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Revenge of the customer
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June 21, 1999: 12:05 p.m. ET
Car buyers who do homework on the Internet can save hundreds of dollars
By Staff Writer Jerry Dubrowski
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NEW YORK (CNNfn) - When Priscilla Eddy went looking for a car this spring, she was determined not to make the same mistake twice. This time, she wasn't going to be tricked into paying more than she should. This time, she wasn't going to be hounded by high-pressure sales tactics. This time, Priscilla Eddy had a secret weapon. She had the Internet.
Armed with a ton of research, Eddy was able to find a 1998 Dodge Stratus without having to haggle. And, ironically, she found her dream car at the same dealership where only a few years before she had vowed never to visit again.
So what changed her mind?
Well, for starters, Eddy had spent months researching her next purchase, so she knew exactly what she wanted. And, unlike her previous purchase, when Eddy was shocked to learn her monthly payment included about $40 in hidden extras, this time she knew enough about buying a car to decline the disability insurance.
"What I liked is I didn't have the hassle," Eddy said. "Nobody was bugging me. Nobody was hounding me to buy."
Eddy, who lives in Hampton, Iowa, is not alone.
Buyers are in the driver's seat
Just as the Internet has reshaped the way people buy and sell stocks, track their portfolios and communicate with friends and relatives around the globe, so is it changing one of the most dreaded experiences of all -- buying a car.
According to consumer research firm J.D. Power and Associates, about 4 million car buyers are using the Internet in one way or another before setting foot in a showroom. And that number is expected to grow to 6 million, or roughly 50 percent of all personal vehicle purchases, in the next two years.
Chris Denove, director of consulting operations at J.D. Power, said the easy availability of auto information on the Internet means buyers need no longer feel like dealers are taking them for a ride.
"Make no mistake about it, the Internet shopper gets a good deal," Denove said. "What the Internet does is it hands the customer a magic ticket, which says, in effect, 'I am an educated customer and you must treat me a special way.'"
Day Williams, an Internet sales manager at Liccardi Motors in Green Brook, N.J., acknowledges that Internet shoppers tend to pay less for their cars than conventional customers.
But, he said, that may not be bad news for the dealership.
"We may not make as much money on Internet sales, but we hope to make that back in repeat business and service," he said. "It's not only about sales, it's about the whole department."
Invoice vs. sticker price
Adam Weiner, an analyst at Gomez Advisors Inc., which tracks electronic commerce on the Web, likens the smaller profits from selling cars on the Web to a toll bridge where the dealer is willing to shoulder the costs of building a bridge now in the hope that revenues from service and repairs -- the tolls -- will more than make up for it later on.
The question now, he said, is not whether people will buy cars on the Web, but how they buy them.
"Buying autos on the Internet has legs," he said. "The issue is how will the transaction occur."
A number of Web sites offer advice, including information on invoice prices, trade-ins and product reviews. However, franchise laws prevent customers from actually buying a car online.
But even that is changing.
Detroit's Big Three -- General Motors Corp. (GM), Ford Motor Co. (F), and the newly merged DaimlerChrysler (DCX) -- are keeping a close eye on Internet sales. All three already have Web sites devoted to their particular brands, but experts say consumers seem to prefer to do the bulk of their shopping on independent sites, such as CarPoint , Kelly Blue Book and others.
"Objectivity is very important," Weiner said. "The key benefit to going to an online buying service is they will provide a more objective view of what is out there in the marketplace."
For example, on Edmunds, customers can get important information about how cars are priced, such as dealer holdbacks, which refers to a credit given to dealers by the factory on cars sold within 90 days of shipment. By knowing the dealer holdback, a customer can save hundreds of dollars.
Over time, experts say these sites could evolve into full-scale auto sales operations where customers can buy a car online, arrange for the financing and even buy the insurance, along the lines of the way Amazon.com sells books or Dell sells personal computers.
But, in the meantime, here are a few expert tips when shopping for a car on the Web.
Know where to go for info
There are scores of Web sites devoted to cars and buying cars online, so it helps if you know all the players.
Manufacturer sites are great sources of information, but they're also trying to sell their cars so they're not likely to offer independent information about dealer costs, rebates, reviews and comparisons.
Independent vehicle information sites, such as Edmunds and Kelly Blue Book provide detailed information about a wide array of cars, not just a single brand. They also provide dealer invoice prices and independent reviews.
Online buying services, such as Autobytel.com and Autoweb.com provide a lot of the information that is offered by independent Web sites. But they also allow buyers to contact participating dealers who have agreed to provide no haggle prices. They also offer insurance and financing. J.D. Power estimates two out of every three dealers in the United States are affiliated with online Web sites.
Dealer Web sites provide an opportunity to communicate directly with dealers in your area. However, the information often can look more like an advertisement for the dealer.
Know what you want
In many cases, dealers that are affiliated with online buying sites like to deal with "serious buyers" rather than people who are just kicking the tires.
Separate your "wants" from your "needs." If you're in the market for a new vehicle and you need to have four-wheel drive, then that should be at the top of your list. If you'd also like to have a CD player, but it's not a must-have, then mark it down as a "want" rather than a "need." That way, you'll be able to make quick decisions about options when the time comes to sign on the dotted line. That CD player may cost a lot more than you want to spend.
Similarly, if you're looking for a family car, then a Ford Mustang may not be a practical choice.
Know the lingo
Buying a car can be confusing if you don't know what you're talking about. Spend a little time on research so you know the difference between dealer rebates, customer rebates, holdbacks and other incentives that can lower the price of your car. Some manufacturers offer special discounts to college students, first-time buyers and even Internet shoppers.
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