The United States new car market is dead in the water. Sales are down 36 percent across the board. Carmakers selling (or not) in The Land of the Free could stop production for a month– at least– without threatening to reduce inventory levels to demand. Only, of course, they can’t. The car business works best when every part of the fabrication process, from mining iron ore to slapping on the Monroney sticker, is flowing simultaneously. Stopping and starting production is a bitch. And expensive. What’s more (LOTS more), fixed costs like equipment amortization and labor don’t go away. So carmakers are powerless, and bleeding out. The strong ones have lots of blood and relatively small wounds. The big ones had no platelets to begin with, and the arterial spray is like a Las Vegas fountain. One thing is for sure: it’s a great time to buy a car! Of course, it’ll be even better next month. And the month after that. And the month after that. If you feel sorry for the carmakers, a simple question: why? Isn’t it better for all concerned when the customer is King?
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And yet if you go to a dealer most still put on the show of nothing has changed. Some still try to screw the few people who actually go to buy a car. I guess they feel they need to make it up on the few who actually have both the money and the need for a vehicle. I had two friends (federal job – good credit – cash if need be) walk after feeling like they were being screwed.
I would definitely let a “new car consultant” handle the transaction if I were in the market right now. I would feel dirty playing off one dealer against another in this environment, and I probably couldn’t do it nearly as well anyway.
Also? Farago definitely has a radio voice. The TTAC brand should expand thusly. I’m Sirius serious.
I have been trying to buy a 2009 Suburban and a friend has been trying to buy a 2008-09 Escalade. Different parts of the country, same result. We have both been ignored for the last month and a half. Both serious, both with good incomes and credit scores. We chated last night and he told me that he feels the dealers and not trying to sell so that the numbers look bad and they get federal money.
He also called to tell me that one of the Caddy dealeras finally captulated and sold him a full boat loaded Escalade for 49,999 with the 22’s. So the deals are to be made but the dealers are putting quite a bit of resistance IMO.
It is a great time to buy a car if you do not have a trade.
Used car prices are cratering right along with the new (with a few notable exceptions — if you’re in a late-model Honda, life’s still good).
What the new car shopper will find, in addition to fantastic mark-downs on new cars, is that those new car discounts push down the value of his/her trade-in (among other depreciation-causing factors).
The result? Lots of upside-downness, shock, and nashing of teeth.
Or, I should say, lots more upside-downness than before Depression 2.0.
With financial institutions now reluctant to roll old debt into new paper, you have a whole wave of people who thought they were break-even or in equity on their trades who are now joining the ranks of the untradables. Otherwise known as owners for life.
Our government can continue to pour money down the Big 2.8 hole in order to keep the cash furnaces fed, but that’s not the cure.
Until and when the consumer is incentivized monitarily, we’ll continue to see months like we had in 08Q4.
Since the average new car buyer is a shade over four grand upside-down today, a government rebate check for about $4,500 ought to be enough to straighten out the untradables.
And maybe we see some real recovery and hope for the auto industry. If not, more of the same. Manufacturers will continue to drop their pants, further pushing down on trade-in values, and the whole mess continues.
“What the new car shopper will find, in addition to fantastic mark-downs on new cars, is that those new car discounts push down the value of his/her trade-in (among other depreciation-causing factors). The result? Lots of upside-downness, shock, and nashing of teeth.”
Absolutely. The same customer who thinks they should be able to get a new car for $2000 below invoice is the same one who thinks their trade is still worth what it was a year ago. Water circling the drain pulls everything down with it.
Yes, dealers are still going to negotiate for top dollar. They are for profit businesses. Do you really expect them to drop their pants at first pencil?
It also pays to shop around. Not every dealer’s business is in the toilet – my dealership had a 10% sales increase for 2008 – so you never know where a dealer is coming from.
Do your homework ahead of time, know the rates, know the rebates, know what invoice is. If you walk in with a reasonable offer and say, “this is the deal I will buy today with,” you will likely get what you want.
Might this the beginning of an era when people are a bit smarter or will this new found intelligence wear off as soon as the recession/depression eases???
I’d love it if Americans came out of this recession a little smarter and stayed this way.
Me? I’m keeping what I’ve got. Could buy new but I don’t see the point. Would rather pay down debt or pay off the mortgage sooner.
It’s no longer the “Detroit 2.8” Mr. Farago. After the December sales report, it’s really more like the “Detroit 2.2” and that might be stretching it.
Enjoy the radio-editorals Robert…keep them coming, if you’d like.
Now back to NPR online.
Might be a good time for the companies to sponsor actual pricing discounts on cars. Not fake red tag discounts. Oops- those expired.
In general, cars are more expensive than last year, than the year before, and the year before…
Price increases continue. Rebates bounce around within the same range, or disappear for a month, then back, then gone, then back…
Just like 20 years ago it was easier for domestics to proclaim quality in their cars than to actually deliver it, so do they today find it easier to claim the deliver fantastic discounts than to actually deliver it.
One thing is for sure: it’s a great time to buy a car! Of course, it’ll be even better next month. And the month after that. And the month after that.
