Myth Busting

I wasn’t surprised to learn that 117 dealer litigants are challenging the TrueCar concept. Yes, the company has changed its ways since dealers revolted three years ago, but the lead generator, at least from my view, continues to perpetuate and capitalize on negative perceptions of the car-buying process that are more myth than fact.

The problem I have is it perpetuates these myths for the purpose of telling shoppers what other people are paying for similar vehicles and, by inference, that TrueCar dealers are more righteous than others. And that’s why a little fact-based myth busting is in order.     

Myth 1: The vehicle price-negotiation process is a Machiavellian scheme cooked up by car dealers to take advantage of hapless consumers.

Fact: In the centuries before barcodes, the common method for transferring ownership of goods was through negotiations between the buyer and seller. In the United States, only big-ticket consumer goods and real property — houses, boats, jewelry, cars and other luxury items — remain open to negotiation.

Given the high-dollar amount involved in those types of transactions, the rationale is the buyer should be given every opportunity to secure the lowest possible purchase price. Negotiating the selling price is intended to give the advantage to the buyer, not the seller. In fact, dealers would be more than happy to sell their wares at the manufacturer’s suggested retail price.

Myth 2: Consumers are at a distinct disadvantage when negotiating with car dealers.

Fact: Whether that’s true depends on the customer. That doesn’t mean car buyers haven’t or won’t fall prey to unscrupulous operators. However, dealers operate under an alphabet soup of federal regulations — Regulations Z, M, B et al. — and similar state statutes mandating buyer-oriented policies and disclosures. And these days, prospective buyers have access to every relevant facet of the vehicle selection, pricing, and funding process online.

If a customer spends 10 minutes online to get his facts straight and another 20 minutes haggling with a salesperson to get $750 knocked off the vehicle price, he, in effect, earned $1,500 for one hour’s worth of work. It was time well spent and likely yielded an agreed-to price near or below the TrueCar magic number, regardless of where he is shopping.

However, there’s an even more fundamental reason this myth is never true. Hey, we all have common sense, right? In fact, a prospective buyer doesn’t need to have a bachelor’s degree in economics to know whether the salesperson is being unresponsive to her needs, evasive in response to her questions, or pressing for a decision she is not ready to make. In such cases, we all possess the most powerful consumer-protection device known to man: our feet. A competitor selling a similar vehicle is always a short drive away.

Myth 3: Buying the car for the lowest possible price is the single most important factor for a customer looking to get the most bang for his or her car-buying buck.

Fact: It may have been true when people paid cash for cars they had to hand-crank to start. Yet, logic dictates that any reduction in markup is favorable to the buyer. However, the crux of the car buyer getting more bang for their buck can be shifted from the sales floor to the financial services office — a relocation that favors both the buyer and the seller.

From the dealer’s perspective, touting the lowest selling price generates the floor traffic needed to sell cars. Dealers who do so can then recoup the incurred expense by arranging the financing or leasing. They can also generate  revenue from the sale of aftermarket products to help cover fixed and variable expenses and to record a reasonable ROI.

From the buyer’s vantage point, the profit margin on the vehicle being purchased is a contributing factor. However, it’s the full weight of the F&I manager’s access to a broad array of competitive funding or leasing options, the presence of subvented plans and the full complement of aftermarket products that determine the optimum return on each customer’s transportation dollars.

We all have an obligation to be the stewards of our industry, which means we are mindful of, but not precipitators of myths. Substantiated facts are what speak to the best of what our industry has to offer. They also help close sales.

David Robertson is executive director of the Association of Finance and Insurance Professionals. Email him at [email protected].