The rise of 'stealerships' and the shady economics of car buying
npr.org
npr.org
Specifically: the car is only the first part, then there's extra warranties from dealership, financing, etc.
A standardized quote that gives you the price of these optional items would go a long way in making the experience smooth.
Private companies can solve the issues themselves (Carvana), but that's coming at a significant $ premium so far.
The FTC rule mentioned in the article mentions this:
> Require full upfront disclosure of costs and conditions: The proposal would require dealers to make key disclosures to consumers, including providing a true “offering price” for a vehicle that would be full price a consumer would pay, excluding only taxes and government fees. It would also require dealers to make disclosures about optional add-on fees, including their price and the fact that they are not required as a condition of purchasing or leasing the vehicle, along with disclosures to consumers with key information about financing terms.
I ended up leaving with the car I wanted and paid about $500 more than I wanted to but they wore me down.
I think if you buy through Costco you can avoid some of the bullshit, but you do pay more than you probably have to. It might be worth it though just to have an easier experience.
This has the air of "That One Weird Trick" that used to work in the early 2010s before everyone had heard of it. But now that it's the lead paragraph in every single "how to buy the exact car you want, for so much less money" blogspam, of course it no longer works.
I'm not sure why people expected it to continue when the entire business model of car dealerships is to turn suckers into money.
"Having to interact with a dealership" is around number 4 or 5 on my list of why I will never buy a car again, after years of not having one.
Right now, some might balk. But you know what? That salesperson cares about their quota, and if your purchases pushes them over today's goal number, they twitch. Because the inevitable next buyer tomorrow isn't going to get them over the quota they need to meet today.
And if your dealership really plays hardball? Move on to the next one. Or buy used from a place that doesn't haggle.
The way to lose this is if you want a specific year/make/model - they'll get you. If your entire attitude is "anything within that set of parameters", it's much harder for them.
My best car buying experience has been Tesla though. Ordered on the app. Put 500 down. Got a build date. Got a notification when it was in delivery. Added my payment info. Got a time to pickup car. Drove home.
Let me put it this way: you've got the entire continental US you can buy a car from and shipping a vehicle coast-to-coast usually costs under $2,000.
So, what do you think is truer? Is the market excruciatingly tight, or are there just a lot of people making bad purchases out there?
At least for the Prius Prime someone wrote a script to grab the data which you can peruse[1].
E.g., for 6/30/22 there were 113 LEs, 99 XLEs, and 18 Limiteds that weren't listed as presold on that spreadsheet.
I spot checked both by enumerating through Toyota's list of dealerships and emailing roughly 50 dealerships. Based on the response I'd say even in July only 10% of those numbers were actually available. And cut that in half once I let them know I was inquiring out of state.
Average markup over MSRP was probably 5k. (Outlier was 20k "market adjustment" :)
So regardless of whether people are making bad purchases, the market is exceedingly tight.
https://www.reddit.com/r/PriusPrime/comments/vcajy9/2022_pri...
It's a bit of a drive to get there in the adjacent state, but totally worth it.
Edit: Also, we made deals for vehicles they had in stock, not custom-configured from mfgr.
I'm not sure I'd ever go to a dealership again. They make things so painful, and wring as much money and stress out of you as possible. There seems to be zero benefit for the consumer.
When buying used from a private seller you really can find almost anything you want at a substantial discount if your timeline is not urgent.
Reading the comments here about peoples' experiences at dealerships, I kept thinking "Do I really need to move to LA? Is there any other way I can accomplish my goals?" I'm glad to see you've had success dealing with private parties. This is absolutely the way I will go when it comes time for me to bite the bullet and buy a car.
You'll probably have to pay the difference between sales tax in your current state and CA tax when you register it in CA though.
I know a number of NYC and Chicago transplants who moved to LA without cars and get along fine. Pre-COVID I commuted to work by rail for several years, and occasionally take the rail to work now.
I'm now working in tech, so I'm able to work from home and avoid commuting (thank God). I'm tentatively planning to move to East Hollywood, where my community (improv comedy folks) mostly congregates. My goal is to live within spitting distance of Barnsdall Art Park (near where The Clubhouse venue is), or, failing that, the UCB Theater on Franklin Ave. I figure there will be a Vons or Ralphs somewhere nearby, and I guess I could Uber for everything else. That said, I'm a huge foodie and having a car would allow me to explore the city in a way that public transportation just wouldn't.
