The Virginia Commonwealth University report suggests profits, not discrimination, are the driving force behind vehicle prices.
Who pays the most for new cars?
The general wisdom for years has said that women pay more than other consumers when it comes to buying from auto dealers, but a new study by automotive marketing specialists at Virginia Commonwealth University debunks that notion.
Older people, the study says, are the only group paying more when it comes to car shopping. On average, people ages 70-89 paid 10.6 percent more for a new 2000 model-year car or truck than buyers did in the base group, ages 20-29, said George E. Hoffer, of the university's economics department, who has tracked auto retailing trends for years.
The survey looked at 4,004 new car purchases on one day in February involving 40 different models, using a J.D. Powers & Associates dealer database. For a model to be included, there had to be at least three sales.
"It was a surprise to us," Hoffer said in an interview. "We went into this expecting to find that women were being discriminated against at car dealerships, as liberal consumer groups have long contended. But that just wasn't the case."
In fact, women pay no more than men and might even be smarter shoppers than men because they choose vehicles that have more curb appeal _ and therefore should cost more than the cars that men buy, Hoffer said. The study didn't look at how much minorities paid because the database did not include information on the race of the purchasers, Hoffer said.
"We found that, on average, women paid $29 more per vehicle than men did, but that's just 1.9 percent, and it is statistically insignificant," he said. "What is significant is that the women tended to buy cars that had been on dealers' lots 11 days less than the cars that men bought, which means that they have better taste and are buying cars that are more desirable. They actually should wind up paying more than that."
Average dealer gross profit was $1,497 in the study, which is close to last year's national dealer average gross profit of $1,520 per new car sale as reported by the National Automobile Dealers Association, Hoffer said.
Profit ranges varied significantly by car model, depending on how well the vehicle was selling, the survey showed. The Cadillac DeVille, which was totally redesigned for 2000, showed the greatest profit range, Hoffer said _ which means it was the car that was discounted the most. Dealers in the survey made gross profits of $1,378 to $3,634 on DeVille sales, with an average gross of $2,506.
That was in stark contrast with the Acura 3.2TL, which had the most narrow profit range: $2,706 to $3,030, with an average of $2,868.
"That shows that dealers are ready to deal more on the DeVille than on an Acura because the DeVille isn't in as big a demand," Hoffer said. "And it shows that buyers of the Acura 3.2TL were more inclined to pay close to manufacturer's sticker price. Anybody who even got one of those thought they were getting a good deal."
Gross profit isn't the dealer's final take on a deal; the costs of selling the car are deduced from that _ including such overhead as rent and utilities on the building and the salesman's commission. Net profit often is as low as $100 per car after all of those costs are subtracted, dealers say.
One thing was clear from the study, Hoffer said: "We found that car dealers charge everybody a different price. But there doesn't seem to be any real discrimination against a certain group. Dealers just try to maximize profits wherever they can. The only group that paid more was the elderly, and there are reasons to explain that."
The study did not look at fixed-price auto retailing, a growing trend in the industry. Most Saturn dealers nationwide have fixed prices on their vehicles.
The older consumers generally pay cash for a vehicle, which means that the dealer has no way to make extra money on the deal in the finance office, where additional profit is made on three key items: the financing, extended warranties and credit life and/or disability insurance, Hoffer said. "That could tend to keep the purchase price of the car itself a bit higher for older consumers."
Hoffer and the study's co-author, David W. Harless, found that none of the older buyers purchased credit life insurance from the dealers.
Another factor is that older consumers are less likely to have access to the Internet to research invoice prices and be better prepared to shop, he said. Buyers in the 20-29 age group were the ones who tended to do their homework the best before going to dealerships.
Older consumers also might have a tendency to go back to dealers that they have purchased from before, where they feel more comfortable shopping, Hoffer said. "They might not want to go all over town to try to find a better deal, and therefore would end up paying more than someone else might."
Hoffer said the Virginia Commonwealth study should be more credible than other methods that have been used to try to show whether any particular groups are discriminated against in the car-buying process because the figures were the ones that the dealers reported to their state departments of motor vehicles.
"If they lie on this, they are in jail," he said. "This is the best data going."
Data were collected from dealers in Atlanta, Boston, Chicago, Dallas/Fort Worth, Denver-Colorado Springs, South Florida, greater New York, Northern California, Southern California and Philadelphia, Hoffer said.