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Purchasing a Car Online

Daily Policy Digest

Economic Issues

Friday, August 24, 2001

Does the Internet increase buyer information and bargaining clout when it comes to purchasing a new car? A recent study on Internet car referrals found that it does.

Researchers merged the 2 million purchase requests in 1999 from Autobytel.com, a major online auto referral service, with a J.D. Powers and Associates sample of every new car purchased from 1,101 California car dealerships from January 1, 1999, to February 28, 2000.

They found that buyers who use an Internet referral service save about 2 percent on their average new car purchase.

  • Car dealerships that have contracts with Autobytel.com sold an average of 767 cars over the period studied, while non-Autobytel dealers sold 346.
  • Thirty-three percent of the sample transactions went through dealerships that have contracts with Autobytel.com.
  • People using the referral service were less likely to finance their cars through the dealer, to buy insurance through the dealer, or to buy a repair contract from the dealer.
They also tended to live in areas with higher average income.

Although Internet car buyers pay less for their cars, the authors note it is possible that participating in an Internet referral service can be profitable for individual dealers. By saving the closing costs, sometimes as much as $600, the car dealership can still profit, even though the average Internet buyer pays an estimated $300 to $500 less for the new car.

Source: Linda Gorman, "Internet Car Retailing," NBER Digest, January 2001; based on Fiona Scott Morgan, Florian Zettlemeyer and Jorge Silva Risson, "Internet Car Retailing," NBER Working Paper No. 7961, October 2000, National Bureau of Economic Research.

For NBER text
http://www.nber.org/digest/jan01/w7961.html

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http://www.ncpa.org/pd/economy/econ9.html
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