. It also preps me for old age. Hey, let’s hit the buffet and get home in time to go to bed at 7!

              • I like the drive in the morning. While all the “normal” people are rushing off to work like chickens with their heads cut off (and never mind none of ’em can drive, especially on snowy, icy roads), I am heading home. Also, it is a great time to go grocery shopping. Hardly anyone around, I can zip in and out, and I often see my night shift co-workers, too. And yeah, this old age stuff sure did creep up fast. What the hell?? I thought I just graduated….last year?

  3. “I got a great deal on my Chevy Vega and you foolishly paid sticker for your VW Beetle.”

    “The bitterness of poor quality remains long after the sweetness of low price is forgotten.” – Ben Franklin

    Haggle if you will but, I’ve never enjoyed it and if a few bucks one way or the other is a deal-breaker I shouldn’t be in the market. It reminds me of an incident a few years ago when we were racing at Virginia International. A competitor was complaining about having to pay $2/gal more for 93 octane at the track as opposed to in town, 15 miles away. My son looked at me and said, “If 2 bucks a gallon is going to break your budget you need to get a pair of binoculars and go bird watching.”

  4. Since I’ve yet to buy a new car and have no plans on doing so I still have at least the illusion of being able to negotiate with a used model.
    It never hurts to try is true last vehicle they dropped $700.00 even though the car was fairly priced, just because the bumper was tweeked. (Still is, it’s a truck who cares?) The work van I bought 4 years ago they dropped $2800.00 over the phone. No joke I told the guy I liked the van but he was just too high and to see what he could do I’d be paying cash if the van was what it appeared to be on the website. He called me back 30 min later went from $13,400 to $10,600.
    Auctions are also good if you know what your looking at and willing to take a risk. No salesmen, make an offer, hand over money, then drive off.

  5. I’ve been waiting to see how the car buying service being promoted by youtuber Kevin the Homework Guy turns out. I do like the idea, and they’re putting together a list of “good” dealers that don’t deliberately try to screw over customers. I LOATHE buying vehicles and mattresses…

  6. I can tell you right now, one price, no haggle pricing won’t work for Ford, outside of a very popular model (like the maverick and bronco, which is more due to them not making enough of them for the early demand).

    The electric fanboys won’t line up for their electrics, as the bungled Lightning rollout has soured most of them on Ford. Past the fanboys, there really aren’t many electric buyers after that. That’s what the automakers are not getting. Once the loud obnoxious fanboys have theirs, there aren’t any more buyers. So slapping a too high price on an unpopular device will ensure it stays on the dealer lot a very long time.

    Tesla has it good. They can get away with all their quality problems etc that no other maker can get away with. That’s why Ford can’t copy their model, because it shouldn’t work to begin with.

    • It can work for Ford but they won’t let it work.
      Ford and its dealers are committed to the surcharge. Ford makes vehicles as dealer reward cars that dealers can mark up above MSRP.
      When dealers started charging more than MSRP for regular vehicles then Ford responded by increasing the MSRP.

      After decades of this sort of nonsense everyone is going to assume the no haggle price is a bad price unless it’s considerably lower than recent MSRPs and aligns well with known invoice pricing.

  7. Even without the research you know two things:

    1) There is a number the sales guy won’t go below. The dealership has to make at least some profit, and he has to make at least some commission.

    2) The sales guy is motivated to move inventory. So he’d normally rather make a small commission, and move another car this month, vs. no commission & no sale.

    So why not throw a number out there & see what you can work out? You’d be a fool not to.

    • And—corollary to the above—they don’t like inventory to sit around long. So, if something has been sitting there long enough with no customer interest, they might be willing to take a small loss on it now so they can use that lot space for something that will generate more profit later.

      This especially applies towards the end of the year, when there are tax consequences for carrying over inventory.

      • Basically when you buy a car, you are going to get screwed regardless. But if you’re smart, you can get screwed a lot less.

  8. The last time I bought a new car was 2003; I’m not really a good negotiator/haggler and I’d rather go to the dentist than deal with a car salesman. I think I got a decent price that time but deep down I know I’m getting shafted. When I was in high school I went out with a girl whose dad owned the local Ford dealership; they had a summer house on a lake that was twice the size of our house, so he was making big bucks selling those cars.

  9. Local Ford dealer was doing “one low price – no haggle “ back in ‘03 when I bought the Escape. They had the pricing online and was good for a laugh since it was about 75 bucks less than MSRP. The “one low price” got much lower in July when those Escapes were still on the lot, when $22150 went to $19500, that price I could live with.

    Also typical Ford pricing on newer model releases, they did this with the Probe when it first came out – advertising blitz, sky high factory pricing for the early adopter fools then as demand softens so does the price.

    • “Used Cars” is one of my top five favorite movies… the improvised commercials for “New Deal Used Cars” are some of the funniest scenes ever.

  10. When it often takes a number of hours of paper work to buy a new car, “no haggle” pricing can appear very attractive. One less hoop to jump through. I’ve only bought one new car in my life, and I was astonished by how long it took. Fortunately, I was not aware of such nonsense, and haggled the price before hand. I walked into the dealership with a specific amount of cash in my wallet, determined that was the most I would spend. I walked out with a considerable amount of cash left in my wallet. Needless to say, when the deal was struck, and I put the cash on the table, the salesman was, shall we say, taken aback. Had to go ask the boss how to handle it.

      • I’ve always actually enjoyed haggling and screwing around with the car dealers. I do my homework before even thinking about stepping on that lot, and I know exactly what I’m going to pay for the new car, what my old car is worth, whether it’s worthwhile to sell it myself, etc. I make sure I have all day and nothing else to do. I either get the deal that I want, or I move on to another dealer until I do get what I want. It has always worked out well for me. That said, I dealt with Carmax a couple times, once when I had to get rid of a car real quick and another time when I was helping a friend buy a car and they had exactly what she wanted. I must say, while you can probably negotiate a better price elsewhere, the experience is amazing. No bullshit, no pressure , no games. They truly don’t care if you buy the car or not. And they don’t waste your time. Find the car, test drive it, you want it or you don’t. End of story. Almost worth the extra money to not have to deal with the other assholes.

      • I buy a lot of cars, mostly new. For the past 10yrs or so, maybe 10 vehicles?
        I too got really frustrated spending 2-4 hrs+ of BS. So I started doing an experiment. I offered and showed the salesman a hundred dollar bill, and said it’s his/hers if they can get me out of there in 1 hr or less.
        Let’s just say 2 of them said no way, 6 of them failed but 1 guy got 50 cause he tried real hard (1:15), and two did it and got the 100, to their excitement. And one of those guys gave half of it to his admin guy. That one was fun. He had me working almost as hard (OK you do your insurance thing right now, done, OK, you go make copies of this crap. how can i help………. haha) But I’ve also bought boatloads of vehicles from them in 25yrs and they are almost all the same guys/girls +/- (which is amazing today), so they knew my shenanigans.
        With that great group we even had time to tell old war stories of the now-retired ex-owner who taught me the a lot about the car biz and how much fun crap we got into. Most of them remembered and we laughed about it. Smart group, they get what they want, and I get what I want. amazing concept.

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