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The margins for used cars aren’t high enough to support that kind of discount (https://jalopnik.com/how-to-negotiate-for-a-used-car-5570813 https://jalopnik.com
by cepth 6y ago
The margins for used cars aren’t high enough to support that kind of discount (https://jalopnik.com/how-to-negotiate-for-a-used-car-5570813 https://jalopnik.com/how-to-negotiate-for-a-used-car-5570813 and https://www.autonews.com/article/20180428/RETAIL04/180439997/losing-money-on-used-cars-yes-and-no https://www.autonews.com/article/20180428/RETAIL04/180439997...).
Think of it this way: there isn’t nearly enough demand right now, regardless of whether you (the dealer) discount your inventory or not. I.e., you will not move enough cars to pay for fixed costs like the mortgage on your building, financing the inventory on your lot, etc. The Fed has done various studies on household savings account balances and/or net worth (https://www.valuepenguin.com/banking/average-checking-account-balance https://www.valuepenguin.com/banking/average-checking-accoun... and https://abcnews.go.com/US/10-americans-struggle-cover-400-emergency-expense-federal/story?id=63253846 https://abcnews.go.com/US/10-americans-struggle-cover-400-em...). The vast majority of Americans would have to finance a car purchase, even for something like a 10-year old used car. Yes interest rates are low right now, but does it make sense for a consumer to buy a depreciating asset and increase their monthly interest costs at this point in time?
To the car dealer (or rental operation like Hertz), the question is does it make sense to have a fire sale on your inventory now (at prices that will almost certainly lead to an accounting loss), or do you take your chances in bankruptcy court? If you believe that in the next year or two that the market for used cars recovers somewhat, you can sell those assets off during bankruptcy proceedings to pay off creditors etc. There’s a strong case that taking this approach will leave the company as a whole better off in 3-5 years, though equity holders will certainly be taking a huge hit.
- icelancer 6y agoPretty much this. Depreciation is outpaced by the slashing of the margin you'd have to incur to sell today in any sort of reasonable quantity (especially if it is a cash transaction).
- metaphor 6y ago> Yes interest rates are low right now, but does it make sense to buy a depreciating asset and increase your monthly interest costs at this point in time? At what point do you suspect the "vast majority of Americans"--who apparently can't afford to purchase a 10yo used car outright--start genuinely contemplating the financial impact of asset depreciation and overbearing interest in a strategic manner before signing a purchase agreement...you know, the one with all those legal words for lawyers and such? Call me impractical but...$1,201 just chillin' in the bank, yo!
- cepth 6y agoIn boom times, it’s probably true that people can develop irrational exuberance e.g., taking out a big mortgage because hey, housing prices are going up everywhere. When things are good, maybe you don’t budget so precisely. I know I don’t! But when ~20% of working age Americans are living off unemployment benefits, and millions more who work in industries like restaurants, hospitality, and travel facing the possibility that they will likely never have a job to go back to, my guess is that you’d have to be pretty well off (or very optimistic) to take on an additional $100/month car payment, not to mention adding a car to your insurance policy etc. :)
- metaphor 6y agoI don't know man...I mean $1,201 is lot of presidents just waiting to be put to work! That's like downpayment on a practically new set of wheels and enough herb to last until facebook says the unemployment website is fixed. Might not have another global panedemic like this ever again, and as the old saying goes: you miss 100% of the shots you don't take. Opportunity's callin' my name! Jokes aside, people who live life along this asymptotic approach are real, where the only conditional that registers is, "the current number in my bank account is still bigger than the number on this bill...which is completely optional 'cause repo ain't gonna find me this time, ha!"
- RussianCow 6y agoYou're getting downvoted, but it's actually quite staggering how many people live this way, even when they really can't afford to. A UPS warehouse worker I know just bought a $60k car because he got a "really sweet deal", even though the monthly loan payment is significantly higher than his rent.