Online sales are now a big and fast-growing part of U.S. retail sales, for everything from books to auto parts. True, the total amount of retail sales booked online is a small fraction of the total volume of consumer goods, but it is the fastest growing of all sales channels, tantalizing manufacturers with its efficiency and low cost (not to mention the potential boost to the bottom line).
This week, The Economist looks at the prospects for online auto sales in the U.S., a market locked in the grip of the nationwide franchise network of auto dealers. To date, attempts to sell cars online have not been promising, but things may (slowly) be changing.
With a whopping two-thirds of new car customers researching their purchases online and virtually complete access to the byzantine maze of rebates and incentives, consumers have been using their new-found knowledge to drive down the dealer's profit margin. This is making some dealers, notably consolidated dealer networks like Lithia and AutoNation, consider how to better integrate online retailing into their operations. As a direct result, AutoNation is launching its SmartChoice online service in June.
Meanwhile, financial institutions like Capital One and Chase (think auto loans) are looking at online auto retail channels as a way to streamline the buying process for their loan clients - using volume buying power to guarantee a fixed price for its customers before they set foot in dealerships. Capital One has partnered with Zag - an internet-based company that brings its car buying expertise to affinity and membership organizations (think credit unions, buyers clubs like Costco, etc.). Even Amazon is rumored to be looking at auto sales.
Is this the death knell for the dealership? Well, no. By law, independent online sellers cannot buy "factory direct" - they must buy their cars from a dealer. Besides, virtual test drives aren't very much fun.
Have you/would you bought/buy a car completely online through eBay Motors or another service? Fess up in 'Comments.'
[Source: The Economist - subscription required]
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Reader Comments (Page 1 of 3)
Nick Fogelson @ May 27th 2006 8:51PM
I bought by 2000 Boxster S online and it was a great experience, and still is a great car.
Nick Fogelson
MadeInDetroit @ May 27th 2006 9:41PM
I think this could be an excellent service for those who already know which vehicle they want to purchase but are having a hard time locating the car with the exact options, features, colors, etc, but are having a hard time obtaining this vehicle from their local dealerships or if a dealership of a desired make isn’t nearby. This then poses the question of what to do when ones vehicle is in need of service.
Peter @ May 27th 2006 10:58PM
It's disgraceful that state laws don't allow for "factory direct" sales to online retailers. I cannot understand how dealers manage to wield such influence over legislators - bribery alone can't be the whole answer.
BimmerLover @ May 27th 2006 11:28PM
I'd definitely prefer to purchase my next car using this process, if it's available. I hate dealing with car salesmen and their managers; they're thieves. In fact, I've been putting off the purchase of my next car because I find the process so objectionable.
shiznannigan @ May 27th 2006 11:44PM
At 6'3", I really have to sit in/ drive a car before I think about buying it. Best place to do this is a dealership.... why test drive a car there, just to go home and buy it online?
Besides, even if online sales take off, you know that the place from which you pick up the car will still try to pressure you in to buying extra dealer options.
akatsuki @ May 27th 2006 11:55PM
One can only hope the ridiculous laws protecting dealers will finally be repealed. Unfortunately as relatively rich local businessmen, it will never happen.
Roland @ May 28th 2006 12:55AM
I am not sure if I would buy a car over the internet but I definitely would use the power of the Internet to advertise and create demand for a car that I like to sell. Magazines and newspapers are so crowded and don't offer any methods to systematically search for the car you need and want. Through the Internet you can reach more people and you get realtime information on how many people actually look at your ad. The key though is that you choose the right web site to advertise your car. And there are MANY. With the popularity of the Internet, you can now find sites that will assist you in a variety of ways to sell your vehicle. Many sites exist where buyers, usually for a small fee, can post their car's details and interested parties can contact you online for more information. One benefit from dealing with that type of posting is that you can make initial contact with potential buyers via email; from that initial contact, you can field any questions they may have and weed out any unqualified buyers prior to showing the vehicle. A company that I found really useful is called http://SpreadYourAd.com. They provide a service that can really help streamline the sale of your cars and publish your car ads to the most popular car listings on the Internet. On top of that it enables you to track the demand and interest in your car.
