Wise Ways To Get Wheels
Armed with Web weapons, shoppers need no longer fear the auto showroom. Here's a game plan
Just thinking about it can bring back painful memories. The hot lights of the car dealership, salespeople circling like sharks, the false smiles, the cool handshakes. Hours and hours (and hours) of haggling. That nauseating fear of making a mistake worth thousands of dollars on the biggest purchase of the year. Even for the most confident negotiators, buying a new car has long been as unpleasant as it is confusing.
But it may not have to be that way--not anymore. Sure, there are a bewildering array of coupes, sedans, trucks, SUV s, and hybrid vehicles on the market today, nearly 300 models in all, each one with a mystifying mosaic of trims and styles. The sheer number of consumers jostling for a shiny set of wheels can be overwhelming: An estimated 17 million people will buy a new car in 2006.
Don't be fooled, though. It's still a buyer's market. American manufacturers, facing the weakest October in years after summer's barrage of "employee pricing" offers, are in the mood to deal, and discounts and rebates have hardly ever been higher. The average incentive for a large SUV is now about $4,700. Plus, cars are only getting more comfortable and more reliable. Sure, gas prices may be soaring, but consumers are saving a bundle on repairs: In 1980, there were an average of 88 problems per 100 vehicles; today, that number is less than 20. Above all, though, the Internet has given shoppers a powerful new tool, one experts think may finally put an end to the drawn-out misery traditionally associated with car buying. U.S. News talked to automotive analysts, dealers, and buyers to get a picture of the new world of car buying--and offers suggestions of how you can get the best deal.
THE RIGHT CAR--AT THE RIGHT PRICE
Good news: The bad old days of spending most of the car-buying process at a dealership, under the watchful eyes of a horde of pushy salesmen, are over. Instead, consumers are spending their time online, where they can decide from the comfort of home which of a dozen different styles, say, of the Subaru Outback, they like. In 1998, only a quarter of car buyers were using the Web to research cars. This year, a whopping 67 percent are. And with information comes power. Phil Reed, a consumer advice expert at Edmunds.com, is often asked what people should do when they walk on a car lot. "Right away," he says, "I tell them, 'Don't walk on the lot.' " Savvy customers now use a simpler method, going to the dealer for only two reasons--to take a test-drive and to seal the deal.
Smart car buyers have always started with research, of course--but with companies flocking to the Web to lend consumers a hand, it's never been as easy to do your homework. Manufacturer sites are a good place to start if you're not sure what kind of car or accessories you need, or if you know which brand you want: GM.com , for example, allows searches by brand, body style, model, and price--and provides information on local dealer inventory. So, if you're interested in a 2005 Chevy Malibu, you can choose between several levels of accessories. They range from a base model for $19,825 to a loaded LT with a rear spoiler, automatic climate control, and a flat-folding front passenger seat for $24,685. It's still not quite like buying a T-shirt online--most customers prefer to be there in person to ink the final deal. But times have changed. "We sold cars for 100 years without this, and it's hard to look back and know how," says Dennis Galbraith, senior director of online marketing solutions at J. D. Power & Associates.
Independent websites have taken this a step further. Companies like Autobytel.com , Vehix.com , and Kelley Blue Book (kbb.com) allow searches across multiple brands by price, type of vehicle, and even market segment--including comparison pages and reviews. Just as important, along with the manufacturer's suggested retail price (MSRP), many also list the invoice price--that is, the price the dealer paid the manufacturer for the car. The 2006 Volkswagen Passat 3.6 four-door sedan may have a sticker of $29,950, but tough negotiators should keep in mind that dealers paid only $27,513 for it (or even less because of special manufacturers' incentives).
Some sites, like Edmunds.com , now track the going street price for the vehicle--the price customers in your area are actually paying. The system is not yet perfect, and shifts in supply and demand can bring street prices close to MSRP. But consumers with this information in hand are usually able to start negotiations from the bottom, instead of being scraped off the ceiling by dealers. Anil Nair, a recent college grad from Houston, bought a 2006 Infiniti G35 last month after price-shopping at Edmunds and visiting Internet chat rooms, including one called g35driver.com , which brimmed with the wisdom of recent buyers. He even found three other people there willing to negotiate with him as a group. "I hear horror stories about people going to the dealership and getting worked over by salesmen," he says. Well, not anymore: "There's just no way they can screw you because of all this information you have." Nair sent E-mails to a half-dozen dealers in Texas; when one offered him 3 percent over invoice--or about $38,500 (sticker was closer to $41,000)--he walked in the next day and said he'd sign for 2 percent. "The actual time spent talking was five minutes," he says. Deal sealed.
