GM Consolidates, Rolls Out No-Haggle Pricing in Valley
Detroit, which brings experimental “concept cars” every year to the Los Angeles Auto Show, is bringing another kind of experiment to the San Fernando Valley. This time it’s a marketing concept that is drawing attention and, one auto maker hopes, more buyers.
Driven by the need to raise its comparatively meager share of the Valley auto market, General Motors Corp. has been buying up dealerships and trying different approaches, such as no-haggle pricing.
It’s all part of a trend, say industry observers, toward new, more efficient ways of selling in a tradition-bound business, junking practices that turn off consumers and are increasingly outmoded in the Internet era.
In what GM calls its “San Fernando Valley project,” the auto maker last year consolidated nine Chevrolet, Oldsmobile, Buick, Pontiac, Cadillac and GMC dealerships in Northridge, Reseda, San Fernando and Van Nuys.
Last May, it brought in a management team led by Wes Rydell, a North Dakota-based dealer who has built a network of more than 30 dealerships in the upper Midwest. Since the beginning of December, the Valley dealers have been doing business as the Rydell Automotive Group.
The most obvious change is away from the traditional practice of negotiated sales--the hours of haggling and mind games between salespeople and buyers that make auto buying a form of psychological warfare--and toward fixed-price retailing, like other consumer goods.
It’s a strict policy, with “not one dollar” of the posted price open to haggling, according to Gus Garcia, general sales manager for the Rydell group.
The project breaks from tradition in another way--by bringing GM directly into retailing.
Until recently, GM and other auto makers have relied on independent, franchised dealers to market their products. But both GM and Ford Motor Co. have begun to take a more active role in certain markets by creating joint ventures that buy up dealerships and set uniform business practices and prices. Ford has set up such retailing partnerships in Tulsa and Oklahoma City and is starting new ones in Rochester, N.Y., and other markets.
In the San Fernando Valley venture, GM is clearly in charge, holding a majority stake, with Rydell and two partners owning a minority--for now.
Rydell said he and his partners have the opportunity to buy out GM’s share over time with the venture’s earnings.
Why pick the San Fernando Valley?
The answer is in the market-share numbers.
GM was getting mediocre results in California as a whole (a 20% share, compared with 30% for the United States overall) and was doing even worse in the Valley, at 13%, Rydell said.
“When you have low performance, you have to look at the performers,” he said.
The Valley GM dealers, he said, “were kind of fragmented, had small stores and were operating traditionally.”
Rydell and Garcia say the new regime is working, though GM doesn’t disclose sales numbers. A summer strike, which pinched inventories, also makes comparisons with prior years difficult.
But since Rydell took over in mid-1998, Garcia says, the sales staff has been increased by about 40%. That’s a reaction to higher volume, he says, as well as an effort to boost sales even more.
Garcia says one-price, no-haggle selling “is universally appealing. I don’t see why a dealer would do otherwise.”
But most dealers, he admits, still negotiate sales in the traditional way--starting out with a suggested price far higher than the amount the dealer would actually accept, then leaving it to the customer, salesperson and “closers” to make offers and counteroffers on the base price and the cost of extra features, like air conditioning, until a deal is struck.
One result is that identical autos can sell to different customers for prices that are hundreds, or even thousands, of dollars apart.
The traditionalists among GM’s local competitors include Galpin Ford in North Hills, which sells more cars than any other Ford dealer in the country, according to Ward’s Dealer Business magazine. Galpin owner Bert Boeckmann also runs a large GM Saturn dealership and thus has experience in both schools.
He can sell Saturns without haggling because he can’t be undercut, he said. All Saturn dealers must stick to prices set by GM, and he has the only Saturn dealership in the San Fernando and Santa Clarita valleys.
So one-price selling works for him with Saturns, he said, but it’s only worthwhile for a dealer if “you own the market.”
One Valley GM dealership that stayed with traditional selling is Livingston Pontiac and Buick of Woodland Hills, which also chose not to sell to GM and join the Rydell group.
Individually negotiated prices still beat one-price selling as a way of crafting deals to suit the different needs of each car buyer, said owner Steve Livingston.
He questioned whether one-price selling is such a boon to buyers when auto makers consolidate dealerships. “Eventually, where you see markets controlled by one entity,” he said, the dealers “raise prices and the consumer pays more.”
Why didn’t Livingston sell out to GM?
Simple, he says: His operation was doing fine on its own, exceeding GM’s sales expectations. “We did not have a need for an exit strategy as many others did.”
Garcia, Rydell and other advocates of the no-haggle approach say dealers resist it for fear that it would erode their profit margins and force them to be more efficient.
“You have to be better at all the things you do,” Rydell says, such as keeping inventories lean and picking the right products. “If we make a mistake and order too many of product X--and consumers want product Y--we have to lower the price of product X,” he said.
The appeal of the old way is clear, he said: “There’s always the belief that if you don’t tell the customers what your best price is, they may pay more.”
But the tide appears to be moving away from the traditionally negotiated sell.
A big factor has been the Internet. In the past, buyers haggled without knowing what cards the salesperson held: How much did the car cost the dealer? What profit would the dealer make? What markup was there on each of the extras, from FM radio to long-term warranty?
For decades, such information was hard to come by, giving the salesperson the edge.
Now the figures are readily available on the Internet, and constantly updated to reflect changes such as special rebates from manufacturers on certain models. Internet advice programs and how-to-buy books and magazine articles tell consumers how to figure out the lowest price that a dealer would probably accept.
Whole brands have made the shift. GM’s Saturn unit has used one-price selling from the start. Mercedes-Benz has said it will phase out traditional selling over the next year and a half.
The nation’s largest auto retailer, Republic Industries Inc., is publicly committed to bringing no-haggle policies to the more than 300 new-car dealerships it owns. In the Denver market, it is operating all 17 of its dealerships (covering most makes) under its AutoNation brand on a no-haggle basis.
At the same time, company spokesman Jim Donahue says, about 75% of Republic’s dealers (including Magic Ford in Valencia) still sell traditionally. The company is taking a “deliberate approach” to the changeover, he said. “You don’t want to wreak havoc with your business and convert overnight to one-price.”
It may be, then, that GM’s Valley experiment will remain an exception to the general rule for at least a while longer. But how it turns out could make a big difference in the way cars are bought and sold in the next century.
Rydell Acquisitions
The following are Valley GM dealerships that have been sold to the new Rydell group:
* Bill Murphy Chevrolet, San Fernando
* Century Automotive, Van Nuys
* Competition Chevrolet, Northridge
* Northridge Cadillac/Oldsmobile, Northridge
* Walter Rueff Buick/Pontiac/GMC, San Fernando
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Dealerships outside the network:
* Casa de Cadillac, Sherman Oaks
* Community Chevrolet, Burbank
* Livingston Motor Car Co., Woodland Hills
