LOS ANGELES -- It's nearly two decades into the age of Internet carshopping, but despite the information explosion, most buyers don't have aclue.
In fact, at least one shopping expert argues, neither dosome of the online services that a lot of people count on to guide themtoward the best price for the new cars they crave.
As the Internethas made car shopping seemingly more transparent, the auto industry hasmoved to change the process to make the waters even muddier.
Andas the Web has let people shop nationwide, freed from the tyranny ofoften-uncompetitive local prices, it also has let dealerships see whatrivals everywhere are offering - effectively leveling prices because nodealer is likely to offer much bigger discounts than the competition.
Whilesharp-minded buyers are likely to feel almost smug nowadays, armed withmore inside information than ever, it can be incomplete and misleading.Buyers in some ways are as vulnerable as ever to professionals whoselivelihoods depend on making the sale.
To probe the secrets of carbuying and data available on the Internet, USA TODAY invitedrepresentatives of six shopping services to a roundtable discussion atthe Los Angeles auto show. They were candid, even blunt, and what theysaid sometimes was shocking.
One key point: What once was the holygrail of in-the-know deal-seekers - uncovering the dealer's "invoiceprice" (what the dealer paid) for a new car - now is easy to find on theNet.
But at the same time, the industry is making that "price" increasingly meaningless.
Automakershave fattened dealers' "invoice" or wholesale price so it looks as ifthey're paying a lot more than they used to - perhaps 95% of the retailsticker price, vs. 85% before Internet car shopping began in themid-1990s.
But that modern invoice number now is padded enough tolet automakers send significant sums back to dealers in hard-to-trackgive-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 mostautomakers that has long inflated the invoice price. The holdback is anamount 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 refundto dealers periodically. It also has given automakers leverage overdealers, which are independent franchisees - the car company canwithhold 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 salesquotas - and are sometimes even retroactive to the previous quarter. Thequota rebates can mean that even the dealers might be uncertain oftheir 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 ofthousands of dollars for high scores on the customer satisfactionsurveys sent to new-car buyers.
• Some are simply theold-fashioned, direct factory-to-dealer incentives, often unadvertised,that might or might not be passed along to buyers.
Why all the complicated give-backs?
"Ittells me that (automakers) and dealers responded to the publishing ofinvoice pricing online and said, 'We need to find another way to maskwhat (dealers) are being paid so that people don't feel like they'regetting screwed,' " says Patrick Olsen, editor-in-chief of Cars.com and aroundtable participant.
Another participant says we shouldn't besurprised. "The fact is that consumers still think the dealer invoiceprice has some magic to it. It doesn't," emphasizes James Bragg, head ofFighting Chance, a small car-buying advice-giver he founded in 1993."We let ourselves, over the decades, get conned into believing that afamily with a $10 million net worth, of which $7 million is in carstores, is going to let you and me know what they're paying for theircars. Does that make sense to anybody? That's nuts."
But perhapssurprisingly, given how often they use "invoice price" as a touchstone,many brand-name online car shopping sites tend to agree with Bragg'sdismissal of that price.
Exception: Jessica Caldwell,Edmunds.com's director of pricing and industry analysis. She says theinvoice, however true or false, is another data point, and "every pieceof data you have out there is helpful and can be critical" as a shoppingtool.
In addition to Caldwell, Bragg and Olsen, at the tablewere: Larry Dominique, executive vice president at TrueCar.com; JaredRowe, president of AutoTrader.com, which acquired Kelley Blue Book andits 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 friendof buyers, arguing that they don't work hard enough to show the lowestprices.
Rowe says that might be so, and - with an attitude likelyto stun hard-core horse-traders - explains: "Overwhelmingly, ourresearch shows that consumers ultimately don't want the best price."
"Wehave data to support exactly what he said," adds Dominique. "We dopost-purchase surveys of 100% of our consumers, and the ones who paidthe least for their cars are the most dissatisfied with their cars. Theones who paid average or above average are actually the more satisfied."
How is that possible?
Thosewho didn't haggle over the last dollar "spent an average of one to twohours less at the dealership. They feel they got treated fairly on theprice, they feel they got treated fairly on" financing and trade-invalues, Dominique says.
Adds Olsen, from a personal experience, "Iwent to buy a car and the dealer sat down and said, 'I want $300 overinvoice,' and I said, 'Fine with me. Let's do that and cut a deal rightaway.' 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 mylife arguing with this guy," but it wasn't worth the hassle.
Braggfinds that hard to accept: "I have customers who will drive 120 milesto save a thousand bucks, and there are more of those than you wouldbelieve."
Rowe does not. "There is a segment who absolutely wantsthat rock-bottom price and will drive 500 miles to save $50. Butoverwhelmingly, consumers just want the fair price."
What is the"fair" price? "I don't think anybody in this room can tell you what thefair price is on any vehicle for any specific individual," Rowe says. Hesays a fair price "means that when I tell my neighbor what I paid forthe 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 vehicleand $15 for more ordered simultaneously. The price buys advice on"exactly what to do and say each step of the way as you conduct acompetitive bidding process from your home or office, without walkinginto a single car store."
Bragg says it winds up like this:"Ignore all the (price) advice you find on the Internet. When you decidewhat you want, get on the phone and call 10 dealers and tell themyou'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. Itcosts nothing to use. But once a user prices a vehicle on the site, heor she is encouraged to submit information to the local dealer listed atthe end of the pricing exercise for follow-up sales calls.
Thesite provides a price curve of prices being paid for a specific vehicle,showing the midpoint price, and stretching out to show the best andworst 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.
CRprovides what it calls a "bottom line price" from which to startnegotiating. No advertising is involved, but pricing information isprovided 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.
Thesites' money comes from advertising, which automakers hope is targetingpeople at the perfect moment - when they are seriously shopping forcars.
All the online sites foresee fast changes in theirbusinesses, such as providing real-time help for people as they buy, forexample.
"I think people are looking for some human touch to tellthem this is good, this is bad," Caldwell says. "We just developedsomething last year where it's live advice. So if people are in thecar-shopping process, they can now call. They can do a live chat andthey can e-mail, too."
Also emerging: comparison shopping orinstant 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. Thatis the kind of speed expected, especially by the Millennials andGen-Y's," Dominique says.
Some do's and don'ts
Thoughthey disagree on some important points, the panelists have been in thecar-shopping business long enough to have valuable insights. Some oftheir advice:
• Don't fixate on price. Dealerships makewhat they need to, or they won't sell the vehicle. If the price isextraordinarily low, the dealer financing will be at high interest, oryou won't get much for your trade-in, or you'll pay more for thatextended warranty.
You can arrange your own financing in advance,to skip the dealer loan. You can sell your car instead of trading it, tomake the new-car deal simpler and thus the true price easier tounderstand.
• 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'tknow if you got the car that went through a bad day on the line, alemon. Make sure you take a test drive to make sure that things areworking."
• Don't shop and buy the same day. Fisher: "Whenyou 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 thepurchase part of it and the shopping part of it."
That's becauseyou'll be unprepared to make a wise choice until you've done a lot ofresearch - 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."