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The ‘No-Haggle’ Way

October 2010, F&I and Showroom - Feature

by Justina Ly

Richard O'Connor, Sonic Automotive's vice president of F&I

Saturn and Carmax made it famous. Now Sonic Automotive Inc., the nation’s second largest dealer group, is looking to make the no-haggle pricing strategy work for its F&I department. Richard O’Connor, the Charlotte, N.C.-based retailer’s vice president of F&I, talks to F&I and Showroom about the company’s new pricing strategy and his expectations for its three-market test run.

F&I: How does Sonic define the no-haggle approach, or what you refer to as the Exact Market Value Pricing Program?

O’Connor: What it means is that we’re setting margins for each one of our products. Whatever retail price we publish is the price the customer will pay. We won’t deviate from it, up or down.

F&I: What’s the goal behind this program?

O’Connor: Our corporate goal is to get to two products per car, which will help us with our customer retention and customer satisfaction. Currently, our product sales are averaging around 1 or 1.2 products per transaction. So, our real goal here is to drive product sales.

F&I: Improving the customer experience also is an objective, correct?

O’Connor: Yes, we want to be more customer-centric. The buying process [must] be streamlined so there’s no negotiation or inconvenience for the customer. So, the goal is to simply speed up the process, because that’s what our customers tell us they want.

But again, ultimately, the strategy should drive profits, because the more products people buy, the more [we’re able to drive business] back to the service department. That was definitely the other motivating factor.

F&I: So, you’re rolling this out in two markets?

O’Connor: Actually, we’re testing the strategy in three: Columbus, Ohio; the Michigan area; and the Washington, D.C., area. In total, we’re rolling this out in 13 stores.

F&I: And you’re doing this for all brands?

O’Connor: That’s correct. So, in Ohio, that means Toyota, Hyundai, Subaru, Volkswagen and Kia. In Michigan, we’ve got a Mercedes-Benz store, a BMW dealership and two Cadillac stores. In the D.C. market, we have Lexus, Porsche, Audi, BMW, Infiniti and Honda.

F&I: You launched the pilot program on Sept. 1. How long before you roll the strategy out nationwide?

O’Connor: We want to take the [first] 60 to 90 days, see how it goes and learn from any mistakes we make. If all goes well, we will roll it out to the rest of the company.

F&I: Is there a particular model you’re following?

O’Connor: We tried researching other dealers that have tried this, but, other than Carmax, we weren’t able to find any. So, we just spent a lot of time with some of our retail people and discussed how we would go about setting margins, what products we would offer and how we would adjust compensation plans. We had a number of meetings before we ever got to the point of sitting down with each store to set the margins.

F&I: How were margins set?

O’Connor: Well, we looked at penetration levels and historical data. We also let each dealership’s management team set the product margins. And as you might be aware, we’ve been capping product pricing for years now. That move was more about self-regulation.

So, if the finance manager wants to mark a product up “X” amount of dollars, that’s the true price. It’s like if you went into a store and looked at the price tag on an item. You don’t go up to the cash register and expect to negotiate that unless there’s a sale. It’s the same thing here.

Now, each dealership might have a different cost because the products from our vendors may vary based on the brand. Take GAP. One store’s cost might be $200, so they’re going to mark it up $200. Their price point is obviously $400. Another store might have a cost of $250, so they’re going to charge an additional $225 on top of that. So, the prices may vary a little bit from dealership to dealership based on what their costs are from our vendors.

F&I: How will pay plans change for the pilot dealers?

O’Connor: Well, our pay plans are proprietary. What I can tell you is that there will be a product component in their pay plans, which we took out a couple of years ago. We just want to make sure we’re paying our people good for a good job, and great for a great job.

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