Auto brokers to the rescue?
July 15, 1999: 6:38 a.m. ET
Buying services eliminate haggling, but don't always yield the best price
By Staff Writer Nicole Jacoby
NEW YORK (CNNfn) - It's enough to make any prospective car buyer cheer: dauntless brokers stepping in to rescue consumers from the clutches of fast-talking auto dealers.
Unfortunately, these professional negotiators are not always the heroes they make themselves out to be.
Although auto brokers can save you from the harrowing bargaining process that accompanies most car purchases, their ability to capture the lowest price possible is often limited.
And they may not always have your best interests at heart, either.
How it works
Consumers most often turn to auto brokers because they want to avoid the time and energy spent finding a new car and negotiating its price.
"There is an element of the population out there that simply does not want to deal with car salesmen ," said Jack Nerad, author of "The Idiot's Guide to Buying or Leasing a Car." "And buying through a broker is a much more pleasant experience."
Brokers generally work for a fee, upwards of $100, for which they promise to locate the car of your choice at a cost below the manufactured suggested retail price. Most brokers solicit bids from dealers in your area and then present the various results, usually within a few days.
If you are unsatisfied with the offers, you may lose a deposit, depending on the broker.
But if you decide one of the bids is what you're looking for, you'll go to the dealership in question, sign the necessary paperwork and the car is yours.
Big savings a myth?
There is little question that brokers can greatly reduce the time involved in shopping for a new car -- as many as 20 hours by some estimates. But whether a broker can elicit a bargain depends a lot on your own negotiating skills.
"The savings are sort of nebulous," said Nerad. "
Any of us who walk into the door of a dealership with a little gumption can get something off the manufactured suggested retail price."
In other words, if you are a strong negotiator, you will probably be able to get a deal as good -- if not better - than a broker could.
However, if you are easily intimidated by dealers, a broker could be an asset.
Know who you are dealing with
What many consumers may not realize is that they are not necessarily the broker's primary customer.
"99.9 percent of the services out there are seller-motivated," said Linda Goldberg executive director of the National Association of Buyers' Agents.
These brokers work closely with dealers, at times charging them as much as $15,000 a year for membership in a network that promises to refer clients to them. In some cases, brokers are also given a cut of the dealer's sales commission.
Such kickbacks can considerably diffuse the savings of consumers.
"There is only so much of a spread between what the dealer pays for the vehicle and the dealer's profits," said Nerad. "If you throw a broker in there, you're just throwing in another mouth to feed."
Weeding through the options
Consequently, you should be cautious when choosing an auto broker.
For one, be sure you are getting what you're paying for. Just about anyone can hang out a sign and claim to run a car "buying service." But in some cases, a buying service is not much more than a front for a dealership, a tactic that has been outlawed in some states, including Washington, Hawaii and California.
Other so-called buying services offer little more than referrals. Sometimes free of charge, these services will provide consumers with a list of dealers and pre-negotiated prices for the car desired. But if upon going to the dealership, the requested model is not available, you may be subject to new negotiations and all the associated hassles. These services also do not set up any of the paperwork for you.
Buyer's agents are often a consumer's best bet. These agents, such as CarSource and the American CarBuying Service Corp., are paid only by their clients and receive no compensation or commission from car dealers.
Because buyer's agents do not receive any dealer kickbacks, consumers are likely to see car prices about $1,500 below what so-called "sellers' agents" promise, says Goldberg, who is president of CarSource.
CarSource, for instance, guarantees savings of $3,000 off cars whose MSRP is between $25,000 and $50,000 and offers a fee reduction if that figure is not met. The company says it locates most cars within 5 to 7 days.
Buyer's agents usually charge a flat fee for their service - usually a few hundred dollars -- though they do sometimes charge more if you want help finalizing the paperwork or want to lease or finance the car.
Finding a reputable broker
Because of the proliferation of buying services on the Internet, finding a reputable car broker can be a challenge.
"You have to ask the right questions," said Goldberg.
Find out if the company receives anything of value from dealers, manufacturers, lenders or even advertisers, since such contributions might indicate a bias toward the interest of someone other than you.
Referrals from friends and family members are usually the best way to pick a broker, though experiences can be so wide-ranging, says Nerad, that even these inside tips can be misleading.
"It's so hard. A lot of people would say personal recommendation is the only way to go with something as individualized as this," said Nerad. "But a person who got a lousy deal might come away thinking he got a great deal and others might think they could have done better."
You should also check if the company is a member of the National Association of Buyers' Agents or the Association of Automobile Buyers' Agents. Members of these organization have agreed to abide by specific guidelines regarding car purchasing and leasing.
Making the call
Whatever type of service you use, remember that even the best broker can only bring a price down so far.
"The car market is extremely competitive. There are a lot of brands vying for your attention and if you do a reasonable amount of shopping and negotiating, you should be able to get a decent deal yourself," said Nerad.
Of course, that takes time.