Group says new software will reduce haggling, improve customer service
Sonic Automotive Inc. is rolling out a new-vehicle pricing policy at its Honda stores that is not quite no-haggle but close. Its Volkswagen stores are likely to follow and then the rest of its stores.
Sonic’s new market-pricing approach relies on proprietary software that helps it set new-vehicle prices close to actual transaction prices for each local market. The prices are flexible, but the goal is to narrow the gap between asking price and actual sale price to roughly $500.
“We’re pushing our pricing down to a level that they don’t have to negotiate, but we leave $400 to $500 in there for the customer who says he has to have $100 off,” says Jeff Dyke, Sonic’s executive vice president.
He declined to explain how Sonic’s new software helps it set prices, saying, “I can’t tell you the recipe for our secret sauce.”
The company promotes the policy as “upfront pricing — informed, accurate pricing from a dealer you can trust.” It encourages prospects to price shop online while they’re in the showroom.
The objective is to give customers a price that’s hard to refuse, especially when combined with a fat offer for a trade-in.
In June, upfront pricing will go national at all 16 of Sonic’s Honda stores. Upfront pricing also is being tested at Sonic’s three Momentum Volkswagen stores in Houston. Sonic has a total of five VW stores nationwide. “Everyone’s looking at the Internet,” says Sonic President Scott Smith. “If they come into your store, they already recognize you have a competitive price.
Other dealership groups — including AutoNation Inc., the nation’s largest dealership group based on new-vehicle retail unit sales — are experimenting with new pricing models that eliminate or reduce haggling on new-vehicle sales.
“This isn’t the first time somebody’s tried it,” says Mark Adams, general manager of Gary Smith Honda in Fort Walton Beach, Fla., which competes with Sonic’s store in nearby Pensacola. “They’re
competitive, but I don’t know whether this helps them or not.”
Sonic says it has. Trials that began in December at Sonic’s Honda store in Pensacola persuaded the nation’s third-largest dealership group to embrace the strategy.
Pensacola Honda’s new-vehicle unit sales jumped to 140 a month from 78 after upfront pricing was introduced, vaulting the store to No. 1 from No. 3 out of four Honda dealerships in its market.
Dyke says Sonic’s strategy is working because of its proprietary software and because the company is changing its dealerships’ culture by providing extensive training for its sales force to discourage haggling and improve customer service.
Sonic has worked on building a new culture for five years. That’s about when Dyke came to Sonic from AutoNation. There he had helped run used-vehicle mega-stores that sold vehicles at nonnegotiable prices.
Sonic’s software is similar to technology that a growing number of used-car managers tap to price their inventory more effectively. It has not taken off in the new-car sector until now, though, because of a lack of access to detailed transaction price data.
Sonic monitors what it calls the “price-to-sale gap.” That’s the difference between the initial asking price and the actual sale price. The target is for both new vehicles and used vehicles to sell for within $500 of the asking price. Sonic also offers tempting trade-in prices.
‘More money on trades’
“We put more money on trades than anybody. If 10 cars come in, we’d like to trade for seven of the 10,” Dyke says. “It’s more expensive to buy used-vehicle inventory at auction.”
Publicly held Sonic installed upfront pricing on used vehicles three years ago and has seen double-digit growth in its used-vehicle sales ever since.
Starting in July, Sonic’s headquarters will use its software to set pricing market-by-market for trade-ins and used-vehicle inventory. When the national launch is complete 18 months later, local store personnel will no longer handle pricing.
Next year, Sonic will begin rolling out a similar pricing system on new vehicles at all its stores; that rollout also will take more than a year.
At certain dealerships, Sonic has begun setting new-vehicle prices to meet local conditions, with very little negotiating room. Here’s a timeline of the change.
Dec. 2010: Test is launched at Pensacola Honda; sales jump.
Jan. 2011: Test is launched at VW stores in Houston.
June 2011: New pricing scheme will spread to all of Sonic’s Honda stores.
July 2011: Sonic HQ will begin setting local-market prices for trade-ins and used vehicles at all Sonic stores nationwide; rollout will take 18 months.
2012: Sonic HQ will begin setting prices for new vehicles nationwide; rollout
will take 18 months.
Source: Sonic Automotive
Pensacola Honda’s new-vehicle sales jumped to 140 a month from 78 after introducing upfront pricing.