A 401 CJ said:
Brett_Murphy (Ex-Patrón) said:
Pete. (l33t FS) said:
I drive past a Chevy dealership every day, a fairly decent sized one, and I note a car hauler taking stock away more nights than not. Granted, I'm also not staking out the place to see if stock is being sold to other dealerships or if it's just rotation/trading and I don't see new stock coming in.
I'm wondering how much local markets are out of synch with each other. My area (for example) was never affected by the housing bust a while back- they kept building them as fast as they could around here, because the area has been steadily growing for quite some time.
The U.S.A. is a big country with lots of variability in markets. What's true in Gary, Indiana might not be true in Los Angeles or even Greenville, SC.
That’s a very salient point Brett.
Could this “no / very low” interest thing with autos be simply that they are hiding the cost of the loan in the vehicle’s price? That’s the consensus I arrived at when I posed this question on another forum. Seems the agricultural equipment folks are doing the same thing. It severely punishes those who would otherwise pay cash but those folks are being punished in every possible way in this paradigm.
It's not as simple as a yes or no answer, but for the most part yes. When pricing a car, the dealer looks at a total, round number of the profit they should/need/want to get. If the buyer is financing, the process is pretty complex. Banks and lending agencies give a "back door" to the dealer which can be any one of several combinations of a percentage of the interest, a flat cash finder's fee, a scaled cash fee, or a percentage off the total buy. In that last case, the buyer might be financing $20k, so the bank assumes a payback from the customer of maybe $18,500 and the remaining $1500 gets paid to the dealer's back door - basically because the lender knows they'll make far more than that in interest depending on the interest rate.
When interest rates drop to zero or near zero, lending institutions are still bound by law to offer loans to qualified entities, but there is little in the law which dictates how their sliding scale works. Zero interest is only for the highest qualifying credit scores with a significant down payment, and they can charge you whatever interest they want if you fall below their threshhold. In most states, they're allowed to say something like "0% if your credit score is above 830 and you have at least a 50% qualifying down payment"... which eliminates nearly everyone.
Each car company is a bit different, too. Dealer holdback is a fancy term for "fake invoice." When a dealer takes delivery of a new car, the packet includes an invoice (what they supposedly have to pay), a Monrony (window) sticker with the options and retail price, and buried in there somewhere is a holdback number. Some companies (this info is at least 15 years old since that was the last time I was in the biz) like GM are a bit archaic. They send a car with (round numbers) a $30k sticker price, $26k invoice, and $2k holdback. You sell the car for $29k cash after negotiations, send $26k to GM, then GM sends back $2k. So, in the case of a "buy any car at invoice price" sale, they're still making the holdback as profit on the sale of the car. It's a bit convoluted, but it's how GM does their accounting. You have to send the $26k to satisfy the invoice, then the dealer gets a wee kickback. Volvo was a bit simpler. Invoice is invoice, period. That's also why you almost never see a Volvo dealer with invoice pricing.
We're also operating on an assumption here that is wholly incorrect. When you finance a car, there is no purchase price in reality. They present you with $450/mo for 60 months. If you like it, you sign it. You can calculate the purchase price if you wish by extrapolating from the prinicipal/interest, but be prepared for a shock when your calculator shows you just how far over a barrel you are. Let's say you negotiate a purchase price of $20,000 for a car. The sales manager doesn't divide 20k by 60mo and then tack on the interest. More often than not, they shoot from the hip and whack you over the head with a number so astronomically high knowing that 10% of buyers will just assume it is what it is and sign on the line. The psychology is that if you hit 'em high, it does two things; pulls the car just out of reach making you fight for it, and dashes the buyer's hopes of an easy bargain. Then when they negotiate something better, they feel like a hero, the dealer looks generous, and they drive away happy and instantly upside-down. Buyers approach from a purchase price standpoint, but dealers always work from the highest profit down. If you can't meet in the middle, no deal.
But that meet-in-the-middle part is all carefully calculated by the dealer. They won't let it sell for less than the profit they need to make. If the interest rate, down payment, trade value, or something else is off kelter, that number is always different for ever situation. So, in short - yes. The total amount of profit a dealer needs to make on a sale is situational, but always in the deal. So interest rate will affect the purchase price... or in the case of financing, the amount of money that eventually comes out of your pocket.
Some tips: Stalk your dealer. Most dealers consider Saturday as the end of the week. If you drive by around opening on a Monday or Tuesday and you see the entire sales force hanging out smoking just before opening, that's likely the day of their weekly sales meeting, which means that Friday, Saturday, or Sunday is the end of their sales week. You can also often walk by the sales manager's office and see a dry erase board which would show you the fiscal week. Always shop on the last day of their sales week, and even better if you go about 2 hours before closing. End of the sales week is almost always when you'll get the best deals. One of two things will be in play: Either they had a bad sales week and need to sell something just to get the number of units sold up, or they had a great week and selling one more car for cheap adds a unit sold to the bedpost, but doesn't bring down the average. Either way, it's a game show... like Family Feud. In the last second before the buzzer, they'll blurt out any nonsense answer in case it has merit. I used that technique to buy an ultra rare (for the area) Impala SS off the showroom floor for $200 over invoice. If I had waited until Monday, I would have been lucky to get it for $200 under sticker.
