Current vehicle economics and prices - ripping off is a bit harsh
 

That's great if you have time, and don't need car transportation for any kind of income or food shopping. . . . however, retired people account for about 20% of the population. . so the remaining 80% probably need vehicular transportation for one of the just two items above. Waiting 6-10 weeks is not a viable option for that scenario.

However, to be fair to the dealerships, they have fewer and fewer used cars to sell for several reasons:

Carvana is bleeding shareholder cash to overpay for trade ins, and sell them, driving up the price of used cars and removing them from dealership lots. Yes, i was short CVNA from near their all time high, and covered recently for a nice profit. Looking to go short again at a higher price prior ti earnings or in response to a good earnings call which can't keep going.

Rental car agencies did not purchase as many new fleet cars due to the reduction in business travel, so there are less used fleet cars available.

With the price of used cars significantly higher, leased cars are getting purchased by the leasee at the end of the lease, and there are fewer lease returned used cars available.

Finally, with the work from home for the significant IT and corporate wage slaves, there is a huge drop in car usage, and the resulting mileage aging, so the initial car purchase turnover has extended the time to need a new car from purchase, and so new car trade ins for another new car has slowed down as well.

from a new car point of view, the port of LA had a rule that empty containers could not be stacked more than two high, which caused a reduction in container throughput as the empty containers were not returning to the far east as quickly as in the past. . . that changed last week as that cause was identified as one of the current throughput issues of pre assembed car parts. But then there are trucking issues created by Amazon. Amazon creating warehouses and requiring local delivery fleets, draws employees from the long haul trucking pool. Why?, trucking types who want to sleep at home every night for regular sex instead of on the road have a more appealing work option for about the same amount or slightly less money in warehouses or local delivery fleets.

Put that all into the macro economic blender, used cars have a higher margin at dealerships than new cars. With fewer used cars are available and are being sold at dealerships, along with fewer new cars as well, requires a higher margin at sales time to pay for the fixed dealership costs. . fewer unit sales to cover fixed costs always requires more margin, (prove me wrong - find me any physical sales business that doesn't have this issue which is not a niche industry)

So to be fair to dealerships, trying not to go out of business or declare bankruptcy, there are very real reasons for increased margins for survival, and they are trying to survive in very trying times. . . so sure, calling it ripping you off makes it easy to accept, but i suspect that there will be a small wave of car bankruptcies in the near future as a result of severe pre-pandemic behavioral cycles which have been truly disrupted and require several years to return to normal, or some other financial event related to cars sometime next year.

As i typed in the penglobal thread, best conclusion is to keep your car in good working order, and try to avoid any accident, as you won't have an easy time getting a replacement vehicle quickly and cheaply. Avoiding accidents is tough, but that means driving a bit more defensively. . . or using your golf cart more, but the same goes for golf carts around the country.

finance guy

Car dealers are notorious for charging different prices to different buyers for the same vehicle. In normal times, this difference can be as much as $4,000 for an average vehicle, depending on the knowledge and resourcefulness of the buyer. In the current market, I suspect that car dealers are very happy to take advantage of uninformed buyers, to expand the price difference from $4,000 to an even more inequitable price difference. I think it is shameful that car manufacturers have not developed a fair pricing system for their product, like almost every other product retailer.

So you have a firmly held belief that won't change, regardless of the facts presented in the case above? correct? ie, pandemic, disruptions, etc supply and demand differences, shouldn't change the end user pricing during model years, even if the dealership will go bankrupt?

And you want a nationalized or commodity pricing system, which equalizes all the different options, so that you don't have to shop around, although many are willing to shiop around for commodity items where the price different in percentages are huge, but the absolute savings is small, or non existent if transportation costs are taken into account?

