The Five-Rule Guide to Shopping Car Online

Car buyers, car sellers and everyone else with a hand in the business agree that the Internet is an inestimable boon to consumers. The reams of comparative information it provides can point you toward precisely the right vehicle for your wants and needs. The Internet also reveals price information that consumers never saw before, making it much easier for those who invest the research effort and employ savvy negotiation techniques to get that new or used vehicle for the best price.

But the benefits of online auto shopping don't arrive automatically. Consumers have to use web-born tools and resources effectively, while also avoiding particular pitfalls. Some common errors that Internet shoppers commit can make it harder for them to buy the right vehicle at the right price.

That doesn't make the Internet a minefield of hidden hazards that you must negotiate with fretful care; the pitfalls are reasonably limited. But you should recognize them so you can approach online vehicle research with enough confidence to make the process enjoyable and even recreational.

After all, if you approach car-buying as an excruciating battle between yourself and cunning deceivers, you may go away feeling dissatisfied, no matter how well you do.

Keeping away from common pitfalls puts you well on your way to enjoyment. The most critical errors can be avoided by following these rules:

Rule One: Invest Time in Dealership Selection

All of the MSRP (manufacturer’s suggested retail price) and invoice pricing now available online make purchase negotiations more transparent and less time-consuming than in years past. This time saved can be used to find the best service provider in your area. While the purchase is a one-time transaction, ongoing vehicle service and maintenance is needed for as long as you own your car or truck. Make sure that the dealer who sells you that new sports car at a rock-bottom price doesn’t have rock-bottom customer satisfaction ratings to match.

Robert Krughoff, president of the nonprofit Consumers' Checkbook — which operates the CarBargains vehicle-buying service –— points out that any dealership that carries your brand can service your car. “You don’t have to have any connection with the dealership that sold you the car,” he points out.

While it’s not necessary for you to bring your car in for warranty-covered maintenance to the same dealership where you bought it, keep in mind that some dealers might extend preferential services to regulars that aren’t offered to occasional customers.

In fact, web shoppers should even expect some low price quotes to come from distant dealers, because the dealers recognize that they won't shoulder any customer care costs after the sale. “[Dealers] can shoot you a lower price, because they know they're not from [the customer’s] area, so they're not going to have to provide all of the extra services," according to Jamie Harrison, Internet manager of Prestige Acura in Santa Rosa, Calif.

That's one reason why Harrison’s dealership extends its Prestige Preferred Customer Program only to people who purchase from Prestige. “It costs us money to do all of those extra things,” like loan cars to regulars who bring in their vehicles for service, she said. “It's our thanks to people who do business with us. People who try to save a few hundred dollars [by buying elsewhere] and then expect us to pay extra to take care of them aren't realistic.”

When selecting a dealer, bear in mind that they are not all equal. Every dealership is an independent business, operating under contract (a franchise) with a particular manufacturer to sell and service its brand of vehicles. Therefore, you can expect different dealerships to exhibit different characteristics, depending upon the policies and practices of their separate owners. When selecting a dealer, one major aim is to find the one that makes you feel most comfortable — both confident that you'll get a fair deal and that you’ll be satisfied when you return for service.

Most states have laws that restrict the marketing of automobiles to new-car dealers and prevent automakers or brokers from selling directly to the public. Early in the development of the automobile industry, due to the substantial investment required to set up a dealership, car dealers and automakers voluntarily agreed to establish exclusive territories for franchisees, according to a report by the Consumer Federation of America. Even though this means there isn’t a lot of dealer turnover, you can still take steps to ensure that you will find a dealership that will take good care of you.

One step you can take is to buy a brand with high customer service ratings. J.D. Power and Associates (JDPA) just released the results of its latest Customer Service Index Study, which measures consumer satisfaction with dealer service departments during the first three years of vehicle ownership.

Brands Ranked by Customer Service Ratings
1. Lexus
2. Buick
3. Cadillac
4. Jaguar
5. Lincoln
6. Mercury
7. Saturn
8. Pontiac
9. Audi
10. BMW Mini

The 2005 edition of the same study also measured service satisfaction among owners of four- to five-year-old vehicles. Owners of 2000 and 2001 models gave high marks to Acura, Cadillac, Infiniti and Lexus.

You can get some help from a local better business bureau or other state or regional consumer agencies that collect complaints, advises Krughoff. “You’ll find quite dramatic differences in regard to how many complaints are on file,” he said. Adjust for a dealership’s size, keeping in mind that larger businesses that conduct more transactions will attract proportionately more complaints. But overall, said Krughoff, “If one has a whole lot of complaints and an unsatisfactory record, I would be cautious.”

Julie Ask, lead automotive analyst with the market research firm Jupiter Research, points out that for some buyers dealer selection isn't an issue. “A lot of people are still working with a dealer that they have a relationship with or that people have referred them to,” she said.

Those who don't — including shoppers who are particularly timorous about auto dealers — can use the web as a point of first contact to begin to make an appropriate dealer selection. An increasing number of dealers today turn to Internet specialists like Harrison at Prestige Acura and Scooter Womack, who serves in a similar role at Herb Chambers Infiniti of Boston. They correspond with car shoppers online in order to introduce them to the dealership.