That’s the problem with trying to catch a falling knife.
joeaverage :
January 6th, 2009 at 11:30 am
“Might this the beginning of an era when people are a bit smarter or will this new found intelligence wear off as soon as the recession/depression eases???”
It is my opinion that since the whole economy was based on credit and now we’re being spanked for it, why do it all over again. I think the “new found intelligence” will linger and the credit market will have to change to get people to go in debt again. Which it probably will. A little. Just enough.
As an example, I didn’t find out until the last car I bought that there were different kinds of loans where on some you pay the same amount of principle from beginning to end and some that load the interest up front and you don’t really start hitting the principle until well past half way. I will never do the latter again.
I also used to “take advantage” of Xfering CC debt to a low or no interest card until the one time we wrote the payment check for $XX.00 instead of $XX.39 and they charged me a humoungous late fee and more than doubled the interest rate.
I won’t forget. But there are still plenty of other suckers around who are yet to learn these lessons.
“Yes, dealers are still going to negotiate for top dollar. They are for profit businesses. Do you really expect them to drop their pants at first pencil?”
Remember DW that you are a professional that does horse trading for a living every single work day. For the rest of us it is not the norm of how we buy goods.
I have only purchased four new cars in my life but I have purchased three houses. The deals on the houses were all done in an hour or less. The cars always took more than one day.
To me it doesn’t seem healthy to have such an adversarial lets screw the customer for maximum possible gain relationship. Why do you think that car dealers and salespeople at them are held in such disrepute?
If you need a new car and you can truly afford a new car it should always be an exciting and joyous occasion on buying the car. It shouldn’t be likened to an experience akin to an IRS audit or a dentists visit. Something that most people dread.
You think an easily led widow or a naïve young person or someone who is simply inexperienced or not as good at negotiations should have to pay more than the next person for the same product?
I agree with some of the above comments about dealers not really dealing to the extent you would think they would be. From recent personal experience, they are NOT acting as “desperate” as you’d think given the current dire situation.
For how bad things are, you’d think it would be an almost name your price and just take one mentality. But at least in my area, I have found the dealers to be acting stubbornly reluctant to aggressively “deal”.
I don’t get it.
Dealer GM’s are not “desperate” at all.
Well, inside, deep down, that quiet, little voice of inside each dealer management-type is screamingly desperate.
But when you meet a dealer sales manager on the floor, even in – nay, especially in – today’s economic climate, he’s going for your jugular.
With sales spread thin, it’s his job to maximize the profit on every deal. He’s going to try to steal your trade-in. He’s going to bury points in the financing. He’s going to hold his gross as long as possible on the new car. He’s going to sneak dealer pure-profit add-ons into the deal.
He’s going to do all four, all at once, all day long.
That’s why the number one rule for you, the buyer, is to walk away.
Even if you think it’s the best deal you can negotiate, walk away.
Leave. Get in your car. Go home. Relax. Cool off.
They’ll call back.
Soon.
And now things start to get interesting.
Just remember, the worse it is out there, the more the dealer needs to maximize his profit on each transaction – until they feel the deal slipping away. Then they start to figure out what they can live with.
To all car retailers out there, sorry. But similar advice is available everywhere on the ‘net, and this is the Truth About Cars.
Sherman Lin, the best-deal, no-haggle experiment has been tried and it has failed. It was (and still is, for a little longer) called Saturn.
Maybe if their cars were better.
Maybe if the dealers had a standard trade-in policy and weren’t trying to steal every trade.
Maybe then, the no-haggle concept would’a worked.
Most Americans just accept that negotiating a car transaction is necessary, and they just grit their teeth and do it. A few even think they’re good at the process and claim to enjoy it.
Armed with the right information and attitude, the consumer can make the ordeal bearable and financially tolerable.
Just remember, the whole process starts and ends with your feet. Talk, then walk. Then drive.
Sherman Lin:
“You think an easily led widow or a naïve young person or someone who is simply inexperienced or not as good at negotiations should have to pay more than the next person for the same product?”
Answer: Yes. Just as you would negotiate a below market price on a house if you could. Just like the grocery store charges full price to the people too lazy to get the special card or clip a coupon, just like online stores charge more to people who don’t have that mysterious “promo code,” or Wal-Mart, that charges higher prices in its stores that have fewer competitors than those with many. That’s how retail works!
How is it bad that the dealer tries to maximize their profit on a deal, when the customer is doing the same?
I do agree that many shady dealer tricks can gouge customers, but like you say, the customer CAN say no!
By the way, you don’t have to pay $7.00 for a popcorn at the movies, but you do. Why does a 20 oz bottle of Coke cost the same as the 1 liter and the same as the 2 liter at the convenience store?
Most people don’t even realize how they are gouged on things they buy every day, but find it offensive if a car dealer tries to make a profit.
joeaverage,
while those who have made bad car deals in the past may learn, there will always be the 1st time buyer, the lazy one who doesn’t do research, the one who never learns and overpays again.
There are only so many smart people out there. That’s why you run into idiots all day long.
