Rewards of Transparency: More Customers, More Sales, More Gross

November 8, 2013

Earlier this week, released results of a survey that shows new vehicle buyers are more likely to contact, and purchase from, dealers who advertise prices below the Manufacturers Suggested Retail Price (MSRP) in their online listings.

Specifically, the survey shows that new vehicles priced below MSRP get 34 percent more page views than those with MSRP-only pricing. Likewise, the survey says dealers who offer more transaction-oriented prices also sell 20 percent more vehicles—in part because buyers are willing to drive further to purchase a car.

Finally, the survey shows that 76 percent of buyers who purchased vehicles priced below MSRP actually dug deeper into their pocketbooks at the dealership, transacting at higher price points than those they scouted online.

In the press release, Scott Hernalsteen, senior director of enterprise analytics, says the survey shows that dealers’ “belief that advertising competitive prices for new vehicles online is fueling a race to the bottom simply isn’t holding up under analytic scrutiny.”

To me, the survey take-aways are profound on several levels—particularly when you consider the lessons dealers have learned in used vehicles:

The “madness” of current new vehicle pricing: We all know that consumers who want to buy a new or used vehicle will eventually consider price as they narrow their vehicle choices and decide which dealership to visit. In used vehicles, dealers understand that competitive, transaction-like prices are a must to make the showroom doors swing. Yet, in new vehicles, pricing largely remains a mystery—which is unquestionably frustrating to customers who we’ve trained to seek out the best deal. To me, this amounts to a kind of madness that will continue to be costly to dealers who fail to embrace consumers’ ever-growing desire for more transparency in pricing and dealership sales processes.

Progressive dealers are having a field day. Let’s repeat the statistic—dealers who offer more transparent prices on new vehicles close 20 percent more deals than those who don’t, and they achieve better front-end margins to boot. I would submit that this finding is both a wake-up call and a warning to dealers who continue to operate under the shroud of traditional new vehicle pricing and merchandising.

Efficiencies and optimized inventories are keys to new vehicle profitability. In used vehicles, Velocity dealers have come to understand that retail price pressure is a fact of life. They still care about maximizing front-end gross, but it’s no longer their sole focus. Instead, they’ve reinvented their people and processes to optimize inventories to consumer demand, and move vehicles more efficiently through their retailing pipeline. It’s a “total gross” mentality that makes the cash register ring more frequently in every dealership department. I’m increasingly convinced that dealers must now apply this operational mindset in new vehicles to increase profitability and pave the way for long-term prosperity.

I can’t help but think of my father’s advice from years ago as I took charge of the used vehicle department at our Cadillac store: “Dale, the success of our new vehicle department depends entirely on what you do in used vehicles.”