FIGURING OUT THE COST OF OWNERSHIP
At a time of soaring gas prices, the cost of owning a vehicle five years down the road also shouldn't be overlooked. And once again, sites like kbb.com have come to consumers' rescue, offering "cost of ownership" calculators that break down how much wear and tear, insurance, gas, and finance charges will cost for each vehicle. Resale value is also worth thinking about: While the average vehicle is worth only 35 percent of its original value in five years--meaning a $20,000 car will be selling for closer to $7,000--price can vary greatly from car to car.
Where do hybrid vehicles fit into this picture? With their high-tech combination of a gas and an electric motor--and some models rated at an eye-popping 60 miles per gallon--hybrids have certainly gotten their fair share of attention. But are they worth the extra $4,000 to $6,000? Environmental concerns aside, the jury is still out. Given normal driving habits, according to Edmunds.com , gas would have to climb to $9.60 a gallon for five years for a Honda Civic LX to have the same long-term ownership costs as a Honda Civic Hybrid; it would need to go up to $10.10 for a Toyota Corolla to cost as much as a Toyota Prius. Of course, tax incentives may start closing those gaps. Until December 31, hybrid buyers can claim a $2,000 federal tax deduction. But on January 1, a new tax-credit program takes effect--potentially more valuable, but far more complicated. Each car will carry a different credit, depending on its fuel economy, weight, and tailpipe pollution. Using the complex formula laid out in the law, the American Council for an Energy-Efficient Economy estimates the credit for the current Toyota Prius would be $3,150 but only $600 for the Honda Accord Hybrid. For now, "from a purely financial perspective," says Chris Denove, a partner at J. D. Power, "a hybrid probably is not a great buy."
WHERE TO BUY THE CAR
Many dealers resisted the Internet customer at first, says Mitch Lowe, president of Jumpstart Automotive Media, a marketing agency that targets online shoppers: "They felt that in the past they'd negotiated from sticker price down. They had the system pretty well dialed in: Some customers got great deals; some got terrible deals. Most of us fell somewhere in the middle." But as Internet business boomed, cannier dealers created a new position--the Internet sales manager. Today, around 80 percent of dealerships have one.
It is these people, experts say, who are the key to getting a great deal on a new car without the hassle. Instead of working off commission, many Internet salespeople get bonuses based on the number of sales they make. Sometimes doubling as the dealerships' fleet managers, they are empowered to close deals, which means no trotting back and forth to the general manager's office. Many dealers even tie managers' bonuses to customer satisfaction surveys. What's in it for them? "The Internet is the greatest matchmaking tool marketing has ever had available to it," says J. D. Power's Galbraith.
The result has been a sea change in customer service. Carlos Rebelez, 63, a retired law enforcement investigator living in Portland, Ore., worked with a local Acura dealership's Internet sales department for the first time this summer, and he found improvement in every part of the car-buying process. After using Autobytel.com to narrow his search to the new Acura TL, Rebelez sent an E-mail requesting a quote from the dealer. Within an hour, he got a note back with a price lower than he'd seen elsewhere. He met with the Internet sales manager the next day. Because of his earlier research, he knew he wasn't getting a bad price, and he signed within an hour. Still, it wasn't just the speed of the process that surprised him. "I didn't feel like I was going through that maze of salesmen and managers and all that garbage that you have to go through," he says. The Internet sales manager, he says, "wasn't into the selling. He wasn't there to tell us what kind of car we wanted. He knew we never would have been there if we weren't ready to get it done." With no hassle, Rebelez got a good deal: He says he paid about $34,000 for his car, around $2,500 under the sticker price.
