My wife and I just bought a new car, and the Sales Manager had the gall to tell us that there was a $4,000 Surcharge because "the factory is closed and there is a shortage of new cars". This while standing in a sea of new cars and no shoppers.
What economic value, or what problem, is a car salesman solving? Price discrimination as a service? And if they were really necessary why does Tesla not need them?
> It's an outdated system that should have been dead a decade ago
Longer than that, I would say. I have not bought a single car where the dealer added any value to the process at all. And I've been buying cars for three decades now.
I am usually more up to speed on the features and options of the vehicle than the person selling it to me. I think they exist to rip people like my Mum off, who think because the nice man advises she really does need the AWD version for inner city life, she should pay the extra $3k, as it's "safer".
When i bought my last SUV i actually changed my preference from one popular Japanese brand to another because although the salesman at large Japanese dealer (Toyota) was cool, i had to give a small feedback session with his boss about what influenced my choice. The funny part of the story is that the original salesman was a UK origin American and the boss was Asian origin American (point being they were not from a small city or anything). I was so pissed off by the Boss' line of questioning that i actually changed my decision.
I realized in my US stay of many years that a lot of economy is rent-seeking like everywhere. Dealers primarily exist as ICE cars needed maintenance and legacy reasons. However it is a pity that they cannot be disrupted. I have not had experience with platforms like Carvana but i avoid used cars from people because i have had bad experiences before.
"However it is a pity that they cannot be disrupted. I have not had experience with platforms like Carvana.."
Where I see the street is littered with unused bikes for sharing (sometimes a trip hazard if you are not looking where you go while on the iPhone SE talkin) and unused cars parked for sharing. They multiply. The disruptors must be using a utility function with payoff after the sovereign wealth fund managers backing the thing cashout at the top, retire and die. And then there is no return on investment after WeWork's hard partying and snort.
I helped Mom buy a new car last year. She was ready to buy a newer version of the CUV she had already owned for 7 years, but when we got to asking "What's the best price we can get on it?" they switched vehicles to a lower trim level so we were no longer talking about the same car. They had a solid sale. And screwed it up because they started playing games.
She ended up with a competitor. That dealer had a mandatory "package" they applied to every car on their lot (window tint, door edge protector, etc.) which was grossly overpriced.
Something I haven't seen the numbers on but I suspect is true, is that they make more profit on the financing rebate than they do on the sale of the vehicle. The pressure to finance with them is so high that some dealers will refuse to accept cash offers. Or they will add on $2500 as an "external finance fee" when a buyer already has financing arranged.
> The pressure to finance with them is so high that some dealers will refuse to accept cash offers. Or they will add on $2500 as an "external finance fee" when a buyer already has financing arranged.
I have actually never had a dealer pull this on me (and if one did, I would simply walk out the door), even though I always have financing already set up with my credit union before I ever start talking to a dealer about a car, so from their standpoint I'm paying cash. However, every dealer but one has tried to either sell me their financing instead, or sell me a lease deal instead of a purchase. (The one that didn't knew there was no point because I was a GM employee buying a GM car at that time so every single aspect of the transaction was already predetermined.) I've never taken them up on it, but the fact that they try so hard supports your hypothesis that they aren't making any real profit on the sale itself, but only on the financing.
(When I was working for GM, which was some time ago, I had access to enough numbers to make it clear that GM itself was not making any real profit on the sales of any vehicles except full size trucks and SUVs; all of their profit was from GMAC, the financing arm. I used to say that GM was really a financing company that happened to make vehicles on the side. I suspect the other US automakers are similar. I don't think most non-US automakers are; their incentives are different and they are mostly run by technical people, not financial people.)
When I have my own financing, I will always offer to go with them if they can beat my rate. Unless it's a manufacturer-sponsored rate (0%, 0.9%, etc.) they typically can't. But I offer, so they feel a little better.
You may have heard TV & Radio ads offering 84 month 0% financing. For certain slow-selling vehicles, 90 month 0% is available. Which is insane - a loan of 7.5 years on a vehicle? You'd probably be under water for almost 4 years. Which has big concerns if it gets wrecked and you don't have gap coverage.
I lease a new car every 3 years. The dealer sorts everything for me from finance to delivery. I don't have to do anything apart from just phoning in telling them what I want. Next week I come in, sign the papers and drive off - everything in 20 minutes.
I don't disagree with you, but I do want to explicitly call out how uncommon it is for most people to be able to afford a car in cash. A decent used car, say 3-4 years old with 40-50,000 miles on it with a certified inspection/warranty (which, again, most people are wildly unqualified to actually inspect a used vehicle themselves) can easily cost over $15k, and we're not talking indulgent luxury vehicles, but sedans or crossovers from Toyota, Subaru, etc.
Based on the median U.S. income, it could take literally years expecting no additional discretionary income to come up with that kind of cash, or even longer if individuals are trying to keep cash reserves to situations like one we're currently experiencing. In practice. owning a car as an asset it generally considered a positive versus alternatives like leasing, which results in the accumulation of no vehicle equity over time.
There's not really a great solution here. Cars are capital assets--they're complicated to build yet already somewhat commoditized in their pricing. They can also last for much longer than most other consumables assuming reasonable use. With regular maintenance, I don't think it's unreasonable to assume well over 10 years of use from most modern vehicles, with most automotive loans having a shorter period. I'm not sure I can think of another commonly-used product that closely matches those conditions...
I totally agree with this rationale. What boggles my mind in the US is the fact that people making near minimum wage is pushed to buy cars because cities do not provide public transportation that enable them to have mobility. Here, I am talking about major urban areas around the US, where you are not able to have daily commute to work if you don’t have a car. This is very perverse from the economic mobility.
These people compromise a big portion of their income on Car financing + insurance + gas, that otherwise could be reverted as education, higher quality food, or better quality housing. I believe if we had a proper funded public transportation system, 200 dollars on unlimited public transportation ride ticket would be enough for most of the people.
I realize a surprising number of people are paid close to minimum wage (I believe the number is close to 30% in the US) a brand new Honda Fit is $16k. Federal minimum wage is close to that annually and some state's minimum wage can double that. If you can save up a recommended emergency fund, that's most of the way there.
I do think most people buy way more car than they need, which drives up all sorts of costs. If you can get out of the car loan cycle it's incredibly freeing. If you have a solid driving record and an emergency fund you can drop collision on your insurance (it's required if you have a loan) and save a few hundred each month to put towards your next car.
Jumping in here because of a pet peeve, since we're discussing "in the US" things. It blows my mind how people have fallen for the trick of not having sales tax included in discussed prices, and continue to exclude it as if magically someone else is going to pay it, or you don't have to work for that money. On expensive things like cars, it's a large chunk of change. Yes, it varies from state (and sometimes city) to state, but it should at the very least be discussed. That $16k Honda Fit in Los Angeles is going to cost you an additional $1520 in sales tax, real money that you really need to work for and be willing to part with to drive said Fit. If $16k is a problem to pay, that additional $1.5k in sales tax should be a concern to you as well. This is basically meant to mentally trick you into visualizing a lower price, and thinking "oh yea, that money goes to the state, not the merchant" as if, again, somehow that isn't real money _you_ have to part with. It's dishonest and can push some people into making bad financial decisions by treating the deal as if it's ~10% cheaper.
It would be great if we could start discussing real prices, maybe agree on an average sales tax rate which can be used in most discussions, with the understanding that it will vary a bit for you. Or maybe just add a 10% flat sales tax estimate, so that at least you know that most of the time you can expect to pay slightly _less_ than the discussed price, versus the unpleasant surprise of thousand(s) of additional $.
I agree and I wish there was a better solution. In the US you're paying sales tax with new cars as well as used so at least it's apples-to-apples in this conversation. And with cars it can vary sometimes where you purchase or where you live depending on your jurisdiction. I do think with a car thats something you need to shop around for.
I wish the US could suck it up and have correct price labelling. I don't care if they relabel products and it varies location to location or if the price is the same nationally and varying amounts get skimmed out (like credit card fees).
A new Honda Fit is $16k _before_ the dealer starts playing games.
Last time I went to buy one, the local Honda dealer tried to rig up a deal where a 2-yr-old model listed at $11k would cost me $19k. They were willing to budge on one of the $2k "mandatory" upgrades that weren't in their posted price, but I walked on the deal.
I think slightly older used cars can usually be had pretty reasonably though and can be a nice way to break out of the car loan cycle (if you can budget $1k cash for the likely event where there are hidden problems). The end of that story is that I bought a 10-yr-old Honda Fit for $5k, they didn't try any manipulative sales tactics, and 20k miles later I haven't had any notable issues (ran over a couple nails and needed to plug the tire). That's still a lot of money at minimum wage, but it's a lot more manageable than a new car.
I really hate the dealer game, but if you're stubborn and persistent you can often get what you want. It sounds like the best approach is to email multiple dealerships and make it clear you're only coming in after you commit to a price--you just can't overplay your hand. I bought a new Fit a few years ago when they shifted production between countries and kind of skipped a model year. So there was a shortage, especially the 6-speed low end. When I located one I didn't have much leverage to negotiate down, but I could stand firm on extra junk they tried to add to drive up the cost.
