Consumers are getting short changed when it comes to buying cars online. This is because of existing franchise laws that prevent consumers buying directly from automakers.

"Unlike other areas of e-tailing, the online auto industry faces heavy state-level government regulation. About 33 states bar anyone, including independent Web sites, from clinching the final sale. And most of those states also require the new owner to pick up the car at a dealership, Sandeep Junnarkar and Melanie Austria Farmer reported in November for CNET News.

As a result of the laws, online consumers are forced to pay for a middleman that shouldn't have to be a part of the online equation.

These laws have turned online vehicle sales sites into nothing more than referral services for dealerships. Auto sites have been forced to make the most of a business model that is not only bad for consumers but also restrictive to the future of the online vehicle sales industry.

In a March BBC article by David Schepp, Thilo Koswolski, automotive analyst at the Gartner Group, was reported as saying that current online car-buying Web sites were at the mercy of the dealers. He said that getting rid of dealers, as part of the transaction would not be bad for consumers because many of the costs for automobiles were imposed by the dealerships, including advertising, inventory costs and personnel.

According to Cecily Fraser, in a May article of CBS MarketWatch an estimated 1.5 percent of Internet users have bought dealer vehicles through Web sites, but another 3.6 percent tried but never completed the transaction. She identified an online sale as occurring when a consumer submits a purchase order or a credit card number for a down payment.

Citing a survey by Consumer Reports, Fraser reported that a lack of coordinated efforts among sites, dealers and manufacturers to establish reliable pricing and inventory systems has turned consumers off to buying cars online. More than a quarter of Internet users said they didn't think Internet buying was the way to get the best deal.

Unfortunately that seems to be a reality. Troy Wolverton of CNET reported in January that CNW Marketing/Research found that car and truck prices posted on the Internet are hundreds to thousands of dollars more than the manufacturers' suggested retail prices. He used the example, of CarPrices.com's price for a new Lexus LS400 luxury Sedan, which was $2,696 higher than the suggested retail price for offline dealers.

Chris Denove, who covers online car sales for J.D. Power and Associates was quoted as saying that, "It is very difficult for an online seller to offer a lower price than a shrewd consumer could obtain if they have the time to negotiate with a dealer face to face."

Since it's not to their advantage to buy cars online consumers tend to do their car research and then use it to negotiate a better deal in the showroom.

According to Junnarkar and Farmer a study published in October by the market research company Greenfield Online, 63 percent of those surveyed researched their cars online but bought them through a traditional car dealership. Forrester Research found that nearly 40 percent of new car buyers browsed and researched cars online in 1999.

Bloomberg News reported in May that a study by J.D. Power & Associates discovered that about 54 percent of new-vehicle buyers use the Internet to help research and buy cars and that figure was expected to grow to 73 percent by 2003.

The Internet was supposed to have revolutionized car buying by allowing consumers to dictate what manufacturers would make. The days of not being able to find the make and model you wanted were supposed to have been over. Franchise laws have prevented this from happening.

What is even more unsettling is that US consumers are prevented from going into Canada to find a make they can't get in the US. Dealership control prevents Canadian dealers from selling to Americans even though Americans may find the selection better and the vehicle they want at a cheaper price because of the exchange rate.

In May 1999 Carol Teegardin of the Detroit Free Press wrote an article about the frustration that Americans faced in trying to purchase cars in Canada. Quite often a particular color or type wouldn't be available in the US, so they would go into Canada and find what they were looking for there. With the favorable exchange rate Americans had also hoped to get a bargain. What Americans discovered was that Canadian subsidiaries of U.S. domestic automakers had franchise agreements with their dealers that wouldn't allow them to sell to Americans.

In other countries where dealership laws haven't been as stifling price seems to be the biggest factor motivating consumers to buy their cars online.

In the UK, for instance, Internet car buyers are able to buy from dealers in mainland Europe where car prices are much cheaper.

In February the BBC reported that while some consumers had frustrating experiences others had saved as much as 4500 pounds or 7,337.83 US on their car purchase by going through the Internet to dealers in Holland and Belgium. They had waited anywhere from eight weeks to six months for delivery. One consumer reported that he was prepared to wait it out because of the big savings.

According to a March BBC article, there was a rush on in the UK to launch new Internet companies to offer car buyers cheaper prices from the Continent. The Consumers Association and Sir Richard Branson's Virgin Group had both planned to get in on the act by launching Websites devoted to cheap car buying.

The BBC further reported in August that the British Independent Motor Trade Association revealed that 16% of new British cars would be purchased from mainland Europe.

"And the number of purchases being made outside Britain is expected to rise even further as people become more confident about buying over the Internet, says the report."

Brazilians have also been purchasing new vehicles online at cheaper prices. Rachel Konrad of CNET reported in December that General Motor's Brazilian unit, GM do Brasil, had sold 56 percent of its new Chevrolet Celta small car model through the Internet.

She reported that customers who ordered cars through a special Web site from their home computers or at dealer kiosks received big price breaks and faster delivery. Customers could go to dealerships to test drive the vehicles, but they were then able to do all of their ordering and financing with GM directly through the Internet.

GM had been able to keep the price lower online because the company had received a special tax break from the Brazilian government. The break was based on the lower inventory and the reduction in real estate that was associated with online purchases. She reported that GM had passed a portion of the tax savings on to consumers.