How to Buy a Car Online

The emergence of Tesla, along with commerce in general moving to the internet, has increased interest in buying a car online. In the new automotive industry, only a tiny percentage of the cars sold in America today are truly sold “online.” A franchised new car dealer must handle your transaction in almost all states. While most of the research, selection, and even request for purchase can be done using your connected device, the sale is not entirely “online,” and you don’t buy directly from the manufacturer.

Online sales are not new ground for car dealerships. Your author bought a new Honda “online” for the first time from a dealer in Rhode Island that went very smoothly. The selection, price agreement, and test drive and pick-up appointments were all conducted online. This was 2002. Twenty years ago.

Since then, in the new car world, much has stayed the same. None of the top brands in America sell cars online in the sense that you deal directly with the manufacturer and they deliver a car to you without a dealer being the actual point of sale.

Traditional dealers are very interested in the idea of selling cars online. They refer to this as “digital retailing.” If you shop for a new car online or obtain an instant cash offer for a used car, you are already participating in digital retail.

Used cars should be and could be a bit easier to order online. However, are you comfortable buying a used car without having your mechanic check it out? Or even taking it for a test drive? How do you know it doesn’t smell like a litter box? Or like cigarette smoke? Or that it doesn’t need ball joints and goes down the road shaking and rattling like a wooden roller coaster in the 80s? You don’t know unless you drive it first, which means you didn’t really buy it online.

Vroom is one of the most notable “online” used car buyers and sellers. Among its many promises, Vroom says it offers high-quality cars, and that buying is made easy. It also says the car is delivered right to your door. However, Vroom has an F rating from the Better Business Bureau, a warning from the group about deceptive business practices, and its reviews from owners average about a 1 out of 5. While Vroom does deliver the car to your door, many owners report angrily that the company didn’t also deliver the title. So they can’t register and drive the car they “bought online.”

Dealers offer what are called Certified Pre-Owned Vehicles (CPOs), which help bridge the gap between new and used. CPO cars come with a warranty backed by the manufacturer. They are also given more than a casual look over by the dealer selling the car. If you are planning to buy a used car mostly online, this may be one way to manage your risk.

Online Car Brands

Tesla, Rivian, and a few new startups want very much to sell vehicles to you entirely online and deliver them to you in your driveway once the deal is completed. In some states, they do sell this way. In others, they do not conduct sales at all, and in some states, their captive retail locations act like brand-owned dealers.

The idea behind “buying a car online” is that you cut out the middle man, save money, and avoid the upsell pressures and other hassles we all dislike about the car buying process as we know it. Or knew it. With dealers today marking cars up by double digits over the manufacturer’s suggested retail price (MSRP), we look to online shopping for, say, a Tesla as a way to a better car shopping experience.

However, Tesla mimics many dealers' worst habits. For example, being a bit cheeky with the mandatory “destination and doc fee,” even if you opt to pick the car up at the Fremont factory. And last year, Tesla raised prices on its Model Y so many times that we lost count. Over a 13 month period, the least expensive Tesla Model Y price rose by more than 50%, from about $40K to well over $60K. If you think Tesla owners are universally happy with the order and delivery process, join a few Tesla social media clubs and see what new Tesla owners themselves report.

The Research Process

The internet is the ideal tool for researching vehicles. There are endless websites devoted to new and used car information. If you are interested in a certain size of vehicle, research on popular models can help you narrow your search to a couple of specific brands and models.

When researching a car online, check out the manufacturer’s website. They will have the “Build and Price” tool you need to get the MSRP and destination charges. Most also help you locate the model you selected or will direct you to a dealer near you that can help you order a vehicle.

Don’t stop there. Consumer Reports has excellent reliability and owner satisfaction data. You can subscribe or buy the annual print edition that focuses on new cars. Looking for reviews of various models? Car Talk has a reviews section, as does almost every automotive publication. If you are buying a mainstream vehicle, like a Toyota RAV4 or a Subaru Forester, skip the enthusiast sites. Do you really care what the skidpad adhesion of the RAV4 is at its limit? You shouldn’t. Enthusiast publications work great if you want to know which vehicle performs best on a racetrack, but the content creators in that space don’t focus on real-world owner satisfaction.

Car Talk suggests ignoring most of the 0-60 MPH and peak horsepower type of specifications for mainstream vehicles. These give the impression that the “best” numbers indicate the most satisfying vehicle. They absolutely do not.

Compare and Contrast Options

Once you’ve settled on a new vehicle you are interested in, you will need to dive deeper than just the model. The trims of the vehicle are where the features and content are differentiated. Manufacturers do an excellent job on their websites of showing you in chart form which trim gets which feature package.

One note of caution. It’s 2023 and inventory is still at a low point. Don’t expect your specific make, model, trim, color, and options package to be sitting on a lot for you to drive home. Those days are now behind us and nobody knows when they will return. Car Talk suggests that once you settle on the make and model, you should call your local dealers and ask what is available. You can order a vehicle, but that can take months.

Reviews Of Popular Online Used Car Shopping Sites

If you are shopping used, there are even more options for you to consider. Companies have emerged over the past decade that have consolidated used car inventory and arranged the vehicles for sale online. Yes, you will take a test drive at the last minute and conduct your transaction either at home or local retail space, but most of the research and selection can be done by you from an internet-connected device.

