I recently bought a new car. I had been to dealerships before and even watched my parents negotiate their car purchases, but this was the first time I went through the entire process myself. When the gap between online and offline is rapidly closing in so many domains, the fact that car sales continues to exist as it does is atrocious.

After test-driving some cars and figuring out what I wanted, I looked into possible tools for making my purchase painless and cost-effective. It turns out there aren’t really any. I chose not to use purchase programs like CarsDirect or Costco; even though these programs might reduce some hassle, they serve as yet another middleman between the buyer and the car. I knew I could get a lower price by working with dealerships.

TrueCar has some fancy price graphs and claims that they can secure great prices with dealers with little work from the buyer. Dealers pay TrueCar for each lead generated, as well as a fee for each car purchased (it seems to be $300). As a buyer, one need only print off a price quote certificate and walk into the dealership to buy the car. However, the price certificate is pretty worthless. Dealers aren’t required to provide a specific VIN, so they’re incentivized to put the lowest possible price and run a bait-and-switch. Once the customer walks in, that price can change, perhaps because a promotion had recently ended or the quoted price only applied to a specific car that had since been sold. When I followed up with the three dealers who gave me quotes via TrueCar, their prices all happened to be higher than previously stated.

CarWoo is a newer YC-funded startup that attempts to approach the problem from a different angle. Rather than having dealers pay, CarWoo takes a small fee from customers who end up purchasing cars. Like TrueCar, CarWoo strives to make the buyer king: local dealers offer their prices and the buyer can place counter-offers. But unlike TrueCar, CarWoo doesn’t give away buyer contact information until after a price is accepted; all dealer-buyer communication prior to that takes place through their interface. Maybe I was unlucky, but I received no bids from dealers.

I ultimately sent out a bunch of emails, took the best price, and had dealers respond to that price (which I lowered). Three observations:

1. The price quotes I received ranged from below-invoice to MSRP. This was a spread of almost $2500. Car pricing is so opaque that dealers have no idea what their competitors are doing. One can therefore extrapolate the confusion buyers face when trying to understand pricing.

2. No one believes a low price. Only a few dealers were willing to make a counter-offer over email. Many responded by telling me that the price I had been offered was indeed low, and if it was real (i.e. if the dealer offering it wouldn’t run a bait-and-switch with me), that I should take it. I even visited one dealer who first gave me $1000 over my offer, despite previously articulating to them that I had guarantees for my offer. After walking out, the salesman followed me out, asking if there was anything he could do. I gave him another chance, and he returned with a price of $800 over my offer. What a joke.

3. It goes without saying that not all car salesmen are incompetent or nefarious. I bought my car from a salesman who honored his email price and made the rest of the process incredibly smooth. It was also a real pleasure talking with him (it turns out he lived in St. Louis for several years).

Car sales has so much misinformation and inefficiency that it’s remarkable no one has fixed this. The idea of CarWoo is great for buyers, but it’s completely dependent on dealer participation. Unfortunately, there isn’t a very good reason for dealers to participate in a bidding war. It’s an unnecessary race to the bottom when they can easily make more money confusing a non-internet-savvy buyer on financing or upgrades. It would appear then that so long as car dealerships control the market, buyers must play by their rules.

Dealers provide value to customers seeking service for their cars or potential buyers interested in a test-drive. But when it comes to the actual car purchase process, the hassle of negotiating and turning down upsales is one that most buyers would prefer to eliminate. What if the dealership could be circumvented? It turns out direct car sales are prohibited in 48 states.¹

The National Automobile Dealers Association defends these regulations on several grounds, all of which are inadequate.² Salesmen used to have special knowledge of new car models, but the internet has rendered this aspect of salesmen obsolete. Dealers claim they build meaningful connections with the community and are a source of jobs. I doubt the former claim, given the notoriety of car salesmen, and the latter is irrelevant if the source of jobs is artificially constructed by inane regulation. There’s also the economic argument that the manufacturer-dealership model is an effective one, where manufacturers can focus on their economies of scale; this doesn’t necessarily lead to the “nationwide distribution network” necessary for sales.³ If this relationship makes economic sense, instituting such bans seems to be overkill. Nevertheless, we know that car manufacturers don’t believe this: GM and Ford have tried to change things, to no avail. These laws are an example of regulatory capture at its finest.

I’m not sure how these problems get solved - maybe the manufacturers will have to make another concerted effort at removing these bans. However, if CarWoo (or any other startup) wants to truly realize its vision of making car sales more agreeable to buyers, it won’t be by cooperating with the antiquated dealership system.