Car dealers stake out haggle-free zones

Then there's Gen Y. An impatient bunch, they don't like haggling because it takes too long. Did you know that the average car sale consumes 4 1/2 hours? Who has time for that? That's why Scion, launched to woo Gen Y, doesn't allow its dealers to haggle.

Toyota Motor (TM, news, msgs) says it has cut the time it takes to sell a car to 45 minutes. Gen Y buyers also tend to select everything down to the color and options they want online, before they hit the showroom. Even though Scion targets young men, half of the brand's customers are women.

Plenty of dealers have tried no-haggle selling, only to give it up after crosstown rivals beat their prices. But those who stick with it say it saves them money. Because they don't have to advertise the sale of the week, per-car advertising costs typically drop by $300. They need half as many managers to OK a salesperson's negotiated price. Sales managers make about $150,000 a year, so it adds up to real money.

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Salespeople do better, too. Using the Web, buyers can negotiate the lowest price, making it tough for salespeople to earn a living. Lithia will pay not commissions but an hourly wage plus bonuses for selling more cars. Consultant Rikess says salespeople in one-price stores make $50,000 a year, vs. $35,000 for those on commission.

A more loyal customer

Dealers also say fixed prices tend to make customers more loyal. Paul Walser, who owns 10 stores in Minneapolis selling Honda (HMC, news, msgs), Toyota, Nissan (NSANY, news, msgs), General Motors (GM, news, msgs) and Chrysler brands, among others, says his dealerships close fewer deals than they did before he started converting to one-price selling. But he has double the number of repeat customers. Plus, 70% of those buyers come back for parts and service, vs. 40% before he converted.

"If you're doing it to boost profits on a sale, it's not the right reason," Walser says. "You've got to do it because you think it's the right way to do business."

And yet old habits die hard -- especially at those brands, mostly owned by the Big Three, that still have too many stores. Where competition is fierce, dealers are unlikely to go to fixed price unless the guy across town does, too.

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Then there's the conservatism common to mom-and-pops: Granddad sold cars this way, so I'm going to. When Lithia announced it would start offering "negotiation-free selling," the company expected pushback, says Chairman and CEO Sid DeBoer, so he opted for a gradual rollout. "It's hard to change a culture that's focused on profit and not what the consumer wants," he says.

Ultimately, dealers may have no choice.

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