The used car market used to be fantastic before the 2009 Cash For Clunkers system seemed to have skewed it. It doesn't look like it has "recovered" but that could be due to other factors like better reliability overall. I mostly used a new car as a worst reasonable case scenario where the price doesn't fluctuate.
I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone.
This is often touted as a good rule of thumb but it’s really a fallacy.
Your money does not know or care what it is spent on. If you take out a loan to purchase a car, and then use the money you didn’t spend on the car to purchase investments it is no different to spending the cash on the car and the loan on the investments.
If you have enough money to buy a car AND investments (and you need a car) you’re better off spending that money on a car and saving on the credit cost of the loan.
What this rule actually says is “it’s better to have money and invest it in things that appreciate rather than not have money or spend your money on things that depreciate”.
Hmm, that really depends on the market you’re in and the rate of the car loan. I bought a car on credit at 1.8% and freed up money to invest in the market, which appreciated by a lot more than 1.8% per year. Also buying a car in cash is not considering the time value of money. If I spend $30k in one transaction, yes I don’t pay the extra 1.8% of interest but I also don’t have $30k with which to invest or partially hold as emergency funds.
I have no idea how rich you'd have to be to do that. Like upper 1% I guess. I'm a software engineer and the only car I could afford to buy with cash would be like a 10 years old compact. Or maybe a new Dacia if I saved for a year.
That's what I said though. After saving for a year all I could afford would be like a 10 year old car. That's why I'm saying that buying a new car for cash must be the reserve of someone super rich.
It's basically a 10-year plan, but you start by saving for an ~10 year old car for a few thousand and try to pay cash. Any potential car payment can now go into a fund towards your next car, which could just be a newer used car.
If you have a small savings and are a decent driver you can drop collision insurance (which would be required if you had a loan) and save an extra hundred or two each month.
At some point you should have an emergency fund with 3-6 mo of living expenses. A brand new Honda Fit starts at $16k. That's about a yearly salary of someone making ($7/hr) minimum wage working full time. So that should be in the realm of possibility for someone making more than minimum wage (or in a state with a higher minimum wage).
How expensive is your insurance?? I have a fully comp insurance with 20 million euro liability that's about ~$500 a year. If I dropped that down to a 3rd party liability only it would save me almost nothing.
I haven't needed to look in years, but I'm pretty confident it was around that back then. This site [1] says the average is $596 for collision and $192 for comprehensive. So for a brand new car for someone in their 20s I don't think it would be too far out of line for what I would have paid--but wouldn't represent everyone. Comparing to your number I'm surprised how similar the numbers are to Europe.
Local taxation. By handing out localized regulated monopolies, States and cities get to claim a chunk of the profits from each sale rather than handing it all off to an out of State manufacturer.
Income tax on commissions, property tax on the real estate for the lots and showrooms, business licenses for operating within the municipality. Really anywhere they can.
If there were less car dealerships, there would need to be more independent mechanics to cover servicing and repairs - so at the end of the day I don't think much would change in terms of state and city income.
These things all apply to every other business, but you don't see the same type of issues with every business. I don't see anything that state & local governments get from the current model above & beyond others.
Recession protection for the actual manufacturers. Dealers have financing costs in keeping inventory for test drives and show floor demos. Dealers generally have short-term financing per car that can destroy them in interest and fees when car sales stop even if they never owned the actual car.
Basically, the car manufacturer doesn't want to own the car and the dealer doesn't want to own the car; so the bank owns the car on short-term loans that incentivize the dealer to sell as soon as possible.
Horses actually have incredibly high emissions, and they produce a great deal of waste. Take a look at what major cities were like before the car became common.
It seems that in the late 19th century in the U.S., the annual death rate from horses was approximately 5 per 100,000 inhabitants. That surprised me, as it's ~1/3rd the current U.S. road traffic fatality rate, and as horses were used for more than just transport.
I couldn't find any figures, but obviously the distance travelled per capita has exploded, so it's likely that horse riding is at least several orders of magnitude more dangerous than driving.
In addition to just death rates there are broken bones as people fall off (possibly less of a problem with buggies as mentioned above), all kinds non-fatal injuries because of biting, kicking or just panicking and either running over someone or dragging them through something without necessarily killing them.
Ulike cows and sheep who only have front teeth in their lower jaws horses have teeth on both sides and can easily take a bite of someones arm if they snap.
Add to this the massive hygienic problems that would occur if we suddenly had these animals walking around leaving their droppings everywhere.
You guys are a tough crowd. The salesman at the Tesla dealership did literally the same for me as the guy at the Subaru dealer. And the Tesla guy got a commission for the sale, too (just like normal, a very small one, new cars don't have a lot of margin).
Good salespeople help customers by thoroughly understanding their needs, matching what the company sells to the customer, and explaining why the thing being sold is the best in terms the customer cares about.
Don't hate salespeople. Hate the fact that certain companies insist on employing armies of minimally-trained, low-skill, low-dollar lackeys running around who offer little benefit to anyone, especially high-information buyers, which you seem to be (which, keep in mind, not everyone will be).
FWIW I love good salespeople but also hate "being sold" in the way OP describes.
I deal with salespeople on a regular basis for industrial automation components. I'm an engineer and would consider myself a very high-information buyer, and I spend a lot of time with the products after purchasing and hear about any reliability or performance issues that crop up in the machine for years after it ships, so I know what I've been sold.
In that line of work, I'd say that there are 3 in 10 that drop by the office who are worth many times their commission - it's amazing to be able to describe your needs, and hear which of their products match those specifications plus considerations of requirements I hadn't realized, how their other customers are using the devices, know which are stocked/standard and when you've generated a parametric part number that's never been written before. But some of them are not really much more useful than the parametric catalog, and a couple of them just need to give up the engineering sales and switch to a car dealership or multi-level marketing scam.
I've heard them called Sales Engineers before. They're usually technical employees or engineers before they get into sales, and carry their technical knowledge and industry expertise into a sales role.
I've read many books on "selling" and I've also been a business owner for 12-years and dealt with salesmen quite heavily during this period. I know all the tactics, in other words. And I've never met a single sales person within those 12-years that did not resort to dirty tricks.
I encourage every entrepeneur to read this, because you'll see them time-and-time again. Most of the tactics are used to "get what you want", as they say, but also making the other side convinved they "won". Where they presumably come back and do it again to you. It relies on cheap psychological tactics. As a business-owner, 100% of the salesmen I dealt with used these same tactics. Identifying the tactic and calling it out usually neutralizes the tactic with the salesmen.
But as an arbitrary example, anchoring numbers. They'll show you an insanely expensive first solution. And then later lead you to a merely overpriced-solution. But the second ones seems "cheap" because they are judging it from perspective of the first price solution.
I've read many books on "selling" and I've also been a business owner for 12-years and dealt with salesmen quite heavily during this period. I know all the tactics, in other words. And I've never met a single sales person within those 12-years that did not resort to dirty tricks.
But you don't have to play the game by their rules. After all you are the one with the money, you can just take it elsewhere. If you are buying a new car it's not as if they are selling some rare commodity that only they have.
When they start bullshitting tell them to cut it out or you will leave; and make sure you carry out the threat if they keep trying to pull the wool over your eyes.
And make sure that you actually know what you want and what it is worth to you so that you don't get distracted by shiny irrelevancies.
"A shortage? Oh, I'm sorry to hear that. I don't want to be a hoarder or anything. We will be on our way and leave this car for someone who really needs it. Please call me back when inventories have returned to normal."
Because not everyone is willing/able to negotiate and even if this tactic only works on 10% of people that buy a car, that's still a nice commission for the sales guy.
With slackening demand for many products that might be considered more discretionary, we're going to see a unprecedented move by producers to maintain price pressure. Additionally, we presently have over 30 million people who are out of work and that's just what U3 is reporting. As you point out, there aren't going to be many people in a position to buy cars, electronics, home improvements, etc. Oh and those trillions of $ the government is hard at work giving away is neither going to the businesses they say they want to help nor you, the citizen. In fact, almost all of the government's pandemic actions really haven't helped those who really have a need.
On the non-discretionary front, various food items are reportedly in short-supply. Nothing is further from the truth. But with 80% of the restaurants down (a rumored 40% says they're closed for good), many distributors are out of business. Milk, beef, poultry should be seeing huge deflationary price moves. But by faking the shortages, the producers keep prices artificially high or even higher than pre-pandemic.
For more info on how this turns out, please research the fall of the Roman Empire.
I've found that restaurants are getting better at fixing this. We've seen a shortage of flour and eggs at our local market, but we got takeout from a local restaurant the other night and they offered us eggs, flour and milk at a completely reasonable price for a win for all.
Obviously not everyone can do this, but it seems like people are adapting at least!
I think it's true though that the places that used to make food in bulk are struggling to repackage their food for consumers to buy in smaller quantities, that can certainly lead to fewer foods available. so there is potential for wasting enough food that leads to shortages, but there is a real loss of market potential for those farmers that were selling foods in bulk to restaurants.
Not really related to the article, but this is from Cadillac's website:
To address concerns related to dealership sales department closures and social distancing, Cadillac is offering virtual tours of its products via Cadillac Live and promoting its “Shop. Click. Drive.” online shopping, purchase and delivery program.
