Is it Time To put Horse Trading out to Pasture?

 

Glenn Mercer (GM Automotive LLC) published an independent study prepared for NADA in January 2017 entitled The Dealership of Tomorrow: 2025, Retail automotive trends for the next decade. The 87-page document is an interesting read. On pages 42 and 43 we like Mercer’s brief comments on negotiated transactions.

“…negotiated prices are just an artifact of history: it seems that we accept haggling about cars because we haggled over their predecessors: horses. As laid out in Steven Gelber’s excellent book on the early days of motoring, Horse Trading in the Age of Cars, we argued over horses because every horse was different, and because they were risky (they were usually sold without warranties and without the possibility of refund). When we replaced horses with cars, we stayed with the same system – even as virtually every other good was migrating to fixed prices (led by department stores such as Macy’s and Wannamaker’s in the late 1800s, according to Gelber). Maybe, a century later, it is time to put negotiated prices out to pasture, just as we did with our horses.”

Isn’t it amazing that with the changes in retailing over the last century that the automobile is still a negotiated transaction? In an age where companies such as Amazon and Apple are delighting customers with transparent pricing and sales processes that reduce friction, we are still clinging to a basic method of transacting business that is 100 years old and has been abandoned by virtually every other retail channel.

The majority of customers do not enjoy the time commitment required, uncertainty and stress involved in negotiating a car purchase.  We believe there are 2 primary reasons for this.

1. Most customers don’t get much practice negotiating for personal purchases. They have not developed the skill necessary to conclude a transaction confidently. Therefore they approach negotiation with anxiety and, even when the transaction is completed, may not be sure whether or not they arrived at a fair bargain.
2. Today there are numerous examples of better ways to transact. The effect that Amazon has had on price transparency and ease of purchase are influencing retail practices in virtually every channel. Technology is driving the availability of information (the dealer no longer knows more than the customer) and has facilitated methods of purchasing that have greatly reduced friction (Amazon one-click, for example). Customers are disappointed when a purchase of the expense and emotional significance of a vehicle is not as enjoyable as purchases in other areas of their lives.

Curious about converting to a non-negotiating business model? Ryan Adams Group is here to help. Call Alan Krutsch at 612.208.8539 for information, examples, and answers to your questions.