Calif., and NEW HAVEN, Conn. - Do consumers really save money
buying a car online? In the first academic study to analyze
Internet car pricing, two business professors from the University
of California, Berkeley, and the Yale School of Management
found that consumers get a 2 percent price reduction if they
buy their car on the Internet instead of at traditional dealerships.
"Internet Car Retailing," part of the National Bureau of Economic
Research (NBER) E-Commerce Project, examined how Internet
referral services affected dealer pricing of automobiles in
California during 1999.
Scott Morton, associate professor of economics at Yale's School
of Management, and Florian Zettelmeyer, assistant professor
of marketing at UC Berkeley's Haas School of Business, together
with Jorge Silva Risso from J.D. Powers and Associates, analyzed
purchase data from Autobytel.com, one of the largest Internet
auto referral services, in combination with transaction data
from J.D. Powers and Associates, one of the nation's leading
consumer satisfaction indexers.
found that customers are able to shave 2 percent off their
car purchases online for two reasons. On average, customers
save 1.6 percent because car dealers are willing to lower
their prices for Autobytel.com, which refers to them many
highly qualified sales leads. Customers save an additional
0.4 percent because Autobytel.com contracts with dealers that
offer lower prices to begin with. On a car purchase of $23,696,
the average price of cars purchased online, a consumer can
expect to save $450.
their findings, the researchers estimate that dealer gross
margins on an Autobyte.com-referred sale are $304 lower than
the average $1700 earned by selling the same vehicle offline.
However, because it takes less time and labor to serve online
customers than in-store customers, it is likely that the average
dealer benefits from participating in an Internet referral
on average pay 0.5 percent more than men at traditional car
dealerships. When women purchase online, this bias disappears.
consumers who say they are ready to buy within the next two
days save an additional 0.3 percent , or $71.
consumers are less likely to receive inflated trade-in vehicle
prices from dealers; for offline consumers dealers commonly
compensate for potential trade-in losses by charging consumers
higher new vehicle prices.