That would mean that the fixed and variable costs of a dealership be standardized so that the markup for a standard profit margin for tax purposes are identical? that is the utility model for rates and profit?

there are higher percentage difference in the grocery store, than potentially the 4,000 cost difference, but that is ok because the price is small and you don't spend much every time at the grocery store, but a car purchase every 7-8 years shouldn't have variability?

finance guy

My only point is that, when you go into most retail stores, customers expect to see a price that everyone pays. Americans tend to like and accept that pricing system. They don't want to argue with the Best Buy salesperson about the price for a television or the Publix cashier about the price of tomatoes. The advertised price is the price. I think that a similar pricing system for vehicles would be well received, if it were implemented fairly by the car manufacturers. If the current vehicle market has a shortage, why haven't the manufacturers adjusted the MSRP to account for it? They know how many fewer cars they are making. I suspect the reason is that they want the dealers to be better able to take advantage of customers who have no way to determine a fair price in a difficult market. Many people think that car dealers are dishonest, and they often feel intimidated and cheated by them.

supply and demand of course. Price-gouging is another thing. And that's what's happening.

So all the blah, blah, blah, blah and it's just supply and demand. don't like the price then don't buy. can't afford it...well that sucks, but is part of life in this society.

It ain't about making "the individual" happy, but in giving them a chance to seek and work and hopefully find joy. that's it. pretty darned cool.

Wow!!!!!!

Don't forget the golden California rule of Union drivers for trucks coming out of the ports

No one
 

Forces anyone to buy a new car, there are about 13 million used cars right now. And yes I've noticed carvana is actually higher than dealers on used cars right now. By about 2 to 3,000 but that's still a lot better than paying $10,000 over list price for an average sedan. Thank you very much I'll stick with my 5 year old cars with 25,000 miles on them. And the glass is half full since I can get more from my used car if I do a trade in

Glad I'm not in the market for another car for at least a couple of years...
:bigbow::popcorn::popcorn::popcorn:

I purchased a new car in June and paid $3000 over sticker price. However, my trade-in was $9000 more than it was valued last year at this time.

The reason why there is no standardized pricing is do to franchise law. The auto dealers in the 50’s and 60’s formed trade groups to protect them from the very large and powerful manufacturers,GM, FORD and CHRYSLER. These trade groups were successful in passing very strong laws that give the dealers autonomy from the OEM’s. These laws were needed because as the OEM ‘s grew they would no longer need the dealer ( Henry Ford couldn’t afford to make the car and also sell it , he needed the independent dealer ) so now with public money from the markets the OEM’ could crush the dealers.That is why automobile purchases are one of the last truly negotiated sales transactions left, because the dealer can price the vehicle the way they want to.

if a dealership is engaging in deceptive practices - like advertising one price, but presenting you with a much higher price when go to the dealership - it is actually the definition of price-gouging and is illegal

That is absolutely true, which is why Monroney stickers were required by law in the 1950’s to give the consumers an idea of the value of the particular car. Those have been revised through the years to provide more and more info
( like MPG) to further help the consumer.

The fact that it is a negotiated sale does not give the dealer the right to engage in deceptive advertising practices.

Car prices and house prices are just “crazy”. If you really don’t need either, (like most Villagers) just have a little patience and these crazy times will soon pass. Fore!

My husband looked at a new Hyundai yesterday. The dealer was asking $14,000 over MSRP - SMH

What is forgotten in what is mentioned in your economic analysis of car sales the 454 billion stimulus money for the car industry. Where did that go ?
This is the problem for the consumer when there is no supply and demand effecting the economics of car sales . Almost a 1/2 a trillion.

There is no supply and demand when the auto industry receives
1/2.a trillion from the tax payers
to not go bankrupt and then turns around and makes less cars and charges premiums on cars sold .

