Friday, June 18, 2021

Buyer Beware

 In the news, used car prices are appreciating! (h/t Splendid Isolation)

Maybe, maybe not. Regular readers know I spent many years retailing automobiles and light trucks. One hard lesson learned was, in most sales, there are two customers. The first, and more important, is the lender. The second, and less important, is the mutt driving off the lot with a “happy tag” in the window.

As you sit fuming in the dealership while the sales person scurries back and forth from the “desk”, the reason is seldom trying to find ways to gouge you. Rather, the “desk” is trying to structure a deal that some lender will be stupid enough to buy and thereby finance your purchase. The lender buys the car; you buy it from the lender one month at a time.

Lenders don’t like financing used cars. The default rate on used cars is much higher than new. New cars have factory backed warranties. You can buy a “warranty” on a used car that may, or may not, be worth more than the paper it is written on.

Lenders don’t want to finance anything older than three model years. If you get one financed, it is because of your stellar credit. Poor credit? You are buy here, pay here material.

May I offer you two important “tips”?

Arrange your financing, via a face to face meeting at your credit union, prior to visiting a dealer. Your preconceived ideas may need readjusting. Using a bank instead of a credit union for you day to day financial business? You are foolish, IMO. Hey WSF, fuck you! Yeah, do your own research. With the knowledge of what your credit union will do, you are in a better position to determine if the dealer can get you a better deal.

The second tip is what to look for in buying an extended warrant, aka service contract, etc. Does it cover seals and gaskets? If not, don’t buy it. Gaskets fail far more often than transmissions and engines. I’m talking $1,000 and up to repair that plastic intake manifold (with the very hot gas recalculating return adjacent) gasket. Double that cost for a rear main seal at the back of the engine.

In conclusion, dealers who pay stupid money at the Mannheim Auction doesn’t mean the lender writing a check to the dealer on your behalf agrees with the value of the hoopty.

As always, YMMV


LSP said...

Good advice. My instinct is NO DEBT, cash on the nail, and there's an end of it. Of course that precludes me from today's 50k++ pick ups...

It seems to me that we've been conned into a usury scam, not least with vehicles. But hey, I'm no expert.

Well Seasoned Fool said...

I haven't had a car payment since 1984. I pay cash, buy used, and don't buy collision insurance. I do double up on liability and triple up on uninsured motorists insurance.

My basic motivation is need, not want. Do I enjoy driving a 500 hp Mustang? You bet, but not as a daily driver.

drjim said...

When we bought the Colorado last year, SLW carefully checked the prevailing interest rates from our three credit unions. GM beat them all. She even did the "Total Cost Of The Loan" thing, which she's very good at, and GM still beat them. can be highly variable depending on time of year, what the economy is doing, how bad the manufacturer wants to move metal, and a host of other things, including your credit rating.

We definitely fall into the "Well Qualified Buyers" pool, so everybody we talked to gave us their best rates.

Well Seasoned Fool said...

You and SLW are a seasoned salesman delight. You have done your homework, are well qualified, and ready to buy. That type of customer gives the salesman a shot at a two or three deal day. When you live on a commission, time is money. No need for every deal to be a home run but most any deal beats no deal!

R said...

I'm shopping right now because I have to, my affordable older Toyota was totaled in a collision recently. Years ago this would have been a life altering event, fortunately I'm just sore not broken because of modern crashworthyness and airbags.

At least USAA is making my premiums worthwhile, their Actual Cash Value appraisal was for significantly more than I paid last year and I've got a 20% bump via a "replacement assistance" policy headed my way on Monday. Once I ignore the shitty cars from Detroit on the market and everything with constant velocity transmissions it's looking like a Mazda lease return is probably what I'll get.

FWIW my credit union just increased their mileage cap from 100k to 125k before review is necessary.

drjim said...

And we were impressed by the dealership. Very low-key, willing to work with us once we found what we wanted, and seem to be genuinely nice people.

The Jeep dealer seemed equally friendly, low pressure, and were ready to deal, as Chrysler has extra "incentives" to the customer and special "holdbacks" for the dealer if you're trading in a Jeep for a new one.

The Honda dealer was really "meh", as in "Here's the car, and when you're ready to sit down we'll talk price".

We went with the Chevy.

drjim said...

Mazda makes very nice vehicles. Great steering, handling, and brakes, with peppy powertrains.

For a midsize crossover, look for a CX-9.

Next size down is the CX-30, and below that, the CX-5. I've had them for rentals, and they were good cars.

Good the hear the engineers did their job right in producing a solid car that gave it's life for you.

Well Seasoned Fool said...

USAA is possible the best and fairest. My personal never do business with is Safeco.

Nothing wrong with Mazda. I have a personal bias towards Kia/Hyundai having worked for a Kia dealer and having driven several as an endurance driver for Roush.

Thank you for making my point about credit unions.

Glad you survived the crash. Newer cars are certainly safer! I shudder to think of getting into a wreck with my 86 Mitsubishi pickup.

Old NFO said...

Good points all, and I'd echo drjim. Great credit can make the difference.

Well Seasoned Fool said...

I've seen thousands of applications and credit printouts. Made me a cynic. One transaction sticks in my mind. I was asked to take a "turn". Soon realized the customers were being truthful about everything. Rare, and the green pea saleswoman didn't recognize it. The customer's credit was good enough to buy anything they wanted.

Ed Bonderenka said...

I've bought new, usually with 0%, or the % is hidden in the cost.
But I drive 'em til they die or I give them away. Previous Taurus was a '99. Recent is a '15.
Thrice I've bought a truck. Private sale each time. Credit Union. I don't have a "bank".

Well Seasoned Fool said...

While in the biz I probably bought fewer than six vehicles at auction. We always referred to it as the "dog show". My personal purchases, after getting out of the biz, have been private party.

Around 1994 I worked for a large used operation in Renton, WA. We had a large Asian populations who wanted Hondas or Toyotas. We would hit the East Coast auctions and buy two or three truckloads at a time. The cars were rough but low miles. Even with shipping and reconditioning we made a good profit. My role was "muscle". Our buyer, while as smart as anyone in the business, was small stature and the "tough" local dealers would threaten him. My job was to dissuade them.

Anonymous said...


Thanks, valuable information indeed.

Ed C.

Well Seasoned Fool said...

You are welcome.