Study: Urban competition means lower used-vehicle prices than at rural dealerships
DETROIT -- Steve Rayman says he rarely gets a second shot at a customer at the Marietta, Ga., dealership he owns, Steve Rayman Chevrolet.
With at least 25 dealerships on the same street in a competitive metro market about 20 miles outside of Atlanta, the fierce used-car competition means his salespeople do whatever it takes to close a deal, Rayman said.
If that means selling a $10,000 car for $9,000 and making up the difference on the backend with warranties, that's what they'll do.
They sell around 200 used cars each month, Rayman said.
"We don't let anybody walk, plain and simple. We need every deal we can get," Rayman said. "We'll go to the bare bones to the point where it doesn't even sound smart. When you add the financing and the warranties and everything else, it's just a smart business practice for us in a metro market."
According to a May CarGurus.com study, used-car shoppers living in far-suburban and rural areas should consider heading to cities to take advantage of the pricing wars among metropolitan dealers.
Researchers found that used-car sellers within a 50-mile radius of a "major city center" offered prices an average of $345 lower on used vehicles compared with prices offered by stores 50 or more miles from the metro hub. Some of the dealerships counted sell new and used cars.
Only Indiana and Arkansas had lower prices in further-out areas than inside the 50-mile ring.
The company looked at the 50 most populated metropolitan areas in the country. This is the first time CarGurus, an auto research and shopping site, has conducted the study, and it's likely they will examine the data again in the coming year, according to Langley Steinert, CEO and founder of the site.
How it was done
Researchers compared the advertised price for each used-car listing and CarGurus' Instant Market Value. The Instant Market Value is "analysis of historic and current listings and factors specific details" such as make, model and mileage, according to CarGurus.
They then calculated the average savings across all listings from city dealers compared to suburban/rural dealers to see who offered the better prices.
Steinert said the study isn't trying to push used-car shoppers away from suburban showrooms, but simply to encourage them to do their homework.
If a suburban shopper finds a great price in the city, they could alert their favorite local dealer and see if they are willing to match it, Steinert said.
"Typically, those urban settings have more dealers. There is far more dealer concentration in major metropolitan areas like New York City, Los Angeles or Chicago," he said. "More dealers in a given area typically means more competition because you have to compete with a dealer right down the street. It's not all that surprising that prices would be significantly lower."
City dealership prices in the highest populated states -- California, New York and Texas -- were more than $500 less than their suburban and rural counterparts, the study said.
In specific cities, New Orleans offered the highest savings, at $770; Las Vegas was next at $641; and Atlanta followed at $606.
Bob Israel, president of the Louisiana Automobile Dealers Association, said those in rural areas understand they may be paying a few hundred dollars more for their used vehicles, but they want to support their local businesses.
"They realize that if they don't support their local dealer they won't have a local dealer," Israel said.
Steinert said suburban dealers should consider a "wider geographic footprint" when setting prices by examining nearby city markets because online shoppers will also see those prices while researching a purchase.
"If you're a rural dealership, you ought to be using tools that give you a better insight into what the competitive marketplace looks like. It doesn't mean you have to be the cheapest dealership in the whole area, but at the very least, you should try to be competitive," Steinert said. "With the advent of the Internet, there is a lot of information out there for consumers. You have to be prepared for that."
Rayman, who's owned more than a dozen metro and suburban dealers over the past 30 years, said the "posture" at a city dealership is completely different than a suburban store.
Dealers outside of the city have an easier time holding their price because they might have the luxury of being the only location with the particular vehicle a customer is looking for, he said.
That won't happen in a condensed city market. Outside of metro areas, Rayman said, customers "probably can't go to eight dealerships or 10 dealerships in a matter of minutes and find another one, but here they can."
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