There are two entrances to today's car dealership.
In the traditional entrance, a customer walks onto the car lot, is approached by a salesman, hears the sales pitch and then hashes out a deal in a sales office.
The other entrance is a virtual one and leads to the dealership's Internet department. Once car buyers have test-driven and chosen a car, they can do the rest of the deal (including financing and negotiating) online or over the phone by using the Internet department. In some cases, a dealer will even deliver the car to the buyer's home or office. This helps buyers avoid delays and extra sales pitches in the dealership finance and insurance office.
Which of these two paths to new car ownership results in a lower price for the consumer? And which will be the more pleasant buying experience? It's the Internet path. Hands down.
I've used car dealership Internet departments for more than a dozen years in buying cars for my family, my friends and for Edmunds' long-term testing fleet. Frankly, I'm amazed that the Internet department still remains something of a secret.
What Is the Internet Department?
In the 1990s, Web sites such as Edmunds.com began publishing invoice prices for cars, taking away what had been a powerful bargaining strategy for dealerships: the consumer's lack of knowledge about car pricing. Dealerships then began to cater to this new breed of informed shopper by creating Internet departments. By working through Internet departments, shoppers could get price quotes by e-mail or with a phone call.
"Internet department" is a bit of a misnomer. Car buyers can't click an "Internet Department" button on a Web site and have a car delivered to their driveway. The name comes from the fact that shoppers do research via the Internet and use e-mail for much of the communication about the car purchase.
Who Is the Internet Salesperson?
Car salespeople in Internet departments typically have different sales incentives and so behave differently from traditional car salespeople. Car dealership Internet departments focus on selling a higher volume of cars rather than on maximizing profit on each individual. Therefore, the initial price quote from an Internet sales manager is often very close to the absolute lowest selling price for a given vehicle.
Internet department salespeople also assume car buyers are informed, have shopped around and won't necessarily "buy today." More importantly, they are willing to give specific prices on actual cars in an e-mail or over the telephone. Recently, Edmunds.com has taken this approach one step further by creating a new program called Price PromiseSM, which posts guaranteed, up-front prices for specific cars online.
Edmunds editors have used car dealership Internet departments many times to buy cars for our long-term test fleet. It consistently saves us time and money.
In one case, we searched online for the car we wanted, e-mailed the dealership's Internet department and got this response: "I have the car on my lot. Your preferred Internet price is $27,417 plus tax and license. Let me know how you would like to proceed."
We compared the price quote to the Edmunds.com True Market Value® (TMV®) price and saw that it was even lower than TMV. We bought the car at that price and the saleswoman delivered it to our offices, where we signed the sales contract. After we finalized the paperwork, we asked the saleswoman if we could have gotten a better deal on a new car if we just walked onto the dealership lot.
"I would never walk onto a lot to buy a car," she replied. "I don't want to go through all the hassle." We took that as a no.
Besides that, she said, her dealership's traditional sales team typically starts negotiations by trying to sell the car at sticker price. Plus, they try to make more money on the back end through higher finance charges, she said. In the Internet department, she said, "We are straightforward and disclose everything. Nothing is pushed onto a client."
Another Internet salesperson, in Pasadena, California, described her sales approach this way: "I like to be up-front with all my customers. I show them all the numbers. I don't try to hide things or put extras into the contract at the last minute. I don't want any misunderstandings."
How Much Does the Internet Save?
As an experiment, I decided to try both the traditional and Internet sales processes on the same vehicle. After walking onto a car lot and test-driving a new car, I requested a written price quote. The salesman escorted me into a sales office, where he wrote my name, phone number and address on a "four-square" worksheet, which is used to negotiate the four elements of a typical car deal.
I repeated my request for a written price quote, but didn't get one. Soon, Paul, the assistant sales manager appeared. After an opening sales pitch that extolled the virtues of the car, he said, "What if we could discount it by $500?"
After more discussion and a trip to see his manager, Paul said he might be able to get a $999 discount if I bought the car that day. I left, even though Paul became increasingly insistent that I stay and work out a deal. Had I hung around to complete the purchase, it appeared that I might have been able to buy the car for $19,810.
The next morning, I phoned the Internet manager at the same dealership and asked for a price on the car I had test-driven the day before. "Let me look that up for you," he said. A minute later, he was back. "Our price is $19,310."
When I asked if there were additional fees, he said, "I can fax you all the fees and your out-the-door cost if you like." This pleasant three-minute phone call got me a price that was $500 below the vague price quoted by the traditional sales department.
Advantages of the Traditional Way?
While the Internet approach clearly offers advantages to many consumers, some buyers are still more comfortable buying the traditional way of physically going to the car lot. There, a car salesperson greets the customer personally and leads them through the buying process. This is good for a person who wants the salesperson's recommendations on selection of the right model and features, a face-to-face sales pitch and some hand holding during the buying process. If the salesperson truly is an expert in the car's features, this approach can be helpful. The buyer just needs to have done his price homework to ensure the deal is a fair one.
At some dealerships, however, the salespeople employ a variety of tactics to excite buyers, hurry them toward a commitment to buy and then sell cars to them at the highest price. Other dealerships are more straightforward and skip the high-pressure plays.
Internet vs. Traditional Car Shopping: The Bottom Line
It's difficult to accurately quantify the savings you can get by using a car dealership's Internet department. But it's safe to say the price will nearly always be lower than the price you'll be quoted if you walk onto the car lot — assuming you can even get a definite price, not a vague promise of what the discount might be.
There's no question that using the Internet department saves time and stress. When buyers are shopping in person at a dealership, they run the risk of making costly, spur-of-the-moment decisions on financing or additional products, such as extended warranties. Working via the Internet department minimizes that risk. It also is good for people who don't have an appetite for negotiations.
By using the Internet as the front door to a car purchase, a buyer makes more informed decisions. There is time to consider all the possibilities in a relaxed atmosphere, away from the distracting lure of new-car smell.