The Disadvantages of Virtual Used-Car Dealers

August 24th, 2015 by

We’ve seen plenty of industries slowly transitioning into the world of the internet. Book sellers are quickly become obsolete as digital marketplaces continue to boom. We’ve seen the demise of the video store, and Amazon has already started to steal customers from large department stores. One industry that wouldn’t work online is the car-buying industry, as seeing and driving a physical car goes a long way when someone is determining whether they should purchase a particular vehicle. The sentiment may be very accurate, but that hasn’t prevented the industry from switching to the internet.

Start-ups like Shift and Vroom have been picking up steam recently, but do they really make the process easier? Keep on reading to figure out why it may be better to get off of your computer and visit your local Lexington used car dealerships

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For someone who isn’t familiar with cars, a move to the internet would seem to make sense. As Jerry Hirsch of the Los Angeles Times writes, these online car sellers provide “a virtual showroom,” while handling much of their marketing and legal paperwork online. Potential buyers are assured the best prices, and they’re even offered full refunds if they ultimately decide that they don’t like their purchase. As Hirsch notes, consumers are embracing convenience, as an Accenture survey showed that 75% of respondents “would consider making car selection, financing, price negotiation, back office paper and home delivery completely online.”

Beepi has certainly looked to avoid the inconvenience that accompanies shopping for a car. Potential buyers can look through a variety of exterior and interior photos while also reading vehicle history and condition reports. As Hirsch explains, once a buyer target a particular car, they have the option to pay “with a personal or cashier’s check, a bank wire transfer, a loan through Beepi or finance the car using up to five credit cards.” If they wanted, potential buyers can even pay with Bitcoin.

These buyers also don’t have to worry about the risks that accompany online purchases. Beepi inspects each car that comes their way, conducting a “two-hour, 185-point vehicle inspection and photo session.” Once a car has been given a thumbs up, it’s assigned a price and listed on the website, with the seller being guaranteed that their car will be sold within 30 days (or the company would personally purchase the car). This would seem like an incentive for those looking to get rid of their vehicles, as it offers a speedier and more convenient process. Typically, these car sellers would be looking to trade in their car, or they’d try to sell it via Craigslist or Autotrader. Now, a company is offering to do all the work for you.

How does this work out for these online businesses? They’re able to sell the cars for lower prices because they don’t have to account for many of the financial variables that go into a typical car price, like paying general managers, finance managers and sales staff. As Hirsch writes, the typical dealership will spend around $2,000 for each used car they’re looking to sell, while these online dealerships can deduct that from their price.

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They’ve been relatively successful, too. Carvana, one of the start-up companies, finished with $5 million in revenue during their first year. This jumped to $40 million last year, and they’re expected to increase to $120 million this year. Despite this early success, Brian Maas, the president of the California New Car Dealers Association, told Hirsch that the sales won’t last.

Maas says that there’s currently a shortage in late-model used cars, and these online marketplaces offer a variety of options at reasonable prices. As the auto industry continues to grow (with between 16 million and 17 millions cars being solid annually), so will the selection of “attractive” used cars. While these websites and apps may have a current advantage, it won’t take long for a typical dealership to catch up.

“That’s going to make it harder for these new entrants,” Maas said.

It’s safe to assume that these virtual car dealers will stick around for the foreseeable future, even if their current popularity drops a bit. The advantages of shopping online are obvious (more convenience, less hassle, unlimited flexibility), but it’s important that consumers also understand the negatives that accompany such a purchase.

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One of the most important aspects of car buying is actually getting behind the wheel of a car and giving it a short ride. You can determine whether you’re comfortable in the car, whether you’re able to see out of all the windows, and whether you’re content with the power and speed. Sure, some of these startups offer some protection if you’re not happy with your selection, but this inconvenience could be completely avoided had you driven the car in the first place.

Financially, you may have more issues acquiring a vehicle online. While these companies offer a variety of payment options, they’re not nearly as flexible as dealerships, especially when it comes to financing a vehicle. It’s always suggested that you should opt for your preferred lender when you’re looking to secure a loan, whether at a dealership or online. Often, this isn’t an option when you’re shopping on a virtual marketplace, and you may regret your financing decision. When it comes down to it, it’s not worth sacrificing your financial flexibility for an extra bit of convenience.

Well, buying online means you get a break on taxes, right? That’s incorrect, as both buyers and sellers need to pay taxes after using a virtual marketplace. Failing to pay these taxes could result in a hefty fine from the government, so make sure you understand what you’re getting into.

These virtual car dealers won’t be able to get their hands on new vehicle, as many state laws prohibit companies from retailing new cars. This will be a relief to dealerships across the country. Not only do they get to continue dominating the new-car market, but it also means that these start ups shouldn’t be able to top the earning power of a typical, individual dealership.

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Sure, these websites and apps are very convenient. Isn’t it nice to do all your shopping from the comfort of your living room, wearing your pajamas and watching television? There’s certainly a demographic that prioritizes these qualities when they’re looking to shop. However, it’s important to understand that these new advantages means you’ll face some negatives elsewhere.

From a financial standpoint, it’s safer to opt for your typical dealership. Whether it’s the ability to use your own financiers or maybe buy a more advantageous warranty, there’s no doubt that you have more security when buying from a dealership. Furthermore, if you happen to run into a jam with your vehicle, you know who you can refer to.

When it comes down to it, it’s safer to buy directly from a dealership. Sure, you may be flushing your day down the drain, and you may find yourself with some unneeded stress. When you consider the pros and the cons, however, there’s a lot less risk when you avoid shopping online.

So, if you are interest in purchasing a used vehicle, head down to Dan Cummins dealership in Paris, Kentucky. Sure, you’ll have to put on shoes and pants, but you can be assured that the helpful staff will find the perfect used car for you.