Americans don’t agree on much these days, but this seems to be one of them: They hate car-shopping.
The haggling, the financing, the lack of transparency. It’s enough to make anybody go nuts, Harvard Business School professor Ryan W. Buell says.
“It’s like getting on a steep emotional roller coaster: You go in with big hopes and dreams and you come out feeling completely shattered,” Buell said. “Every part of the process feels adversarial. You’re constantly wondering, ‘Did I get cheated?’ ‘Did that person over there get a better deal than me?'”
But that decades-old model may be changing, as more companies embrace fixed, no-haggle pricing.
Leading the way is an unlikely retailer: Costco, which last year partnered with General Motors dealerships to sell 465,000 vehicles, all at fixed prices. Tesla, the California-based electric car company, has also found success selling cars with pre-set pricing. Its $35,000 Model 3 sedan, scheduled to go into production next year, has already racked up 400,000 pre-orders.
Other brands are taking note: Subaru and Lexus now offer no-haggle pricing in certain locations.
“Brands like Tesla are stepping away from the norm and showing there’s a better way,” Buell said. “There are massive asymmetries in terms of what a car is worth and what you, and others, may be paying for it.”
Car-lot bargaining has become so widespread, in part, because it favors the dealer, who has much more information about the car than the customer does, says Michael A. Wheeler, a Harvard Business School professor and author of “Art of Negotiation.”
“Obviously the seller makes the rules in this case, and you do the best to bend them in your favor,” he said, adding that studies have shown such negotiations systematically favor white men over women and minorities. A 1991 study published in the Harvard Law Review, for example, found that black women paid three times the mark-up on cars compared to white men.
Setting fixed car prices is one way, he said, to level the field for consumers. But it’s not without its share of challenges.
“Even if you have a straight sticker price, it’s not as clean a process as you’d think,” Wheeler said. “What is my trade-in worth? What are the terms of my financing? There is still a lot of room for negotiation.”
Car dealerships have tried shifting to fixed prices at least once before, in the early 1990s. Those efforts, led by now-defunct Saturn, were short-lived in part because customers felt like they weren’t getting the best deal possible if they hadn’t spent hours bargaining.
But experts say that notion is changing. Younger Americans, including millennials, tend to favor transparent pricing. And the ubiquity of ride-sharing services like Uber and Zipcar means vehicles aren’t as essential as they once were, particularly in large cities.
“There’s a real opportunity for companies to get this right,” Buell said. “For many of us, today’s car-buying process creates nothing but anxiety.”