Wasn't this the very thing the automakers were against when Tesla came up with it?
Cadillac (and other auto manufacturers) structure their program to include dealerships, rather than to cut them out. The sale gets booked against and delivered by a local dealership, rather than Cadillac the manufacturer.
Tesla does not have an independent franchise/dealership model, and all of their local presence is corporate owned. This is what all the automakers have been against, as there are a rats nest of local/state laws that require legacy automakers to not compete with/cut out their dealerships with direct-to-consumer sales, but Tesla has avoided that impediment by resisting having to adopt the sales framework the legacy manufacturers can't legally get out of.
That said, manufacturers would love to be able to adopt Tesla's model; dealers are the ones that hate it as it's an existential threat. Manufacturers are only against Tesla's model to the extent that they're not legally allowed to adopt it, so consider it an unfair advantage.
I doubt that most mass-market auto manufacturers want to move away from the franchise dealer model. It's tremendously capital intensive. Tesla can make it work since their cost of capital is so low. Where would Ford or GM get the billions in funding to run thousands of dealerships across the country?
Having worked at an OEM and in automotive I can tell that what you’re saying is simply not true.
Where would they get the money? From cutting out the middleman, from increasing sales by offering an alternative to the terrible dealership experience (spending 1-2 hours buying a car is not ok) and from gaining the flexibility to offer alternative business models (i.e. subscription models).
Dealerships are the past. They may very well be the deadweight that will cause incumbent OEMs to sink rather than swim.
The other key insight of the Tesla model is recognizing that three three traditional functions of a dealership don't actually benefit much from being colocated— which is why Tesla puts the showrooms in shopping malls, does the sales online with flatbed delivery, and locates service centers on marginal lands in industrial parks where it's easy to have a big parking lot and hold lots of parts inventory.
The legacy manufacturers could absolutely copy this approach and would love to do so.
I'm not sure, where you live, but here (Europe) car dealers are generally in the kind of urban sprawl, where industry and shopping malls are located as well. And the typical lifestyle brands have a lot of show-rooms in inner cities as well – for all the others I doubt it's necessary... People will buy used anyway...
It’s not about suburban shopping malls, it’s about urban ones.
Traditional car dealerships need someplace to store all the new and used cars which quickly gets into hundreds of cars sitting around. Showrooms on the other hand can get away with representative samples which requires vastly less space. That means they can afford locations with vastly higher costs per square foot.
Seems useful to compare the dealership experience to how it works in other countries. In the US, the dealership experience seems to be pretty bad for many people, at least it was for me and everyone I know through several car purchases. It hasn't been the same experience for the several cars I have purchased after moving overseas. Not sure I could pin down the reasons why. It might be the same reasons that the service you get from banks here is so much better.
Interesting, where was this? All the showrooms I've seen are strictly that and not even legally able to sell you a car. All they can do is "help" you access the website and buy it yourself online.
Almost all automakers are connected at the hip to a capital arm, so I think if anything they'd be unusually well positioned to take on the capex of building out a distribution network. Consider, by analogy, that banks and credit unions are unusual in commercial real estate for almost always owning their own buildings, for the same reason.
I'm not sure if the manufacturers are against it. It is complex. Dealers are the human face of the company. Someone to talk to in your town if things go wrong. Assurance that there is a mechanic that can fix it if something breaks (not just the engine, there are many other parts that can breaks. Assurance someone will be able to get the parts you need.
That doesn't means they have to like the dealer model, but there are real advantages to it.
I realized recently something that set me firmly against ever going back to the dealer - while I could afford their repair rates when necessary, they aren't able to figure out obvious problems, or don't want to bother, and the service advisors are on commission.
For years, I was aware of the cracks about "stealerships" and I didn't pay much attention, because I figured you get what you pay for and hadn't found a good independent mechanic. But I happened to see a help wanted ad for dealer advisors that mentioned commissions, about the same time as I had paid for an expensive repair on an out-of-warranty vehicle after dragging my feet quite a bit.
Maybe this is naive, but I genuinely did not know about the conflict of interest, and I expected the half of the dealer that sold (used) luxury vehicles to be no more predatory than the half that sells regular cars. On purchase, I figured, meh, I can afford the repairs, but I didn't count on paying for ones I didn't need and having ones I did ignored.
Yes, dealers also perform service, even beyond warranty items. The mechanics may not make a commission, but they are usually not the people talking directly to customers at a dealership. Instead, they send a "service advisor" that may or may not have any idea about cars. This person's job is to make money for the dealership and it isn't uncommon for their compensation to be commission based.
There are conflicts of interest everywhere in this process, as you might imagine.
the split between service reps and the actual service department is another reason I don't like having service done at the dealer, it's annoying having the service rep have a hard time interpreting notes written by the mechanic that worked on it, when at an independent shop you'd just talk to the mechanic.
But most dealerships are set up with a "service bay" that's just the desks of the service reps and a couple of parking spots, then after you leave they drive the cars around back to the actual service department. There's total isolation between the customers and the people doing the work. I suspect they might consider this a feature, "white glove service" or something, but it's irritating when you e.g. bring something in for diagnostics, and then get the diagnostic report from someone who doesn't understand half of it - an experience I have had repeatedly taking my lemon of a Nissan to the Nissan dealership because no one else in town has the stupid Nissan proprietary diagnostic computer.
Seriously, when I brought it in to have them figure out a problem that had been frustrating me for a while (I do most of the work on my cars myself), they confirmed my suspicion that it was the fuel pump and maybe saved me the work of replacing the fuel pump when it wasn't the problem. But, the service advisor also told me they recommended replacing the entire steering rack (!). When I asked why, he seriously struggled to come up with an answer, and just said something about it being worn. Really? the quoted rate on the replacement was more than the car was worth, and he didn't even know why they were recommending it.
Now I think I need a stability control reset that as far as I can tell only the dealership can do. I've really been avoiding bringing it in as I know they're going to charge me at least their $170 diagnostic rate and probably write me a quote for over $8k in work again, all for something that apparently takes about 30 seconds if you happen to have a Nissan CONSULT II.
I've had nothing but good experience with my Honda/Acura dealer. The rep/mechanic relationship is just like the waiter/cook relationship. It saves the mechanics' time so they don't have to deal with billing and explaining stuff.
At the same time, I've had no problem asking to go directly into the shop and talking to mechanic while pointing at the part in question.
There you go - I trusted the Honda part of my dealer, but my Honda had a bunch of problems under warranty, didn't cost me, but made me ask why not drive something more interesting, and there were BMW, Mercedes, and Mini under the same ownership, next door. So I thought, eh, the difference in reliability is exaggerated, I'll get a used German car for peanuts, considering the extreme depreciation, and be dealing with the same people. I don't regret buying an out-of-warranty car (yet), but I didn't realize that once they assessed me as someone who makes poor decisions/is reckless/has too much money that they would not treat me the same as with the Honda. Or maybe it's just separate management.
So I conclude, as everyone says, you got to do your own work as much as possible on an out of warranty European car.
No, the service advisor, who is not the same person as the mechanic, is on commission. I thought this person was just like a receptionist/clerk, but it is actually a sales job, at least at a manufacturer branded dealer in my area.
One reason I didn't realize this is because I used to drive a pretty mundane vehicle under warranty, so they never recommended anything grossly unnecessary.
> Dealers are the human face of the company. Someone to talk to in your town if things go wrong. Assurance that there is a mechanic that can fix it if something breaks (not just the engine, there are many other parts that can breaks. Assurance someone will be able to get the parts you need.
Basically all of those things died with the rise of the internet, because you then have direct access to the manufacturer via their website and could order parts and have them shipped to you. It would also be a lot easier to find a local mechanic if the manufacturers would publish the service documentation for their vehicles on their websites, which they don't do primarily to placate the dealerships who don't want the competition.
It's almost surprising that you can't buy cars on Amazon yet. You can buy cars on eBay, although presumably not direct from the manufacturer as a result of the nonsense dealership laws.
All those advantages could be provided by the car company owning all the dealerships that sell their cars, except it would be cheaper for both the car company and customer.
Why do you assume it would be any cheaper for the customer? I think it could actually increase prices by reducing the number of sellers in the market. You would have a single retailer for each brand.
This is simply not true. There are thousands of independent car dealerships in the US. There might be a local monopoly in a town, but you can always just drive a few miles over to the next dealership.
If the manufacturer could raise prices without losing sales to other brands, they would do that already. Eliminating the dealerships removes a middle man and the corresponding overhead.
The manufacturer might like to claim the entire savings, but there are two reasons that typically wouldn't happen.
First, then the manufacturer's margins are higher, which changes the calculation of how much margin to sacrifice to increase sales volume. If before the manufacturer was making $2000/car and the dealer was making $2000/car then the manufacturer lowering the price by $1500/car to double their sales isn't profitable; double $500 isn't more than $2000. If the manufacturer is now making $4000/car by cutting out the dealership, lowering the price by $1500/car to double their sales is worth it; double $2500 is more than $4000.
And then second, because the competing manufacturers would have the same incentives under the same circumstances. If they lower their prices by $1500 to double their sales, that's coming at your expense if you don't do the same.
