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Lexus Presses on With Haggle-Free Pricing as Dealers Push Back

Toyota Motor Corp.’s Lexus luxury division is about one month away from launching a no-haggle pricing experiment that it developed with 11 U.S. dealers who volunteered. A significant number of retailers are unwilling to go along.

“Many of our dealers, philosophically, are opposed,” Jeff Bracken, group vice president and general manager for Lexus, said Thursday ahead of the National Automobile Dealers Association convention in Las Vegas. “They’re saying, ‘You’re wholesale. We’re retail. Stay out of our business.’”

Lexus wants to experiment with the new system in part to woo younger buyers, some of whom regard haggling as a retail experience better suited for their grandparents’ generation. Interest in a less-painful car-buying process have helped given rise to CarMax Inc., the largest retailer of used cars, and TrueCar Inc., which provides consumers information about what their peers are paying.

About 44 percent of consumers don’t want to negotiate the price of a vehicle, a survey by car-buying website Autotrader found last year. While respondents said haggling was their top frustration, most said it’s the only way to get a fair price, so 56 percent were committed to duking it out.

“There’s nothing simple about this,” Bracken said.

Dealer Power

Despite the pushback, no-haggle pricing could have a future at least in parts of Lexus’s dealer network, Bracken said. The luxury division’s dealers have unusual bargaining power in part because the company limits how many exist.

Lexus now has 236 dealers in the U.S. They sold almost 1,500 on average last year, compared with just over 1,000 on average for dealers of BMW AG’s namesake brand and Daimler AG’s Mercedes-Benz, according to Erin Kerrigan, founder of Kerrigan Advisers in Irvine, California. 

While John Iacono, a Lexus dealer in New York, said he thinks no-haggle pricing is a good idea, he’s waiting for the pilot programs, taking place in less-competitive, non-metropolitan areas, to work out the kinks before implementing it at his locations in Manhattan, Brooklyn and Queens. Dealers will need to participate all together for them to feel comfortable releasing their prices, he said. Otherwise, the transparency could give non-participating dealers an unfair advantage.

“What Lexus is trying to do is figure out a business model that keeps the dealer competitive with the brands they compete with in their marketplace, but creates less confusion in the minds of the consumer when buying a Lexus,” he said in a phone interview.

Wider Effort

No-haggle pricing is one element of Lexus Plus, in which dealers aim to improve customer relations by providing a single point of contact for sales and service and using technology to make transactions fast and transparent.

Some dealers are aiming to reduce the time customers take to purchase a new car to less than an hour. A few years ago, Lexus dealers needed 2 to 3 hours to sell a car, Bracken said.

Lexus sold the most luxury autos in the U.S. for a second straight month in March, closing in on Mercedes-Benz’s first-quarter lead, even as sales slipped 2.8 percent, weighed down by a 14 percent drop in deliveries of cars. But SUV sales rose 14 percent -- even though the company cut rebates and other incentives by 24 percent to $1,854 per vehicle, according to an analysis by Autodata Corp.

— With assistance by Melissa Mittelman

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