This doesn't have anything to do with today's pricing, it's all about timing. In January of this year I went to a small Chrysler dealership in Inverness I found a new leftover 2019 Pacifica with a sticker of $39k, it was above my budget and I let the sales rep know that. He said you won't pay $39k we'll knock $9000 right off the sticker. I also had a Town and Country to trade in and based on price offer from Car Max the day before I knew $6000 was a fair trade in allowance. The dealer offered me $5k I said never mind I'll sell it to Car Max for $6k. As it turns out they met the $6k offer so I drove away from the dealership in a brand new 2019 for $24k. Just as a frame of reference in 2013 I bought the Town and Country that I traded in with16, 000 miles on it for $25k. I tend to doubt I'll ever get another deal like the one I got this year. It was all about timing.

I totally agree with you. We have a 2016 Kia with low miles. We are at the time of making the decision to sell or not. Our thought is that with no issues with the car it might be better to look into an extended warrantee when the original one ends (it was 10 years or 100,000 miles).

How about the differences in a dealership’s local, city, county taxes and overhead costs depending on their location? Food doesn’t cost the same in every Publix grocery store, for example. Just sayin….

They get paid a lot of money to perform. Yet The Delights go out into to crowd begging for tips! This is very unprofessional!

Trying to buy a car.
 

My car was totaled by a golf cart in June. They did not give enough to even replace it with a similar used car. So here I sit and wait! Maybe in 2023?

I understand that different dealerships may need to charge different prices. Although, I think Best Buy's pricing is pretty consistent at every store. The problem is that car dealers use dishonest tactics to get higher prices from uninformed buyers, but they will sell the same car to an smart buyer for a much lower price. Most retailers do not use these tactics.

“
“Many people think that car dealers are dishonest, and they often feel intimidated and cheated by them”…. The truth hurts, eh?

Car dealers depend upon LOYAL CUSTOMERS ..... So when they jack up the price of a car ten thousand dollars over MSRP, they are dissolving their customer base. Do you think that the customer will forget getting porked when times were tough? When and if things get back to "normal", do you think that the "loyal customer" will be that forgiving?
Before jacking up the price of a car, maybe the dealer should give up passing out the free doughnuts and coffee, hot dogs and pop corn. Maybe lay off a few salesmen too. They most likely are on commission, and would probably make more on unemployment.
Also, the "how was our service" surveys that include postage.... they could dump them too (at fifty cents postage for each one).

So all the reasons about the supply shortage and backup at ports just don't cut it for me.

Finance Guy; you are missing one huge point. The current low inventory levels of new vehicles are being caused by the global semiconductor shortage. I'm in the automotive supplier industry and all U.S. assembly plants are suffering from this shortage, the only plants running anywhere near normal levels are pick-up truck plants and high end SUV plants that produce the most profitable vehicles. Most plants that produce cars or lower end SUVs and Crossovers have been down most of the year; thus the shortage in new vehicles for sale. It's supply and demand at this point, demand is much higher than supply now and it will probably be that way into well into 2022.

New car prices
 

We just purchased a replacement for our 2013 Sienna. We looked at all brands that manufactured a midsize SUV. Hyundai immediately told us there was a $2995 markup on the MSRP on all of their vehicles. We told them see you later. Lot inventory was low at every dealership we shopped at. We were able to strike a deal for the exact SUV we wanted with Toyota at a fir price. Doing research before shopping we were armed with the knowledge of what a fair deal was. GM is currently releasing trucks to the market that were waiting on chips. COVID is still creating havoc with the supply chain in out of the far east. Toyota cut Southeast Toyota's allotment 40% in September due to a factory in Vietnam being shut down for 2 weeks due to COVID. The facility manufactured wiring harnesses. Another thing to look at when pricing a car is dealer add ons. Many dealers add on a list of 5 or 6 items at a cost of $1995 and up. These items allow the dealer to make money they are low cost but are billed at a premium price. We attempted to delete them from the deal at 2 dealerships they said no, we walked. The biggest ripoff is the $799 documentation fee charged across Florida.

Fixed prices for autos
 

They tried this with the Saturn and it failed. A great many people thought it failed because the product was not good and that the car would have failed anyway. May be time for a good product to try it. It appears to be reasonable but cannot understand why it does not work. By the way, Penney’s tried lowering prices by not having sales, and it failed too.