Only car dealers and car salesman feel that way DW
It is relatively easy for any widow immigrant or young person to find the approximate worth or value of a piece of real estate and buy it at close to that price but they will always always pay more for their car.
It’s very easy to find the invoice price and rebates available on any new car. The auto industry is the only one where our cost is out there for everyone to see. If people don’t avail themselves of that resource, shame on them. Edmunds.com springs to mind. Very accurate. Can you know if the dealer is receiving an additional bonus from the manufacturer to sell you a car? No, probably not. But that money was intended as a bonus to the dealer, not intended to be a discount to the customer. I receive bonuses direct from the manufacturer for selling new cars. Should that be treated as negotiable? I think not. I pay taxes on that, why would I give it to you?
BTW: I just got a new auto insurance policy and dropped my premium $600/yr. Am I pissed that my agent had me in an over priced policy? NO, I knew I was overpaying and never made the call. Lazy=pay too much.
Also, there is a big difference between negotiating a higher than average price for a car and some of the shady dealer practices like packing insurances and warrantys onto the deal without disclosure, switching the interest rate on delivery to gouge the customer, not disclosing accident damage etc. I don’t condone or participate in those practices. But I see nothing wrong with me selling a vehicle at the maximum price the customer is willing to pay.
Believe it or not, the customers that pay the most are the happiest and refer more of their friends than those that grind to the last penny.
But that money was intended as a bonus to the dealer, not intended to be a discount to the customer. I receive bonuses direct from the manufacturer for selling new cars. Should that be treated as negotiable? I think not. I pay taxes on that, why would I give it to you?
Because otherwise you’re not moving the metal. And even that may not be enough if the guy down the street is more desperate than you. There is no longer a butt for every seat under the old rules of the game. You’re not entitled to a profit, and the buyer is not obligated to worry about the dealers’ plight. There is plenty of used inventory out there. No one needs a new car right now. I’m not saying you in particular are in a desperate situation or that you ever will be, but for at least some dealers the idea that not everything is negotiable is or soon will be mere wishful thinking – a vestige of the “good old days.” Shakeouts are painful like that.
Not being a dealer, but just a salesman, when it comes to new cars, it is almost irrelevant to me what the selling price of the car is. There is so little markup in the MSRP that it doesn’t take much discounting (if any) to get me down to my minimum commission of $100. At that point my manager could sell the car for $1, it doesn’t affect me. I do get bonuses direct from the manufacturer put on a debit card – which can end up being more per car than my commission. I want the dealership to make enough money to keep paying me, but $100 minis don’t go too far, so I need volume.
My manager hates when I start negotiating some of the dealer cash away, but I’ve told him that since I don’t get paid on that, what do I care if we keep it?
Given the limited customer interest, dealers will keep closing by the hundreds. All the better for me in the long run. In the last 2 weeks, we lost Saturn, Buick-Pontiac-GMC, Cadillac and Jaguar for competition on our street. Last fall we lost a Ford, a Lincoln-Mercury, and a Dodge dealership in the next town over. They are dropping like flies.
Morning All, Regards from Switzerland. Thanks for sharing your experiences so far.
“Believe it or not, the customers that pay the most are the happiest and refer more of their friends than those that grind to the last penny.”
Never a truer word has been spoken, and not just for the car business…
I don’t know about that… I was pretty happy in 1999 when the final dealer we worked with accepted an offer $2500 lower than the first dealer’s lowest price and when the deal was done in less than half-an-hour.
All it took was a first time car buyer’s education requiring visits to 5-6 dealers where every dirty trick in the book was tried on us. We got alot smarter as the adventure went along.
At the last dealer I walked in told him I didn’t have time to wait, he had 30 mins to get the deal made and my price was… His price $200 more and we signed the papers.
If I had large sums of cash to throw around and could walk into a dealer and not bother haggling – I too would be a happier customer. I wouldn’t care if I was being lied to as long as the product was a good one.
All that said I think my ’99 will be our last new car. New cars expensive though I think my car is a better one at 170K miles b/c I’ve owned it since new and took care of it.
The dealer experiences we have had generally have been less than happy so I avoid them choosing to buy from private sellers whenever possible. Sick and tired of being lied to and manipulated.
Maybe for a certain portion of the population sticking it to the customer is S.O.P. but can this go on generation after generation without folks looking for an alternative? Am I saying ALL car salesman are bad? No but I feel like I’ve met my share of less than stellar examples of the breed.
I think all it would take is a fair no haggle price from a super-center style car lot that sold all brands and serviced them as well. This type of dealer could blow the traditional dealer right out of the water if managed correctly.
I maintain that Saturn’s no-haggle pricing was the best (and most obvious) answer yet. Unfortunately until recently they did not sell anything I felt was compelling enough to plop ~$20K of my money on the table for though my friends and family have had good luck with them and I am warming up to some of the late 90s cars now.
Now I’m interested in the Astra and a half dozen other Opels we won’t likely see on our shores here in the USA. IF I was to go new car shopping Saturn would be about the first place I’d start looking.