LOS ANGELES -- It's nearly two decades into the age of Internet car
shopping, but despite the information explosion, most buyers don't have a
clue.
In fact, at least one shopping expert argues, neither do
some of the online services that a lot of people count on to guide them
toward the best price for the new cars they crave.
As the Internet
has made car shopping seemingly more transparent, the auto industry has
moved to change the process to make the waters even muddier.
And
as the Web has let people shop nationwide, freed from the tyranny of
often-uncompetitive local prices, it also has let dealerships see what
rivals everywhere are offering - effectively leveling prices because no
dealer is likely to offer much bigger discounts than the competition.
While
sharp-minded buyers are likely to feel almost smug nowadays, armed with
more inside information than ever, it can be incomplete and misleading.
Buyers in some ways are as vulnerable as ever to professionals whose
livelihoods depend on making the sale.
To probe the secrets of car
buying and data available on the Internet, USA TODAY invited
representatives of six shopping services to a roundtable discussion at
the Los Angeles auto show. They were candid, even blunt, and what they
said sometimes was shocking.
One key point: What once was the holy
grail of in-the-know deal-seekers - uncovering the dealer's "invoice
price" (what the dealer paid) for a new car - now is easy to find on the
Net.
But at the same time, the industry is making that "price" increasingly meaningless.
Automakers
have fattened dealers' "invoice" or wholesale price so it looks as if
they're paying a lot more than they used to - perhaps 95% of the retail
sticker price, vs. 85% before Internet car shopping began in the
mid-1990s.
But that modern invoice number now is padded enough to
let automakers send significant sums back to dealers in hard-to-track
give-backs and bonuses that make the dealers' real (and well-hidden)
wholesale cost for the vehicle well below "invoice."
How 'holdbacks' add up
Such give-backs are beyond the traditional "holdback" by most
automakers that has long inflated the invoice price. The holdback is an
amount roughly equal to 2% of the sticker price (it varies by automaker,
and a few don't use the practice) that the car companies usually refund
to dealers periodically. It also has given automakers leverage over
dealers, which are independent franchisees - the car company can
withhold the amount if dealers don't meet automakers' requirements.
The dealer rebates inflating today's invoice prices, beyond holdbacks, vary.
•
Some rebates to the dealer are variable amounts based on meeting sales
quotas - and are sometimes even retroactive to the previous quarter. The
quota rebates can mean that even the dealers might be uncertain of
their final cost per car until they sell their final car of the period.
•
Some rebates are so-called "atta-boy" payments of up to hundreds of
thousands of dollars for high scores on the customer satisfaction
surveys sent to new-car buyers.
• Some are simply the
old-fashioned, direct factory-to-dealer incentives, often unadvertised,
that might or might not be passed along to buyers.
Why all the complicated give-backs?
"It
tells me that (automakers) and dealers responded to the publishing of
invoice pricing online and said, 'We need to find another way to mask
what (dealers) are being paid so that people don't feel like they're
getting screwed,' " says Patrick Olsen, editor-in-chief of Cars.com and a
roundtable participant.
Another participant says we shouldn't be
surprised. "The fact is that consumers still think the dealer invoice
price has some magic to it. It doesn't," emphasizes James Bragg, head of
Fighting Chance, a small car-buying advice-giver he founded in 1993.
"We let ourselves, over the decades, get conned into believing that a
family with a $10 million net worth, of which $7 million is in car
stores, is going to let you and me know what they're paying for their
cars. Does that make sense to anybody? That's nuts."
But perhaps
surprisingly, given how often they use "invoice price" as a touchstone,
many brand-name online car shopping sites tend to agree with Bragg's
dismissal of that price.
Exception: Jessica Caldwell,
Edmunds.com's director of pricing and industry analysis. She says the
invoice, however true or false, is another data point, and "every piece
of data you have out there is helpful and can be critical" as a shopping
tool.
In addition to Caldwell, Bragg and Olsen, at the table
were: Larry Dominique, executive vice president at TrueCar.com; Jared
Rowe, president of AutoTrader.com, which acquired Kelley Blue Book and
its KBB.com in 2010; Jake Fisher, head of auto testing for Consumer Reports, who is involved with the magazine's pricing data and who buys from dealers the cars the publication tests.
Buyers don't want a deal?
Bragg,
a peppery contrarian, considers the big-name shopping sites no friend
of buyers, arguing that they don't work hard enough to show the lowest
prices.
Rowe says that might be so, and - with an attitude likely
to stun hard-core horse-traders - explains: "Overwhelmingly, our
research shows that consumers ultimately don't want the best price."
"We
have data to support exactly what he said," adds Dominique. "We do
post-purchase surveys of 100% of our consumers, and the ones who paid
the least for their cars are the most dissatisfied with their cars. The
ones who paid average or above average are actually the more satisfied."