Thanks for the thoughtful response, but I don't agree with the reasons you stated. If we don't see a race to the bottom today, why would we see it in the future?
According to this [1], new car dealerships have a profit margin of 1-2% while auto manufacturers have a profit margin of ~10%. Anecdotally, some dealerships have no profit on vehicles, and rely on services contracts to drive profit.
I interpret this to mean that there is significantly more competition between dealerships than auto-manufacturers. If a consumer wants a specific brand, they can choose between dealers and often will travel long distances to get the best price. When a dealer buys a brand, there is a single supplier with global monopoly.
I think the disproportionate share of profit already going to manufacturers also undermines your argument on the trade-off between sales volume and splitting of profit.
I'm not sure it would be cheaper. The car company needs to pay all the people in the dealership plus back office staff to manage all those dealers. It might or might not be cheaper. It is for sure a distraction from their real job (design and assembly of cars and engines)
You could easily move to a no-haggle model at that point. You also cut out a middleman business that wants profit on top of your profit. Yes, you have to pay those end sales people, but you don't pay the profit of that dealership owner.
Coming from a country which haggles all the time (India), and seeing the in general no-haggle culture of US, I was always surprised car purchase is one of the areas where haggling is culturally acceptable.
The difference is that the dollar value of time in America is higher. So while an Indian may haggle over a bag of lemons because the rupee value of the lemons vs. time is what it is, the American won't.
You'll often see this when selling used stuff in America. Poor people will haggle to the end of time because every dollar matters to them - something that manifests in selling something at a higher price being more risk-free than selling something at a lower price. For the same reason, if anything goes wrong with the used product they will be upset with you. Because every dollar counts to them.
I throw away cheap stuff instead of Craigslisting it because of the danger of it only being worth buying to poor people.
By the way, Americans prefer calling it 'negotiating'. You 'negotiate' a lower price, you don't haggle things down to a lower price.
Haggling is acceptable in Canada/USA with most large purchases. Cars, houses, hand-made furniture, bulk purchases, building leases, etc. Haggling is generally not accepted only when it doesn't scale well, which also has the advantage of greater transparency and fairness in those cases.
In line with the above, private sellers are generally amenable to haggling because it doesn't matter that it doesn't scale. So when buying a used anything on Kijiji, haggling is expected, particularly if it says "OBO" (or best offer), but not if it says "firm".
If the price is set semi-arbitrarily at the time of purchase, like some U-pick auto junkyards, the person setting the price is right there anyway, so haggling may be acceptable.
I haven't researched any of this; this is just my intuition from experience.
This matches my experience; I think some Kijiji sellers do get haggling fatigue after a while, where they've dealt with one too many tire-kicker types who show up offering 50% (or less) of the listed price. Or play other games, like agreeing on a price and then showing up short of cash and making a scene about having to drive back out and find the nearest bank machine. I had this happen once and stood my ground over it; suddenly the missing $20 miraculously appeared with no ATM trip necessary.
Anyway, being able to advertise a price as firm does provide a convenient escape hatch in that scenario.
I despise firms like carmax, where they promote their "No Haggling" as a feature, whereas I see it as a bug.
They're baking in a fixed profit on used inventory and the customer has no option to impact their profitability and reduce acquisition cost. Now that I think about it, I am going to buy long terms puts on their stock,as this event should completely destroy their business.
There's also the protection added to the MFG by layering.
Consider every dealership horror story you've ever heard. Both from customers -and- floor employees.
In both cases, having all dealerships across the country owned by the MFG means there's larger pools of workers to unionize, and a greater risk for a class action.
They probably are, because they manage themselves. Most dealers are not making money on sales : everybody comes in after checking Edmunds, kbb, and the like so they know what the dealer actually paid and don't want to pay more than that. The real money in selling cars is you can sell service and parts (you get first crack at all the first year service) . None of these scale to being run from headquarters, the mechanics need to be in each city. Dealers also do local advertising, something that is more expensive to run from headquarters just because local people have an intuitive feeling for what works locally and don't need to buy as much research.
I live in a building in (Bay Area) Oakland Chinatown.
A phrase the older Chinese folks use a lot in my building is "the older generation" or "the younger generation". As in, "the younger generation likes buying things online", or "the older generation prefers making a phone call".
It's made me think more generally about generational differences and how they affect buying patterns, and patterns of doing business generally. I realized, for example, that I really can't stand dealing with contractors (e.g. HVAC) in the older generation who refuse to use Google Calendar or email, and insist on doing everything over the phone, and face-to-face.
I think this "human face of the company" is a good example of a generational difference at play. I categorically do not want to interact with anyone at a dealership. I get product information from word-of-mouth/friends, YouTube, and other sources. Provided a company put some money into creating a customer experience that offered the same level of customization you'd get from a dealership experience (color, trim level, etc) I would be the first person to make a $20-30K purchase online. Not least of which because I'd be confident they'd have built a system not to fuck up my order vs. however it would get input by the person at the dealership who inevitably needs to enter it into the OEM's system to order it.
More and more it feels like I'd rather just rip the humans out and deal more directly with a company's back-office systems (e.g. for placing a car order), than have to play a giant game of telephone explaining something, only to have a human screw it up when entering it. It also annoys me when I call customer service and they remind me 20 times that I should use the website. Of course I should use the goddamned website. I wouldn't be calling customer service if I didn't try that first. This is probably something that won't change until people now in their 20s/30s are in positions to make these decisions in companies, at which time there will be some new trend the "oldsters" don't get. So it goes.
You must be a millenial. No worries, a Gen-X'r here, and I enjoyed buying our last two cars at Cartelligent (Sausalito). Pay a small fee, and have the car delivered to your driveway, sign paperwork, orientation and away you go.
Honestly, excluding the absurd situation with car dealerships and the laws they managed to get written for themselves, I'm rather glad most things still have local distributors.
It forces companies to have many more local points of contact as they otherwise would, which improves customer service. For example, with my HP laptop, I ordered it and all accessories locally and in my language, can have it serviced within a few days at any of 3 locations in our country, have someone that I can argue with in my language when they inevitably try to claim the warranty was void somehow etc.
If HP had chosen a direct distribution model, I would've had to order it online, send it halfway across the continent for service and have absolutely nobody to talk to in my language to in case of non-standard issues. We saw that exact with Apple some 10 years back, when it was impossible to get an iPhone from our country, because it didn't seem worth it to Apple, while Samsung and everyone else gladly threw phones at our distributors and watched the money pile up.
I bought a Macbook with Applecare. I had a problem with it and brought it to an Apple store. My data was backed up to the cloud so I had no issue surrendering it. I walked out with a brand new-in-box Macbook in less than an hour.
Waiting a few days for it to be serviced seems like it would be a much worse experience...
According to MacRumors there are only apple stores in 24 countries. Working with independent distributors does tend to increase availability of products and services in smaller markets, such as small countries, because the market is "worth it" to resellers located in those countries while largely ignored by the manufacturer.
I can't say as I've never owned an Apple product, but while I generally disagree with the way Apple's repairs work (see Luis Rossman), that was not the point of my comment.
The point was, that Apple didn't care about our country as there are only 2M or so of us and so we couldn't even get any apple products for many years, while every other manufacturer that used the distributor model was already here.
The point about repairs maybe doesn't apply to Apple (I don't know how they do things around here), but my OnePlus phone, for example, which is sold directly by OnePlus would have to get shipped off to by repaired, possibly at my expense, and I'd have to wait weeks to get it back. Same (to some extent) with anything I buy from Amazon - they're not present in the country so they don't have to abide by the warranty and repair laws as strictly.
Automakers aren’t against them selling direct, dealers are. And it’s illegal for automakers to do so because automakers tried to kill dealers earlier on and take over the sales channels dealers built out. Plus for communities, it’s more beneficial than they’re locally owned versus all of the money flowing out.
I don’t buy the idea that dealerships benefit communities. If they simply charged sales tax based on the address of the purchaser, it would be more equitable.
The current law creates local dealership monopolies, and the dealerships provide terrible service, and rip everyone off as a result. If you don’t like it, you have to drive dozens of miles to go to a competitor (and car purchases invariably involve multiple trips).
Cities want the sales tax revenue, so they give the dealerships huge tax breaks to attract them.
In Illinois and California, at least, the sales tax rate for cars is based on the purchaser's residence. I think though, that the bulk of the tax revenue goes to the location of the dealer (but I could be wrong). Purchasing out of state is generally discouraged by having the purchaser pay at least the difference in tax rates if the purchase was less than a specific time since the arrival of the car in state.
It might have changed, but I remember ads from dealers on just the LA side of the LA-San Bernardino county line advertising that sales tax was based on the purchaser's address. That was still the case in 2014 according to the L.A. Times [1]:
>There’s no advantage, in terms of sales tax, on where you go to buy a car. An Orange County resident who buys a car in Santa Monica will stay pay the Orange County sales tax rate. The sales tax rate is charged based on where the car will be registered.
I suspect that the Car and Driver article was poorly researched and factually incorrect.
It's a hell of a stretch to call a built environment with a car dealership in it a "community." These things are blighted dead space, and they belong out of the way.
I don’t buy the idea that dealerships benefit communities.
