Lexus No-Haggle Pricing Sends Some Buyers Fleeing, But Most Stay

  • Omaha dealership sees sales boost under Toyota’s pilot program
  • Plan shifts manpower from finance departments to customer care
Source: Lexus

In the seven weeks since his Lexus of Omaha dealership switched to no-haggle pricing, salesman Jim Endebrock has had one customer walk out.

“It was a little disappointing because I had sold him eight cars before this,’’ Endebrock said in an interview at the dealership. “But he considers himself a shrewd negotiator, and he thought he should get something better.’’

’Upfront Pricing’ on a Lexus

Source: Lexus

Still, Endebrock has managed to sell 40 cars since June 1. Those customers, he says, have been delighted with the no-haggle approach, which means the dealership puts its best offer for new and used vehicles on the window sticker and then refuses to entertain counteroffers. Toyota Motor Corp.’s Lexus division is the first luxury brand to launch a factory-sanctioned pilot program for expanding the idea nationwide, according to Erin Kerrigan, founder of Kerrigan Advisors in Irvine, California.

One of Endebrock’s happy customers is Pat Conroy, who returned to the dealership for a service appointment on Wednesday. Conroy, 79, is the retired purchasing director for Valmont Industries Inc., an Omaha company that makes mobile-phone towers and irrigation equipment. He says he hates haggling with car salesmen.

“I’d rather come in and be relaxed, and know what the price is, and not go away wondering if I should have offered $500 less,’’ Conroy said.

Since the earliest days of the U.S. auto industry, customers like Conroy have had no way of knowing the actual price of a car except to make a ridiculously low offer, and then wait for the dealer to respond.

All that changed about 15 years ago, when the internet began offering buyers reams of data -- not just about the dealer’s costs for delivering each car, but also the prices people were paying for similar models across town and around the country. Among other things, that newfound transparency compressed the profit margins dealers can make on new vehicles to just over 3 percent from 5 percent, said Kerrigan.

As profits in the old system evaporate, more and more individual dealers are now successfully turning to no-haggle pricing, she said, including in big cities where their competitors still use the old-fashioned model.

“They’re not by any stretch the norm, but I do think these no-haggle, one-price policies are becoming a trend,’’ Kerrigan said.


Manpower Shift

So far, 11 of the 236 U.S. Lexus dealerships have adopted the no-haggle plan, said Matt Kaleba, the brand’s national marketing manager. In the future, additional dealerships will be able to opt in and receive staff training and consulting services from Lexus.

To encourage recalcitrant dealers, the company’s Lexus Plus program comes with an additional set of incentives. As it helps dealers move toward no-haggle pricing, Lexus also helps them reorganize their operations to offer customers additional amenities, such as a salesman trained to also handle their financing paperwork, and a single point-of-contact representative for all their service requests.

In effect, Lexus Plus shifts manpower away from the finance departments that once presided over price negotiations and served as a major profit center for the dealerships, and moves it into customer service.

The Lexus of Omaha dealership is on the west side of town, a few hundred yards from the famous Boys Town home for at-risk children. Rebuilt in 2014, its main showroom features two-story glass windows on three sides, and a portion of the back wall covered with various shades of climbing ivy.

The dealership is part of Baxter Auto, a family-owned conglomerate of 22 outlets in Omaha and Lincoln, Nebraska; Kansas City, Missouri; and Colorado Springs, Colorado. Those dealerships offer 19 brands, including Lexus, Toyota, Honda, Mercedes, Volkswagen, Ford and Chrysler.

Mickey Anderson, who owns Baxter with his sister Angie, said he needed four years of preparation to switch to no-haggle pricing. One reason: Salesmen now receive a flat fee for each car sold rather than having their compensation vary depending on the outcome of talks with each customer. Many dealerships, he said, don’t want to embark on that kind of painstaking reorganization at a time when sales and profits are booming.


Cutting Time

The deals that Lexus of Omaha offers today, he said, are basically the same as those customers could achieve after haggling their way through the old system. But he said he hopes they can complete the transaction in less than two hours, or half the time needed for the traditional approach.

During the first full sales month with the no-haggle plan, Anderson sold 1,200 vehicles at Lexus of Omaha, up 9 percent from last year’s monthly pace. He said he hopes to be selling 1,500 a month by 2018.

“I joined the company in 1990,” Anderson said, “and I knew it was wrong then that wives had to bring in their husbands because, ‘Oh, by the way, if you’re not a man you may not be able to get the best deal that could be made.’’’

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