How is that possible?
Those
who didn't haggle over the last dollar "spent an average of one to two
hours less at the dealership. They feel they got treated fairly on the
price, they feel they got treated fairly on" financing and trade-in
values, Dominique says.
Adds Olsen, from a personal experience, "I
went to buy a car and the dealer sat down and said, 'I want $300 over
invoice,' and I said, 'Fine with me. Let's do that and cut a deal right
away.' It wasn't rock-bottom price. It wasn't even the invoice price.
And if I really pushed, maybe I could have spent three more hours of my
life arguing with this guy," but it wasn't worth the hassle.
Bragg
finds that hard to accept: "I have customers who will drive 120 miles
to save a thousand bucks, and there are more of those than you would
believe."
Rowe does not. "There is a segment who absolutely wants
that rock-bottom price and will drive 500 miles to save $50. But
overwhelmingly, consumers just want the fair price."
What is the
"fair" price? "I don't think anybody in this room can tell you what the
fair price is on any vehicle for any specific individual," Rowe says. He
says a fair price "means that when I tell my neighbor what I paid for
the car, I won't be embarrassed."
A look at shopping services
To understand the viewpoints, it's helpful to know how the shopping services operate.
•
Fighting Chance charges customers: $39.95 for help on the first vehicle
and $15 for more ordered simultaneously. The price buys advice on
"exactly what to do and say each step of the way as you conduct a
competitive bidding process from your home or office, without walking
into a single car store."
Bragg says it winds up like this:
"Ignore all the (price) advice you find on the Internet. When you decide
what you want, get on the phone and call 10 dealers and tell them
you're going to buy where you get the best price."
In Bragg's view, the best use for the Internet is to help decide what to buy, not how to buy it or how much to pay.
•
TrueCar.com considers itself a buying site, not a shopping site. It
costs nothing to use. But once a user prices a vehicle on the site, he
or she is encouraged to submit information to the local dealer listed at
the end of the pricing exercise for follow-up sales calls.
The
site provides a price curve of prices being paid for a specific vehicle,
showing the midpoint price, and stretching out to show the best and
worst prices.
The site makes money from car ads, and auto dealers pay TrueCar.com $299 for every referral that leads to a sale.
• Consumer Reports charges $14 for a pricing report on one vehicle, $12 for each additional report ordered at the same time.
CR
provides what it calls a "bottom line price" from which to start
negotiating. No advertising is involved, but pricing information is
provided by TrueCar.com.
• Edmunds.com, KBB.com and Cars.com consider themselves pure shopping sites. They cost nothing to use.
They provide "market" or "target" prices that take into account what others paid for similar vehicles as advice for negotiating.
Cars.com also offers a list of similar vehicles in stock at dealers within the radius shoppers specify.
The
sites' money comes from advertising, which automakers hope is targeting
people at the perfect moment - when they are seriously shopping for
cars.
All the online sites foresee fast changes in their
businesses, such as providing real-time help for people as they buy, for
example.
"I think people are looking for some human touch to tell
them this is good, this is bad," Caldwell says. "We just developed
something last year where it's live advice. So if people are in the
car-shopping process, they can now call. They can do a live chat and
they can e-mail, too."
Also emerging: comparison shopping or
instant purchasing data via tablet or smartphone. For instance,
photograph the vehicle identification number of a car on a dealer lot
"and you get a quote from that dealer while you're standing there. That
is the kind of speed expected, especially by the Millennials and
Gen-Y's," Dominique says.
Some do's and don'ts
Though
they disagree on some important points, the panelists have been in the
car-shopping business long enough to have valuable insights. Some of
their advice:
• Don't fixate on price. Dealerships make
what they need to, or they won't sell the vehicle. If the price is
extraordinarily low, the dealer financing will be at high interest, or
you won't get much for your trade-in, or you'll pay more for that
extended warranty.
You can arrange your own financing in advance,
to skip the dealer loan. You can sell your car instead of trading it, to
make the new-car deal simpler and thus the true price easier to
understand.
• Take a test drive. No matter how much research you've done, it won't tell you everything.
Olsen:
"You don't know how you fit; you don't know the ergonomics; you don't
know if you got the car that went through a bad day on the line, a
lemon. Make sure you take a test drive to make sure that things are
working."
• Don't shop and buy the same day. Fisher: "When
you go into the dealership the first time, which you're going to do,
just swear to yourself this is not the time to buy. Separate the
purchase part of it and the shopping part of it."
That's because
you'll be unprepared to make a wise choice until you've done a lot of
research - and you're easy to seduce at that point.
Olsen: "When a new-car dealer is smooth-talking you, it's really easy to get hooked. God knows when I was younger, I did."
USA Today