It's a method of spreading the wealth. The model increases the number of people employed and businesses involved, both directly and indirectly, exponentially.
You're not wrong, but there are far better ways to redistribute wealth than mandating the use of rent-seeking middlemen. Why not levy a tax directly and cut out the middle man?
Because the step past that of using the tax to redistribute is politically infeasible. It's like "Why not get rid of tipping and just give waiters a tax benefit?". Well, turns out we can't do the second piece so that's why we don't do the first piece.
If the purpose of dealership laws is redistribution then to get dealership laws you need enough public support for it to pass a law, in which case it might as well be the good law instead of the garbage one.
Moreover, this is exactly the sort of thing where the bad is the enemy of the good. If redistribution is good and cronyism is bad then allowing the cronyist redistribution law to pass not only placates the people who want redistribution (and so they fight less for the better one), it also inflames the good should-be-allies anti-cronyists and requires you to waste political capital on infighting.
Bad compromises are bad. Good law > nothing > bad law.
Usually when you do things like this, you package it in a defensible way. So maybe you decide you want some redistribution, but that's politically infeasible. Instead you package it as something else.
Another example is most big infrastructure projects in California. You'll notice that most don't finish in time. The real reason is to ensure that there is sustainable construction work going on. They're capable of finishing fast but no one wants that. They just want a large number of people employed. The Trojan Horse is "we're building infrastructure" because otherwise you have to fight the anti-redistribution anti-subsidy people.
That's because when a concession is made to people they rarely will fight to make it perfect in the name of perfect is the enemy of good enough. Anti-cronyists don't expend political effort because they don't have upper-level political support. It's not a thing anyone needs to worry about. Only people who want to get something concrete and people in danger of losing something concrete expend political effort.
> Usually when you do things like this, you package it in a defensible way. So maybe you decide you want some redistribution, but that's politically infeasible. Instead you package it as something else.
So do the same thing with the good solution. Make it a UBI but call it a negative income tax and tell everybody you're giving them a huge tax cut (which for the majority of people you actually are).
> Another example is most big infrastructure projects in California. You'll notice that most don't finish in time. The real reason is to ensure that there is sustainable construction work going on. They're capable of finishing fast but no one wants that. They just want a large number of people employed. The Trojan Horse is "we're building infrastructure" because otherwise you have to fight the anti-redistribution anti-subsidy people.
But that's the same thing. Instead of purposely delaying the construction, just finish it on time and then go back and say "look how inexpensive we can build things now, let's build all the things" and get a hundred more construction projects.
Blowing the budgets every time is how you get them all canceled by giving very inconvenient real evidence to the people who want to cut them out next time.
> Anti-cronyists don't expend political effort. It's not a thing anyone needs to worry about. Only people who want to get something concrete and people in danger of losing something concrete expend political effort.
All the cronyists and taxpayers are also anti-cronyists for everything but their own projects because everything else is competing for resources with them. A state can't pass a budget with a 500,000,000% deficit and expect anybody to buy the bonds, so every piece of garbage in the budget is crowding out the garbage that somebody else wants. The easier you make it to make the case against your thing, the more likely they are to get their garbage to replace yours.
> So do the same thing with the good solution. Make it a UBI but call it a negative income tax and tell everybody you're giving them a huge tax cut (which for the majority of people you actually are).
I think this might well be doable. I'm definitely on board with smooth social security over square-wave social security (what we have now).
> But that's the same thing. Instead of purposely delaying the construction, just finish it on time and then go back and say "look how inexpensive we can build things now, let's build all the things" and get a hundred more construction projects.
I'd say the origination costs angle kills this. There is high pressure to keep the tender process high-bureaucracy from all sides, so you can scale single projects into many dollars but you can't start many projects.
> I'd say the origination costs angle kills this. There is high pressure to keep the tender process high-bureaucracy from all sides, so you can scale single projects into many dollars but you can't start many projects.
That's the status quo. It sucks, therefore find a way to blow it up. Make it so that it doesn't work. Require the contractor to buy cost overrun insurance from an insurance company which obligates the insurance company to pay someone else to finish the entire job if the original contractor exceeds the budget by a penny, then let it be the insurance company's problem to figure out how to make the company come in on budget or contract the job out to someone else who can.
Once you blow up the bad thing (making construction projects exceed their budgets), the path of least resistance to more construction jobs becomes the good thing (many more construction projects that meet their budgets). But you have to blow up the bad thing first or it remains the status quo.
Sure, a step to setting foot on to the moon is to build a moon rocket, but it turns out the hard part is building the moon rocket. Methods exist today to incentivize speed and performance. It's not the lack of methods. What we don't have is a method to put the methods into practice.
Then shouldn't that be the problem everybody is working on? Forget about construction projects and car dealerships, would there be a huge objection into research funding for how to most effectively combat political corruption? Or a voting system change like range voting? [1]
* Information Asymmetries: I don't know anything about you or any other org working to combat this so I'm not comfortable spending money on you.
* Coordination Problems: Where do we act, on what scale, etc.
* Value Assignation Problems: How do I benefit from this for the effort I need to put in?
* Risk Problems: What is the chance of success solving a problem of this scale?
Essentially, I'm only seeking to explain. Personally, I have no problem with the system existing as it does. I would prefer other systems out of an inner desire for elegance. But I'm pretty proficient in acting within these to my own benefit so I won't tear it down. Perhaps part of the problem is getting folks like me to care to change this. I'm happy to cheer you on, though. Good luck!
It is inherently unequal though. Not every community gets a dealership, especially poor neighborhoods. But they do have car purchases. If sales were online, and sales tax distributed by purchaser addresses, the tax revenue would be much more broadly spread out.
Entertainingly, dealership owners are notoriously Republican-leaning. Perhaps they just need a bit of help staying true to their free-market ideals some times.
It depends whether you're talking about the politicians or the constituents. There are plenty of Republican voters with free-market ideals, because who else are they going to vote for? Bernie Sanders? But the politics is systemic corruption. To get elected, both parties have to raise money from somebody, and not a lot of those "donors" are buying politicians because they want fairness and free market competition.
It would be more beneficial for communities to not pay the "dealer tax". Why do we need to support a group of people whose job can largely be done by an app these days?
Having bought several Tesla vehicles from Tesla, all requiring back and forths with local service due to manufacturing issues, their process leaves much to be desired (both purchase and servicing). “Largely done by an app” is not an accurate representation of the problem space.
I've had two service items with my Tesla, and each left me very unsatisfied because I had very basic and quick questions that the app would not answer (e.g. how long is this expected to take?) but there was no way that I could talk to a human at Tesla. They have optimized their system to prevent any human to human contact unless it's in store.
However, as bad as that experience was, it was faaaaaaaar better than any dealership interaction I've every had. I would never go back, even though I disliked the Tesla experience.
Even if Tesla wasn't an electric car, I'd be tempted to use them just to avoid the dealership experience.
So that's a justification for the "dealer tax"? That the process is not "largely done by an app"?
Seems to me that if the process cannot be streamlined by an app, that the process is wrong. Growing pains for this industry, I get it. But it shouldn't really be any harder than what an 'app' can provide. Give me a few model options, click 'Buy'.
I’m not saying the dealer tax is warranted (absolutely not), I’m saying it’s still a lot of human effort even if you streamline the process with an app (financing, tax, title, licensing, vehicle defect issues, etc). Tesla totally botched my first Model S purchase and I was stuck for two days out of state while they fixed my purchase contract and my financing. This was after having bought through their website.
Just as high touch enterprise sales is here to stay, so is a human in the loop for auto purchases. You are not the average consumer if you’re here. Your average consumer will not tolerate rough edges of an app when spending $37k.
> Your average consumer will not tolerate rough edges of an app when spending $37k.
But that's the process problem. If you go to the website and click "buy" and the car shows up in perfect condition exactly to your specifications then there is nothing to need a human to interact with. And if they can get it to the point where that's what happens 99.99% of the time, having to send out a human representative the other 0.01% of the time is cost effective.
Only net profit to the owner flows out of the community. The money going to employees at the branch/showroom (which would still be retained, as they serve a purpose regardless of who runs them) is still retained in the community. Given how many auto dealerships are franchises owned by out-of-town individuals or groups, it’s already the case anyway.
i don’t know what the automakers’ stance was or is but i believe the organizations that have fought direct sales have been the national and state dealership associations.
No, you could always look at cars online, what auto makers didn't like about Tesla was their lack of dealerships. The auto sellers regulatory captured a bunch of states decades ago; and now you can't buy cars directly from the manufacturer.
If another electric vehicle player tried to get in the game today, I'm sure Tesla join the lobby against them using the same argument.
Regulatory capture is special interest groups in charge of regulating themselves. Of course private movie theaters are the ones who sponsored the bills saying production housing can't own movie theaters, it'd be bad for their business to have to compete and not have access to all movies. Regulatory capture can be sensible and still massively benefit special interests.
> Of course private movie theaters are the ones who sponsored the bills saying production housing can't own movie theaters, it'd be bad for their business to have to compete and not have access to all movies.
It was an antitrust lawsuit by the government in 1938 that brought this about, not legislation.
The lockdown is delaying electrics by a year or two. In 2018, Fiat Chrysler said the all-electric Jeep would be in 2020. In 2020, they said 2022. Now there's no date.
