Test driving the Internet – Observations

Test driving the Internet – Observations – Column

Jennifer Duval

Buying a car ranks as one of the biggest purchases consumers make. They invest great amounts of time in researching models and options, not to mention going from dealer to dealer to test-drive and haggle for a reasonable price.

Can the Internet make this process any easier? Numerous websites offer free information on the dealer cost of new cars, trade-in value of used ones, and even dealership inventory. Others, such as Autobytel.com, are third-party “infomediaries.” Aside from providing vital statistics on vehicles, Autobytel connects consumers with car dealers. Potential buyers submit a request for a price quote on a specific car–along with their name, zip code, and contact Information–which is forwarded to the dealer assigned to the area.

And customers may be reaping the benefits. Economists Florian Zettelmeyer, Fiona Scott Morton, and Jorge Silva-Risso found that buyers who used Autobytel saved an average of 1.2 percent compared to those who purchased a car through conventional means. The researchers estimate that the savings are even greater–slightly above a percent–if the customers who opted for the Internet are those that pay higher prices at conventional dealers (such as those who are poor bargainers).

The researchers found several reasons for the lower prices. First, dealers have a contract with Autobytel that provides incentives to offer lower prices. Dealers are required to have a salesperson who only handles Internet requests and is paid based on sales volume, rather than on the profit extracted from negotiating with each customer.

In addition, some customers used Autobytel but made their purchase at a dealer other than the one they were referred to–and they also received lower prices. This suggests that Internet research makes online consumers more educated about their purchase and, thus, better negotiators. The low cost of searching on the Internet could also expand buyers’ options and make it easier to explore distant dealer ships and more types of cars in search of a better deal. Or, perhaps a specific price quote from an Autobytel-associated dealer gives them leverage to obtain a better price elsewhere.

Alas, the emergence of the Internet has not made haggling a thing of the past. A recent online buyer found that instead of being given a direct quote on a new car, dealerships invited him to come in and discuss the issue with them. According to JD Power and Associates, 14 percent of dealers associated with Autobytel will quote a discounted price by email or phone only if the customer insists, and a percent won’t give quotes at all until the customer comes to the dealership.


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