Buying a Toyota from Brian McCafferty is about as close as you can get to point-and-click shopping on a car lot. He posts his bottom-line price and less than an hour later you’re inhaling that new-car smell.
No-haggle pricing is an unusual strategy in an industry that typically shuns such transparency. By offering fixed prices, McCafferty has turned his Toyota store near Phoenix into an exemplar of customer loyalty, market share gains and profits. Lexus U.S. brand chief Jeff Bracken noticed, invited McCafferty to speak about no-haggle selling at a corporate retreat and then decided to bring the pricing model to Toyota’s luxury brand.
“He’s flourishing in a very competitive market,” Bracken said. “So we know it’s worked.”
Not that Lexus is plunging in. Saturn once had a no-haggling policy, but that didn’t save the brand from withering away inside a cash-strapped, pre-bankruptcy General Motors Co. And while luxury auto sales are booming, Lexus is locked in a dogfight with Mercedes, BMW and Audi. So it plans to start testing fixed pricing at 12 stores next year and see how it goes before asking other dealerships if they’d like to try it.
McCafferty’s unusual approach -- only one other U.S. Toyota dealer offers fixed pricing -- is essentially an acknowledgment that the Web has changed how people shop. When we visit stores now, we expect more. Luxury dealers have adapted by ladling on service. BMW is adding Apple-style genius shopping assistants. Ditto for Audi, which also has expanded service hours. Some Mercedes dealers even have nail salons.
All that hard-earned goodwill can be erased if a customer feels they’re being overcharged. About 44 percent of consumers don’t want to negotiate over the price of a car, according to a March study from Autotrader. Haggling is their top frustration, yet most car buyers think it’s the only way to get a fair price, so 56 percent are committed to duking it out.
Before opening his Toyota store near Phoenix, McCafferty interviewed about 300 customers to get a sense of their likes and dislikes. Many told him that it took too long finalize a sale and that they didn’t like not knowing how much a car costs, opaqueness they saw as deception.
“They said, ‘I ask you how much a car costs and I don’t get an answer,’” McCafferty said. “The customer perceives that as dishonesty. That was a profound statement and realization. I saw that the sales process was needlessly complicated, in the eyes of the consumer as well as the dealership staff.”
He started selling Toyotas at fixed prices in Arizona about a decade ago, and did the same after opening a second store five years ago in Oakland, California. Prices are transparent, for customers and for his competition, something dealers have traditionally avoided. Yes, sometimes rival dealers check his website and undercut him, but McCafferty says customers are typically willing to spend more if they can cut out the haggling and get out the door in less than an hour.
“We are just giving the customer what they want,” McCafferty said. “It’s a very simple premise. Why should it be any harder than that?”
Last year, Toyota invited McCafferty to address dealers and executives at a retreat in Jackson Hole, Wyoming. He gave a 90-minute talk to the group, which was exploring the possibility of a no-haggle sales model. The reaction was mixed.
“It ranged from guys saying, ‘This is what I’ve been looking for’ to others getting vocally displeased with me would be a kind way to say it,” McCafferty said.
After much discussion, the 12 dealers there unanimously backed the strategy, according to Lexus chief Bracken.
Persuading all of Lexus’s 236 U.S. dealers to sign on is probably the key to success, says Stu Lasser. He ran a successful Saturn store in New Jersey in the 1990s and decided to try no-haggle pricing at his Infiniti store, too. It didn’t work so well because other dealers undercut him on price.
Lexus “might be able to pull it off,” Lasser said, “if they’re all in sync and they’re dedicated.”