There's "mild hybrid" junk coming out, but that's a transition technology to skip over. Historically, things like that don't last long. Ships with both sails and steam engines. Metal-plated wooden hulled warships. The B-36 Peacemaker, with six props and two jet engines. (The all-jet bomber, the B-47, came out the next year.) Diesel locomotives with mechanical transmissions, like a truck. Acoustic coupler modems. Compact fluorescent bulbs.
How long do you need a transitional technology to last? A mild hybrid might not get you all excited, and probably won't be the #1 mode of personal transport in 1000 years, but is still is a solid choice for many of us today.
Why is it a solid choice? To me it seems mild hybrids are primarily means for grabbing government subsidies for electric car development without having to do much technical development, but I'm not very informed about cars.
It's a solid choice because you can get a good used prius for under $10K that will get 50mpg and last for many years without requiring expensive repairs. If you don't mind dealing with some repairs you can get one for much less than that.
If cost is no object and you want to optimize fro avoiding fossil fuel use it is not the best, but for most of us who do need to consider cost, it's very hard to beat mild hybrids.
I was in a train pulled by such a locomotive in the UK last year near Manchester! You should have seen my face when I recognized the first upshift and the re-engagement of the clutch plate, I thought I'd gone mad and accidentally boarded a bus instead of a train.
Was it a Pacer by any chance? In normal circumstances I commute to Manchester by train and even though they're terrible in just about every way, I kind of enjoy them.
They are famous for essentially sharing much of their design with a bus, even the seats and fittings. One of the trains in rotation still has original Leyland panels.
The market still hasn't budged in used car pricing though. JD power's report from last week only showed a 2% decline in prices. Wonder if/when prices will actually be affected by this.
Used car supplies are lower now only because like everything else auto auctions have for the moment mostly come to a halt. The supply of used cars awaiting auction is swelling from rental companies wanting to dump inventory and cars coming off lease. Once the auto auctions return to normal expect a significant drop in the price of used cars.
>The supply of used cars awaiting auction is swelling from rental companies wanting to dump inventory and cars coming off lease
Though some dealership are increasing their attempted shenanigans to keep those lease returns from coming back for as long as possible [1].
Some of the annual new car sales projections coming out in the past day or two are daunting, so it'll be interesting to see how it pans out. There's been a few estimates that the previously forecast 17M units for 2020 (with an ASP of ~$38,000) may be more like 7.7M units for 2020, which is a $350B industry revenue shortfall.
Supposedly the value has plummeted but the asking price has not - the result, no sales. The seller(s) aren't willing to take the loss to move inventory & are trying to wait out what they hope is a temporary dip.
Kind of like the recent oil prices, once people finally ran out of places to store the good the price will have to fall.
Not really. Percent off MSRP does not translate across models, across brands, or even across years for the same model and brand. (MSRP-to-real-prices inflates year to year.)
So you can't compare some percentage off other than the exact same vehicle sold in the exact same year. But you could already compare the exact sale price of two identical year/model vehicles.
MSRP is a reference point. So is invoice. You shouldn't ignore either, but one is not a better reference point than the other. Maybe 20 years ago when you had to pay a publisher to get the invoice price, but now that invoice prices are freely available on the Internet, manufacturers have raised invoice prices faster than MSRP and closed the gap between invoice and MSRP. Dealer margin on new car sales now comes from backend rebates and volume incentives that aren't public. The only way to truly discover the bottom line retail price on a car is to present yourself as a serious buyer and get quotes from multiple dealers.
The good rule to live by is you should always be able to negotiate at least 10% off a new car. If one dealer isn't willing to negotiate, go to a different one. Helped loads of people negotiate prices for their new car and 10% is always achievable. The only brand where you can't is KIA - they just flat out don't negotiate, KIA UK sets prices and that's what you pay. The dealership might throw servicing or some accessories to sweeten the deal but there's nothing they can do about the price.
The only rule I know of is supply and demand. If there’s sufficient demand for a product, the seller has no reason to offer anything off. The proof will be that you won’t be able to find a seller willing to sell it.
Before the corona virus stuff, there were certain car models that you didn’t really negotiate much over, such as TRD 4Runners and Tacomas.
Tesla also doesn’t offer 10% off or haggle if I recall. I’m sure they would if they needed to move product, but I don’t know anyone who got any discounts for a Tesla.
The only good way to negotiate is to find a similar car at another dealer and work back and forth. Without another dealer willing to sell you a car for a better price, you have no leverage.
Adding to this, expand the search radius for a dealer by a couple hundred miles/kms. Check their online inventory to find the vehicle that you want, ideally by looking at the window sticker to compare inventory (website data is generally not reliable).
Many car dealers have APIs that will show the digital window sticker by passing a VIN number -- these are usually embedded on their websites and can be easily found.
Then, negotiate over the phone, reducing prices by 1-2k across each dealer with similar inventory to get a great price, below invoice.
I bought a 4Runner in 2007 for $22,500. The sticker on it said $32,000. Took 2 weeks of negotiation, and high gas prices at the time really helped ($5/gallon).
I would be surprised if someone was able to find one under $40k nowadays (maybe after COVID). You typically have to order them and wait a couple months to get it if you prefer any certain colors or trims.
> The market still hasn't budged in used car pricing though.
Last thing people want to do now is buying (or worse, financing) a new multi-ten-thousand dollar car. Unless your car is falling apart or you desperately need money you should absolutely keep your car, which is why there are not enough sellers to force a price downturn for used cars.
For new cars the situation is similar but different - a new car doesn't lose much value until it has been sold. When a car company / dealership can afford to ride out for half a year until the consumer side stabilizes, why should they discount or even take a loss?
Doubt used will be impacted at all, if much. People are always looking for good deals on used cars, and most sellers dont immediately need to get rid of them, they can wait for a year or half a year and wont really depreciate that much.
If you're a person with an old truck you'd like to get rid of, yea maybe you can wait 2 years to sell it. If you're a BMW dealership that got 120 cars back from lease this month, and you're going to get 120 more next month, and next month, and next month...
The article was written in 2017... And it's predictions were pretty much completely wrong.
It's crashed this month, but the used car market has been inflated for a while now. I'm in the market for a new (used) car, and haven't really seen any good prices honestly. Should I just wait longer?
On the other hand, in recessions a lot of demand can shift from new to used. That might partially counteract the fact that used supply is less flexible than new.
Why would used cars drop in price? Since no one is buying new cars there's no supply of used cars. Lower supply means increased prices but demand is probably down as well so almost no change.
Leases come due. Cars hit the used market. You also have rental companies dumping cars onto the market since business has collapsed. Hertz might be going into bankruptcy. Repo's are another thing to consider along with private sales when people can't afford them or need to raise money.
There is a big supply of used cars coming. Rental agencies are offloading cars because they have storage issues with nobody renting their vehicles. However, lots of the car auctions are closed so that could prevent the prices from coming down.
They're actually about to reduce used vehicle supply to artificially inflate market conditions above where they're going to sink to. The corporate gangsters in Detroit are working on Cash For Clunkers part 2 (which will harm the poorest vehicle buyers the most over the span of years as supply is reduced, just as it did last time).
When I bought my current used car, in cash, the dealer offered it on financing for 0% or 0.9% or something very low — no impact on the selling price. It wouldn't have been a terrible decision to take the super low interest loan and put the purchase money into my investment portfolio instead (just another form of leverage). I paid cash anyway, because I went in intending to, but characterizing all financing as extremely desperate is misguided.
Not to be flippant, but the example used is Nissan, which has been circling the drain in the NA market for a couple years now. This wouldn't have surprised me if it happened 4 months ago.
Now, are ships full of Toyotas and VWs also unable to unload?
This is a direct result of Nissan selling boring cars with transmissions made of glass and jagged rocks for years without any sign of changing course.
Their niche was performance(even their budget cars had very good power compared to competitors), they should have left the boring appliances to Toyota and Honda.
Yep, the only Nissan vehicle I'd recommend at the moment is the Mercedes X-class.
(For those who don't understand the joke - thanks to the Renault-Nissan-Deimler partnership, all 3 companies share a lot of components, and the X-Class is literally a Nissan Navara with mercedes interior and badge)
Ultimately most modern cars are fairly reliable, however apples to apples Nissan has the worst CVT transmission out of all the Japanese automakers. Even Subaru overcame their CVT transmission issues eventually. If Nissan has done anything to fix it we'll have to wait till the 2017+ cars get up in their miles to find out.
That bad reputation is the reason used Nissans go so cheap these days.
And let me guess: it’s somehow not going to translate into lower new car prices because automakers are entitled to previous levels and will get government aid to prop up demand (cf “cash for clunkers”)?
A lot of people bemoan cash for clunkers but it does a lot of the general level of safety and pollution on the road. A voluntary culling of select cars/trucks is generally good for the world.
Cash for clunkers mostly hurt the working class as it resulted in higher used car prices (and higher financing costs due to compound interest effect on higher prices + higher interest rates for used cars).
Unfortunately, in the USA, you can't get to work (or even purchase groceries) without a vehicle with the exception of a few places.
