Wal-Mart, Asbury test used car lots: Price 1 locations boast of non-confrontational, 'no haggle,' selling - Asbury Automotive Group, Price 1 used car lot testing

DSN Retailing Today, August 12, 2002 by Mike Troy

RICHMOND, TEXAS -- On a recent sweltering Wednesday afternoon in early August, one brave couple was browsing the Price 1 used car lot in the parking lot of a Wal-Mart supercenter 30 miles southwest of Houston. At another Price1 location in the parking lot of a Wal-Mart discount store on the other side of town, another couple was eyeing a selection of 60 used cars and trucks.

Houston in the summer might not seem like the best time to conduct a five-store test of used car lots, but Wal-Mart and the Asbury Automotive Group, the company operating the Price1 stores, may actually benefit from the heat as they look to reinvent the used car buying business. That's because the key to making the experiment work is to get people inside a cool cinder block building, which is painted gray and blue with a red stripe to resemble the nearby Wal-Mart store, so a salesman can explain how the Price1 system works.

"It is a very non-confrontational selling system that we have created," said Jay Joslin, Price1 sales director for the five-store test. "Within the first five minutes, customers can know the price of the vehicle and their approximate monthly payments."

Customers are still greeted by a salesman when they step on the lot, as they are at other car lots, but that salesman's first priority is to educate them about the Price 1 "no haggle" philosophy and process. To that end, customers are brought inside a 1,500-square-foot building that serves as an office and the salesman takes them through a slide presentation. One of the first points made is that the salesmen don't receive a commission, but they are eligible for a bonus if they score high enough on customer service inquiries conducted by telephone with those who purchase a vehicle.

The salesmen also diffuse the typical misgivings people have about buying a used car by explaining an array of benefits unique to Price 1. For example, there is a five-day, "no questions asked" return policy and customers also can exchange the vehicle within 30 days. Vehicles come with a 99-day or 3,300-mile warranty and a 12-month roadside assistance plan. None of the vehicles are older than five years or have more than 75,000 miles.

"What we try to do is give our customers the same degree of confidence as a new car buyer and it is all included in one low price," said David Kahn, a salesman at the Price1 store in Richmond.

In addition to the Richmond location and the location just off of 1-10 about 10 miles east of downtown Houston, there is a third location in the town of Orange near the Louisiana border. A fourth location in Pasadena, southeast of Houston, is scheduled to open in early August. A fifth location will open shortly thereafter, and then at the end of six months the concept will be evaluated. If the concept works, Asbury president and ceo Ken Gilman believes a national rollout is possible.

"We are not promising that and we are not predicting that, but we are telling our investors that we are using a certain amount of their money. In [the second] quarter, we used three cents [per share] of their money to test to see if it will work," Gilman said during the company's conference call on July 25. "In business you have to always be looking at next and if this next works it is a big deal."

If the test stores perform better than expected, Wal-Mart and Asbury may not wait until the end of the six-month test period to open additional units in Houston or another new market. And unlike gasoline stations that have been installed rapidly at Wal-Mart stores and Sam's Club after initial testing five years ago, a Price 1 store is much easier to install. A simple to construct, rectangular cinder block building with a wood deck passes for the sales office and once it is in place, 60 to 80 vehicles are trucked in to stock the lot.

To make sure the test works, Asbury and Wal-Mart want to leverage store traffic. At the four stores that currently have Pricel car lots, customers will find brochures placed inside the store entrances near a backlit, poster-size Pricel display. Brochures also are being distributed at other nearby Wal-Mart stores. And, at one location, a car parked directly in front of the store was adorned with Price1 banners and served as a fixture to distribute brochures. In keeping with the everyday low cost philosophy at the heart of Wal-Mart's everyday low price strategy, there has been no radio, television or newspaper advertising to let Houston residents know they can buy a used car at Wal-Mart.

Although Wal-Mart and Asbury aren't the first to bring "no haggle" pricing to the car business--Saturn did it with new cars and Circuit City did it with CarMax and used cars--the two are looking at a different business model. Circuit City introduced the first CarMax in 1993 and today there are 40 of the new and used car superstores that last year produced sales of $3.5 billion and profits of $91 million. Unlike CarMax, which stocks its lots with 250 to 750 vehicles and constructs a 40,000-square-foot to 60,000-square-foot showroom, Pricel alms to be an everyday low cost operation to support its low prices. Asbury has invested a little more than $1 million during the first quarter of this year to get the test rolling and it is evident from looking at the bare bones Pricel car lots.