Internet fuels car-buying bargains
In haggling for a car, consumers may finally have the upper hand -thanks to the Internet.Skip to next paragraph
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Take Duane Walton of Apopka, Fla. He says he spends all day repairing computers, and heard they were helping people get some great deals on cars.
So he ordered a Toyota Sienna minivan from AutoWeb, an online service that offers discounts from dealers.
"I just put in my name and where to be contacted, and the dealer called me and beat the [lease] payment I wanted by $75," says Mr. Walton.
Walton struck the deal at noon, and by 5 p.m. was driving his new car.
So far only about 2.2 percent of new car buyers actually buy them online. But this number has doubled since last year, "because people are getting extremely good deals without any of the negotiating that proves so frustrating to many people," says Chris Denove, director of consulting at J.D. Power Associates in Agoura Hills, Calif.
More than a third of car buyers tap into the Web for pricing information before they go shopping. Numbers such as dealer invoice, factory incentives, and even holdbacks that once cost money now come free on the Internet.
Online buyers are among the most aggressive car shoppers, says Mr. Denove, who just completed a study of online car buying.
"Relatively inexperienced buyers can get a price they never could have shopping the old way, and experienced buyers can get as good a deal in much less time" than before, he says.
In the end, the Internet will narrow the gap between the highest prices people pay for cars and the lowest, Denove predicts.
Someday, the Net could replace dealers, with consumers buying cars directly from the factory at rock-bottom prices.
Several companies have plans to build on that model, including General Motors, Ford, DaimlerChrysler, computer mogul Michael Dell's Cars Direct service, and the CarMax and AutoRepublic dealer superstore chains.
But that won't happen soon. Three changes would have to take place to replace dealers:
*State franchise laws that forbid such end runs around dealers would have to be modified.
*Consumers would have to be willing to buy new cars sight unseen.
*A system would have to be set up to allow customers to test-drive various models without going to dealerships.
If these changes cut automobile distribution costs, the Internet could lower overall purchase prices. (See story, left.)
In the meantime, the Internet is changing the face of who's buying cars.
Women, especially, have benefitted from buying cars online, says Michele Hickford, spokeswoman for Auto-by-Tel. She says the company has more female customers than male ones.
"When consumers do research on the Web, they can walk into a dealership and say, 'This is what I know and how you're not going to talk down to me'" or take advantage of me, she says.
When Rebecca Bernard bought her Chrysler Sebring convertible from Auto-by-Tel, she got the price she wanted -about $23,000 - "but sat and haggled for a couple of hours on my trade."
Internet buying services all work the same way. You enter your order on the Web, and - hopefully - a participating dealer calls you back soon with a price.
Dealerships generally pay a flat fee to the buying service for ready-to-buy sales leads. Because the buying services are loyal to dealers, though, critics say the deals may not be that great.
Denove says skilled negotiators may be able to roughly equal the deals online buying services give. Some may do a little better, some a little worse.
For its part, Auto-by-Tel says its dealers can offer bargains because marketing costs less over the Web. The service regularly surveys its customers and weeds out dealers whose prices aren't competitive.
Buying services compete mainly on the prices their dealers offer, how soon their dealers call you back, and peripheral services on their Web sites such as pricing data, reviews, financing and insurance information, and tracking vehicle maintenance for new buyers.
The best strategy for consumers is to enter purchase requests on several sites, Denove says, then pick the service whose dealer offers the lowest price.
Even then, you may get only one response, as dealers often ignore requests for models they don't have in stock. The buying services are working to weed those dealers out too.
For buyers who want to do research on the Web and then cut their own deal, a number of Web sites offer free pricing information. (See list, page 16.)
As always, the ingredients of a good deal are knowing the dealer's costs for the car, says Paige Amidan at Consumer Reports. Those costs include invoice price, factory incentives, and holdback -the amount most manufacturers pay dealers per car sold, regardless of the price (usually 2 percent or 3 percent of invoice). It also helps to have an idea of how many of the models are stuck on dealers' lots.
Those who like to strike deals on their own should tell the dealer what they know, say carbuying experts, then ask for a price quote relative to invoice. Let the dealer know you plan to ask other dealers for competing quotes and that each dealer can bid only once.
When all the dealers bid, you take the lowest price.
Several "offline" services will also do this legwork for you for a fee (to tell you they're not in league with dealers).
But these services will eventually give way to free Internet brokers, Denove predicts, because the prices on cars won't be that different.
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