I was planning to buy a classic car like an old 70's-era Ford Bronco / F150, Jeep Grand Wagoneer, or Chevy Silverado since I'm not a huge fan of modern auto aesthetics, and that kinda lends itself more toward a private-party transaction anyway. I feel like, as long as I find an apartment with gated garage parking, that should reduce most (but not all) of the risk, right?
I bike to work everyday on my electric bike and run most errands by bike (doctor, haircut, groceries). While I do have a car, I only use it for trips outside of town on the weekends (plus monthly Costco runs).
I would personally avoid private for cheap cars or those that transact often. As you might end up dealing with "jobbers" that is unofficial resellers.
[1] They insisted the car was in perfect shape and passed their 87 point inspection even though it was listed as totaled due to flood damage when I ran the Carfax. Plus it had this weird thing where it was listed as garaged in New York but titled in Florida and it seemed like nothing on the report matched up. That and the VIN was obscured by the black goop they used to glue the windshield on when someone replaced it, I had to use the VIN from the door. This was back around 2006-2007, so maybe the situation has improved, but I kind of doubt it.
The trick to making this interaction go your way is to not play their game. If they seat you at a table and make you wait, just get up and walk away. Go start looking at another car. This will freak them the F out. My last interaction with a car dealer was hilarious. When I started playing mind games with them (walking away while they made me wait, fake-scrolling through ads on my phone, wondering out loud about the dealer across the street) they literally bent over backwards. They lowered the price on the car I wanted significantly. They offered me more than KBB trade-in value for my old car. They even offered to buy my wife and I lunch because we acted like we were going to go think it over while we ate.
It's all mind games. Don't play theirs. The dealerships tactics are not very effective if you take control. They just get a lot of practice and they know that new-car-smell is addictive.
Somewhere, somebody interested in delivering customer value will sell you a quality car at a price that is respectful to all parties. Buy that one. Do note that a respectful price preserves a margin for the dealer.
Until they don't. Throwback to that time "the world's largest Chevrolet dealer"[0] went under like Jacques Cousteau[1].
[0] https://web.archive.org/web/20070202025849/http://www.billhe...
[1] https://web.archive.org/web/20170901203212/http://www.tbo.co...
Greg did a good job documenting the challenges of buying a car in today's market. Fortunately, we are starting to see a softening in consumer demand which has led to used car prices to begin to drop in some areas and for certain types of vehicles.
We expect that as automakers increase production we'll go away from markups. The timeline for that is tricky since Asian brands (Toyota and Honda especially) are struggling MUCH more than American automakers. MSRPs are rising fast too, so while dealer markups may disappear as demand weakens and supply increases, don't be surprised if you see MSRPs that are 5-10% higher year over year.
Wait times right now for hybrid vehicles are over a year. The push to PHEV and BEV will continue to be delayed due to ridiculous prices. The average transaction price for a new EV last month was north of $66,000. Not affordable.
Great insights in Greg's article. I wish we could have helped him before he embarked on the journey.
But overall, it was a couple of visits and a few hours and I got the vehicle (Honda) in six weeks.
(Also, the superlative owners' manual for my wife's Saturn was a user-friendly document designed with the end-user in mind. Never seen anything like it before or since.)
I managed to use those tricks when I bought my first car. Managed to get it at about 40% of the sticker price (used car). Haven't been as successful since though.
Also what is up with dealerships and mandatory arbitration agreements? So you can't buy a car now without signing an arbitration agreement?
Subaru’s brand value is so high that Fuji heavy industries renamed themselves Subaru after their car mfg division
Financing is financing. It's not the car. If you show up without knowing how you're going to pay for the car, well... you showed up without knowing how you're going to pay for the car.
Yeah, they'll ask about extended warranties and such, but it's just a matter of saying "no" a couple of times while signing paperwork.
"Oh, don't worry, Carvana has a 7-day money back guarantee" - yeah, I don't want to have to unwind a major transaction just to test-drive a car. Especially if I'm trading in a car as part of the transaction - from what I've read if you trade in a car to Carvana and then decide to return the car you've purchased, they don't bring your old car back.