Cheers, Roland
Ely Liu @ May 28th 2006 1:46AM
I've used the internet to shop for my last 2 cars. I just email the different dealerships. I love shopping for cars online because...
1. it's easy to compare prices quotes between dealerships. If you walk into a dealership, it's usually pretty hard to get a quote.
2. hassel-free. After you negociate the price via email, you just go and pick up the car.
3. from my experience, the price is lower than average as well. We just got a Nissan Murano $500 under invoice. :)
JJ @ May 28th 2006 1:56AM
Well also the reason is all the Car dealers have already set up dealer networks to sell their products. Its almost like this, You get all these people to sell your products, they pay yout o carry and showcase and promot your products and they give you exclusivity and such to represent your products in thier place.
Now you turn around and sell directly to those peoples competitors? Of course thats not going to sit well with the people that have gotten yout o where you are.
Its like any business that a company would need another company to represent a product for them to reach the masses because at first they didnt have an outlet to reach the masses as a whole.
Fact of the matter is if the manufacturers screwed the dealerships... they'd end up screwing themselves even more because there's no way they'd ahve the infrastructure to sell THAT many cars by themselves. THink about it, where would you get the cars? drive to a factory? factories aren't in every city... whereas dealerships mostly are.
Have them ship it to you? how?
and so forth. While I agree some salesmen are jerks, that infrastructure is already in place and employs too many people to just uproot right now.
It'd be like what if they stopped selling furniture and food in stores and you had to buy it online? Sometimes you like to see things in person, etc to really get an idea of what you like.
Plus you can still buy cars online anyway and just pick them up at dealerships... if you do your research well a salesman cant really screw you... not if they have competition in town.
what do people have against people who own dealerships anyway? They're entitled to sell their products and make money just as anyone else... or do you people think NO one should make money at the job they sink their capital into?
Mark P @ May 28th 2006 2:23AM
Working for Maserati of Minneapolis, we have made a huge effort to center much of our advertising and sales over the internet. This gives us a national market year round - helping to negate the effects of Minnesota's famous winters. Nearly 50% of our business is a result of our online presence, and this is only growing. I personally oversee our efforts to grow our 'web 2.0' presence, with real involvement in forums, rss feeds, googlebase, a blog, etc. We generally have 1/3-1/2 of our inventory on eBay at any given time, and this has proven to be a better advertising medium than autotrader.com or cars.com.
Currently the online market is much better for highline cars, exotics, and other specialty cars where buyers outnumber inventory; But for mass market cars I think the traditional dealership model will reign king for quite some time. At best the internet will prove a promising place for researching the exact car you want - and finding out who has it. The only real segment that the internet has good growth potential is for the wholesale market.
eBay is a great example of this. eBay's prices for low to mid line cars generally parallels auction wholesale trade pricing. However, many dealers take in low-end trades for little money, and in the past bypassed reconditioning and sent the cars to an auction such as Manheim Auto Auctions. Generally they would break even or make a couple hundred bucks here and there. Now you can take these low to mid end trades and sell them on eBay and make a few hundred to low thousand bucks on nearly all of them, especially if they happen to be in-demand cars like older hondas, toyotas, mazdas, and volkswagens.
Check out http://www.maseratiofminneapolis.com and see how our website differs from many other dealer sites out there.
JackC @ May 28th 2006 3:14AM
Get a life, folks. If you understood retail, you'd know that the majority of dealers are not thieves. The government regulates the selling price of the new car (it's on the big sticker on the window)and the dealer buys it from the manufacturer for something less. Depending on the make and model, the total markup can be as little as $200, or on the higher end models, up $3-4000. As a consumer, you have access to all the information you need to make an intelligent decision; dealer cost, average trade value, interest rates, rebates, average selling prices, etc.
