Booth Research Best Car Deals Found Near Closed Lots

According to new research from the University of Chicago Booth School of Business, when Chrysler closed a quarter of its dealerships as part of its bankruptcy filing in 2009, prices within a sales area went up the least at the dealerships nearest to the closed one. The research finds that it’s best to go where you have plenty of choices and competition.

Professor Pradeep Chintagunta’s “Competitive Reaction of Incumbents to Exits: Chrysler’s Auto Bailout-Induced Dealer Consolidation,” analyzed data from individual dealerships for competing retailers before and after a nearby Chrysler dealership closed. He found that the dealerships nearest the closed Chrysler lots were limited in how much they could raise their prices.

“It’s now becoming more expensive for consumers to come to this area because they’ll have to make a special trip just for the Honda dealership, that essentially raises the cost to the consumer of coming to this location,” Chintagunta said. “In a sense, what the dealership has to do is buy off this cost that the customer has to invest in having to drive to this location which has only, for example, a Honda dealership, and that gets the dealership to actually lower its prices.”

The research examined surrounding the closed Chrysler retailers within three tiers— within 10 miles, 10 to 20 miles and 20 to 30 miles. Ultimately, the best deals were at dealerships in the innermost perimeter, and that the biggest price increases were in the intermediate distance band.

“There is still enough competitive pressure that prices don’t go up a whole lot,” Chintagunta said. “You probably want to go to a dealership located right next to the closing Chrysler dealership if you want to get the lowest price.”

regions: Chicago

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