Nav: Home

Who loses when car prices are negotiated?

September 07, 2016

A new car is a big expense for anyone -- but it will cost some people more than others, even at the same dealership.

A new U of T study, which is the first of its kind to reliably show large differences in the price paid for a new car, reveals that age and even in some cases gender can be a factor.

"We were surprised by the magnitude of the difference in how much people paid for an identical car that was bought in the same month in even the same city," says Ambarish Chandra, Assistant Professor of Business Economics in U of T Scarborough's Department of Management and the Rotman School of Management.

Chandra and his colleagues at the University of Berkeley and the University of British Columbia analyzed more than 10.5 million new car transactions across Canada and the United States. For each transaction they had the final sale price of a car as well as the customer's age and gender.

They found the difference in price paid by consumers varied considerably, in some cases by as much as much as $3,000 for a new car. They also found that older consumers tend to pay more than younger consumers, but that older women in particular pay more by an average of about $200 per car. The gender gap does narrow among younger consumers to the point where it is essentially zero among youngest new car buyers (age 20-25).

"This tells us it isn't necessarily an example of discrimination because there is no evidence dealerships are overcharging women specifically because for younger consumers that's clearly not the case," he says.

Instead, Chandra points to different life experiences shared by older women compared to younger women. He says the only reliable explanation for the discrepancy is that in North America the education and employment gap between men and women has narrowed considerably over the past 50 years. Although young women still earn less than men, the earnings gap has also narrowed in recent years.

"We believe that better education and employment outcomes for young women compared to older women, relative to men of the same age, has important effects for negotiating large purchases like cars and houses."

Another reason for the discrepancy in prices paid among consumers generally is the process of buying a new car itself. Unlike most consumer products, cars only have a suggested list price, meaning the final price can be negotiated. Past studies have shown as much as 80 per cent of people dislike the process of car buying because of the negotiation process. Chandra says most feel they are being overcharged, and even when they do get a good deal, many aren't even aware they did.

So what does this mean for people planning on purchasing a car? Chandra suggests doing your homework first before negotiating a price.

"The best way to negotiate a better price is to have as much information at your disposal. If you know the invoice price of a car for example, you know how much it cost the dealership. That information alone can help you negotiate more effectively."

Services like Kelley Blue Book or Edmunds.com that list the actual invoice price of cars are valuable resources available to consumers. Chandra says that information used to be something only dealerships knew about but now it's more readily available online. Getting multiple quotes from different dealerships can also help leverage a better price.

"Everyone, not just older consumers, should be spending as much time as they can doing research on prices and quotes because in the end it can save you thousands of dollars."

The research, which received funding from the Social Sciences and Humanities Research Council, will be published in the Journal of Industrial Economics.
-end-


University of Toronto

Related Consumers Articles:

What's in a name? For young Chinese consumers, it's about culture mixing
Younger, more cosmopolitan Chinese consumers tend to favor brand translations that keep both the sound and the meaning of the original name, says U. of I. business professor and branding expert Carlos J.
Why do consumers participate in 'green' programs?
From recycling to reusing hotel towels, consumers who participate in a company's 'green' program are more satisfied with its service, finds a new study co-led by a Michigan State University researcher.
Consumers care about carbon footprint
How much do consumers care about the carbon footprint of the products they buy?
Consumers have huge environmental impact
You won't make big cuts in your environmental impact by taking shorter showers or turning out the lights.
Consumers' preferences for foliage plant attributes
Experiments investigated the effect of plant attributes on consumers' likelihood of purchasing indoor foliage plants.
New study finds adult fresh pear consumers had a lower body weight than non-pear consumers
The epidemiologic study, led by Carol O'Neil of the Louisiana State University Agricultural Center, used a nationally representative analytic sample to examine the association of fresh pear consumption with nutrient intake, nutrient adequacy, diet quality, and cardiovascular risk factors in adults.
How much do consumers know about new sunscreen labels?
Sunscreen labels may still be confusing to consumers, with only 43 percent of those surveyed understanding the definition of the sun protection factor value, according to the results of a small study published in a research letter online by JAMA Dermatology.
Saving money: Do consumers spend less if they think about the future?
Why is it so hard for consumers to save money?
When are consumers more likely to rely on feelings to make decisions?
Why do some consumers make choices based on their feelings instead of rational assessments?
How are ordinary consumers transforming the fashion business?
One of the most important shifts of the 21st century is the ability of consumers to participate in markets they love such as music and fashion.

Related Consumers Reading:

Best Science Podcasts 2019

We have hand picked the best science podcasts for 2019. Sit back and enjoy new science podcasts updated daily from your favorite science news services and scientists.
Now Playing: TED Radio Hour

Anthropomorphic
Do animals grieve? Do they have language or consciousness? For a long time, scientists resisted the urge to look for human qualities in animals. This hour, TED speakers explore how that is changing. Guests include biological anthropologist Barbara King, dolphin researcher Denise Herzing, primatologist Frans de Waal, and ecologist Carl Safina.
Now Playing: Science for the People

#SB2 2019 Science Birthday Minisode: Mary Golda Ross
Our second annual Science Birthday is here, and this year we celebrate the wonderful Mary Golda Ross, born 9 August 1908. She died in 2008 at age 99, but left a lasting mark on the science of rocketry and space exploration as an early woman in engineering, and one of the first Native Americans in engineering. Join Rachelle and Bethany for this very special birthday minisode celebrating Mary and her achievements. Thanks to our Patreons who make this show possible! Read more about Mary G. Ross: Interview with Mary Ross on Lash Publications International, by Laurel Sheppard Meet Mary Golda...