Drive-away pricing leaves room for negotiation

The Australian Competition and Consumer Commission's (ACCC) clarity in pricing changes -- which effectively made drive-away prices compulsory on all new cars sold in Australia since mid 2009 -- have delivered car dealers an unexpected windfall.

As the new regulation approaches its first birthday, it has been revealed that some dealers are making more profit per car under the scheme because many customers believe the price is fixed or are unaware that the advertised price is often a worse-case calculation.

The Australian consumer watchdog introduced drive-away pricing laws to make the real cost of cars more transparent in advertising.

Before the new regulation was introduced, a car could be advertised for $19,990, for example, but the real cost of the car once dealer charges and registration fees were added, was closer to $23,000. Under changes to the Trade Practices Act, the ACCC ruled that any compulsory surcharges and fees attached to a product must be included in the advertised price.

At the time the law was introduced, car companies and dealers were up in arms because they had to quickly develop cost calculators and alter advertising to take into account the state and location-based variables in stamp duty and registration fees, as well as distinguishing between private and business buyers.

The net effect of all this, says an industry insider with experience at retail and wholesale level, is that most carmakers are advertising the highest, worse-case price.

"Our research shows us that dealers are making more money per car. A lot of people don't realise the price is still negotiable," an industry insider, who did not want to be named, told the Carsales Network.

"New-car buyers are not negotiating as hard as they did before drive-away pricing became compulsory because many are under the impression the price is fixed. They're also unaware that the prices are calculated at the worse-case scenario."

Here's an example: a small car that might be advertised for $19,990 drive-away in NSW is most likely to have had its price calculated based on business registration and a customer living in a metro area. But if the customer is a private buyer and lives in a rural area, there is reduction of almost $300 in the registration fee and Compulsory Third Party insurance costs. Pensioners pay even less.

Regardless of where the vehicle is registered in NSW, a private buyer pays $322 for registration, while a business buyer pays $466 -- a $144 difference). Then, a vehicle registered to a rural address pays $327 CTP, while a vehicle registered to a metro address pays $457 -- a $130 difference). In this example the price gap adds up to $274.

"If the private buyer doesn't know this, [the buffer built into the advertised drive-away price] goes straight to the dealer," the insider said.

The Carsales Network checked with several car companies, who said the industry had little choice but to advertise "worse-case" pricing.

A leading Sydney-based multi-franchise dealer told the Carsales Network: "Yes, it's true the worse-case scenario is advertised and as a dealer we try and keep that buffer [between private and business registration]. But to be frank, customers save more than that in their negotiations.

"Most people still negotiate $1000 or so off a car, except in the absolute bargain basement end where we tell customers the price is the price."

Spokesman for consumer group Choice, Christopher Zinn, told the Carsales Network: "Before signing a deal on any new car, buyers should always compare prices with other dealers regardless of what the advertised price is, and be prepared to haggle.

"The price is not fixed, it's still negotiable. The sum [of the difference between private and business registration and metro and rural registration fees] may not be significant but it all adds up and the consumer should be aware."

As the ACCC's website says: "Advertising a single price for a vehicle does not prevent consumers from negotiating a lower purchase price."

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