The problem is that culling destroyed a lot of vehicles which were in very good condition, while leaving plenty of other unsafe ones.
It was agonisingly painful to hear stories of freshly restored classic cars getting destroyed because of that, while countless others in much worse condition remained on the roads.
How will this play out when auto dealerships seek to unload their inventory? Will it be via lower prices, manufacturer incentives, zero percent financing for longer periods than normal?
I'm sure dealers will want manufacturers to share the burden with rebates. Financing incentives seem risky given the chance that jobs are not especially stable these days.
Does anyone remember what happened during the 08 recession? I imagine this is a more abrupt dropoff, and presumably will be a more abrupt sales pickup as well. How would that lead to a different result here?
It depends in which manner they need to liquidate, if they can hold the inventory it often makes sense to do so instead of losing the 20-30% of market value liquidating it (you just do the calc of depreciation per day versus selling right now).
You can't really liquidate new cars, because there's regulations around selling new cars that prevents folks like Vroom, Carvana, Shift from taking on that inventory but those are the only folks who could really afford to do so with their respective funding from external sources.
Financing incentives are risky, but you account for that with increased income verification and other items - the deferral of payments for 90-180 days is getting more and more common.
This situation seems different from the 08 recession, as lots of folks _should_ get their job back once things are opened & we get back to a new normal so if you treat the risk as such you're hoping that 90-180 days is enough of a time period to have people be able to afford the loan they've gotten.
The real looming issue is you have ~4M or so vehicles coming off-lease later this year, so you will have an incredible influx of used vehicles to an already saturated market leading to great deals for consumers but not ideal times for most folks.
The harder part of selling online for dealers is that their money maker is in the hard-selling of ancillaries (Warranties, the "paint protector" and so forth) plus the F&I office (financing and insurance) but if you can't hard sell customers anymore then the majority of your profit center is gone so it's having a material impact on the dealers.
Happy to expand more or answer further questions as I work in the auto space.
Assuming that we remain bogged down by COVID for many more months / get a second spike of infections due to premature reopening, can we expect manufacturers to release new models and put dealers under additional new pressure to liquidate existing stock, or will they likely hold off and release 2021 models in 2022?
If you don't know what kind of car you want, head down to CarMax and test drive about five to six vehicles in the category you are looking for. Find the one you like, then check later that that kind of vehicle and year doesn't have some kind of terrible maintenance problem (most don't, which is why this can be done later).
Right now, year or two old used cars are selling for more than they are worth - so if you are looking in that price range, a new car may be a better deal.
If looking for used, I've bought all the ones I didn't regret off private party sales from Facebook or Craigslist. Just lurk daily for about a month and get a feel for what the ones that sell are priced at, and know that the ones that don't sell are probably priced a little high. When you spot a good vehicle at a good price, move! Try to get in to see within 24 hours. If it's at a good price, it will sell quickly. If you want to buy it, get it taken to a dealership for an pre-purchase inspection (Usually $100-$200). If you had a mechanic you trust, he might do it for free. If it's good enough buy it.
If looking for new, then the first step is to find the online forum where the power owners of that make and model hang out, and find the forum thread or spreadsheet where they post how much they paid. This is incredibly powerful, and is the key to your success. It will often surprise you how low dealers can eventually go. Pick a price low from the list, but not the absolute bottom as your plan.
Next step is to contact by email many dealers around, tell the vehicle you are asking for, say you are shopping around, and request an out the door price. If you shop say eight dealers, you will be amazed at how much these prices may vary (like 10% of the value of the vehicle). If you see what you are looking for, go for it, and walk out if they change the price later.
I don't know about the US, but we also have online brokers in the UK, for new cars.
They take a small commission (usually from the dealer), then contact a bunch of nationwide dealers on your behalf. The prices they get are better than or very close to the best you could personally haggle, and it takes like 2 minutes to make the request.
My personal opinion (though I haven't paid attention for long enough).
* Lease mileage seems to be trending downward.
* Overall reliability is trending upwards (easy to get 200k+ miles)
* This places a lot of 1 to 2 year old vehicles in the "almost new category"
Combine this with certified pre-owned program, you can pretty much get a "new" car for 30% less. This is inflating the price of cars with low miles since they seen as nearly the same as new cars.
If new - the best bet is to call your local dealers and talk to them. I'm aware of many dealers that haven't turned a unit in 3 weeks now, they need the business and likely will be willing to give you a great deal because they need a move inventory.
If used - I would wait until some of the auction houses re-open and try bidding on a car. If that's a little stressful (it can be) then I'd look at Carvana, Vroom and Shift (depending on your geographic region).
From there I'd look at local used car dealers - don't let them game you or try - Carvana/Vroom/Shift all recondition to a Lexus CPO (Certified Pre Owned) standard you just can't legally say that if you don't have the approval from the manufacturer (another weird quirk) - you should be able to find a like for like vehicle between Carvana/Vroom/Shift & a local dealer.
Whoever gives you the best deal take it, but both online and in-person dealers are marking down inventory.
If you can wait a few months, the prices will be lower with all those vehicles come off-lease.
Keep in mind that with Hertz filing for bankruptcy that other rental car companies aren't that far behind, so there could also be a massive influx from those folks needing to liquidate some assets.
I used to obsess about buying a car and thought dealers were the devil to be avoided. But once I got older and started working, I got over that; and my latest car purchase went something like this: 1. pick a car I wanted 2. look around online for what the dealer's price is (understood it's not accurate) 3. go into the dealer and tell them I want car X for $Y-300. 4. Let the dealer try to sell me the car on the lot that was the wrong trim and color, stick to the original car, accept $Y+200 for the price, then sign the paperwork and wait for the delivery. 5. Few months later, come in, sign more paperwork, drive away in new car.
The whole process was pretty pleasant, people were pleasant, the car was great, and now I still come over to get it serviced.
In retrospect they were a little too eager to accept my offer which was way below sticker, so I was probably off on their factory price, but I figure I'm fortunate that I can afford to not obsess about a +/- $1k and do better things with my life :)
I cannot recommend Costco’s auto program [1] enough for a buyer with your profile. Dealers with whom Costco works have been vetted by the Costco machine. Prices are pre-arranged based on your zip code/location, and they have a live help number if you need to start with, “which car should I get”.
I know three people who have bought a car through that program and they have nothing but praise for the experience.
Then any car salesman will happily sell you the perfect car for you that just so happens to make him the most in commission.
If you don't know what you want, or don't know anything about the make and model you're buying, you will be taken advantage of.
It's perfectly fine to walk in to a dealership and look around, touch and squeeze and sit in all their cars to figure out what you like. Take one for a test drive, or five. Don't commit to anything.
Before buying a car, you should ideally have picked out a specific car from a dealer's lot, with the specific make, model, trim, and options you want. Price that specific car on kbb.com or trucar.com so you know the average price range for it. This is the only way of knowing if a specific car's price is "good" or not, because you cannot trust the dealer on this.
Dealers have to check how their manufacturer agreement is. Some will sell at below cost because their allocation of cars and bonus for selling a lot of cars depends on numbers not profit per car (they make up loss per car on other things). I expect manufacturers will modify those rules so who knows. Other dealers may not take new inventory until current sells and be less concerned about a few months of low sales.
Oh, right. That was widely seen as ineffective at accomplishing its stated goals, right?
I wonder if the government would try something like that again, perhaps limited to domestic manufacturers or cars manufactured domestically. I can’t see the current administration giving incentives across the board.
How is that an insane deal? Like someone in a sister thread mentioned, the interest rates are so low that paying later has very little benefit since you can barely invest the money anywhere else. All this does is make you pay the same amount a little bit later.
0% is very nice, but oftentimes there is a cash rebate alternative. On my last purchase (last model year Volt before they were discontinued) I could take 0% or $8,000k off. I took the 8k!
0% has been common for years. 2015-2018 they were super common. Only the automaker offers these loans, and it's because they just take the loss out of their profit margin.
I mean not all investing has to be some risky thing. Say the car costs $25k. Put $5k in a 1,2,3,4 year CD and pay off each year with what you get from the CD and at the end of the 5 years enjoy the $1.6k you made for basically nothing.
Here is what needs to happen: the vast majority of people need a steady job that sees them afford a car. They need to not be "financially literate" because the vast majority of options open to them are not financial footguns, and we need a world where playing financial games doesn't make or break a person.
What was it Henry Ford did?
a. gave all his workers a Robinhood account so they could play derivatives and try to afford one of his cars
This is a very US centric view of the world - whose gotten itself into a corner with urban planning centered around cars. People don't need cars, they need mobility and the ability to get around their surroundings efficiently. If we're making up solutions to the world, by all means raise salaries if you can, but I wouldn't center our goals around car ownership. Walk around, ride a bycicle, use public transportation.
Yes they might not need a car if there is public transport.
That wasn't my point. My point was ordinary people shouldn't be looking to hedge the principal of something costing $15k with long/short positions in the stock market.
This is the financialisation of yet another area of western life and it's not smart.
Isn’t that what dealerships call “bonus cash”? Like you have to run the numbers yourself but you can use that as a point of negotiation if you’re buying outright.
Also 0% loans are fantastic for your credit! I take them as much as possible because it’s a free credit score bump.
