Lexus may change how it sells cars because it finds millennials hate to haggle

Lexus' no-negotiation price program is a bid to appeal to millennials and Generation Xers who Lexus says simply aren't willing to haggle like their parents did. Photo / iStock

Set foot in a car dealership, and you know how your afternoon is going to go: You and the salesperson will engage in an hours-long ritualistic showdown over the price. Maybe you'll theatrically stage a walkout; maybe the salesperson says he'll check with a manager to see if they can get the price just a little bit lower.

Haggling seems as much a part of car shopping as the test drive. But now, a giant of the auto industry is piloting a sales model that would get rid of it.

Lexus said this week that it will be testing a no-negotiation price program in a dozen of its dealerships in 2016. The move is a bid to appeal to millennials and Generation Xers who Lexus says simply aren't willing to haggle like their parents did.

"We know from some of the research that we do that there are a lot of young folks that are not so intrigued by the traditional negotiation process," said Jeff Bracken, group vice president of Toyota USA's Lexus division. "And even a group of folks that just don't even want to go in the dealerships."

The auto industry is perhaps the last retail category in the United States in which haggling remains commonplace, so Lexus's experiment would bring the car-buying process closer to what shoppers are used to when they buy virtually anything else in this country.

The move reflects a response to a pattern that experts have observed in the way millennials shop. They are accustomed to having digital devices at their fingertips that make it easy to comparison shop, and they expect transparency. Research has also found that millennial shoppers are especially likely to research purchases on their phones while in a store, often preferring this interaction to chatting with a sales associate.

"More and more, they don't see the need for the salesperson; they could do so much of it on their own," said Marcie Merriman, a consumer-engagement consultant at Ernst & Young. "That person is almost a barrier to the purchase, and that haggle process is a part of that barrier."

That could make the traditional car buying process appear a bit outdated to many young people.

But there also could be a downside. A no-haggle structure could appeal to millennials' desire for transparency, said Merriman, but this is a generation whose purchasing habits were forged in the recession and post-recession blitz of promotional pricing. They are used to getting a discount or a coupon that makes them feel like they're scoring a deal, which they might not get in a no-negotiation environment, Merriman said.

Lexus sales are healthy, with demand for models such as the Lexus GX sport-utility vehicle, which starts at about $49,000, and the Lexus IS sedan, which starts at $37,000, fueling the brand to a 14 per cent increase in global sales in 2014. The no-haggle experiment, the company hopes, will help it sustain healthy sales growth as millennials gain more purchasing power.

Bracken said the idea of a no-haggle policy was born during an annual meeting that Lexus executives hold with its "groundbreakers" - dealers who they believe are particularly innovative thinkers about the future of the business. With data in front of them suggesting younger car buyers don't like the traditional negotiation process, the executives and dealers thought it might be worth trying to change it up.

Bracken said Lexus has an all-volunteer slate of dealerships, some in large metropolitan areas and some in single-point markets, that will test the no-haggle strategy beginning in the first quarter of next year, continuing at least through December. The company is expecting a dip in sales volume for a month or two as these testers get started, with improvement after that. Lexus will have an eye on a variety of metrics, from employee retention to market share and profitability, to determine the new policy's success.

"As other Lexus dealers see the progress and success that the pilot dealers have, it should be the beginning of a snowball for us," Bracken said.

The no-haggling experiment is part of a wider set of Lexus initiatives to adjust to the changing demographics of auto buyers. As women are becoming a greater share of the industry's customer base, some Lexus dealerships have been hosting "Ladies Night Out"-themed events that provide a more personalized way to learn about their vehicles. Others have had events such as Child Safety Day or Car Seat Installation Day to appeal to mothers.