Do you want to get the best deal on your next car purchase? Use the Web.
The Internet is changing the way people shop for cars, allowing them to bypass pushy car salesmen. Instead of wandering around car lots, an increasing number of shoppers are using the power of the Web to get the exact car they want at the price they want.
Online car sales account for a small, but growing, percentage of the number of cars sold. In 2001, 6% of new car sales originated from an online buying service, up from 4.7% in 2000, according to market researcher J.D. Power and Associates.
The used car market saw similar growth in 2001, with 960,000 used cars sold via the Internet, under 2% of the total used cars sold, but up 230% from the previous year, according to Art Spinella, vice president of automobile industry researcher CNW Market Research.
"The style that people used to use to buy a car is very outdated," says Phil Reed, consumer advice editor for industry researcher Edmunds.com. "The Internet has improved so much, I wouldn't think of any other way to buy a car."
Others agree. In 2001, 62% of new car buyers consulted the Web when purchasing a new car, up from 54% in 2000, according to a November 2001 study from J.D. Power. The trend is evident for used car shoppers too, with Power reporting 43% of all used car buyers consulting the Web, up from 34% in 2000.
Whether shopping for a new or used vehicle, Web-aided searches allow consumers to consider cars they wouldn't have known about otherwise. "People can search further away. Instead of looking between eight and 10 miles away like they used to, people are looking 25 miles away," Spinella says.
As a result, used car buyers have become as choosy as new car buyers, able to target an exact make, model and even color of the car they want. In the past, used car shopping options were limited to dealer inventories. "Say you were looking for a 1996 Ford Explorer. And even though you wanted a blue one, you had to settle for red. We're not seeing that anymore," Spinella says.
Going online saves money, too. In the offline world, Reed says that car dealers use the sticker price as a starting point for negotiation. But in the online world, prices listed for new cars are often lower than sticker prices. Dealers use such a tactic to generate more business online.
Indeed, a 2001 report from J.D. Power showed that buyers who consulted the Internet before purchasing paid an average of $400 less than those who chose more traditional methods.
The Dealer Strikes Back
But while online shoppers may pay less for cars, they may not pay less for the financing used to purchase them. Online lenders offer extremely attractive rates and hassle-free paperwork, but many dealers are willing to beat those offers to keep the business.
A wide variety of online lenders, such as PeopleFirst.com, E-Loan and VirtualBank, offer rates on new and used car loans that are well below the national average. According to Bankrate.com, the national average rate for a 36-month new car loan was 6.95%, while a 36-month used car loan was 7.54%. But VirtualBank, an online lender, easily beat these rates, offering a new car loan at 5.19% and a used car loan at 5.49%.
These low rates are tempting, but dealers often undercut their online counterparts -- especially on new cars. Indeed, the No. 1 one reason why people didn't finance their car online was because a dealer offered a lower rate, according to CNW Market Research.
For one, online lenders can't compete with the 0% financing still being offered on many new cars. For another, dealers can undercut online rivals because they secure cheap financing from lenders such as Ford Credit and General Motors Acceptance Corp.
Best of Both Worlds
This isn't to say you should avoid online lenders completely. As with online car shopping, online loan shopping will save time, aggravation and give you a strategic negotiating advantage.
Anyone who has struggled with loan paperwork in a dealer's office understands the pressure and confusion of the application process. By securing financing online first, shoppers will have not only a better understanding of the process, but also more leverage to wheedle lower rates from dealers.
"If you go into a dealership with financing, you can act like a cash buyer and the dealers can't confuse you," says Reed, a former car salesman. "The main game of the car salesman is confusion. If they start talking interest rates and loan terms, you can get in over your head very quickly."
The bottom line: While using the Web to look for a car, take the time to look for financing as well. Online financing tends to be cheaper than the national average, and if you secure financing in advance, dealers may be willing to offer a better deal.
"Now you're really empowered," says Reed. "Let the dealer beat it if they can."
Did you know that your car insurance could be affected by your credit rating? Read Saturday's story and find out how to correct any errors in your credit history.