The Industry's Leading Source For F&I, Sales And Technology

Done Deal

Sonic Employs No-Haggle Policy for F&I

August 24, 2010

So, did you catch that news about Sonic employing no-haggle F&I prices at eight of its dealerships in two markets: Columbus, Ohio, and northern Virginia. The announcement was reported by Automotive News. Anyway, what do you think? Is it a good idea? Does it force the hands of dealerships like yours?

Carmax is one company that’s made a living on the no-haggle concept. In June, the company reported that sales rose 9 percent from last year’s level for the quarter ending May 31. The average price for the used cars it sold also was up 9 percent, reaching $17,964.

Sale of extended service plans, which Carmax’s no-haggle promise also applies to, also rose 20 percent. 

Of course, Saturn made that strategy famous. And in August 2007, the magazine profiled the Gunn Auto Group’s pursuit of the one-price F&I strategy. The policy applied to products like service contracts, extended warranties and GAP. Margins on service contracts, for instance, were set at $600, $800 and $1,000. The margins were dependent upon three categories of terms and the mileage the contract fell under. Maybe it’s time to check in with the Gunn group to see how that’s worked out.

Sonic, in many ways, has been an innovator in the dealer world. Last September, it became one of the first dealers to launch a mobile marketing solution, which, among other things, provided customers with Website content from all 154 of the group’s locations. But will this newest innovation work?

According to yesterday’s report from our competitor, the dealer group said the new pricing strategy will be similar to those employed by mass merchandisers such as Sears and WalMart. In fact, one company official said some prices for F&I products could drop as much as 20 percent. Pay plans for F&I producers will also change, as salespeople will share the aftermarket income and will be expected to help set up the sale.

I can only imagine what you’re thinking.

The strategy will also be promoted with in-store signs, stick-on messages on cars and other point-of-purchase materials. Sonic, which is averaging $929 in F&I income per unit sold, expects its no-haggle policy to result in a minimum of two aftermarket products sold per transaction. Currently, the company is averaging about one to two products per sale.

Now, I was unable to connect with one of the company’s executives to get a little more on the new policy. However, after looking back at a report we wrote up last January, I’m starting to think the second-largest dealer group might be on to something.

The report I'm referring to was our coverage of a study on Gen Y. It was conducted by Deloitte and The Eli Broad Graduate School of Management at Michigan State University. Among the study’s many findings, results showed that Gen Y is largely unsatisfied with the overall dealership experience. And guess what the preferred method of doing business is among this group: No haggle.

And at 75 million strong and coming of age, Generation Y’s view of our business may call for us to rethink our business practices. Sonic is. The question is, will your dealership?

Comments

  1. 1. Marv Eleazer [ August 25, 2010 @ 04:41AM ]

    Is this a good idea? Great question, Greg!

    Only time will be the judge. I suppose your follow up article on this subject next year will yield the answer. I admire and appreciate Sonic making an attempt to create a more user friendly sales/F&I process. The smoother the entire experience can be for the customer the better.

    Saturn tried this and it appeared to be doing well but they never turned in a balance sheet to GM that didn't have red ink splashed all over it.

    I recall the article on the Gunn auto group. Since it was written at the height of the boom I'd love to see some data as to how he's faring in the present economic situation with respect to F&I. Your article said "Though 10 to 15 percent of customers want to haggle, according to Burke, the company lets them walk". That's a tall claim. He's willing to risk 15% of his potential business for the new principles he's established.

    A customer that has purchased his last three cars at your store and comes in for a fourth must now pay the same price as a passer by who will never return for any follow up service. Notwithstanding the fact that this same customer has serviced and maintained his ride at your shop for the last several years.

    This is inequitable and it also underscores the problem I have with a non negotiable F&I process.

    There are going to be times when the value cannot be established in a customer's mind without a price bump. There is also the advent of competing Credit Unions/Banks that offer products at a greatly reduced price. Under a fixed price process, these customers would exit the finance office and the sale could possibly be at risk while they're waiting on financing from their bank.

    We already employ a no nonsense, customer friendly F&I process so the whole idea has no appeal to us. I'm always open to new ideas and would love to see some hard data a year or so into the future as well as something from Gunn.

  2. 2. Tom Wilson [ August 26, 2010 @ 06:08PM ]

    Something I posted on the FB page that I'll recant here.

    I applaud their candor in talking about rolling out a one size fits all "snuggie" kind of program. Maybe with the number of locations they have that they feel it's needed for consistency and customer good-will. They may not have a solid process across all locations that breeds a consistent presentation and achieves consistent results.

    I question whether it's their pricing or their presentation. "IF" I was going to test a new program "AND" I had 154 stores, I'd seriously question the effectiveness of testing it in only 8 stores in 2 markets. That seems to be too small a sampling to give a true read on the impact of the program.

    I'd want to test this type of program in at least 25% of my stores and have it implemented across a broad spectrum of experience levels in my ranks. If the younger-in-position folks can make a go of it as well as the seasoned veterans, then they may be on to something.

    Simply cutting prices and signing the daylights out of it doesn't seem to be the right approach. Training the staff every day to build value in the existing products works better in the long haul - more so than putting something on sale with signs that has a short shelf life before it becomes just another sign and just another sale.

    Like a man once said to me, "did ya' ever see a time when mattresses weren't on sale?"

  3. 3. Faisal [ July 15, 2012 @ 07:38AM ]

    The updates such as rudeced balances can take up to 90 days to reflect on a credit report. Paying off all your debt at once though will not immediately improve your score, however the older the derogatory the less effect it will have on your credit. The FICO score really is a mystery, like the other person said, and is near impossible to determine what all is factored into it thousands of factors play into it. I would expect no less than 6 mos before you can expect to see an improvement in your score building/repairing credit takes longer than it does to destroy it unfortunately. You will need to maintain little to no balances on your credit for you to see the improvement. You need to be consistent on keeping the debt paid off or down.

Comment On This Story

Name:  
Email: (Email will not be displayed.)  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that comments may be moderated.