"No-Haggle" Pricing and the Carmakers

04/26/96

GM pioneered the concept of no-haggle pricing with their Saturn unit, and their Oldsmobile division has largely adopted the strategy. Over the past three years the company has used the scheme in California and has seen a concomitant rise in their market share: they sold 20.5% of all the vehicles sold on the retail market in 1993 and 23.2% of them in the first four months of the 1996 model year. The company is now considering expanding their "value pricing" effort to other regions, like the Pacific Northwest.

GM asserts that no-haggle prices give it an edge in the marketplace, as it makes GM cars thousands of dollars cheaper than comparable Japanese models without offering incentives. The scheme also helps the automaker build up its brand image by allowing it to sell cars rather than discount deals.

Consumers may benefit from the no-haggle deal, but dealers complain that they take it on the chin, saying the plan cuts into their already thin profit margins. The company denies the validity of that argument. GM says that value pricing has not reduced the overall level of dealer profits, rather, they say, it has merely limited dealers' ability to gouge unwary customers. GM says the plan pays off in the end by increasing customer satisfaction and boosting sales volume.

As GM considers more no-haggle marketing, Ford is pulling back. They no longer offer the value pricing program that allowed consumers to pick between a mid-level Escort sedan, wagon, and three-or five-door hatchbacks for single price of $11,995. Ford still offers a nationally advertised single-price lease on the Taurus G and GL models, and on the Contour Sedan.

A number of Chrysler dealers have adopted the single price system, and they are experimenting with a one-price franchise at a CarMax used car dealership in Atlanta. CarMax, founded by Circuit City Stores Inc., is one of the new breed of no-haggle superstore auto-selling chains.

Paul Dever -- The Auto Channel