I wish there was a service where you could give them say a hundred bucks and they'd deliver maybe your top 5 cars to your house to poke around and test drive. The Zappos experience (they encourage people to order multiple sizes to try on and make the returns easy) but for cars instead of shoes.
Trying to imagine the logistics of getting this done - profitably - within a Carvana-like model for anything close to $100 just broke my brain.
This might only work for dealerships within a certain distance of course.
But right, the part about doing it profitably would probably require a dealership that gets a successful sales lead to pay a fee to such a service.
You go to their lot of used cars, you poke and prod them, then you rent one you think you'll like for a week for a couple bills.
If you decide to keep it, the rental cost is put against the purchase and you keep the car, if you don't like it you return and try again.
Not all locations offered it, however, but it can be nice.
Even if you don't use it, renting the car or type of car you're thinking of buying can be a good strategy.
See Jeremy Clarkson of former Top Gear glory describe it: https://youtu.be/NYt9DO5WXr8?t=65
The worse maintenance a rental agency does, the more likely customers experience problems, never rent from them again, and trash them in reviews. I'd say there's plenty of incentive to do more than the bare minimum of maintenance.
I think a lot of people end up using Turo for evaluation purposes. I'm a little surprised that no one has attempted to disintermediate/democratize car sales as well as rentals. If I had the option to buy the car I rent on Turo, that would scratch the itch you're referring to, wouldn't it... at least for the used market?
That'd be a neat option on Turo - "ok, I'm looking at buying a Jeep - I want to test-drive one to validate this desire, but ideally one I could buy if I fall in love with".
https://www.autoblog.com/2022/07/20/carvana-illinois-license...
PS - they've been reinstated again. Maybe.
If you still had the VIN you could probably search what happened, heh.
Be frugal with options/extras. Don't show excitement. If you're poor at negotiating, try the brute force approach of an exit. Doesn't matter what the offer is, just laugh, mumble something, and exit the venue. They'll normally stop you. Don't bite at the second offer either, they were already taking that into account. Hassle some more.
This assumes a market where the seller has a very strong incentive to sell, so not when there's lots of buyers.
Have bullet proof facts ready, like prices for the same car elsewhere. In short, come prepared.
But, first thing I did a long, long time ago was read all I could about dealerships, dealarship tactics, dearler salesperson tactics, info on how to lower the price, and everything I could get my hands on. This was before the internet and I'm positive there's a ton of stuff on this on youtube and elsewhere.
Homes and vehicles are the biggest ticket items that people purchase. Not to learn everything you can about buying a car is idiotic, with all the resources available out there.
I've known the trick about "trade ins" for a long time, this has always been known. So you don't even talk about trading in your car. You sell it privately. You will never get the same value from a dealer, it's impossible, why you even trying to do the trade in?
Never fall in love with a car and let them know, always seem like you don't care. Go to multiple dealers. Never do the whole "let me take your drivers license and credit card" trick so that they can keep you there waiting for the financial office to "finish processing" or whatever bullshit they spout. Then they have a second salesperson take a crack at you if you're not buying.
Anyways, read up. Watch up.
https://www.youtube.com/results?search_query=how+to+get+best...
https://www.youtube.com/results?search_query=car+sales+trick...
I’m in the market to get a car for my 16 year old daughter. Found a car she wanted online, made an appointment (after they confirmed the inventory with the dealership) - we drove 2 hours only to be told the car we wanted just got moved to sister dealership a few miles away… asked them if we could go see or buy it only to be told it sold (after a minute of “checking”) and by the way all cars are marked $10k above MSRP in the name of market adjustment!
I guess technically it’s not false advertising since the advertised car we wanted “sold”. What infuriated me is not even time wasted - with confirmation I started financing process!! Now I have an inquiry on my credit report for nothing.
It’s such an outdated sales model based on trickery and I hope dealerships go by way of malls in my lifetime!
I worked at a car dealership and they absolutely lied about this stuff. They would say that the law lets them do it as long as it was sold within 24 hours, but they also kept advertising cars that had been sold weeks ago. Every time someone came in and asked they'd give the "Sorry it was sold within the past 24 hours" lie.
It was a stress-free experience and I would definitely recommend you look into that if you really hate the idea of buying a car.
Some dealerships offer no-haggle pricing around here. Their sticker price is typically slightly lower than comparable cars in other dealerships, but people spend on average more for every car purchased at them, I think it amounted to around a thousand dollars or so. But that study was also from over a decade ago.
