Fixed Car Prices: Friend or Foe?

Shopping for a car can be almost as much fun as playing chicken with a freight train. Most consumers dread having to deal with car salesman when it comes to buying a new car. The customer is at the disadvantage as the salesman knows all of the tricks he can get away with when making his pitch that he's going to keep the price just as high as he can to maximize his commission. This leaves the customer driving away from the car lot wondering whether he or she got a good deal or not.

Auto dealerships have been operating on that philosophy for years. They know what the car cost them and they want to add as many dollars to that price for their profits. There are very few other business' that operate this way. If you went to the grocery store, you wouldn't have to haggle over the price of a gallon of milk. The price is right there on the dairy shelf telling you what it is. If the price in the window was the actual price of a car, how can salesman make that price magically change to secure the sale?

Automobile dealerships are now changing the way they operate to better satisfy the customer by offering fixed pricing. Maybe this is a good thing, or maybe this is not. It would seem like the logical thing to do but what about the customer that wants to pay cash for his or her new car. Normally, paying cash would get you a pretty decent discount as the dealership wouldn't have to wait on the payment of the vehicle through the financing institutions. But with fixed pricing, they can't offer this kind of deal anymore.

Another setback for the dealers, and consumers alike, is the value of a trade in. Many times people will want a new car but actually owe more on the car they want to trade in than it's worth. A car dealer might inflate the price of the new car to compensate for the lack of trade in value to even up the difference. With fixed pricing, not being able to do this works against the dealer and the consumer. The dealer can only offer what the blue book value of trade in says it is and the consumer may not be able to use his trade in as a down payment on the new car.

There are so many different makes of automobiles and so many different auto dealerships in a given town, the competition between sellers amongst each other is sometimes furious. They all come up with the best bait they can to lure you onto the lot. Employee pricing, big rebates and guaranteed trade in values are some of the ploys they've used. But with fixed pricing, some of those ideas are out the window.

Maybe that's the way it should have been the whole time. Car manufacturers and dealerships depend on satisfied customers for their return business. Unfortunately, after haggling with a salesperson, the consumer rarely feels satisfied. Fixed pricing would solve that problem. A gallon of milk should cost what a gallon of milk is priced. The same should be said of the sticker price of a new car.

*Bargaining and Fixed Price Offers: How Online Intermediaries are Changing New Car Transactions, RePec.org