It's an outdated system that should have been dead a decade ago, but not yet.
Longer than that, I would say. I have not bought a single car where the dealer added any value to the process at all. And I've been buying cars for three decades now.
I realized in my US stay of many years that a lot of economy is rent-seeking like everywhere. Dealers primarily exist as ICE cars needed maintenance and legacy reasons. However it is a pity that they cannot be disrupted. I have not had experience with platforms like Carvana but i avoid used cars from people because i have had bad experiences before.
Where I see the street is littered with unused bikes for sharing (sometimes a trip hazard if you are not looking where you go while on the iPhone SE talkin) and unused cars parked for sharing. They multiply. The disruptors must be using a utility function with payoff after the sovereign wealth fund managers backing the thing cashout at the top, retire and die. And then there is no return on investment after WeWork's hard partying and snort.
She ended up with a competitor. That dealer had a mandatory "package" they applied to every car on their lot (window tint, door edge protector, etc.) which was grossly overpriced.
Something I haven't seen the numbers on but I suspect is true, is that they make more profit on the financing rebate than they do on the sale of the vehicle. The pressure to finance with them is so high that some dealers will refuse to accept cash offers. Or they will add on $2500 as an "external finance fee" when a buyer already has financing arranged.
I have actually never had a dealer pull this on me (and if one did, I would simply walk out the door), even though I always have financing already set up with my credit union before I ever start talking to a dealer about a car, so from their standpoint I'm paying cash. However, every dealer but one has tried to either sell me their financing instead, or sell me a lease deal instead of a purchase. (The one that didn't knew there was no point because I was a GM employee buying a GM car at that time so every single aspect of the transaction was already predetermined.) I've never taken them up on it, but the fact that they try so hard supports your hypothesis that they aren't making any real profit on the sale itself, but only on the financing.
(When I was working for GM, which was some time ago, I had access to enough numbers to make it clear that GM itself was not making any real profit on the sales of any vehicles except full size trucks and SUVs; all of their profit was from GMAC, the financing arm. I used to say that GM was really a financing company that happened to make vehicles on the side. I suspect the other US automakers are similar. I don't think most non-US automakers are; their incentives are different and they are mostly run by technical people, not financial people.)
You may have heard TV & Radio ads offering 84 month 0% financing. For certain slow-selling vehicles, 90 month 0% is available. Which is insane - a loan of 7.5 years on a vehicle? You'd probably be under water for almost 4 years. Which has big concerns if it gets wrecked and you don't have gap coverage.
A car depreciates. One should never buy a depreciating asset on a loan. A car should be treated like a consumable - buy it with existing cash.
The only thing that one should buy on a loan is an appreciating, or income generating asset.
Based on the median U.S. income, it could take literally years expecting no additional discretionary income to come up with that kind of cash, or even longer if individuals are trying to keep cash reserves to situations like one we're currently experiencing. In practice. owning a car as an asset it generally considered a positive versus alternatives like leasing, which results in the accumulation of no vehicle equity over time.
There's not really a great solution here. Cars are capital assets--they're complicated to build yet already somewhat commoditized in their pricing. They can also last for much longer than most other consumables assuming reasonable use. With regular maintenance, I don't think it's unreasonable to assume well over 10 years of use from most modern vehicles, with most automotive loans having a shorter period. I'm not sure I can think of another commonly-used product that closely matches those conditions...
These people compromise a big portion of their income on Car financing + insurance + gas, that otherwise could be reverted as education, higher quality food, or better quality housing. I believe if we had a proper funded public transportation system, 200 dollars on unlimited public transportation ride ticket would be enough for most of the people.
I do think most people buy way more car than they need, which drives up all sorts of costs. If you can get out of the car loan cycle it's incredibly freeing. If you have a solid driving record and an emergency fund you can drop collision on your insurance (it's required if you have a loan) and save a few hundred each month to put towards your next car.
It would be great if we could start discussing real prices, maybe agree on an average sales tax rate which can be used in most discussions, with the understanding that it will vary a bit for you. Or maybe just add a 10% flat sales tax estimate, so that at least you know that most of the time you can expect to pay slightly _less_ than the discussed price, versus the unpleasant surprise of thousand(s) of additional $.
I wish the US could suck it up and have correct price labelling. I don't care if they relabel products and it varies location to location or if the price is the same nationally and varying amounts get skimmed out (like credit card fees).
Last time I went to buy one, the local Honda dealer tried to rig up a deal where a 2-yr-old model listed at $11k would cost me $19k. They were willing to budge on one of the $2k "mandatory" upgrades that weren't in their posted price, but I walked on the deal.
I think slightly older used cars can usually be had pretty reasonably though and can be a nice way to break out of the car loan cycle (if you can budget $1k cash for the likely event where there are hidden problems). The end of that story is that I bought a 10-yr-old Honda Fit for $5k, they didn't try any manipulative sales tactics, and 20k miles later I haven't had any notable issues (ran over a couple nails and needed to plug the tire). That's still a lot of money at minimum wage, but it's a lot more manageable than a new car.
The used car market used to be fantastic before the 2009 Cash For Clunkers system seemed to have skewed it. It doesn't look like it has "recovered" but that could be due to other factors like better reliability overall. I mostly used a new car as a worst reasonable case scenario where the price doesn't fluctuate.
[1] https://www.insurance.com/auto-insurance/coverage/comprehens...
Your money does not know or care what it is spent on. If you take out a loan to purchase a car, and then use the money you didn’t spend on the car to purchase investments it is no different to spending the cash on the car and the loan on the investments.
If you have enough money to buy a car AND investments (and you need a car) you’re better off spending that money on a car and saving on the credit cost of the loan.
What this rule actually says is “it’s better to have money and invest it in things that appreciate rather than not have money or spend your money on things that depreciate”.
Well duh!
“Only borrow to buy appreciating assets, only buy depreciating ones with cash” is a fallacy.
If you have a small savings and are a decent driver you can drop collision insurance (which would be required if you had a loan) and save an extra hundred or two each month.
At some point you should have an emergency fund with 3-6 mo of living expenses. A brand new Honda Fit starts at $16k. That's about a yearly salary of someone making ($7/hr) minimum wage working full time. So that should be in the realm of possibility for someone making more than minimum wage (or in a state with a higher minimum wage).
How expensive is your insurance?? I have a fully comp insurance with 20 million euro liability that's about ~$500 a year. If I dropped that down to a 3rd party liability only it would save me almost nothing.
[1] https://www.insurance.com/auto-insurance/coverage/comprehens...
Basically, the car manufacturer doesn't want to own the car and the dealer doesn't want to own the car; so the bank owns the car on short-term loans that incentivize the dealer to sell as soon as possible.
The industry term for that is "floorplan loan."
The blanket statement that horses have high safety ratings makes me smile :-)
It seems that in the late 19th century in the U.S., the annual death rate from horses was approximately 5 per 100,000 inhabitants. That surprised me, as it's ~1/3rd the current U.S. road traffic fatality rate, and as horses were used for more than just transport.
I couldn't find any figures, but obviously the distance travelled per capita has exploded, so it's likely that horse riding is at least several orders of magnitude more dangerous than driving.
Ulike cows and sheep who only have front teeth in their lower jaws horses have teeth on both sides and can easily take a bite of someones arm if they snap.
Add to this the massive hygienic problems that would occur if we suddenly had these animals walking around leaving their droppings everywhere.
2. Upselling higher end models and trims (add-ons are where the money is)
3. Signing up people for high-interest long term loans they shouldn't take on (negotiating monthly payment instead of purchase price)