The issue this article really looks into is that we invited government into auto sales for some reason who required dealerships (among other things) be mandatory and independent, so when Ford released the Bronco or Maverick and they turned out to be popular, Ford might say "this Maverick is worth 25k" and then the dealership would mark it up to 40k and there was nothing the buyer could do about it, even if you ordered from Ford. Dealerships would accept your vehicle, say you need to pay an additional 10k, and if you don't they won't let you leave with the car
I've heard of it happening with an electric car, but those are in such insane demand that normal rules don't apply.
The first year, that was happening with the Miata. The second year, things got back to normal and I paid sticker price.
Supply & Demand. It's the law.
I bought a car from Shift.com and it was an absolute nightmare.
Originally I had decided on a Tesla that was in Oakland and put down my deposit. The rates Shift gave me were laughable so I contacted my credit union. Shift put every roadblock up trying to convince me to go with their financing and refinance at a later date. I declined and shortly after my car was sold to someone else. If I remember correctly it was within like 24hrs. They apologized profusely and told me that it shouldn’t have been possible for that to happen, but it did.
I found another car in San Diego and put down another deposit. I was contacted about shipping and told if I did it by a certain time they would ship the next day. I did. It took something like a week to arrive in Oakland and sat for a few days before they could inspect and schedule a delivery.
The delivery was a parking spot on a major street with a rushed employee. I mention that because I didn’t notice anything major with cars flying past me.
I immediately drive to a parking lot and start examining the car. The trunk alignment seems off and there was no mention of damage so I take some photographs. Maybe it happened in shipping? I take it to a car wash because it was filthy. The trunk has a leak. It’s gross and musky in there.
Shift blew me off so I emailed their CEO, legal, PR, etc until someone reached out to me. They paid for an inspection and I choose the Toyota dealership. Dealership was shocked that the damage wasn’t spotted during Shift’s initial inspection. There was a huge hit in the rear and the repair work was subpar at best. The body panel was leaking water and the advanced sensors weren’t working because the rear left one was broken. The initial quote was ~$10k.
Shift was provided the report and after some time they scheduled a pickup to have their team preform their own inspection.
Fast forward 8 weeks of very little communication I am informed they have fixed the car. I pressed for more info and they said they sent my car to a DETAILER. Not a mechanic. Not a body shop. Their detailer said the Toyota dealership was wrong. No leak. Sensors work.
Somehow they decided that my front bumper was the problem and “painted it”, or at least that’s what Shift told me. Turns out they lied about that too. Original paint that they buffed, but left compound everywhere and fucked up my headlights and Toyota badge.
When confronted with all of this, with photo evidence, Shift offered me $250.
That’s it. $250 after keeping my car for nearly 10 weeks and then not fixing it. During the time they had it the avg MPG dropped to 21 mpg (typically 40) and managed to break a bunch of fasteners in the trunk.
Now my car has a major accident on the carfax and I’ll be out at least $10k to fix it. Fuck Shift.com
I wanted to give them an opportunity to fix it.
While it's true they have a lobby and have twisted the arms of legislators, it's also true that people prefer buying from them. And when they don't buy from them, they buy from CarMax which, for used cars, is even worse than buying from a dealer (pre-pandemic).
What keeps people from buying from private parties?
Unwillingness to plan and save money (i.e. refuse to buy car without financing). Even for under $10K
Being scared of getting a lemon because they lack knowledge about cars. I too lack that knowledge, which is why I get a trusted mechanic to check out any car I buy. Hasn't failed me in 20 years. Used car warranties are useless - they don't last long. And the last time I went car shopping, every used car from the dealer that seemed like a good price had serious problems when I took it to the mechanic. Never get a used car from a dealer if they don't let you take it to a mechanic.
Quicker process: It may take a while finding a good used car via Private Party. OTOH, there are plenty of dealers one can walk into. However, once you find a car you like, the process is much smoother with private party. You either agree on a price or you don't. No hidden fees. You know exactly what you're getting.
Edit: I just want to be clear: I'm not trying to convince anyone to buy private party. If you're happy with avoiding the "hassle", that's fine. My point is that for all the complaints about dealers, the reality is people prefer them.
All the problems you list are not difficult to overcome when it comes to private party. People do not want to overcome it - they would rather pay a few thousand dollars more.
