Consumers Willing to Give Car Dealers More Profit

According to a new nationwide survey from Zag (www.zag.com), consumers may be tossing in the towel needlessly. Conducted for Zag by Chicago market researcher Synovate, the survey reveals that a hefty majority of consumers believe car dealerships are entitled to more profit than they’re now receiving.

When Zag asked 1,000 consumers what they thought a fair profit would be for the sale of a $40,000 car – with all marketing and overhead costs considered – 72 percent were willing to give dealers more money than the dealers were actually netting. According to industry data, dealerships average less than $1,000 in profit per new car sold.

The largest group of respondents – 21 percent – was willing to part with $2,000, while 18 percent upped that to $2,500 and 17 percent were prepared to go higher than $2,500. Another 17 percent put the figure at $1,000; 16 percent pegged it at $1,500. Just 11 percent of respondents said $500.

Zag operates a robust auto shopping, research, and pricing technology platform that connects consumers with a select nationwide network of pre-qualified dealers who have agreed to provide no-hassle, upfront pricing that is guaranteed in writing.

“The survey results make a stunning statement about consumer expectations, even given the informational advantage that the Internet provides to car shoppers today,” said Scott Painter, Zag founder and CEO. “Ironically, salespeople are haggling to maintain margins below what consumers would grant in the first place.

“This confirms that a transparent pricing system would actually give dealers more profit per sale than the current haggle approach – and consumers would be much happier for it,” Painter said. “Dealers could practically work on tips and make more money. Consumers fully appreciate the need for dealers to make a profit, as long as they know they’re getting a fair deal. A system based on upfront prices works to everyone’s advantage.”

Behind the Sticker Shock

A closer look at the data reveals some surprises:

• The less you make, the more you expect dealers to make. The largest percentage (20 percent) of the lowest income group – those who earn less than $25,000 – chose “more than $2,500,” although nearly the same amount (18 percent) chose “$500.”
• Singles vote for higher dealer profits. Non-married respondents were more willing to say dealers should make more money: 22 percent said they should earn $2,000 per sale, and 21 percent chose “more than $2,500.” Meanwhile, 21 percent of married respondents chose $1,000, and just 15 percent chose the highest category.
• Age before generosity? The oldest age group favored a lower amount as fair compensation – 21 percent of those 65+ said $1,000, while 19 percent said $2,000 and 18 percent said just $500. Respondents ages 25 to 34 are the most generous, where dealers are concerned. Twenty-four percent said fair compensation on the sale of a $40,000 car would be “more than $2,500.” Just 5 percent of that group chose the lowest category ($500).
• Hard dealing in Dixie. Respondents in the South favored less compensation – 24 percent said $1,000 would be fair. The next most popular answer among this group was $2,000, chosen by 19 percent of those in the South. Those in the West were most likely to say dealers should earn more than $2,500 – 21 percent chose this response. But slightly more respondents in the West (22 percent) chose $2,000 as fair compensation.
• No gender divide, but a racial split. Where pricing and dealer compensation is concerned, there were no major differences between genders, at any price level. Non-whites were nearly twice as likely as whites to say dealers should make more than $2,500 (29 percent versus 15 percent, respectively).
• Where education matters … On the upper end of the dealer compensation scale, education was something of a factor. The greater the respondent’s educational level, the less likely the dealer would walk away with $2,500 – or more (19 percent of high school grads, 17 percent of college grads and 13 percent of those with post-graduate schooling).
• … And where it does not. The sweet spot – that figure where opinions don’t differ significantly, regardless of education – is the $2,000 level. Post-grads were more likely to land at the $1,000 level (23 percent, against 17.5 percent for high school grads and 16.5 percent for college grads).
• The jobless offer more. Similarly, on the basis of employment status, the sweet spot is $2,000 – although some variation exists among the demographic groups: 23 percent of both those employed full-time and the self-employed, 27 percent of those employed part-time, and 20 percent retired. The lone exception is the unemployed; the largest number of that group – 23 percent – pegged dealer compensation at $2,500.

The Zag/Synovate survey has a margin of error of +/- 3 percent. For a full copy of the survey results and a graphic presentation of top-line data, email info@edgecommunicationsinc.com.

About Zag

Zag (www.zag.com) has created a better way to buy a car. Zag operates a robust auto shopping, research and pricing technology platform that saves buyers money by concentrating group buying power, while providing a better car buying experience by connecting buyers with select dealers that provide upfront discounted pricing and a no-hassle delivery process. Zag provides its platform on a private-label basis to affinity buying groups, such as USAA, 14 AAA clubs, Parenting.com, Overstock.com and Capital One Auto Finance, for – www.capitaloneautobuying.com. These groups give Zag a combined total audience of more than 60 million members/consumers. Zag is fully operational for 65 percent of U.S. households and serves more than 93 percent of in-market car buyers. Zag’s investors include Anthem Venture Partners, Capital One Auto Finance, GRP Partners, Arcturus Capital, Callaway Cars and the Skoll Fund. The company’s approach to car buying and selling is garnering awards – Entretech gave Zag its 2008 Entrepreneurship Award for emerging companies, InfoWorld designated Zag’s platform as one of the 100 most innovative corporate IT solutions for 2006, and Entrepreneur Magazine named Zag in its 2006 “Hot 100″ list of the fastest-growing companies. Zag is based in Santa Monica, Calif.