The new car purchase is easily one of the most painful and confusing of all shopping experiences. Most business relationships are built on trust, yet there’s good reason to distrust nearly everything seen or heard at a car dealership, from complex financing terms, to claims that a certain figure is their “absolute best price,” to the original, fairly meaningless sticker price on each vehicle’s driver-side window. But what if you could eliminate much of the distasteful back-and-forth and just get the car you want, at a price you know is fair?
Do car dealerships lie? Of course! Check out a recent Edmunds.com post, naming five ways car dealership ads fib. One of the most common ways they stretch the truth—or, to be more precise, mislead—is by showing a vehicle with top-of-the-line trim and features, but listing a much-less expensive price for the base model. “Even worse, the base price quoted probably doesn’t include any fees,” the post reads. “Fees, of course, add thousands of dollars to the cost of a car.”
That’s the sort of distortion of the truth one can expect before ever entering a dealership. Once inside, the games really start being played. For example, when a car salesman states a price that’s at “invoice” or even “below invoice,” the figures being quoted probably have no relationship to what the dealer actually paid for the car, nor to what kind of profit the dealership stands to make.
TrueCar.com, a free web service that gives car buyers trustworthy estimates for a dealer’s actual costs and rounds up guaranteed price offers from several dealerships, aims to put an end to some of the games. The New York Times recently reported that car dealerships have felt threatened by TrueCar, and that some have even complained that the site is breaking the law. Both of these can be read as signs that the site is doing its job well.
Dealerships either pay TrueCar a monthly subscription fee, or a flat fee of $299 for each new car it sells as a result of a TrueCar customer lead. The consumer doesn’t pay anything upfront to use TrueCar. The site gathers data and states various price estimates, including “good” and “great” prices for the vehicle in question, and invites dealerships to deliver guaranteed price quotes (that don’t include taxes, title fees, and some other charges) directly to the consumer.
The site doesn’t eliminate every hassle and potential trickery in the car-buying experience. The Times notes:
The site may be able to ensure a fair, haggle-free price, but if that drives dealers to compete too fiercely with one another, they will be forced to find other places to turn a profit. So they may lure you into the dealership with a low price, but then make up for it by giving you a poor deal on your trade-in or on the financing.
Even so, making one major headache—haggling—disappear is a terrific service. Any way to make buying a car less stressful, less confusing, and less distasteful will be welcomed by consumers.
And, in all likelihood, more and more consumers will be using TrueCar rather than simply showing up at the dealership itching for an unseemly haggle-fest. One reason this is so is that the TrueCar logo will be flashed in front of the eyeballs of more drivers. Last month, the New York Post reported that TrueCar inked a contract making it Yahoo’s exclusive partner for car shoppers:
TrueCar has agreed to pay a minimum of $50 million annually to Yahoo! for the first three years, which [TrueCar CEO Scott] Painter believes will guarantee 10 million unique visitors a month — a deal he thinks will triple the $100 million in annual revenue TrueCar now generates.
The average TrueCar customer reported pays 9.7% less than the sticker price. Under normal circumstances, paying anywhere close to 8% or 9% under sticker price is considered a pretty good deal.
How will car dealerships cope if and when most customers start demanding a standard 10% off the sticker price? It’s guaranteed that they’re cooking up strategies right now. One that’s been tried, and will probably be tried again: Last summer, GM raised sticker prices on many vehicles, and it supposedly did so mainly so that it could later be able to offer bigger, more impressive-seeming discounts at the dealership.