Luxury car maker Mercedes-Benz is trying to end haggling by fixing the price of certain models in an attempt to stop “rip offs” and buyer remorse – but industry insiders say customers could end up paying more.
Other brands have experimented with similar online sales models – the Subaru BRZ sports-car was initially an online-only proposition and Toyota is doing the same to manage limited supply of its recently released Supra – but Mercedes wants to introduce fixed pricing on more models in its range.
Mercedes says selling a car at a fixed price is legal, it only becomes illegal if several companies sell the same product at an agreed price.
However, a car industry veteran, speaking to CarAdvice on condition of anonymity claimed: “Buying cars online removes the opportunity for a customer to negotiate on price. There is no doubt customers will pay more.”
The boss of Mercedes-Benz Australia, Horst von Sanden, says research shows customers lose trust after finding out someone else paid thousands of dollars less for the same car.
“You hear these examples where some customers are very disappointed because they are offered different prices from different dealers. They ask us ‘why does the dealer try to disadvantage me?’,” said Mr von Sanden.
“From our perspective there is no bad intentions from the dealer; every dealer can decide how far they are prepared to discount … it’s just a commercial decision.”
Mr von Sanden said he has taken phone calls from customers who have accused a dealer of “ripping them off”.
“In one example, a customer told me he had been going to this dealer for years but when he later compared prices he said ‘the dealer ripped me off’,” said Mr von Sanden.
“It doesn’t mean that dealer ripped anyone off … if you shop around you always get a better price,” he said. “In that situation someone else under-bid the price and destroyed the trust the customer had with the original dealer.”
Mr von Sanden said the fixed price offer was the final step in a rollout of its customer experience program.
“We want to add maximum transparency for the customer. Some people like to negotiate, others do not. We have research that shows the majority of customers negotiate because they have to, not because they want to. They would like to know what the vehicle is worth and move on.”
When asked if this would deliver more profit from each sale, Mr von Sanden said: “This is a smoother and more pleasant transaction.”
The head of the Australian Automotive Dealer Association, James Voortman, admits prices vary wildly in some sectors of the car market, but customers are free to negotiate the best deal.
A luxury-car dealer, speaking to CarAdvice on condition of anonymity, says prices vary dramatically because car companies offer huge hidden bonuses on some models and not others, and in many cases customers are not comparing like-for-like – before or after they’ve bought a car.
“Someone might get an $8000 discount on a $60,000 car because it’s old stock, there is also a demo (demonstrator) bonus on it, and the dealer wants to get it off the floorplan (the dealer cost to have a car in stock),” said the industry veteran.
“And then the next person who walks in the door wants a specific type with specific options and pays more than the person who bought the demo, but in the customers’ eyes they bought the same car.”
Another senior car dealership executive said every showroom was under enormous pressure to beat rival prices, and some are limboing to new lows because the market is so tough and they just need to clear stock.
“You’re looking at a car and it’s been sitting on the floor for a while, you will go close to the bone and sometimes below cost price just to clear it, because it means you can get a newer model to replace it and hopefully make more money on the next one,” said a luxury-car dealer in metropolitan Sydney.
The association that represents 1500 dealer groups covering 3500 new-car showrooms with more than 50,000 employees nationally says car dealers should be given compensation by companies who roll out direct online sales.
“Manufacturers clearly have the right to run their networks in a way they see fit, but when significant changes to the business model are made, dealers should be given adequate compensation which reflects the goodwill of their business,” said AADA boss James Voortman.
The AADA chief said, at the request of car manufacturers, dealers have for decades invested “significant sums of money” in showrooms designed to carry a certain level of stock. “It’s questionable whether those showrooms are fit for purpose in an online agency scenario,” said Mr Voortman.
“Many questions remain,” he added. “Will dealers still have [sales] targets? How will trade-ins work? Will all customers respond positively to the fixed-price model?”
Mercedes-Benz Australia spokesman, Jerry Stamoulis, said that while the company was ranked number one by JD Power for customer satisfaction in the luxury segment, “we know there are gaps in customer satisfaction … we need to find ways to close those gaps.”
MORE: Everything Mercedes-Benz