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Gunn AutoGroup Pursues One-Price F&I

August 2007, F&I and Showroom - Feature

by Joan Shim - Also by this author

Haggling is traditionally part and parcel of the car sales process, whether car buyers like it or not. And most don’t. A September 2006 study by Kelley Blue Book found that 65 percent of new-car shoppers would rather go to a dealership that offers pre-set pricing over one that negotiates. That number has climbed steadily from 59 percent in 2003.

To improve the car-buying experience, some dealers around the country have moved to a no-haggle approach where vehicles are sold at pre-determined prices. Saturn dealers are well-known purveyors of the concept.

The Gunn Auto Group, with seven dealerships in San Antonio, Texas, became a no-haggle company about eight years ago. The company’s motto is “one simple price.”

“We’re trying to correct the reputation of the car dealer,” says Wes Burke, Gunn Auto Group’s president. “Not only are we selling the fact that we’ll give you a good price right up front, we’re also selling the fact that you can shop with us because we believe our prices are that good — we are not a pressure sales force.”

Gunn Auto has since taken the one-price idea a step further by extending it into the F&I department.

“We followed through with the one-price idea in finance about four years ago because we realized that the customer’s expectations were set by selling the car. So we needed to be consistent in finance,” Burke says.

One Simple Rate Structure?

One aspect of the policy is presenting all the finance products — including extended service contracts, warranty and GAP — with fixed, non-negotiable prices using an electronic menu system. For example, on extended service contracts, Gunn Auto’s margins are set company-wide at $600, $800 and $1,000. These margins are dependent upon three categories of terms and the mileage the contract falls under.

But keeping with the “one simple price” theme to determine rate isn’t as simple.

“Our biggest challenge going forward is to present consistent rate structures to all of our customers,” Burke says. “Obviously everybody has different credit, so that is a big challenge in a one-price scenario.”

But Burke puts a high premium on offering a consistent rate, even if it means leaving money on the table.

“Our goal is not to argue about rate because arguing about rate sells you less product,” Burke explains. His view is that rate is the least stable profit margin because so many customers trade in their cars after a few years.

“We don’t look at rate as a big profit item. Instead we view it as a stepping stone for us to sell the products that support not only sales but service too, like extended warranty, GAP insurance, and wheel and tire,” he says. “So we have a more balanced approach when it comes to responsible profit.”

For now, Gunn Auto Group has imposed rate caps at 2.5 points on average. At Gunn Honda, for example, the cap is two points on 72 months and 2.75 on 60 months. But finance managers are encouraged to stay within one point over the buy rate in order to stay competitive.

“I’m really not interested in making a lot of money on finance reserve,” Burke says. “My main focus is to sell tangible products that people can use over the term of their ownership of the car, and rate really isn’t a tangible thing. Plus it’s the easiest thing to shop.”

Burke believes the best way to present customers with consistent and fair rates is to pass on the lender’s lobby rate for a flat fee. He is working with his lenders to give him flats instead of reserve, especially because of the controversy and regulation surrounding reserve. Eliminating reserve would also help keep employees honest.

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