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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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    • 1 Second Ago
      • 9 Years Ago
      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
      • 9 Years Ago
      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.
      • 9 Years Ago
      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.
      • 9 Years Ago
      I bought by 2000 Boxster S online and it was a great experience, and still is a great car.

      Nick Fogelson
      • 9 Years Ago
      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.
      • 9 Years Ago
      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.
      • 9 Years Ago
      Buyers are getting exactly what they pay for (most of the time anyway).

      Imagine you own a distributorship. You pay your employees 25% of whatever up front profit margin you make on selling say.... very complicated and stylish widgits that cost you an average of $20,000 per model to stock. You stock hundreds. Now imagine a customer comes in, grills your employees, makes them demonstrate the widgits's functionality, and finally offers $100 over your cost for one of these widgets. Not only is it an insult to the distributor (you) who has spent millions building a nice showroom and workshop, but the salesperson makes exactly $25 before taxes.

      Say the average salesperson sells between 10 and 20 widgits during Winter, and 20 to 30 during Summer. To reach that level, they must work evenings, weekends, holidays, and pretty much any time other people have time off (meaning they don't get any family time themselves). Since they are considered independent contractors, they can work any hours they please. To make a living, they work 60 to 80 hours a week during the times when most people are socializing and going out. That's $500 a month in Winter (best case), and $750 in Summer. What kind of help do you think you're going to get?

      Now throw in the rejection, the humiliation from other people who don't even see you as human, and passing off insults that would get them decked by a knuckle sandwich in most other social situations. A lot of car nuts try out car sales, only to realize it has very little to do with cars, and everything to people management - of the abusive type.

      Who do you think you're going to attract? Only the most motivated and creative people are going to stick around. It's also going to draw the scamsters and shysters.

      Yes, the average public is not made up of innocent lambs, but rather are responsible for breeding the wolves that prey on them.


      As for the factory selling direct, it's the last thing they want. They want those highly motivated dealers out there willing to cut throats to get numbers because the factory always makes it's cut - only the dealers get shafted. They don't want the administration, overhead, and other costs of running a dealership. Besides, they don't want to deal with test drives, problem cars, financing iffy credit, and all sorts of liability issues. They wouldn't want Costco selling cars because Costco doesn't do test drives (to the best of my knowledge), doesn't give a sense of brand identity, nor would they differentiate between brands with specialized presentations. Is Costco going to service cars too? Who wants to wait in that lineup or waiting room!

      Besides, as others point out, if the factory sets up deals with these large retailers and they are fixed price, then in the end the prices will go up for consumers because there won't be any competition. Talk about monopoly! Guess it's the lambs demanding more and bigger wolves because they only see the small picture.


      In an ideal world the dealers and factory would work together to come to a price that they feel is competitive in the marketplace. Then all dealers would be required to hold that price, and the consumer would simply have to choose between dealers with the best service/facilities. People would move to other brands if the price was too high. Of course the consumer/government has gone to court and deemed that price fixing (when done by an independent franchisee like a a dealer), so prices must remain negotiable - letting market dictate whether the dealer can charge over the suggested retail price, or must sell for less than the suggested retail price. The consumer pays less than MSRP far more often than they pay over. That's not being cheated. What other industry allows you to haggle like a goat trader if you want? Certainly not the grocery store where you get your food or department store where you buy your clothes.

      Now it boils down to not how much you save, but how much you save compared to the next person buying the same car. It's ego pure and simple.

      Here's my advice having sold thousands of cars: set a price by doing some homework via reputable online sites (don't trust forums where anybody can claim anything, because they rarely reflect the whole deal accurately and lying is more common than telling the truth - the ego thing), talk to the service manager to ask from whom they would buy a car (they get to see broken promises after the deal is done), make an appointment with that salesperson, and if you can strike a reasonable number based on your research and don't have to run the gauntlet of add ons, consider it a job well done and leave happy. Be ready to walk - but keep in mind that if they show you door by their own initiative, it means your offer probably wasn't reasonable to them. If two dealers do this, it's time to r
      • 9 Years Ago
      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.
      • 9 Years Ago
      But my point is new car sales make the dealership very little.
      Yeah some dealerships DO markup. Because they may not have a service dept. that recoups the losses a dealership makes on a new car sale.

      For instance our dealership deals mainly with employees who get discounts so for the most part we have to deal with people who KNOW their stuff (They do BUILD the cars for the most part). So our profit margin is very slim. Not to mention there's over 20 other dealerships if not more within the 2 surrounding counties, so there's a fair deal of competition. So nobody out here makes money by gouging customers... if ya do, you cant do it for long.

      Also we have done a lot of online sales as well. I actually prefer online sales because people know their stuff a little better. They put in what they want, order it and pay the price that we have listed. Its simple... i wish all deals could work like that.

      But then i also wish cars would sell for MSRP heh. But you guys also ahve to remember the dealer has to protect his interests as well as that of his employees. So sometimes there are markups, yeah some dealers may be bad... but you should see a lot of the customers.
      Now not all customers of a dealership are bad... but i could tell you many a horror story about customers with demands far exceeding their reasoning and payment wants.
      • 9 Years Ago
      Abner, nobody says the current system is great. In fact if you bother to read my post, it sucks for most of the people working the retail side of the business. Who wants to work 60 to 80 hours a week, never seeing friends and family, only to make less than minimum wage? That's the reality of car sales on the lower levels unless you're willing to work the customer for some extra margin and sacrifice integrity. Even then, it's a game of numbers. Most salespeople wash out pretty quickly. Maybe 30% stick.

      The good ones are either slimeballs who prey on the stupid (of which there are plenty at mainstream levels) or move up the food chain to sell better cars to people who are willing to pay for good service.

      I don't sell cars any more, but I can fast see the end of service on the sales end of car deals. Most dealers would gladly ditch the sales dept if they could just service the cars instead, That's where the money is made. The main goal of the dealers where I worked was to break even. Some might have used questionable means, while others stayed above board, but the result was usually the same. Selling cars is a royal PITA and dealers would rather skip the whole experience if they could.
      • 9 Years Ago
      Here's the URL to the dealership just north of Washington,DC that publishes their prices on the web, and where I've bought 2 cars from: http://www.fitzmall.com/

      Brands sold: Buick, Cadillac, Dodge, Chevy, Chrysler, GMC, Hyundai, Isuzu, Jeep, Mazda, Mitsubishi, Nissan, Pontiac, Saab, Subaru, Suzuki, Toyota/Scion, VW

      Don't forget to cross-shop CarMax.com as some of their dealerships also carry a few brands of new cars.
      • 9 Years Ago
      but ghost you still needed to pick up your car and test drive it right? or did you spend multiple thousands of dollars sight unseen? and what'd you pay for your car by the way?
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