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Automobile Brokers Claim to Save Customers Time and Money ? But do They?
What is an automobile broker? It is a company or individual that offers, for a fee, to help consumers buy cars, claiming that they can save consumers time and money. They act as middlemen between dealerships and consumers by managing the car-buying process - locating the vehicle and negotiating the price.
Can brokers actually save consumers money on new car purchases? I?m reluctant to use the word ?never?, but in the majority of cases, it?s highly doubtful. An automobile broker, in effect, introduces a third party into the car buying equation, and this third party doesn?t work for free. With such small margins on new cars (they?re shrinking all the time), including a second profit taker is like inviting two people to share a meal that is barely big enough for one, and expecting this arrangement to save money/food.
Years ago, when dealerships earned larger margins on new car sales than they do today, automobile brokers bought cars directly from dealerships and then re-sold them to their customers. Under this arrangement, dealerships never saw the final broker selling price to the customer, but that system has changed and now, dealerships often know the exact prices that customers pay for their vehicles.
Today, in order for purchasers to access manufacturers? incentives (i.e., zero % financing, 1.9% lease rate, no payments for 90 days, etc.), car buyers must purchase their vehicles directly from a dealership, with the broker receiving a referral fee from the dealership. As a result, dealerships are privy to all of the brokers? pricing, and we seldom see a savings for the purchaser. In fact, we frequently see customers pay more money by using a broker than they would by dealing one-on-one with a dealership.
If you are trading in a vehicle, the automobile broker will try to control that part of the deal as well. The broker will attempt to profit from your trade-in and from your new car purchase. How is this approach any different than dealing directly with a dealership?
At least in dealing with a new-car dealership, should something go wrong, you have consumer protection provided by the Ontario Motor Vehicle Industry Council (OMVIC). Auto brokers are not required to be registered with OMVIC. When dealing with an automobile broker, it?s a case of buyer beware. Some brokers collect fees from customers and then disappear from their small, rented offices.
So what about saving time? As a rule, consumers don?t buy cars ?sight unseen?. For the majority of car buyers, purchasing a new car will require multiple trips to a dealership, to work with a sales rep in test driving vehicles, choosing the options and colours, etc. Unless you decide to let the broker handle these important details for you, you will definitely not be saving time by using such services.
Automobile brokers purchase new cars from dealerships located across the province. The broker may steer you away from a make that you prefer towards a brand (or a dealership) that pays him/her the highest referral fee. In some cases, brokers actually double dip (i.e., collect a fee from both the purchaser and the dealership). Does this sound like a ?setup? that will save you money?
In many cases, these supplying dealerships are not in the customer?s immediate trading area, which introduces other potential problems for consumers.
What happens if an issue develops after the broker-assisted sale? Inevitably, the broker (after having collected his/her fee) will send you back to the dealership where the car was purchased. This will be a major inconvenience if the dealership is located many kilometers away.
When a car is sourced outside of the customer?s residential/work area, the purchaser is deprived of an opportunity to develop a good, working relationship with the local dealership where, presumably, the customer will visit for warranty assistance and/or maintenance work.
The savings in time and money by hiring an automobile broker are doubtful, the potential problems in buying a car from a dealership outside of a customer?s trading area are huge, and the ability to leverage your sales purchase AND service purchases, when you have special needs, is lost.
Auto brokers market themselves as ?Robin Hood? do-gooders while making handsome profits on your car purchase, with little to no investment or accountability.
Some consumers prefer to hire an automobile broker rather than work with dealership staff. I find it somewhat bizarre that the automobile brokers, whom these purchasers trust over dealership staff, are themselves, mostly, ex-dealership employees.
Ken Shaw Jr. is President of the Toronto Automobile Dealers Association and is a new-car dealer in Toronto. E-mail comments to president@tada.ca
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