Don't buy a new car until the shortages are resolved. There are plenty of used cars on the market right now. Yes, the used ones are overpriced, too, but not anywhere near the crazy prices dealerships want.

I totally agree. I don't think I would ever shop at Jenkins in the future after the stunt they tried to pull on me. I will always shop elsewhere

GM tried that with Saturn and it didn't work out very well. Many buyers like to haggle when it comes to buying a car.

Please go back and take an economics course - or read Adam Smith. You know the terms "variable and fixed" - but you seem to be missing lots of the big picture. 1) Gauging is gauging. You can put lipstick on a pig - if you want to kiss it - be my guest. 2) If "information" is honest and available related to pricing - (which in the car industry - and frankly - the healthcare industry - it is not) - then there would not be as much opportunity to rip people off. 3) I teach my MBA students "there is no such thing as a commodity - there is always a way to differentiate - it may need some creativity and critical thinking. (Example: Comex is the most successful in concrete - and they are premium priced.)

Correct. The complexity of Finance Guy is fascinating - but the brilliance is in the simplicity. Auto pricing is mostly "blind" - similar to healthcare. Which is why they are both so messed up. If Finance Guy read Adam Smith (the "father" of capitalism) - the truth might blossom on the falsehood in his well stated but inaccurate argument. I teach over 1,000 MBA students each year; Finance Guy pontification is impressive - but would get a B- based on lack of critical thinking.

Have you been paying attention to the news lately? There are record numbers of ships waiting to be unloaded at California ports. The main problem with insufficient new cars being available is that there aren't enough computer chips for engine/vehicle management on-board computers. No computer, no go.

No kidding? I know that they are out there, but there aren't a tremendous amount of cars on them. GM has shut down because of the chip shortage, but even they aren't on the ships.
I'm saying that it isn't a reason for the dealers to screw the customers, that's all.

If people didn't buy new cars at the inflated prices dealers would have to sell like they always have.
Remember when the Mazda Miata and the Chrysler Cruiser first came out? They sold way over MSRP because vain people just had to be the first ones to own it and dealers took advantage of it.

Some love to haggle. Tesla has proven - not everybody loves to haggle.

Professor, I built and modeled out various pricing models for the building construction industry on a quotes to build and quotes for service multi year contracts for multiproduct building systems, locally, nationally and for the federal government RFPs more than once. . . . one was an international datacom network bid to the IRS in the early 90's with both piece parts pricing and service based pricing. The construction quotes were mostly fixed price quotes, with parts and labor costs not visible. Federal government prices were designed to the RFP, though having to figure out max profit with different pricing inputs than our black box was the challenge. I have an idea of customized pricing since the models were all custom systems. I was not advocating commodity pricing, @retiredguy does not like the dispersion of pricing differences for the same car at different dealerships. I was challenging him on his desire to have a commodity or standardized pricing model. I may have used the term commodity pricing to mean that there is no differentiation between dealerships for the same car, which is what @retiredguy constantly thinks should happen, and is not the first time he has complained about that point. He constantly compares a consumer near commodity (better? since they are not identical but can be substituted for one another with minor differences) at best buy new with a highly configurable automobile with an age and wear factor.

So in normal times, conceptually, margins are competitive everywhere as the volume fluctuates around a competitive return for sellers. I think that having a large margin as clearly advertised with dwindling available units to sell to have to cover the commissions (variable) and fixed (lease, salaries, utilities) would result in a required higher margin to stay in business, are you disagreeing with this statement?

Thus, I don't think that pricing to survive is necessarily ripping off everyone, since no one has to buy that particular vehicle as clearly advertised.

finance guy

To clarify, I have no problem with different prices at different dealerships. That is fair competition. My issue is that an uniformed or novice buyer will pay X dollars for a car. But, I, or another well informed and non-intimidated buyer can go into the same dealership and buy the same car for as much as $4,000 less. I have a problem with that.