Monday, April 28, 2008

Buying Cars on eBay

I read just the other day that eBay recently sold their 3 millionth vehicle. That's a lot of cars! But if you ask most people you know, not only have they never bought a car on eBay, they wouldn't even try.

Why not? Why are folks scared to buy a car online? There are two obvious reasons - first, it's not what they are used to and second, people feel like they need to physically see and drive the car they buy (and maybe even kick the proverbial tires). That first barrier - buying cars at a dealership or out of newspaper ads because that's they way dad did it - should be easy to overcome. Dad didn't buy Blu-ray DVDs online back in the day either, did he? Online shopping simply shouldn't be scary anymore. So, it's the second problem that's probably the most significant hurdle - not actually seeing the car or meeting the seller.

Let's talk a bit about that. Cars are basically a commodity today, no different than mp3 players or computers. You can get them anywhere and a Toyota Corolla you buy in Albuquerque is exactly the same as one you get in Abilene. In other words, if you check out a make/model/year that you like in your hometown, why shouldn't you then go and try to find that same car for the cheapest price no matter where it comes from? Isn't that extra bit of effort (and actually, it's probably less effort than haggling in person) worth saving a few thousand dollars?

One related fear to not seeing the car is not meeting the person who's selling it. I think most people expect to see their car seller (whether it's a dealer or someone selling their own truck) face-to-face. The funny thing about this, is nobody trusts car dealers. There's a reason that the unctuous used car dealer is a cliche. Here's where eBay's method is world's better. No, you never actually meet or see your seller, but you do know exactly how every one of their online transactions worked out. That's the key. If you sell cars on eBay, you simply can't afford to screw anyone. If you get a few - or maybe even just one - negative review saying that you are dishonest, your business is kaput. Nobody is going to send $15K to buy a car halfway across the country from someone they feel they can't trust. On the other hand, if a local dealer screws a customer, how does anyone find out? It could happen all the time and you'd probably never know. Your only hope is to check with the Better Business Bureau and hope that someone thought to file a complaint there, or hit up Google and hope someone posted to some message board. It's a crap shoot. The truth is, you probably won't find out. You actually have much less visibility into and information about the local guy than you do about an eBay seller on the other side of the country.

Accountability, visibility and convenience aside, the best reason to buy a car on eBay is the most basic one - price. With a little patience, you can find outstanding deals on eBay. Edmunds has a great feature called True Market Value pricing, where they show you actual expected prices you'd pay/get for a car. They show you three prices, Trade-In, Private Party and Dealer. Trade-In is what you would likely get for a car if you traded it in to a dealer. Private Party is what you'd expect to pay someone to buy their personal truck (i.e. through a newspaper ad) and Dealer is what you'd pay at a dealership. You pay more at a dealership because you're ostensibly getting a bit more backing behind the car, that they've cleaned and inspected it and you have some recourse if something goes wrong. The differences between these three prices can vary from several hundred to several thousand dollars. On eBay, you should expect to pay no more than the Private Party price even though you are buying from a dealer. If you are picky and look for No Reserve auctions, you can do even better. I have bought two cars on eBay and paid just above Trade-in for one and $700 below Trade-in for the other. I could have bought the car, driven it straight to a local dealership and traded it in for a profit. Beat that out of your local classified ads!

When you are saving that kind of money, it really helps to offset the other fears. Sure, there's a chance that the used car I'm buying is a lemon, but that's a risk with any used car, isn't it? Is a short test drive going to prove otherwise? Would one of those used-car inspections help? Maybe, but you can actually order one of those for most eBay cars as well. Even so, how much risk are you taking on? To use an example, say you want to buy a 2005 Honda Accord EX with the V6 engine. At a local dealership, I'd expect to pay about $17,500. I can find one of those on eBay right now for about $15,600. Wouldn't a savings of nearly $2K help offset any risk? Especially if you consider that I know that the seller has all positive feedback and has posted dozens of pics of the inside and outside of the car? Well, what if I decide that I'm willing to shop a bit abd I hold out until I get a car closer to the Trade-In value? Now we're talking about a savings of about $3,500. You could replace the transmission and still come out way ahead!

The bottom line is this - buying a car online makes sense. You can buy a great car from a reputable dealer and you can save thousands of dollars. Why would you want to do it any other way?


Todd said...

There were about 58 million vehicles sold in the U.S. in 2007. eBay got to 3 million sales in about 8 years. Assuming about 58 million total vehicle sales per year over that time, that's 3 million out of a market of 464 million or so. Not even 1% share. But, if memory serves, they sell about 1 million per year now, so that would imply close to 2%. And I'd assume that their share is still growing pretty quickly.

Still, I can imagine it will be quite some time before more than a sliver of car-buying consumers are willing to buy a vehicle on eBay. I know of at least one other eBay-type site (MercadoLibre in Latin America, which is 20% or so owned by eBay) that doesn't even allow for completed sales of vehicles over its site. Instead, it just allows for vehicle listings and match-making (i.e., a classified service). The actual transaction is completed off-line, presumably after the buyer's had a chance to "kick the tires".

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