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Dealers ldquomaking their margins off OEMsrdquo says Pappanastos
<p><strong>Dealers &ldquo;making their margins off OEMs,&rdquo; says Pappanastos.</strong> </p>

‘Getting to a No-Haggle Model’ at Car Dealerships

Automakers&rsquo; bonus programs for dealers have led to less price negotiating.&nbsp;

The dealership world has not officially converted to no-haggle vehicle pricing.

But it is getting close, says John Pappanastos, president and CEO of EFG Companies, an F&I product provider and trainer. “The whole model is changing in the way cars are sold.”

Before, MSRPs were unrealistically high. Dealers would negotiate down from those inflated figures but up from the invoice wholesale prices they paid automakers for vehicles.

The dealers’ main new-car revenue stream came from that front-end gross, the difference between the invoice price and the negotiated transaction price.

Today, the price gap between the dealer invoice and MSRP has narrowed. “MSRP is becoming invoice,” Pappanastos notes. “We’re getting to a no-haggle model.”

Automakers are behind that movement because they have increased the amount of dealer incentives to sell a vehicle. Dealers are motivated (and compensated) to sell vehicles at near-invoice price, then earn manufacturer bonuses for the sale.

“Dealers say, ‘I cannot believe I am no longer trying to get (a hefty) front-end gross, yet I’m still making more money than ever,’” Pappanastos says. “They’re making their margin off the OEM.”

That shift has taken a lot of the gamesmanship – played by both dealers and consumers during traditional price negotiations – out of car deals.

Another reason for the move away from sticker dickering is that consumers readily can get pricing information online from several third-party automotive websites. That transparency includes dealer invoice costs and local average transaction prices.

“You get customers to a price much quicker, one where they say, ‘I’m comfortable with this, I can’t do better than that,’” Pappanastos says of today’s pricing reality.

He adds that it also puts the dealership salesperson in the position of confidently telling the customer: “If you can’t find a better price, call me back.”

“It’s a much more efficient approach,” Pappanastos says.

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TAGS: Dealers
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