Are Car Buying Services a Good Deal?
If you don’t want the hassle of dealing with a car salesman, there are services that will do it for you. But are these services worth the cost? Well that depends on several factors.
How does a car buying service work?
First, you fill out a brief questionnaire to identify the type of car you want. Then the service will arrange a pre-negotiated deal for you. Finally, you show up to the dealership with your deal terms, sign the paperwork, and drive off in your new car.
Most services will handle your car price negotiation, but leave it up to you to handle your trade-in and financing.
Keep in mind, your trade-in and financing can be an expensive portion of the overall car purchase. As car prices are getting more competitive, the Finance Office has become the biggest profit center for a dealership.
What are the different types of car buying services?
Professional car buying companies go by a variety of names like a broker, a concierge, or a car buying service. Regardless of what they call themselves, it’s easiest to think of them as two different types:
- Car buying websites
These are websites like Costco, USAA, and TrueCar that offer pre-negotiated deals on cars. The websites are usually “self-service”. You choose a type of car and get a guaranteed car price (when dealers decide to honor it). These websites are able to pre-negotiate rates with dealers because they generate customer referrals in volume, but no one will be negotiating your specific deal.
Dealers pay a commission to the car buying service for referring you.
- Car buying agents
These are “full-service” agencies that have a person who will act on your behalf and line up a car deal for you. They’ll find out exactly what you want and contact several car dealers to get you a competitive price.
You’ll pay a commission to the car buying service, typically in advance.
What do they cost?
A website will charge a flat fee, usually around $300 to the dealership for each deal.
An agent will charge you, the buyer, anywhere from $250-$1500 to negotiate a deal. The average agent charges around $300 for negotiating car price only. Prices go up for agents who provide a more hands on approach. Some high-end agents will help you decide between car types and negotiate your trade and financing for you for an extra premium.
Many brands use the same underlying broker
Additional car buying services pop-up every couple months as a result of new partnerships. Retail brands use the same few underlying brokers to connect with car dealers.
Broker companies like TrueCar and CarsDirect will partner with credit unions, USAA, AAA to be the face of their service. For example, if you go to Costco’s website, your information is actually routed through TrueCar’s dealer network to provide you with car prices.
Dealers don’t always honor the offer
Many dealers only view car buying websites as a referral engine that will help them bring new car buyers to their dealership.
You may get an unbelievable price enticing you to come to the dealership, but when you get there they no longer have the exact car you want in stock. Instead they have similar cars pre-configured with options and accessories that cost hundreds or thousands more. In this regard, car buying agents will do a better job than websites lining up a deal more likely to be honored.
When you arrive at the dealership, always expect to be offered various upgrades like tech systems and warranties that could significantly increase your total.
If you work hard you can get a better deal yourself
Car buying services can make sense if you want to remove some of the hassle from the car buying experience. But why not shop around and see if you can find a better deal on your own?
These services provide pre-negotiated offers which are competitive, but rarely end up being the best available price because the service takes a commission. If you do try a service, use their price along with others and run a bidding war to be sure you’re getting the lowest possible price.
When you buy direct as I advocate on this website, car dealers may give you a bigger discount because they don’t need to pay a commission to the car buying services. The majority of the time, using the strategies on this website will get you the absolute best deal.
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