What a Tangled Web

This page written circa 17 June, 2001.

This week we completed the purchase of our new van. We bought it from CarsDirect.com and the story of this online purchase is worth relating.

We arrived at our local Mazda dealer armed with the printouts from a couple of web sites. We had a pretty firm idea of what we wanted, and it was a white Mazda MPV ES with certain options. Of the many dealers we have recently visited, Paul at Wood Pontiac Cadillac Mazda here in Santa Rosa was easily the nicest person with whom we had dealt, and we had were keen to do business with this dealership. The problem was that they could not match the price. Paul frankly thought that Cars Direct would not be able to deliver at the price on the printout.

That afternoon we clicked the final proceed button on the CarsDirect web site. Paul had given us a brochure printed up by WoodPCM that laid out a few facts about online car buying. In a nutshell, the online vehicle companies are simply middlemen. They are brokers, not authorised dealers. They may offer a price, but they effectively have to get the vehicle from a dealer. WoodPCM want their potential customers to realise that there are risks associated with dealing with someone who is not anywhere near you, who has no shopfront you can see, and maybe no reputation they need to preserve, so if you have a problem you could be in hot water. That is all reasonable. We would have preferred to deal with Paul, would have paid a few hundred dollars (perhaps 1 percent) for the ease of direct dealing. We told him so, but still they could not match the price.

Complications set in when it came to the options we wanted. It seems that these vehicles are built with only a few combinations of options, and CarsDirect were having problems finding one with exactly what we wanted. In particular, we wanted a moonroof but not the in-dash CD changer, since the latter deletes the cassette capability. (Now this is the daftest option imaginable... how many customers are going to want to pay over $400 and lose a cassette player simply so that they can load 6 instead of 1 CD at a time... but this is another story.)

We re-opened negotiations with Paul, after CarsDirect had spent two days offering us vehicles that were not white ES models or did not have the moon roof. We would have paid much closer to what WoodPCM wanted (we were tentatively offering 3% over invoice at this stage, 2.9% more that CarsDirect asked) to get exactly what we wanted. We knew by this stage that we would have to accept the CD changer to get the moon roof, every source confirmed that the vans came only with both or neither option. We also knew we would have to have fog lights, mats, various trims, alloy low-profile wheels and the package that gave heavy duty cooling and heating, but these were all quite acceptable and reasonably priced. One stupidity with the dealership was that they had to have some sort of acceptable deal on the table before they could commence a search of Mazda databases for the desired vehicle with California registration. Paul started looking.

Paul seemed to be having no more luck than CarsDirect, when suddenly the CarsDirect man found one of the ones we wanted in Oakland. We went with that offer, especially as we were getting it at a price within $100 of nominal dealer invoice. We had some last minute difficulty, as the web fellow scheduled delivery for a given day, failed to get some paperwork through in good time, and was not actually at work on the delivery date. This could have caused us a lot of inconvenience, but the dealer was very accomodating, and Cindy in the credit union was informative and responsive, so we pulled it off in spite of the distance and difficulties.

I say "nominal dealer invoice", because it is now clear that Mazda can beat the invoice price that seems to be paid by dealers, even after allowing for holdback, etc. Holdback is a mechanism used to "muddy the waters" as far as I can see, and to give dealers some more incentive to move stock. If I interpret this correctly, the manufacturer charges the dealer for having a vehicle on credit, but refunds un-consumed interest upon timely sale. The net effect is to give the dealer the car at a price that is lower than it seems. I now gather that the price a dealer gets is not even fixed, but falls if the dealer commits to accepting a certain quantity of vehicles. Thus large-volume dealers do better. The place in Oakland was truly enormous.

The whole system is tied to the manufacturer knowing his quantities accurately in advance. They do not assemble a vehicle to the customers specification when the customer places an order, they decide option combinations and colours well in advance, and prices flex to ensure that exactly the number of cars that are in the pipeline are sold in the timeframe. There is not a large buffering capacity and so at times of economic downturn like now, additional mechanisms, such as the rebate of which we availed ourselves, are offered to make the sales.

There are a few other web-related items of note. One does not circumvent tax by web purchase with cars, as can be the case with things like cameras and electronics, because tax is levied at time of the DMV processing initial registration. Also the tax is dependent upon the county in which you live (take delivery?), and we paid 7.25% here in Santa Rosa, but would have paid 8% in Oakland. You can look at web car-sellers as parasites, not because they are brokers, but because in buying cars one generally needs dealers for test drives, information and so forth, and brokers do not see the costs of this. The way things are, the internet is facilitating brokerage that takes advantage of a playing field that is not level, and it seems to be the car makers who set the field, and dealers who are the pawns. Perhaps car sale will need to adapt in this internet age.

We went through an extensive learning process with Paul on the MPV. He learnt a few of the competition's weaknesses, and that the MPV has the same gas-cap interlock as the Chrysler vans, and we hope he can use that information. Paul valliantly tried to find out the size of the aperture in an MPV moon roof for us. He learnt that not all Mazda moon roofs are the same size, and indeed the MPV one proved to be larger than the ones in other Mazda models (see photo above). I suspect he also learnt that manufacturers do not play fair.

We contemplated the Honda Odyssey and the Chrysler Town and Country, both giving the MPV stiff competition. The Odyssey, which should have been comparable in price while being slightly larger and offering powered sliding doors, is actually selling well above its MSRP, which is higher again than invoice, even on the web! This situation arose because it has received favourable reviews, and is in short supply. It is Honda screwing everyone, not Honda dealers screwing their customers. This mirrors a pattern we notice in the US buying public at large: The system is designed to maximise profit from people who want to buy now, people who are not content to shop around and look for a good opportunity. There must be many such buyers. I guess this favours the above-mentioned planning on sales quantities well in advance.

Car prices from dealers are lower in larger metropolitan sites. One might have expected it to be the reverse... after all, the costs in Santa Rosa should be lower, allowing the dealer to cut a slightly better deal. If a web site was actually a dealer, he could have his stock in a very remote place, or even operate on an order-only-when-you-commit basis, in exchange for dazzling price advantages. Better still, manufacturers could sell direct on the web, which might serve to level the field, since all dealers would equally-likely share the burden of people who test drive then buy on the web, and the web buyers would get exactly what they want, built to order, at a good price, in exchange for the wait. The buy-now customers would give the dealers custom and would subsidise the patient web buyer. This is yet to come.

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