This is a common refrain, and while you can afford it, I doubt many people I know can really afford that cost of a few thousand dollars. If I offered a $1500 fee for doing the leg work for them, would they pay me the money? If not, then "convenience of saving time" is not the reason.
But that's my point. It's only a feeling, and likely not reflective of reality. And in most cases, no: You have no one to complain to. A lot of used cars have fairly low warranties (a few months, maybe?). Most problems will not occur in that short window.
IMO, buying an economic new car and then keeping for most of the vehicles lifetime is close to optimal. No need to stress about comparing a bunch of specific cars just a few models you can research online. It’s low stress because you have a lot of leverage at the dealership as you can get the same thing down the street or in 3 months if you chose to walk out the door.
It sounds like you're adding the time searching, etc to your model (which is fine).
From a purely financial perspective, I do wonder. I think the key phrase is "keeping it for most of the vehicle's lifetime". If I look at the used cars I've bought, the total I've paid is $17000 in today's dollars over the last 19 years.[1] If you throw in various repairs, it adds a few thousand more (I'm too lazy to look up the actual numbers, but you can find it if you dig deep in my comment history). And that number includes routine maintenance everyone has to do (oil changes, replace brakes, etc).
A comparable new car today would cost more, but you get the benefit of having a modern car instead of old cars that I've driven. The down side is you're stuck with that car for a long time, whereas you can keep getting newer model used card every so many years.
[1] I didn't get lucky or find fantastic deals. These numbers are representative if you follow a few simple rules of used car buying.
I just really don't get the whole haggling thing. If you want a lower price, wait until one is being advertised, or substitute a different model, or get a bicycle.
However , I have yet purchased a car from carmax, because they have been typically over $3.5K+ overpriced , for the same year ,model, and equivalent condition that I can get it at the scummy dealers.
Typical car shopping experience. Now this has to be modified a little depending if its a buyers or sellers market. However for the most part
1. Determine the car ,model,year, and condition of the car I want.
2. Browse carmax and set that as my highest price.
3. Email and go to local dealers and offer $3.5K- below carmax asking price than add tax and title to submit your offer as and out the door price.
4. Some don't responded but some do .
5. Go to dealerships ones that said they can do it at near the end of the month.
6. Then expect for them to do the bait and switch and send you to the backend manager who plays online games on his laptop for about an hour pretending to do something when they are really just trying to break you down. So when the manager comes into play I typically say great just give me a call or I come back after a couple of hours. so I don't wait there for no reason.
7. Manager plays the if he sold me the car for what I asked then they would be out of business. Then I say why did you agree to it and either I stay firm on my original offer or go up 500 bucks. they typically still don't approve at this stage which is expected and fine so I walk knowing they already have my contact information.
8. Play the wait game . Typically 1 or 2 weeks later I get a call back. They Agree for my original counter offer.
9. I go back in to sign the paperwork
10. The carsalesman is all giddy and sends me back to the manager and financier to close on the deal.
11. I get back and I see additional charges such as dealer fees and other bs which I say thank you but no thank you and the offer I submitted was out the door price. Sometimes I walk out again or they remove the charges .
fun stuff but like I said playing the stupid game has saved me $3.5K most times. The key is willing and having the time to play the stupid game with them, willing to walk, and not have an immediate need for a car.
There have been also times where I have been less willing to haggle on the price but even then I can typically get the car 1.5K below car max with little effort. When I buy new its a little trickier but I never pay anywhere near the msrp.
> I found some trucks that were literally priced $10,000-$15,000 over MSRP, and I encountered many of the shady business practices that the FTC is now trying to ban.
because it's not ± a few hundred dollars, it's thousands of dollars, and claiming online that it's one price and charging a lot more once you get there
I went to look for a car recently and, ignoring the Covid shortage fee increase, they added a mandatory $1200 for some bs paint protection and an additional $1400 for some gps anti-theft that would, “pay for itself with insurance savings” (lol).
That’s an additional $2600 on every car ignoring all the other bs they try to sneak in.
Here’s something fun: go look up the reviews for all dealerships nearby and read for yourself how many talk about price bait-and-switches, mandatory fees, etc.