Online shopping sites for used vehicles vary quite a bit regarding consumer reviews. Car Talk looked at some of the top sellers and found that a few of the big names have terrible reviews from buyers. Vroom tops the list of online retailers with bad ratings and reviews. Our chart below may be helpful. At the time this Car Talk story was written, Carvana had just laid off thousands of employees in a restructuring. We would suggest caution using that online retailer.

Set Your Budget

Setting a budget is always wise when shopping for a new or used car. Prices have spiked over the past couple of years due to inventory constraints and the declining value of the dollar. When you consider your budget, bear in mind that the manufacturer’s suggested retail price, MSRP, is not the buy price of a car. It is the starting point. Every brand in America adds over $1,000 in “Destination and Delivery” fees to the MSRP. Dealers add a documentation fee of many hundreds of dollars. Dealers also often add content you don’t need or want. Things like paint protection packages, moonroof wind deflectors, and similar aftermarket content to push prices higher. Finally, dealers today often tack on “market price adjustments” of $5,000, $10,000, or more on popular models. Keep the added costs in mind.

To your vehicle purchase price, add the following to your annual vehicle ownership budget:

• The cost for fuel or electricity to power your vehicle
• Your state’s sales tax
• Your local DMV’s registration fees
• Your cost for insurance
• The cost of financing, if you are not buying with cash

Over the lifespan of your new vehicle, the cost of energy will be the largest part of your cost of ownership. Look closely at the annual average cost to power the vehicles you consider. www.FuelEconomy.gov has up-to-date data for every vehicle sold in the US. Let’s look at a real world example of two popular vehicles, the Honda Odyssey and the Toyota Sienna. Both are top-selling minivans, but this analogy works for any type of vehicle. Here is the energy cost breakdown over 15 years of ownership for the two different models.

As you can see, the Odyssey’s fuel cost is more than its vehicle cost over its lifetime. Both models only offer one engine. The Toyota saves its owner $17,250 over fifteen years of ownership by comparison to the Odyssey. We’ve driven both vehicles, and both have responsive powertrains. As you can see, the cost of energy is often the single biggest differentiator when it comes to vehicle budgets.

Decide on Pre-approval or Financing Options

If you need financing to buy your vehicle, it can pay to shop around. Credit unions, local banks, and online banking institutions can offer you financing that works like cash at the dealer. One word of caution; Dealers rely on financing profits. They may well match or beat a financing package your own bank provided. If you opt for a low interest rate deal from the dealer, ask if it disqualifies you from any manufacturer rebates.

Negotiate Pricing & Ask About Rebates

One of the main reasons that folks have looked with hope to online car buying is to avoid the hard-sell negotiating tactics that dealers in the past have been known for. Prior to the global pandemic, many dealers were offering “Fixed Prices” for new cars sold through their digital retail platforms and used cars with fixed pricing were also common. Today, with the vehicle shortages at a critical level, your best deal may be over MSRP. We suggest limiting your expectations and making sure you at least phone the place you may purchase from, get a name and phone extension, and ask about your final price.

If negotiating is on the table, your main goal will be to find the best price overall by comparison shopping. Negotiating an online car sale seems illogical in many ways. It is a person-to-person activity.

Rebates still apply today. They are offered by manufacturers and the dealers apply them. Be sure to ask if you qualify for any manufacturers’ rebates. For example, at the time this story was written, Toyota was offering recent college graduates a rebate. Military, educator, and return customer discounts are common.

Negotiate Value of a Trade-In

Your trade-in is where you may be more likely to negotiate pricing. Use online valuation tools to find your best price, but always note that a trade-in is the lowest price of the options that online valuation tools offer. You will make more money if you sell the car private-party. However, in states with sales tax, the cards may be stacked against you. Dealers are desperate for used car inventory, so your used car is at the peak of its value today. Aim high and see just how willing a dealer is to pay up for a car they can sell again.

The Test Drive

Before you sign on the dotted line, you should test drive the vehicle you are buying. In today’s market, you may need to drive a different trim from that which you are pre-purchasing or ordering, but do drive the offered example car. That does not mean you are done. You should test drive the actual car you buy before you sign the final purchase documents. In addition, you should closely inspect the vehicle for any issues or damage. If there are problems that are not serious, the best path forward may be an agreement by the dealer to put things right in a certain time frame. Make certain to get this agreement in writing.

Complete the Deal and Take Your Car

When you purchase a car, it is very rare to literally drive it off the lot the same day you buy, so online ordering is not that different from in-person shopping. When your car is ready, ask some questions before you head to your pick-up appointment.

If you are buying an electric vehicle, get a commitment from the dealer that when you arrive it will be fully charged. Schedule time with the dealer's customer service team to learn how all of the controls and infotainment menus work. Always bring your phone cord so you can pair your phone to the vehicle.

Once the car has arrived and you've checked it over and driven it, it’s time to sign on the dotted line. Your purchase worksheet should be clear and meet your expectations. Don’t be pressured into signing anything that isn’t clear or is different from what you agreed to.

Read more on the topic of Car Buying here.

Read more on the Best Time to Buy a Car here.