It's a fact that it costs the average new car dealer roughly $700 to sell a new car. This is comprised of advertising, flooring, storage, personnel and related costs. Think about that the next time you go into a dealership and offer them $100 over cost...and then wonder why the salespeople and managers try to "bump" you in price. I mean, look at this blog...just to the right of where I am writing is an advertisement for "how to pay dealer cost...insider tips and tricks..." There are no tricks, folks, just salespeople trying to protect a margin and customers trying to cut it...good old capitalism at work.
JJ @ May 28th 2006 3:32AM
like Jack said, the markup on cars is amazingly thin. Thats why i love it when people say dealers are ripping them off.
If anything people need to be complaing about the mark up in other sectors. You know how much people overpay for furniture? DVD's, Electronics etc? I'll tell ya, Cars dont make near as much a profit as you may think
dp @ May 28th 2006 4:37AM
i work for a volkswagen dealership...the vw diesel equipped vehicles are white hot at this time.....and not all that available.....i spent about 30 minutes showing a diesel beetle to a interested party this past week....because it was a loaded vehicle the window sticker was just a little over $24,300....our invoice from vw was about $1080 less than window sticker...the selling price of the vehicle is subject to sales tax of 7% and a few other state fees are added...[less than $60].....because the margins on vws are so thin, i actually showed the invoice to this customer.....and encouraged a reasonable offer on the car........two hours later, they phoned me back with an offer of $20,000...out the door!
sure, the dealership will be happy to loose about $3,000 selling your stupid butt a new car....and we'll be happy to just go ahead and pay your state sales tax too.....what time would you like to pick it up?
this is exactly why the factory will never,ever sell directly!
regards
David @ May 28th 2006 4:40AM
From what my limited understanding has alotted me, I think that there's quite a bit of potential in the idea. Basically, dealerships become pick-up points, service centers, and keep just enough stock to allow test drives. Basically, convert them into 'factory outlets.' They would no longer have to worry so much about cars that just sit in their lots for months at a time (including the ridiculous amount of overhead necessitated thereby). You could simultaneously reduce your overhead, and preserve the majority of the infrastructure.
On the other hand, I have serious doubts about buying a car from the likes of a costco-style establishment. They specialize in the drab and generic; my taste in vehicles is anything but. Finding a car I would fall in love with is about as probable at a factory outlet as it is at a dealership. However, fire and brimstone will turn to snowballs and ski-slopes sooner than I'd be satisfied with a car I bought from a credit union or buyers club.
Just my $0.02
jsmiles @ May 28th 2006 6:01AM
I do this all the time, and I'm to young to even have my licsene. I go on car websites about every day of my life to see the new line-up, when I'm do looking at American, German, Japanese, korean, car, and some other copanies I come here to places like autoblog.
Michael @ May 28th 2006 7:45AM
The dealers represent an incredible inefficiency in the market, and a poor experience for customers. I think that the best way to do this would be to offer outlet shops (much like the Apple Store) where you can test drive cars of various models and look at options. Then you place an order, either at the shop, or online, for a car with the exact configuration that you want, and put down a deposit. The factory makes your car, and some time later, a car carrier truck delivers it to you. (Or you pick it up at the store.) The car manufacturer wins because it can make exactly the cars that are in demand at any time, rather than guessing and maintaining dealer inventory, thus achieving a huge cost savings. The customer saves the hassle of a bad car dealer experience, and is more likely to buy because they can get exactly the car that they want, rather than compromising on features that they don't want. The dealer....well, they never added anything except a source of customer frustration and a large markup, at least in my experience.
Zo @ May 28th 2006 8:59AM
Hello!!! Car and Driver recently did an article where they interviewed several scum bag car sales people and talked about all the ways they do scam the consumer. Its a regular piece that run every few years. In it they took a real sales person and a real customer and showed step-by-step as the sales person screwed the person on the sale. Then they list the top 10 things not to do when buying a car -- for instance, don't give them you license before you do the test drive because many dealers will use that info to run an illegal and unauthorized credit check on you while you are out so they know how high to jack up the lease/price. Road and Track a while ago had a similar article and Consumer Reports Annual Best Cars issues has a 6 page article on all the ways dealers have screwed people. Then you do not have to go further than than newsgroups to hear other stories of scams.
