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A recent study by a company that offers negotiating services to consumers claims CarMax Inc.’s no-haggle policy causes consumers to pay higher prices.
The study, conducted by Carsala, compared non-negotiable prices at CarMax to prices both pre-negotiated and negotiated, on similar cars at competing dealers. The average discount off Kelley Blue Book values for CarMax cars was less than 1 percent while the non-CarMax dealer discount was 1.41 percent.
“The moral of the story is you’re paying a premium,” said Tyler Ellington, Carsala’s CEO.
Carsala offers a network of contractors, including many former dealers, that negotiate on behalf of consumers purchasing a vehicle.
The company’s Web site offers price analysis and other information, as well.
A CarMax spokesperson responded that the company has not reviewed the study, but the company stands behind its policy.
“CarMax is proud to offer a low no-haggle price on every car,” the spokesperson said. “Our prices are transparent and clearly marked on every car both online and on the lot. We offer peace of mind, exceptional value and ease of shopping.”
The spokesperson went on to say CarMax provides high-quality vehicles that have had a thorough 125-point inspection, and are offered with a five-day money back guarantee. The company provides plenty of information to shoppers, as well.
“CarMax provides a wealth of information to customers both online and in the store, and encourages and assists consumers with making a fully informed car buying decision,” the spokesperson said. “Used cars are individually unique, are not a commodity and, as such, are nearly impossible to compare to one another.”
Matt Nemer of Wells Fargo Securities said in a note that the study was well-researched, although it lacked independent verification.
Nemer went on to write that results were “not surprising.” He said consumers pay more for a better experience and better quality vehicles.
George Hoffer, a professor of economics at Virginia Commonwealth University, said the prices at CarMax may be higher, but the cost to the company’s customers is actually lower.
That’s because there’s two costs to buying anything. The explicit cost, which is the actual price of the good, and the implicit cost.
The implicit cost includes how much a person’s time is worth. Higher-income shoppers usually place more value on their time.
“CarMax has disproportionately higher-income buyers for every price segment,” Hoffer said.
The no-haggle approach seems to breed a lot of customer loyalty. This was demonstrated by a woman named Debra S. Taylor, who recently posted about her car-buying experience on Twitter.
“Our last 3 cars came from CarMax,” Taylor wrote. “We love that we do not have to bargain.” |
