I’ve been looking for a used car for a few months in the hopes that prices will come down. I’d been browsing regularly on Canada Drives, an online used-car dealership. I’d look through listings a few times a week, save cars I liked and get alerts when prices dropped – without any haggling or pressure to buy. I liked that it showed me the exact price. When I was finally ready to buy, I went to the site and it wouldn’t show me cars unless I applied for financing preapproval. When I did that, I still couldn’t see inventory on the site and immediately started getting calls and texts from a different business. What happened? Where else can I buy a car online without dealing with a dealership? I see dealerships with online options, but are they reliable? – Corrine, Calgary
When it comes to companies that sell cars only online, there’s only one left in Canada.
In March, Canada Drives, which sold used cars in several provinces, including British Columbia, Alberta and Ontario, filed for bankruptcy protection, stopped selling cars and was looking to return to its original business of matching customers seeking automobile financing with dealerships. That leaves Clutch Technologies Inc., which sells in Ontario and Nova Scotia.
“Online used-car dealers come in two main forms: traditional dealers with an online car-buying option and virtual/online dealers that operate entirely online with no physical showroom,” said Shari Prymak, a senior consultant with Car Help Canada, a Toronto-based non-profit organization that helps drivers find cars and negotiate purchase agreements.
They’re not to be confused with online marketplaces like AutoTrader and CarGurus, which don’t sell cars themselves, but maintain huge online databases of listings from dealers and private sellers from which customers can search. Nor are they simple online “lead generators” for traditional dealers or subprime lenders. (More about them later.) So it’s a bit of a minefield.
Prymak said his organization has received some complaints about traditional dealers’ online selling practices, including “hidden fees, condition issues or failure to disclose critical information such as prior accidents.”
For buyers, online-only sellers can have some advantages over traditional dealerships, Prymak said.
“This is a full online experience that claims to offer transparency and a hassle-free buying experience,” he said. “In the case of these dealers, that mostly seems to be the case. The online dealers offered competitive transparent pricing, full disclosures of vehicle condition and comparable financing options to other dealers.”
Prymak said they also offer a seven- to 10-day return policy. They set out to appeal to people who don’t enjoy haggling and want a different approach to buying a car.
Before the pandemic, online car retailers looked like they were the way of the future, said George Iny, president of the Automobile Protection Association (APA), an automotive consumer advocacy group based in Toronto.
Then “their source of late-model [used] vehicles requiring minimum conditioning dried up,” he said. “Now the larger ones are in trouble or had to dial back significantly as franchised dealers and brokers buying for export to the United States have gobbled up a large share of Canada’s stock of late-model used vehicles.”
Before the shortage of used cars started to drive up prices, online retail sites had proven useful, even for people who decided to buy from a traditional dealership, Iny said.
“When times were good, consumers did use their realistic no-haggle prices to compare and negotiate with local dealers selling similar models,” he said. “I don’t know if that is going on any more, and I doubt consumers have much price-reduction power when shopping for a used vehicle today.”
Dealer’s choice?
Most traditional dealerships that sell online won’t let you return a vehicle – and some add extra fees on top of the advertised price, Prymak said.
“This can be very problematic for an online buyer [at a traditional dealership] who did not have any opportunity to see the car before committing to the purchase,” he said.
According to a recent national survey by Car Help Canada, 40 per cent of car buyers reported problems getting a traditional dealership to honour the price they advertised online.
Further, not all sites that advertise cars actually sell them, the APA’s Iny said. Remember those lead generators? They match consumers seeking automobile financing with traditional dealerships or loan providers. Usually, whichever business they match you with will then contact you.
“There are plenty of websites and ads by people trolling the web [saying things like] ‘Find unsold new cars at deep discounts in (insert name of city),’” Iny said in an email. “In most cases, they are lead generators for subprime lenders or intermediaries that don’t necessarily have an actual vehicle.”
Some lead generators will advertise an unbelievably good deal on a specific model and then prompt you to make a credit application, which is forwarded to various lenders or dealers, Prymak said.
“Lead generators are not regulated by provinces like [traditional and online-only] dealers are, and are a huge problem,” he said.
After halting used-car sales this spring, Canada Drives, which started as a lead generator and switched to online sales in 2020, went back to being a lead generator for others. This explains why you received calls and texts from another company once you applied for financing preapproval. Canada Drives did not immediately respond to requests for comment, but the company’s website no longer shows any vehicles. You simply apply for financing preapproval and the company will connect you with a local dealership that will show you vehicles you can afford.
If you’re looking to buy online, Prymak recommends reputable online dealers such as Clutch or listings sites such as AutoTrader, CarGurus and Kijiji.
“Consumers should use all available options to search for the best available cars and cross reference pricing from dealers to obtain a fair price,” Prymak said. “Shopping [around for] financing options is equally important, which includes contacting your own bank before looking at dealer options.”
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