Its not a matter of making a buck, its how dealers use scams to make a buck -- in CT they recently sued several dealer networks for having ads with some rediclous low price and then when the consumer showed up no such car was available for sale -- now the dealers must advertise exactly how many cars they have on hand at that ridiculous low price. In MA they sued dealers for putting in used motor oil and filters in cars and charging customers for new oil and filters.
Please, just like lawyers there is a reason for so many car salesman jokes -- far too many bad dealers over shadow the few good dealers.
On SpeedTv they have a segment called Detroit Auto News and many times they have had factory reps talking about "major" problems in their dealer networks and how its an industry problem -- The dealers who I hear cannot make money apparently however make enough that they have been able to lobby local, state and Federal govt. enough to keep the crap going.
As you go upscale, it gets worse -- find almost any BMW newsgroup and they will tell you how bad many of their dealers are.
I would love to buy factory direct to bypass the dealer network bullshit -- I have never left a dealership or dealership service dept. without the feeling of just having been screwed.
Terry Dybo @ May 28th 2006 9:00AM
As a savvy consumer do you really think that in the long run you can save money by purchasing factory direct? In the early eighties the government increased the tarrif on imported trucks to 25 petrcent, this was to give the big three a price advantage with their rangers and S10s. Within a couple of weeks ford and gm increased their prices at the wholesale end so that the only result was higher prices to the consumer and increased profits to the manufacturer.
Also. if your local dealer is eliminated who do you think is going to provide you with a selection of product when you purchase and carry large inventories of product that allow the manufacturer an efficient scale of operation? If you haven't figured it out, I;ll tell you- no one. Your cost will go up.
Do yo want to deal on line? Without the dealer you will eliminate that source of info (admit it, you do look at the cars an test drive them at a dealership with no concern that you are taking time from the representative there).
Do you want to deal on line? How would you like to try to arrange delivery with GM and see how many ways they can screw things up and how concerned they are with one schmo that buys one car every three or four years or less? Think thats hard, try dealing w/products coming out of indonesia or europe.
Do you want to deal on line? I hope you're good with finances because if you think that there are a lot of things about the dealer that annoy you just wait tillyou start dealing with all the "honest and reputable" on line scam artists.
When the manufacturers trim production because they no longer have thosands of dealers to inventory hundreds of thousands of cars do you think your price will go up or down?
When the manufacturer has a design flaw(it's not always a conspiracy) would you rather deal directly with Bill Ford(he won't take your call) again you are one schmo or do you think your local dealer(Multi million dollar customer to the factory)stands a better chance of getting someone to do the right thing. Every year there are huge number of service campaigns that are instigated by the dealer network.
There is a lot that can go wrong with the purchase of a car or truck, but without a local dealer it would be a lot worse.
johnny ringo desu @ May 28th 2006 9:25AM
There's something seriously fun about going to a dealership, knowing that as soon as you walk onto a lot there's dozens of people all aiming to screw you out of your money, gives a real david and goliath feel to the whole car buying experience.
I find a weird exhiliration going into battle with the sales manager or whoever may be in charge at the time, unfortionately it's also the way many people get screwed out of their money.
207guy @ May 28th 2006 10:08AM
Michael (14) is right on. Ideally, that would be the case.
I can't help it. Every time I buy a vehicle, I feel I'm getting screwed; even after solid online research. The whole relationship between dealer and buyer starts with mutual suspicion; not a good start.
Regardless, the lock of franchised dealerships in State Legislatures is dwindling as smaller franchises collapse agains the bigger dealerships in larger service center communities. This give the overall statewide car dealerships less and less influence as the the number of legislators who have dealerships within their districts shrink.