A lot of this is because they want to maintain the status of the cars they sell.
For instance, the Honda Accord outsells the Chevy Malibu by ten-to-one. Instead of simply selling the Malibu for a lower price, Chevy wheels and deals on the rebates and the financing.
I don't see any massive discounts happening. If someone started offering some serious deals on cars, let's say 25% off the ordinary price and no bullshit like the other guy ran into, I'm sure they could sell some serious volume. Instead it's just the dumb sit and wait like it has been in past recessions.
25% is generally more than both the dealership & manufacturer's gross profit put together, so 25% would be a loss. Dealerships themselves generally markup 2-5%.
It might be a smaller loss than they'd take by waiting for things to deteriorate further. I interpret their 'wait and see' strategy as optimism that things will be better soon.
True. If they're stuck servicing loans or paying storage fees (especially those associated with having them on a ship for an extra week) at some point it makes sense to sell at a loss rather than incur more fees and uncertainty.
It depends on options & features (1), at least in the U.S., along with things like whether or not you're trading in another car (2), and your financing options (3), and manufacturer incentives (4)
1) The car as delivered from the factory has a 2% to 5% markup from the dealer. The factory usually sells it at about a 15% gross profit. But some features added on are often done by the dealership and have a larger mark up, meaning it gives the dealership more room to negotiate.
2) If you're trading in a car, the dealership will often present things as a package. It is very difficult to get them to first negotiate a car trade value, and only then move on to selecting a car, negotiating a price, etc. Because of this, they can give the appearance of cutting the price of the car when in reality they just gave you a much lower price for the trade in than they know they can sell it for.
3) Dealerships make a significant amount of their money from financing: if you have a loan for 6%, chances are the dealership, through volume with the bank, are "buying" that money at 3% and pocketing the difference. This means they have further wiggle room on price without sacrificing profit.
4) There are frequently manufacturer incentives, especially toward the end of the model year when new models are set to come out soon. It's not uncommon for manufacturers to want to clear out dealer inventory to make room, and frequently they'll give around $1k to $3k in rebates. Dealerships don't necessarily present this in a straightforward way, and will sell the customer on the idea that they're getting a discount on the car price from the dealer. If you don't happen to know about the rebate and don't negotiate well enough, you might not get the rebate at all.
All of the above mean that dealerships frequently have options to negotiate the appearance of a much better deal than you're actually getting. They're not actually cutting the car price, they're tweaking all of the other parameters that determine their revenue stream.
If you go into a dealership and want no upgrades, have no trade in vehicle, are able to pay for the car without financing from the dealer, and there aren't any other rebates, you won't get much off the sticker price. In fact the sales folks will often treat you like they're doing you a favor just being willing to sell you the car at the sticker price.
Exactly. I don't feel bad about them not being able to move inventory during this time if they're unwilling to alter pricing.
Dealers are effectively rent-seeking, and nobody but those profiting from it will mind them disappearing overnight. It won't happen, but one can dream.
There was recently a guy who did a helicopter tour on YouTube [0] where he flies over Dodger Stadium and points out that although there are no baseball games, the parking lot is completely full with new cars.
It's crazy to see. They are putting them anywhere.
Living here in LA/OC, virtually every big mall parking lot in town is packed to the gills with new auto inventory parked head to tail. The SNA airport parking lot is also being used for the same thing.
> The port is fortunate in having another source of revenue, though. It’s a big importer of tropical fruit, like pineapples, avocados and especially bananas.
With the level of just-in-time inventory systems used in the auto industries, I'm surprised the manufacturers could actually build this many cars.
I'd imagine the whole line would be down if they are waiting for the bluetooth module that usually comes from China.
Something that always bothered me: how do so many cars get sold? Aren’t these very durable objects that last years? I’m just having trouble wrapping my mind around the scale of demand for new cars.
I've owned three cars, all three of which I inherited used and were already ~8 years old when I got them. My current car is nearly 17 years old and drives great!
What in god's name are people doing to their cars that they have to be scrapped so early?
My partner was nearly crying with sadness recently when she had to scrap her 22 year old car!
A lot must be getting leased and returning as used cars I'd venture the average life is within ten years even though with proper care a Toyota could ostensibly go for a lifetime
Used car sales are big too. I don't know how many are exported.
17 million new cars are sold each year. They're are 300 million people. 10 years per car (average) only ~56% of people would have bought a new car.
91% of households have access to a car.
The sheer number of people help create large car sales volumes. While shared, and while durable this is the rate needed to replace cats which cannot be (or not worth) repaired.
Yes, we replaced the cat on my wife's car last year, it cost more than the car was worth. That and a ton of expense on sensors and fuel injectors pushed us into replacing it. It was a shame really as cosmetically it looked fine and generally drove well.
If I had to guess, leasing made a vibrant secondary market, which enjoys a steady stream of new cars/trucks, so financing options displaced a portion of the durability. Or should I say, shifted the durability.
You can usually always find a great deal on a popular car by finding a bulk/invoice dealer in a very large city. If you're willing to drive 8 hours, there's always some massive dealership that sells at invoice or a few hundred above to move in volume. Buy it, drive it back, avoid the local 2-3K surchage they'll add in smaller cities. They'll often even ship them to you for a 1200$ delivery fee or so. Not covered though, recommend you just drive it back after a cheap flight. If your time is worth more than this, buy it locally. Negotiating lower than MSRP but higher than invoice is trivial.
Sure, you can probably go 500-1000 lower if you're willing to spend ungodly amounts of time waiting for a dealership to need that final sale to meet some incentive at the end of the month, but that's luck and not a great use of time.
There's no such thing as a "great" deal on a car. You aren't ever going to buy a new, popular car with popular options/color at a massive discount. Why would that be possible?
And finally, if going 1000$ under invoice on a new car is that important to you, are you really the sort of person that needs to be buying new? Buy used and avoid the instant massive depreciation.
Pure speculation on my part, but I think the craziest deals will be found on cars that aren't big sellers, particularly a few months from now.
For instance, the Kia Stinger is a good car, but nobody is buying it. At some point, they'll start offering bigger and bigger incentives.
I purchased a brand new car for about $18K off MSRP because it had been accumulating dust on a dealer's lot. I bought it at a rural dealership where there just wasn't a big demand for anything but SUVs and trucks. The same car was retailing for thousands of dollars more in the city where I actually lived.
Once the car dealerships reopen, I think there will be the mother of all sales. If you were thinking about getting a new car, this might be the best time to do it.
Question for the people out there smarter than me: I was looking to get a new car before the crisis, and since I’m lucky to have stable income I think I still will. But given that manufacturers are going to want to clear inventory, how long should I wait? What sign will tell me it’s time to buy?
Make a list of email addresses of sellers you would purchase from. Email them with a price under what you’re willing to pay. See who responds with best offer. Repeat every month until prices stop going down. And depending on what brings you joy in life, don’t waste too much time saving a couple thousand dollars.
the automotive demand was already slowing down considerably before this all hit. but now it's a double wammy. I don't really need another car. I'd love to buy house, if there was one available.
It's funny how we don't really see the supply of houses piling up the way we do with cars. Granted, the housing market moves slower. But, I bet, even in 6 months, in coastal areas and the bay area, the month supply of housing will still be very low.
In the parking lot of the closed mall where I live (Toronto), they have parked hundreds and hundreds of cars. I didn't quite understand why but it seems that it might be related to delivery of cars that might have arrived in the city and they had nowhere to put them since the dealerships are shutdown?
The title should still be in the sea offshore as it is in general car is parked on cargo ship all the time when it is delivered even if there is no virus. In fact, I suspect the time stay in the ship could be > 1 week.
Being a city dweller, I don’t own a vehicle, however I wonder if this glut means there might be some good deals on vehicles later this year? I’d love to get my hands on a Toyota 4Runner for some off-road adventures.
Same. The headline made it sound like dealerships had a bunch of cars already ordered, and were caught dumping them in the ocean because they weren't selling enough inventory to make room for the newer cars.
Not really... Oil is "parked at sea" right now and you see the effect. Too much supply is too much. I live in a medium sized city and parking garages are full of rental cars as they have no where to put them. All of our dealers have lots full to the brim. Sales fell off a cliff.
well that and it certainly is not just SUVs but that does make for a more click bait title.
It would be interesting to see how many products are affected that sit on container ships. I have not seen any slowness in delivery of mailed items, specifically ebay auctions that were shipped from China
This is the real reason for Elon Musk's latest round of idiotic tweets, in case anyone was still confused.
Tesla is an expensive company to run, their finances are often at least a little bit precarious, and he has on the order of tens of billions of dollars riding on there not being a recession right now.
There's no hidden gem of contrarian insight, he's just being selfish.
You're almost certainly right. Although: I don't see the tweets as a sort of sociopathic "if I use my bullhorn to influence public behavior there is a .24% chance that this will increase my net worth therefore it's the optimal choice" way.
More like, he really is under a tremendous amount of financial stress, and twitter sometimes tempts him by being a place that will listen, no matter what, good and bad.
That's one of the few things I actually like about twitter. That by the sheer temptation of it, it worms its way past the PR teams and the polished sheen and gives the raw thoughts of people in positions of power.
We did not pay the surcharge.