Penske store tests no-haggle pricing

Will others in dealership group adopt approach?

In "five to 10 years, most stores will have to be this way," says General Manager Michael Faul.

Penske Automotive Group Inc. has begun no-haggle pricing at a Toyota dealership near Phoenix on new and used vehicles, trade-ins and finance and insurance products.

It is unclear whether any of Penske's 242 other stores will adopt the approach, but Michael Faul, general manager of Toyota of Surprise in Surprise, Ariz., is a fan.

"I believe within five to 10 years, most stores will have to be this way," Faul says. "Dealers have sold the way they have sold for years and done well. But customers want this."

A Penske executive cautioned that it's too early to track results, but Faul says that in the four weeks after Toyota of Surprise began no-haggle pricing, 27 percent of customers who came to the store left having bought a vehicle. That tops the industry's average closing ratio of 20 to 25 percent, according to National Automobile Dealers Association data. Also, the average total transaction time at Toyota of Surprise is about 60 to 90 minutes vs. the industry average of three to three-and-a-half hours.

The store pays salespeople a salary rather than a commission, believing that attracts fresh talent, Faul says.

"We don't want the typical high-pressure salesperson selling a vehicle," he says. "We want them moving the vehicles, but we also want them to focus on customer satisfaction."

Penske, the nation's second-largest auto retailer, hired Faul in February. Almost immediately, a discussion about testing no-haggle pricing arose.

"We chose this store to test one-price because it was an open point and we could hire and train our staff accordingly from the beginning instead of trying to change the process midstream," Penske spokesman Tony Pordon says.

Ultimately, customers will determine the program's success, he says. "While we are anxious to see the results of one-price selling at this one location, given the nature of our brand mix, it is not expected to be a nationwide program."

Toyota of Surprise's grand opening is slated for June 21. But Faul quietly launched no-haggle pricing on May 1 and has sold 160 new and used vehicles without actively marketing it, he says. He expects to sell 3,500 vehicles this year.

"The biggest question customers want to know is 'When is the grand opening?' because they think there'll be a better deal at the grand opening and that just won't be the case," Faul says. "We're going to stay true to our pricing strategy."

A tag on each new or used vehicle lists the price. The store bases that price primarily on each vehicle's market availability. As a result, the prices are "all over the board," Faul says. For example, most Toyota Camry sedans are $100 to $200 over invoice. Vehicles that are low in supply might be priced closer to sticker.

"We also price based on the age in inventory," Faul says. "I may have four white Camrys that are equipped the same and have the same MSRP, but there might be a price variance based on the age of those vehicles."

Customers are briefed on the pricing and the store's negotiation-free policy shortly after they are greeted. They know there is no dickering over any price, including the offer the store makes for a trade-in vehicle.

There are 21 salespeople, ranging in age from 19 to 58, of whom 17 come from nonautomotive retailers such as Starbucks and Dillard's department store. They attended two months of training to handle the entire transaction from start to finish, including F&I.

Despite the no-haggle approach, some customers leave when they realize they can't get a better deal.

"I'm sure that we have lost a few," Faul admits. "It wouldn't be any different from losing a customer where you do negotiation."

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