Report: Could Upfront Pricing Benefit Both Shoppers and Dealers?

February 28, 2011
Cadillac dealership

Cadillac dealership

Shopping for a new car is full of mistrust. Given the tremendous flexibility in vehicle pricing, even if shoppers manage to secure an excellent deal, they often leave the dealership with no reassurance of it, leaving some thinking that they've been scammed.

Yet dealerships have been seeing their per-vehicle earnings withering away, and hundreds of them have been forced out of business over the past couple of years.

New study results, commissioned from the pricing intelligence firm TrueCar, expose one of the roots of that mistrust: Shoppers think dealers are earning more—a lot more—than they actually are per vehicle.

According to data from TrueCar's Online Automotive Buying Behavior Report, based on a poll commissioned to Synovate, new car shoppers think that dealerships earn a $4,000 commission on a $40,000 car—a profit of 10 percent or more—while the majority think that an average of $1,800 (4.5 percent) would be fair. Meanwhile, more than half (53 percent) of new-car shoppers think that the dealer will have the upper hand. Nearly a third of both new-car and used-car shoppers thought that they would pay too much for the vehicle.

The reality is that car dealers make between one and three percent on each new vehicle sold—and that figure can even figure below the $150 mark for some small cars.

Yet 91 percent of respondents thought it was a good idea to require that the dealer provide a no-haggle upfront selling price, and four out of five would be likely to use a car-buying service to save money and time.

Nearly nine out of ten respondents in the survey agreed that seeing what everyone else paid for the same car in the past 30 days would be helpful, while three out of five thought that they would get a good deal. Fifty-eight percent expected some sort of pressure from the dealer, while only 56 percent thought that the dealer would have the vehicle they wanted on the lot. Only 45 percent through that the process would be a pleasant experience.

Those figures alone are of course in the interest of what TrueCar helps provide, but they're a strong argument for better transparency in vehicle pricing, and it sounds like both shoppers and dealerships would be happier if the numbers were out in the open.


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