“I don't actually sell cars. I sell appointments,” said Womack. “I make sure customers are truly informed and sort through a lot of the information or misinformation.” His ultimate aim is to mesh particular customers with appropriate salespeople at Chambers Infiniti, making “showroom guests” of people who first arrive online.

Rule Two: Test-Drive Vehicles

Another good way to engage dealers during the research process is to visit them to test-drive vehicles. The Internet can give you a good introduction to specific models and load you up with insight and information about any car you desire. But experts advise that you physically experience a vehicle to make sure that it suits you.
“Even with all the fancy graphics we have on the Internet, with 360-degree rotations and everything else, nothing replaces touching and feeling the car,” said Mark Perleberg, lead automotive expert for NADAguides.com, the online publishing division of the National Automobile Dealers Association. “I test nearly 200 cars a year, and every one has something that is different. They all have different variations and themes. You have to touch and feel them to get that experience."

What's more, you shouldn't make test-driving a final step, meant only to validate a decision made using online tools. Experts advise you to kick tires early, as an invaluable aid in narrowing your search. That's especially important with Internet research. It simplifies the task and helps prevent the information overload that can actually hinder effective shopping (see Rule Three: Know Your Price — And Your Price Source).

“Some people try to get all the pricing information and competitive quotes before trying to find out which cars they really like,” said Herb Chambers Infiniti’s Scooter Womack. “They may get a great competitive quote, but then they see the car and decide they don't like it.”

Even the most ardent researchers usually don't learn enough online to make an accurate decision, he states. Market research by Herb Chambers, a mega-dealer group in New England that sells 22 brands, from Maybach and Porsche to Hyundai and Saturn, indicates that about 75 percent of its customers don't buy the car they initially inquire about. They change their minds about details like colors, they add options or even select an entirely different model.

Early test-drives let you focus intensive Internet research on appropriate models only. “Why do the work on five cars when you may only need to do the work on two cars?” said Womack.

“If you haven't gone out in person and looked at cars and driven cars and narrowed it down that way, there is a possibility that you'll overload yourself with information,” said Prestige Acura’s Jamie Harrison. “You need to figure out what you like, then do research on those models. Then you can move forward with your purchase.”

Besides, when test-driving cars, you're also test-driving dealerships, getting an early indication of the approach and attitude of the various car stores you visit. That goes a long way toward helping you select a dealer from which you feel comfortable enough to eventually make a purchase.

Rule Three: Know Your Price And Your Price Source

One of the best things to happen for bargain-driving car shoppers in the past decade is the plethora of expert advice, pricing and specification data now available online. However, the wealth of information available can easily overload diligent researchers.

Certainly that includes information about vehicle cost. But even data as straightforward as the dollars and cents of sticker prices can contain inaccuracies. The more reliable car research sites usually include last updated notations on pricing-information pages, which can help shoppers determine if the pricing is current or was in effect at the time a vehicle was first introduced.

Jack Nerad, executive editorial director and market analyst for Kelley Blue Book, notes that its online prices remain timely and accurate, because the company updates them weekly, based on information it receives instantaneously from retail and wholesale sales. Kelley also provides regionalized prices when website visitors enter their ZIP codes. The print edition of the book, which comes out quarterly, may reflect a time lag, he concedes.

Unsurprisingly, dealer critics charge that independent information sites are not always rock-bottom reliable. For example, nearly all research sites display both MSRP and invoice pricing. Dealers contend that the invoice price may not include additional fees they pay to the carmakers. These can include advertising fees, explained Justin McGaughey, Internet manager of Advantage BMW in Houston. The fees vary among manufacturers and can even change from region to region, according to the amount of advertising a carmaker places for its dealers. When McGaughey worked for a Houston-area Chevrolet dealer, Chevy levied a 1.5 percent advertising charge per vehicle, he said. Advantage pays BMW $350 per vehicle.

And while it is true that dealers have additional costs to shoulder beyond the vehicle’s invoice price, few will volunteer information about dealer holdback, which is essentially a manufacturer discount on the invoice. Because automakers typically hold a fraction of the invoice total, usually between 2 and 3 percent, for each car sold, invoice is not the true price dealers pay for a vehicle. These holdback funds are usually returned to the dealer on a quarterly basis.

Dealers everywhere have the same flexibility to negotiate prices, and that gives them the ability to compete against other dealers. But to haggle against a quote you obtain online, a dealer needs to see a printout, said Paul Simon, sales manager of BMW of Manhattan, in order to match all of its terms and conditions.

Unless you are looking for a limited-edition or otherwise rare car, in which case you usually need to pay the price asked or lose the vehicle to the highest bidder, getting multiple quotes will ensure that you receive a more competitive price on widely available models.

Robert Krughoff, president of Consumers' Checkbook, explains that the nonprofit organization’s car-shopping service contacts at least five dealers for a client. CarBargains insists that the dealers give it a firm, competitive price quote on vehicles they have in stock or can readily obtain. There is a $190 charge for the service, refundable if a customer finds a better deal on his or her own.

