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A New Car is a Commodity

Commodity Resized 250Updated: April 7, 2014

More than a thousand different car models and trims are available to the new-car buyer today. Fortunately for us, each specific model and trim that is available from a manufacturer is also available from every franchise dealer for that manufacturer.

3,000+ Ford dealerships will sell you the exact same F-series truck.

If your car of choice is a Super White Toyota Camry LE with moon roof, it’s available from the more than 1,200 Toyota dealerships. Dealers can easily obtain your car of choice from a neighboring dealer if your preference isn’t on their lot.

It’s certainly true that dealerships vary in style and presentation. Some have installed cafes and comfortable lounges and conduct their business on iPads; others remain old school. But if you’ve been careful to screen out the problem dealerships—check the Better Business Bureau—then you can easily benefit from the widespread availability of your car of choice.

What is Commodity Buying and How Does It Apply to Me?

Businesses and government organizations use the commodity-buying process every day. These buyers request sellers of widely available goods to bid on business opportunities. The buyer then awards the business to the lowest qualified bid from responding sellers. If a seller wants to win the business, the submitted bid must be competitive. As the number of bidders goes up, the competition increases, and the bids become lower. The power in such a transaction is clearly with the buyer.

While new cars have always been widely available from qualified sellers (all franchise dealers), historically it was difficult for the new-car buyer to obtain similar results as commodity buyers do. Dealers counted on the fact that most buyers would tire out before they could drive or place calls to more than a few dealers. In recent years—through the advent of electronic communication—it has become easy, however, for buyers to reap the benefit of commodity buying. Dealers have come to expect inquiries via e-mail, and savvy dealers welcome them.

Savvy Dealers Shine in a Competitive World

The unfortunate fact is that many dealerships are poorly managed businesses. For such dealerships, keeping prices high so that they can earn enough profit to offset their high overhead costs is absolutely necessary. For some, even that isn’t enough to keep them in business, as evidenced by the recent increase in dealership acquisitions by large public dealership groups.

AutoNation, for example, has added 21 14 dealerships over the last few years to become the largest automotive group in America, with 228 221 dealerships and 269 265 franchises as of 2013 2012. They expect to see a 15 to 20 percent return on investment with each acquisition—simply by implementing systems and processes that improve efficiencies.

Litha Motors, a public dealership group with 87 dealerships at the end of 2012, has already added four more this year and expects to acquire 12 to 13 stores in the next one to three years, according to CEO Bryan DeBoer. (editor’s note: Lithia had 94 dealerships as of the end of 2013, according to Automotive News).

Efficient dealers are better able to compete for your business. All dealers will take full MSRP if you offer it but a savvy dealer will be much better able to win your business with a competitive bid.

Shop Like a Business

When you limit your new-car shopping to a particular dealership, you may pay higher prices simply to subsidize a poorly run business. However, buying a new car like it’s a commodity will enable the savvy dealer to shine … and empower you to obtain a great price.

Once you’ve become car-buying ready, simply write an e-mail request for a quote and send it to multiple dealers (seven to ten) located within a reasonable driving distance. With e-mail communication now widely accepted at dealerships, it won’t be necessary to talk to a single salesperson until you’ve selected your winning quote.

Meet me back here in the coming days and weeks. We’ll discuss details that will further enhance your potential to obtain a low dealer quote. After you’ve prepared for an immediate purchase, the biggest single factor to your success is contacting multiple dealers and increasing the competition for your business.

It really is that easy to apply the power of commodity buying to get a great deal on your next new car!