Those "no-dicker stick- ers" on many of today's new cars may drive dealers to add extra costs or provide poorer service to customers, the head of the dealers' trade group says.
William S. Dodge, president of the National Automobile Dealers Association, said many prices are set too low by auto manufacturers, making it nearly impossible for dealers to sell new vehicles profitably.He said car dealers are getting squeezed between low sticker prices and buyers who think they should get big discounts.
"The average consumer has to understand there are no more 25 percent markups out there," Dodge told automotive reporters in Detroit. "The fact is, there is little possible negotiation, if any, in many value-priced models, with only a 6 percent to 8 percent dealer profit margin."
"Value prices" are automakers' response to consumers who do not like the kind of horse-trading that historically has been part of the car-buying experience. A value price implies that there will be little or no dickering because the price is set at a fair level for the vehicle and the options it includes.
General Motors Corp. has been the most aggressive of the major automakers in adopting value pricing, building on its success with the practice at Saturn dealers. GM's Oldsmobile division is going to all value pricing for the 1995 model year.
Dodge released a summary of an NADA report that said the average U.S. dealership lost $223 on each new vehicle sold last year after profit from financing and insurance was deducted.
Despite that, the average dealer's total profit was up 33 percent from 1992 and higher than in any year since the mid-1980s.
"The fact is, dealer profits are good primarily because of unprecedented used-vehicle profits and strong parts and service sales," Dodge said.
About 40 percent of the average dealer's profit last year was from used-vehicle sales, 40 percent was from parts and service operations and 20 percent was from new vehicle sales, financing and insurance, he said.
Ross H. Roberts, Ford Motor Co. vice president and manager of the Ford division, said the NADA's claims are inaccurate.
"The conditions which they say exist are not true, period, for Ford," Roberts said. "The margins have not decreased for Ford dealers. There is no one who is more concerned about the viability of the franchised dealer than we are. We know they have to make a good return."
GM spokesman John Maciarz said the No. 1 automaker is aware of NADA's concerns over value pricing and is working with dealers to make sure they understand its advantages. "Customers today are demanding a different and more positive purchase experience, and value priced vehicles are a direct response to those demands," he said.
Chrysler Corp. spokesman Steve Harris acknowledged that there has been pressure to reduce dealer margins across the industry, but he said Chrysler has done it only on selected vehicles in response to pressure from competitors.
Dodge said he wouldn't be surprised to see dealers start adding addendum stickers - extra price tags showing additional charges - to hot-selling car and truck models with prices dealers considered too low.
He also said the profit squeeze could sabotage the industry's drive to be more responsive to customers and focus more on their satisfaction.
"Building customer satisfaction and loyalty costs money," said Dodge, who owns six dealerships in Maine. "Declining profits will ultimately force dealers to cut corners in hiring good people and providing the right training, equipment and facilities that are essential to customer satisfaction and brand loyalty."
NADA statistics show the average dealer's profit last year was about $262,000 on sales of $16.4 million, a return of about 1.6 percent.
"Some manufacturers think 2.5 percent net profit on sales isn't adequate and they ought to have 5," Dodge said, referring to statements last month by GM and Ford executives after the companies announced record earnings for the second quarter. "We think 1.6 percent isn't adequate."
There are 22,850 new car dealerships in the United States and more than 907,000 people work for them. A profile of the average dealership in 1993, as supplied by the National Automobile Dealers Association, a trade group:
Total sales: $16.4 million.
New vehicle sales: $9.8 million.
Used vehicle sales: $4.3 million.
Service/parts sales: $2.2 million
Payroll: $1.1 million.
New vehicles sold: 608.
Average selling price: $18,200.
Profit on a new vehicle: $83.
Net profit before taxes:
1993 - $262,068
1992 - $196,830
1991 - $125,116
1990 - $128,023
1989 - $124,536
1988 - $206,883
1987 - $210,222