Lexus’ 2-year-old negotiation-free pricing program, Lexus Plus, received a shot in the arm last year when the brand’s largest U.S. dealer by volume opted in.
The Toyota luxury brand is hoping JM Lexus’ entry into Lexus Plus will prompt more of its 237 U.S. dealers to participate. Currently there only are 12 Lexus Plus dealers in the U.S., most with much fewer new-vehicle sales than JM Lexus, located 12 miles (19 km) north of Fort Lauderdale in Margate, FL, and which sold 5,000 new Lexuses in 2017.
“If Lexus Plus flourishes in (the) Miami (area), one of the most competitive markets in the country, with the largest Lexus dealer in the world, then we’ve probably got a process that can work anywhere,” says Jeff Bracken, general manager-Lexus U.S.
After nine months of training, JM Lexus launched Lexus Plus on Dec. 1. And so far, so good, says the store’s vice president and general manager, Jim Dunn.
“Anybody that’s bought a car from us, I haven’t heard a discouraging word at this point,” he tells WardsAuto in an interview. “As I tell them why we are doing this and what are the benefits for you, they understand it’s time to really do something different.”
The idea behind non-negotiable pricing, which has been tried by other brands, famously by General Motors’ defunct Saturn marque, is to remove the stress that can arise for both buyers and sellers when dickering over a vehicle’s price.
The time may be optimal for non-negotiable pricing to take hold, says Dunn, as car-buying has changed due to the proliferation of Internet-connected smartphones.
“When I first got in the car business, (customers) would shop five or six dealerships and just go from dealership to dealership to try and get the best deal,” he says. “And today they just have to sit in front of their telephone to check and see what’s out there.
“We see if they’re not going to have to go to five or six different dealerships anymore, and they’re really only shopping one, or up to one-and-a-half stores these days, that the consumer wants something different. And we’re listening.”
Cooper Ericksen, vice president-marketing for Lexus U.S. says the training and setting up of Lexus Plus includes mapping out processes, determining market-based prices for vehicles, creating pricing menus for service events and then establishing systems to facilitate the above.
One part of the JM training, performed by GP Sandy, was “10 Conversations,” meetings designed in part to help the dealership’s 400 employees devise new approaches to fixed and variable operations, among other things.
Both Bracken and Ericksen emphasize the manufacturer is not trying to have too heavy a hand in shaping what each store does.
“It’s not us telling them what to do,” Ericksen says. “It’s facilitating the conversations with the store, because each individual dealership will have their own nuances and processes of how to accomplish it.”
Lexus shares with its Plus dealers composite reports from financial-statement data, as well as reams of industry data, to help them set prices, Bracken says.
Because pricing vehicles correctly is key to Lexus Plus dealers’ success, JM Lexus, as well as other participating dealers, created a new position of pricing analyst. JM also has a full-time trainer to advise and guide staff on processes.
Dealers may re-price models every week, every other week or monthly depending on their local market conditions, and prices can differ from vehicles within a model line or be the same across the board.
“They might pool 10 RXs at the same price, but it’s the dealer’s decision,” Bracken says, adding conversely one RX may be more expensive than another if it is a new arrival on the lot.
Vehicle characteristics such as color and installed equipment also factor into pricing decisions, says Ericksen.
Single Point of Contact
Another, perhaps more important aspect of Lexus Plus is the single point of contact during a sale, with surveys showing car-buyers have never liked the “old hand-off,” as Dunn calls it.
“(Traditionally in the vehicle-buying process) you had a salesman, then you had the T.O. (turnover) man come in, and then you may have had an accessory person…and then you get taken to the finance office,” he says. “After that you had maybe somebody different that’s going to deliver the car. So we just want to make it fun for the customer and have them count on one person to take them through that journey.”
Being a jack-of-all-trades has turned salespeople into quasi-sales managers, says Dunn. “They handle everything from tip to tail.”
Contrary to what some may expect as an outcome, he has found streamlining the buying process doesn’t necessarily cut down on the time spent by a customer in his store.
Results of a survey he commissioned a few years ago revealed a common thread: Customers were frustrated by the hours they had to spend in a dealership buying a car, because they were forced to see several people.
But at JM Lexus, time no longer spent negotiating and dealing with multiple staffers now typically is taken up with learning about the scads of features on today’s new cars and trucks.
“At delivery we do a better job of sharing time with the customer, because with technology you really have to spend the time with (customers) to have them understand exactly what their car has.”
A common drawback to haggle-free pricing is the opportunity for competing dealers to undercut dealers not flexible on price. Perhaps reflecting that concern, about half of the Lexus Plus dealers are in smaller markets, such as Appleton, WI, and Omaha, NE, where the nearest competing Lexus store is an hour or more away. The other Lexus Plus dealers are in Greenwood Village, CO; Indianapolis, IN; Wichita, KS; Portland, ME; Lincoln, NE; Bellevue, WA; and in three Pennsylvania cities: Pittsburgh, Allentown and Wexford.
Says Ericksen: “(Undercutting) has happened, it will happen. But again the real value proposition comes in where ultimately a customer is going to make a decision: Is it worth it for me to go dealer-to-dealer, to call and to email and to text, and to negotiate and spend all the time to go to all these different dealers looking to save a small amount of money?”
He notes every dealer pays the same amount for a vehicle and has the same amount of profit margin, so if Lexus Plus models are pre-negotiated at market-based prices, the gap between what they can be sold for and what a buyer will pay a Lexus Plus store is small.
Meanwhile, Dunn believes JM Lexus’ “world-class service” will trump any small pricing difference between it and other South Florida Lexus dealers.
Slow to Take Hold
With only a sliver of Lexus’ 237 U.S. dealers participating in Lexus Plus nearly 24 months after its launch, it is a program that hasn’t been a screaming success thus far.
Mark Rikess, a dealer consultant and an advocate of no-haggle pricing, has a few ideas why.
It’s tough to make changes when times are good, he theorizes. And business has been good in the U.S., with new light-vehicle sales surpassing 17 million units in 2015, 2016 and 2017, Wards Intelligence data shows.
“The best time to change is when you’re at the top, but it’s also the most emotionally difficult time to change because you’re changing what appears to be a successful formula,” Rikess tells WardsAuto.
Going to a single point of contact in the sales process also is a major hurdle for some dealers to overcome, he says, as some senior salespeople may not want to do F&I and younger salespeople have a lot thrown at them in training.
“It’s such a steep learning curve in product, sales process, delivering vehicles, Internet process, and then put F&I on top of that,” it can be overwhelming for new sales hires, Rikess says.
Ultimately, he believes having a single point of contact is the right direction, noting it is what he advocates with his own clients, but prefers baby steps to get there.
Rikess has 200 dealerships he’s worked with to implement what he calls one-price pricing. They’ve done this largely independent of their manufacturer, and he believes it is the way the industry will have to solve the issue of high employee turnover among young people.
It also will help get younger buyers in the door, because Millennials demand a friction-less sales environment, he says.
Dunn says his fellow Lexus dealers are watching and waiting, but he thinks they will opt for Lexus Plus eventually.
“The guys in my (dealer) group, they know at some point it’s going to be incumbent upon them to do the same thing,” he says.
Ericksen says Lexus doesn’t have fixed goals of converting a certain number of dealers to Lexus Plus.
“We feel over time, as we refine and share and get this dialed in, that more and more dealers will want to gravitate to this type of process,” he says.
Getting the word out to customers is the next challenge, Ericksen says. To that end, JM Lexus has a commercial running in South Florida announcing its participation in Lexus Plus and also is engaging in direct marketing activities.