Unless a shopping service insists that dealers give competitive quotes, it lacks the ability to assure low prices, said Krughoff.

In all cases, when shopping around yourself, “walk out of any dealership that seems not to be adhering to the price as offered,” advises Krughoff.

Another problem area is the heightened expectations created by selection tools that help shoppers configure a vehicle that suits them perfectly. Problems can arise when a customer arrives at a dealership to close on a vehicle that doesn't match his or her expectations. “The customer realizes that not only does the car not include an automatic transmission, but it doesn't include power seats and options that 99 percent of all the cars we sell have,” said Simon.

“It gets kind of tricky when you have all these options to add into the price,” said Prestige Acura’s Jamie Harrison. “When you get a quote, you don't always know if it includes everything.”

She applies that warning not just to price quotes from Internet sales services but also to online quotes from franchised dealers. “A lot of dealers will give quotes, but they won't include the destination charge,” Harrison said.

If you're using a monthly payment calculator to compute lease or loan payments, make sure you understand all of the financial assumptions built into the calculator. “Some payment calculators assume there's going to be 10 percent down,” said Simon. “The consumer may not know that he's clicking in a $6,500 down payment."

Rule Four: Finish the Job

Jupiter Research finds that many web shoppers ignore downstream aspects of automobile purchasing that still have a critical effect on cost and enjoyment. “People don't do as much research on financing the car or insuring the car as they do on researching the car itself,” said Julie Ask, Jupiter's lead automotive analyst. “There is a much higher Internet usage rate of configurators, brand research and make and model research. When you get to things further down in the decision process, the adoption rate falls.”

You can assure that you get favorable financing by getting a pre-approved loan from an online lender. Even if you don't use it, the financing you carry in the door gives you figures to compare to loan terms the dealer offers. Dealer financing might come with terms more favorable to the dealers than they are to you, warned Ask. “They have software applications that allow the dealers to calculate which deal is most profitable for them,” she explained. “A lot of people don't realize that the financing is negotiable. You can negotiate the terms, the interest rate.”

Insurance-rate research can also save you money — and surprises. Rates vary not just from vehicle to vehicle, but also between different variations of the same model. An estimated rate from insurance sites can tell you in advance what to expect.

“You're going to see a general, ballpark figure, but you may consider not getting the souped-up version” of a vehicle, Jamie Harrison of Prestige Acura said. Higher-performing models carry higher rates.

With Acura's zestful RSX coupe, “I've had people buy it and find that they couldn't afford the insurance,” she said. “That's a sad position to be in.”

Rule Five: Join the Two Worlds

Web shoppers appreciate the vehicle configurator applications found on automaker and third-party sites, because they show all of the equipment combinations you can get in a car. Dealers seem to universally dislike them, because they create combinations that may exist in theory but aren't available in real life.
“Just because a website says it's available, that doesn't mean that a car exists in widespread production,” warned Herb Chambers Infiniti’s Scooter Womack. Manufacturers produce mostly the model variations they expect to sell.

“I really shocked a guy who knew exactly what he wanted, but when I pulled it up [on the computer], I showed him there was zero in inventory in the entire country,” he said. He then spent 30 minutes calming down the customer.

Mark Perleberg of NADAguides.com recounts how his sister, living in Arizona, wanted to purchase a white Nissan Xterra SUV without a moonroof. She built such a model on Nissan.com. But then she discovered, “No dealer in Arizona had that car,” said Perleberg. “What she wanted was so rare that she ultimately gave up and took what she could get.”

You can always special order a specific configuration, but don’t expect as good a deal on a made-to-order car as you would on one that has been taking up valuable floorspace in a dealer showroom. “If you're flexible — by not having to have this exact car, but being willing to accept something close — you're going to get a better price, as well,” said Jupiter Research’s Julie Ask. Dealers prefer to sell from their inventories, because they have already paid for the cars sitting on their lots.

Dealers also possess a thorough knowledge of various lease and finance packages available. “Not only does your interest rate depend upon your credit rating, it also depends on the strength of the [dealer's] business manager who will be handling your business with the bank,” said Womack.

What's more, dealers are plugged into regional discounts and limited offers that may not readily appear online. “There are regional discounts. Or, as a new college graduate, you may qualify for a discount,” said Ask. Therefore, “the dealer is probably going to be the best source of information on the final, final price. It's hard to understand all of the special offers and deals that you may qualify for using the online process.”

“I find that customers, for the most part, believe the Internet over a well-qualified salesperson or sales manager, which is very hard to deal with,” said Jeff Davis, general manager of Mercedes-Benz dealer Chambers Motorcars of Boston. “Some customers will spend a tremendous amount of time trying to chase something they've found on the Internet and become upset about how the whole process is going. The solution is that people have to learn to synthesize the information that they find through dealerships and what's online, and not always try to hang onto the one shred of evidence that tells them what they want to hear.”

After all, said Ask, “It's too big a decision. The Internet is only part of the process.”
(C)Jeff Zygmont