No-haggle Dealerships: are They Really a Better Deal?

by : Levi Quinn

For most people, the idea of haggling for a new car leaves them with a sinking feeling. It seems that no matter how much we learn about the car, the options and the pricing, we are never quite certain that we have actually gotten the best deal. We leave the dealership with a vague feeling that we have overpaid for our new car.

Until fairly recently, there was no remedy for this particular ailment. If you wanted a new car, you went to the dealership to haggle. General Motors came up with a new idea.

In 1990, the first Saturn vehicle rolled off the assembly line. The car itself was fairly revolutionary, but what caught people's attention was the way the cars were sold: All Saturn dealerships offered fixed pricing. You could walk into any Saturn dealership and the price of the car was on display for all to see. Everyone would pay that price, and that price only. No haggling.

It seemed like a dream come true. In fact, the idea was so popular with consumers that other dealerships began to offer "no-haggle" pricing. It is now estimated that about 25% of new car purchases take place at fixed-price dealerships. But do these types of establishments really offer a better deal than other dealerships? Well, it depends.

From a strictly financial point of view, you will likely get a better deal from traditional dealership than you will at a no-haggle shop because of the way the dealerships set their sales goals. Traditional dealers set average profit goals, not specific goals per vehicle sold.

For instance, the dealer aims to sell three cars to make an average profit of $1500 per vehicle. The dealer sells the first vehicle and makes $1500 - right on target. On the next vehicle, the dealer may only make a $500 profit. On the third vehicle, the dealer makes a $2500 profit.

Even though the profit on each car (and by extension the selling price) is different, the average profit is $1500 - still right on target. The first person paid an average price, the second person got an excellent deal and the third person overpaid.

Fixed-price dealerships set goals the same way. However, since there is no negotiation, the $1500 profit is built into each car's price. If you are person one or three, that's fine. If you are person number two, though, you just paid $1000 more for your car than you would have at a traditional dealership.

This does not automatically mean that you are better off at a traditional dealership. You need to take a good look at yourself. If you are willing to educate yourself before heading to the dealership and are reasonably confident in your ability to negotiate, a traditional dealership will likely yield a better deal. However, if you are nervous about negotiating or simply don't want the hassle, the fixed-price dealership is for you.