Sonic Employs No-Haggle Policy for F&I

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?