The size of the purchase shouldn't affect how worked up you get about a few hundred dollars of overcharge, only the regularity with which you make the purchase. For example let's say you buy a new TV and a new car every 5 years. Let's say the TV "should" cost $500 and the car "should" cost $25,000. Why would you be ok with paying $25,500 for the car but not with paying $1,000 for the TV (or, maybe you're ok with both?)
The one and only way to save money on cars is to not buy them. The true cost of car ownership is massively, woefully underestimated by virtually all drivers. 1% or 2% difference on the nominal purchase price amounts to nothing in the big picture.
This is a ... weird way to look at it.
The increase in fuel costs affects you roughly equally whether you negotiated or not - so it's not at all a factor in the decision making process (unless simply not owning a car is an option). I mean, the price of goods went up a lot too due to rising fuel costs, but we don't consider those when buying a car, right?
> The one and only way to save money on cars is to not buy them.
Ah, your reasoning makes sense now. Unfortunately, not buying a car is not an option for many.
> 1% or 2% difference on the nominal purchase price amounts to nothing in the big picture.
I would strongly recommend taking a course (or reading a textbook) on engineering economics. Your way of thinking is precisely what they caution against. If anything, the fact that things have gotten quite expensive makes it more important to cut costs where you can.
Fortunately, that's not me. I've been keeping all financial records for all non-cash transactions for over 15 years, and so I know exactly what I've spent on my car - fuel, repairs, addons, everything. I've posted breakdowns far down in my comment history (perhaps in the last year - not sure).
What I can say: It's not even close to whatever Edmund's TCO calculator reports - so I'm a bit wary of these estimates. I'm not frugal, and I'm not a car guy, and I do whatever the mechanic suggests.
The notion that the amount you can save is only $500. As several commenters have pointed out, it could be a lot more (pre-pandemic).
> But no amount of analysis could have told me that at the time
That you are "making" money on this car is irrelevant to the analysis. Just as totaling the car within a few months of buying it is irrelevant to the analysis. You'd still have anywhere from $500 to $3000 more in your pocket regardless of the amount (or direction) of the appreciation. You'd still get the negative depreciation you're getting now.
Again: I really recommend reading an engineering economics textbook.
> a difference of $500 either way on the purchase would have been utterly irrelevant to my happiness and well being.
Well clearly, if $500 is irrelevant to your happiness, then it is irrelevant to your happiness. No one is trying to convince you otherwise. What people are pointing out is that the $500 (likely a low estimate) you are down has the same financial impact on you as buying a Pepsi and getting charged an additional $500 for the single Pepsi. That the latter case may make you upset (or not) is up to you. We're not trying to make you feel better - we're pointing out the financial outcome is the same.
Of course, if you're simply trying to say that it's not worth $500-3000 spending the effort to get a better deal - that's totally fine. But that should be phrased as "$500 wasn't worth the hassle" as opposed to "It shouldn't matter because it is a small percentage of total ownership cost".
Because $500 lets you buy $500 worth of goods whether you are spending $1000 or $30000.
Also, the difference can be a lot more than $500. I've known people to save a few thousand dollars.
> I just really don't get the whole haggling thing. If you want a lower price, wait until one is being advertised
I waited till too long to learn how to negotiate, and once I started doing it, I understood why your strategy is quite suboptimal. With dealers, it's simple: If you don't haggle, you will always pay more. The price you can get with successful haggling is often lower than the price will ever be advertised, in any nearby dealership.
Also, while haggling seems like a pain, it can actually save time. A friend was once buying a used BMW, and he wanted a price a few thousand dollars less than the dealer was offering. Just asking for that lower price didn't help. So he told the dealer he had found a dealer with the price he was looking for, but it was all the way in a nearby town and he would rather just by it locally. The dealer then agreed.
There was no dealer in another town selling at that price. I wondered why the local dealer didn't ask for proof. The likely reason: It wasn't an unreasonable price, and the local dealer knew that if the buyer could afford to wait, he will find a dealer somewhere selling at that price. There was utility in him getting rid of this car rather than wait for another buyer.
Haggling can save you a lot of time. The only reason I go to private party for used car is you'll almost always get better deals there. But I do pay a price: I have to wait a lot longer on average.
I also don't like being lied to. I don't like being told the deal is X for $Y, and finding out later that it's X for $Y + $Z. In fact, one of my major rules is that I don't do business with people who lie to me.