For some people, of course, part of the thrill of buying a car is locking horns with a smooth-talking salesperson. They're convinced that eight hours of grinding negotiations with a dealer will get them a bargain-basement price. They may be right. It's conceivable that a hard-driving haggler will get a slightly better deal than someone who does the price-winnowing before arriving at the dealership, says Denove. But customers interested in a fair deal can usually find one through the Internet sales manager, he says, with much less effort.
If even this new, more relaxed mode of negotiating isn't your style, there are still plenty of other avenues into car buying: Brokers and buyers' agents will shepherd customers through the process for anywhere between $200 and $1,000. There are other, cheaper ways, too: Ray Ver Velde, 69, a retired college professor in Prescott, Ariz., bought a new Honda Accord LX this summer through AAA, which provides the service as a membership benefit. "I like cars, but I'm not a car buff," he says. Ver Velde's AAA rep gathered bids from local dealers, including one that was $1,700 below what Ver Velde had been able to find himself. Ver Velde signed, the car was shipped up from Phoenix, and the AAA rep even filled it up with gas. Ver Velde walked away with what he felt was a fair price: $21,300. "There's no stress or anything involved in this," he says.
NAVIGATING THE REBATE MAZE
Whether more-informed consumers will ultimately be a bane or a boon to a business that has long relied on heavy markups remains to be seen. One thing's for certain: In the short term, American manufacturers especially, already struggling with high labor costs, are offering huge deals on many cars. In September, Lincoln spent $5,399 on incentives for every vehicle it sold. And earlier this summer, GM, Ford, and Chrysler set records with their "employee pricing" plans, which provided new cars at invoice and below to all shoppers. Their rock-bottom prices were immediately popular: GM's sales jumped by 43 percent in June. And while some skeptics wondered if the new offers were really better deals than good bargainers could have gotten themselves, the savings were real: GM and Ford sold cars for 2.6 to 2.9 below invoice, while Chrysler's cars could be had for 3 percent under.
Employee pricing ended in September, and manufacturers aren't saying whether the prices will be back--but some experts wonder if their popularity could be a harbinger of more good deals. "The American public has such distaste for the car-buying process," says Edmunds's Reed. And with employee pricing--a fixed, fair price customers knew everyone else was getting--"they've kind of voted; people went crazy and bought cars." Reed, for one, thinks manufacturers could be forced to offer more of the same in the future: Certainly, fixed-price, no-haggle dealerships have popped up in many big cities. In the long run, though, most analysts aren't so sure dealers will be willing--or able--to change the way they do business. In such a cutthroat industry, the lowest bidder has always won, says Jack Nerad, editorial director and executive marketing analyst at Kelley Blue Book. "If the guy half a mile away will get the sale by lowering the price 50 bucks, they'll do it, believe me."
SEALING THE DEAL
New approaches to researching and getting a good price on a car go only so far, of course. Until the contract is actually signed, dealers still find ways to squeeze customers for aftermarket products like expensive extended warranties or rustproofing. A study by J. D. Power shows, in fact, that dealer profits on 11th-hour financing deals continue to increase--they now make almost $700 per vehicle. Bottom line, experts say: Be wary until the ink is actually dry. Try to separate out complicating factors like trading in your old car (Page 40) while you're buying a new one, or setting up financing or leasing arrangements while negotiating a price. If possible, try to walk into a dealership with preapproved financing already in hand. The worst that can happen is the dealer will beat it.
"I used to hate car shopping," says Gloria Bruning, 47, of Vancouver, Wash., a customer service rep at an insurance agency, who bought an Acura this summer with her husband and is still reveling in the experience. More confident, because of her Web research of what a fair price actually was, Bruning also had a preapproved 6.4 percent interest rate from her bank; when the dealer countered with 5.24 percent, she took it. There was no marathon haggling session with the Internet salesman and no buyer's remorse. In the end, it was the first time she'd ever felt comfortable with a car purchase: "For once we made a knowledgeable decision. We felt like we'd done it right." If only buying a car had always been so satisfying.
FOR MORE ABOUT BUYING A CAR
A comprehensive guide to buying and owning a car, including dozens of reviews, shopping tips, vehicle rankings, and auto-industry news, is online at www.usnews.com/auto.
This story appears in the October 24, 2005 print edition of U.S. News & World Report.