In another sign of the Internet's increasingly influential role in auto sales, dealers are in the middle of a fight between Honda and TrueCar.com over prices displayed online.
American Honda Motor Co. has told its dealers that it won't give them advertising allowances if they offer vehicles below invoice on TrueCar, the fast-growing online auto sales service.
The Japanese automaker believes that disclosing cut-rate prices damages its brand and makes its dealers compete with one another for buyers rather than with other automakers.
In a typical showroom transaction, the price a shopper pays for a vehicle is negotiated in a private setting and is hidden from people looking at the same model. But on TrueCar, the price at which dealers are willing to sell cars is transparent to all who visit the site.
The TrueCar system also is used by several large auto shopping referral services, including those operated by Consumer Reports and USAA, which provides financial services to members of the U.S. military.
Part of the appeal of shopping the online service is that it features a number of dealers who offer guaranteed pricing near or even below a vehicle's invoice, which many consumers believe represents the price the dealer paid for the auto. But because of various back-end allowances and payments, the dealer cost of a vehicle can be 5% or more below the invoice, according to auto industry executives.
USAA protested the Honda move and has threatened to remove the automaker's brands from its Auto Circle no-haggle pricing program.
Other automakers are watching Honda's strategy. They declined to comment, but several said privately that the Internet is having growing influence on auto sales and for now it's best to let the market develop.
Honda says it is trying to protect its brands and support pricing. It says it will also withhold advertising payments for dealers who offer Acura vehicles below the manufacturer's suggested sticker price. The advertising allowances can amount to $200 to $600 a vehicle and sometimes more, according to industry estimates.
"Discount advertising is detrimental to the Honda and Acura brand images," said Alicia Jones, the automaker's spokeswoman. "American Honda has no wish to pay for ads that portray its products as cheap or low-end vehicles."
Dealers that use no-haggle Internet sales sites tend to wind up competing against other Honda franchises. Jones said Honda wants the advertising dollars it gives dealers to be used to win sales from other brands rather than to cut profits for its dealer network.
Honda doesn't want its vehicles to be seen as merely appliances or commodities where shoppers compare only on price, said Thilo Koslowski, an auto analyst at Gartner Inc.
That drives down price "and doesn't allow a dealer to point out the particular features that a model might have," he said.
Honda's policy has the support of many dealers, although 368 Honda and Acura franchises still partner with TrueCar.
"There is always one guy in the market who will do anything to sell a car, and it doesn't matter what the long-term implications are, no matter the injury to the brand," said David Conant, chief executive of Conant Auto Retail Group, which owns Honda franchises in Cerritos, Huntington Beach and West Covina and an Acura dealership in San Diego.
"If we crush every retail business in America by getting prices down to where they lose money, what do we accomplish? And that basically is the TrueCar model," Conant said.
Other dealers are working with TrueCar.
"If I don't participate the next guy down the street will and sell 40 or 50 units more," said Jae Park, general manager of Keye Hyundai in Van Nuys. "I have to make TrueCar work out or else I am going to be left behind."
Park said he might not make much money on a transaction through TrueCar but the sales are easier because the price is arranged and the customers generally have a good feeling about the deal. He also will make money on the service business for the car.
Honda's move may slow down sales of its vehicles through TrueCar and at some dealers, but it will ultimately backfire, said Scott Painter, chief executive of Santa Monica-based TrueCar.
Honda shoppers accessing the TrueCar site will just move on to other brands — primarily Toyota and Nissan — where dealers are making offers at below-invoice prices, he said.
Painter said the type of no-haggle pricing offered on the TrueCar website represents how increasing numbers of cars will be sold.
TrueCar, which with 300 workers has almost doubled employment this year, will collect about $100 million in revenue in 2011. Dealers pay TrueCar $299 per new car and $399 per used car sold.
The online service is taking advantage of people's distaste for car price negotiations by offering upfront pricing, one expert said.
Price negotiations are "the piece of the pie that shoppers say they are the most dissatisfied with," said Arianne Walker, a senior director at J.D. Power & Associates, the automotive research firm.
About 4 out of 5 shoppers now go to the Internet and seek out some sort of information about the autos they are interested in, including price data, Walker said.
TrueCar "provides consumers with a decent amount of information," Walker said. "Just by going to the site you are given the details about which dealership has the model you are looking for and the price, and that's probably a more acceptable model for many consumers."
But Walker cautioned that many shoppers remain wary of providing any personal information — either to the TrueCar system or other sales referral sites — out of fear that they will face a deluge of emails and phone calls from pesky car sales representatives. So some consumers will still be wary.
Honda's move won't do much to slow down below-invoice sales of its vehicles because careful shoppers will figure out how to ferret out the information needed to negotiate such a sale, said Koslowski, the Gartner auto analyst.
"The Internet is pretty pervasive for information no matter what boundaries businesses and organizations are trying to put up," he said. "There is not much you can do to prevent information from surfacing."