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 It's an outdated system that should have been dead a decade ago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 She was ready to buy a newer version of the CUV she had already owned for 7 years, but when we got to asking "What's the best price we can get on it?"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.
We did not pay the surcharge.