Consumers gaining upper hand in car shopping

  • Article by: LEON STAFFORD , Atlanta Journal-Constitution
  • Updated: October 11, 2013 - 8:34 PM

Online research by buyers and more dealer data on the Web have altered the entire process.

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Lexus salesman Horace McMillan, right, reviews warranty information with car buyer Jennifer Williams at a dealership in Smyrna, Georgia, on October 1, 2013.

Photo: Brant Sanderlin, Mct - Mct

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When Jennifer Williams walked into the Nalley Lexus dealership in Cobb County, Ga., recently, all she needed was a salesperson to give her a good deal on her trade-in, the keys to her new RX 350 and a wave goodbye.

Thanks to the Internet, Williams had done research ahead of time and already knew what cars were available on the lot, their features, price and even ownership and mileage records. She also pre-investigated available interest rates, her credit score and, most important, what Nalley’s competitors were offering.

“I just needed to know what you’re going to give me for my trade, talk interest rates and see if they could take a little bit off the car,” she said.

Williams is the epitome of the new car shopper, industry experts say. Unlike a decade ago, today’s car buyers walk in the door with almost as much knowledge about what’s on a lot as the sales staff. And they don’t want to spend hours negotiating or being wooed into costly upgrades.

That has made it more difficult for dealerships to make the same profits of yesteryear and has pushed some to change how they compensate employees. Lexus South Atlanta, for instance, switched from paying its staff a traditional commission to an hourly salary plus incentives.

“The opportunity to negotiate has almost been eliminated,” said Sid Barron, general manager at Lexus South, emphasizing that this is especially true among young car buyers who don’t even understand the concept of negotiating. “You have to build value.”

But the industry is making up the lost revenue through stronger volume — car sales have surged since 2009 — and by capturing more of the service business. Today’s cars have become so technologically complicated that independent mechanics are being cut out because they either lack the skills to repair the vehicles or can’t afford the necessary diagnostic gear, said Rick Nelson, an analyst for research firm Stephens.

“Dealers are also getting more aggressive on pricing, such as oil changes,” Nelson said. “They also throw in loaner cars of the quality that customers expect.”

Consumer advocates applaud the industry’s openness, but advise car buyers to stay vigilant. Rebates, zero percent financing and other offers often come with strings attached, said Ellen Schloemer, a spokeswoman for the Center for Responsible Lending.

Car buyers also should first consider their banks or credit unions for financing, she said. Some dealerships get a cut of the revenue if customers agree to go through dealer-aligned loan institutions, which often charge higher interest rates.

“That is often completely invisible to the consumer,” she said.

It’s all a far cry from the days when salespeople of all brands — from Lexus to Honda to Ford — had the upper hand. They would walk a buyer around a lot and point out different variations of a particular model with the hope of convincing the customer to purchase a higher-priced make. The pressure would continue in the sales office with add-ons such as undercoating and interior Scotchgarding.

But that era ended when dealerships realized they could improve one-on-one relationships with customers through the Internet as mobile technology allowed Americans to be online all the time. The average consumer spends 19 hours researching before an auto purchase, with 11.4 hours (60 percent) spent online, according to a J.D. Power study.

Like all industries, dealers accumulated e-mail lists to blast out news of bargains, new shipments and updated models to past and interested car buyers. Service departments became savvier about updating motorists on scheduled maintenance through e-mails.

And dealerships’ efforts to gain an edge over competitors led to more transparency about inventory and pricing, giving consumers more information than they had in the past. As a consequence, online car shopping has almost eliminated the need to go from lot to lot, searching for the right vehicle.

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