Monday, October 9, 2017

Why Do Used Cars Sometimes Cost More Than New Ones?

Dealers often sell used cars for higher prices than new ones.  Why is this?

Years ago, when we were still into German cars, and German cars were still a good value proposition, we looked at buying a used Mercedes wagon.   Back then, they were 300,000 mile German tanks.  Today, they are fussy, delicate jewelry boxes, and no longer a good bargain.

We went to the local Mercedes dealer, which was offering to "re-lease" used Mercedes wagons.  I thought briefly about leasing the car through my company and writing it off as a business expense, but quickly realized that even if I could write it off, it was still an overpriced deal with a lot of hidden fees.  Again, leasing only makes sense only if you can write off the costs - and even then, sometimes it is better to buy than lease.  For ordinary consumers?  Leasing makes no sense at all.

We were about to walk away, when I noticed in the showroom across the street, the same identical car, brand new, for sale.  Curious, I walked over to look.  What shocked me was that the price on the window sticker was lower the the price of the used wagon across the street.  I quickly got into my car and left - these people were clearly crooks.

Recently, we were looking at boats, and it has filled me with trepidation.  When I was younger and clueless and thought money would continue to flow into my life, we bought boats without much of a thought.   And we had fun.  Today, the idea of tying up all that money in a depreciating asset scares me to death.  I guess part of it is the fact I am getting older and more conservative with money, the other part is, the economy scares me right now, as does the unstable government we have.   Not a good time to buy a depreciating toy.

The other half of the equation is that to tow this boat, we would have to buy a larger truck.   Mark Twain was once credited with saying something like, "beware of any venture which requires new clothes" - and I am sure if he were alive today, he would amend that to "beware of any venture which requires a new truck."   And big trucks are not cheap, which is why I never bought one before.   They also depreciate rapidly and it seems most of them are optioned out of the universe.  We've seen zillions of off-lease Crew Cab F-250 "King Ranch" diesel trucks for sale, which were $70,000+ trucks new, now selling off-lease for $40,000 or so.

But I don't need or want a truck that is as long as a city block and requires a step ladder to get into, no matter how many acres of brown leather it has inside.

So instead, we looked at a stripped-down "work truck" with a standard cab and bed.   Now by "stripped down" I mean a truck with more options than your Grandma's 1968 Cadillac.   Stripped today means the base sound system and no automatic climate control.  You still get power windows, locks, cruise control, air conditioning, an AM/FM stereo radio and a host of stuff that wasn't even conceived back in the 1960's - like anti-lock brakes, traction control, air bags, disc brakes, radial tires, and so on.   Today, we consider that a plebeian "bare bones" truck, suitable only for utility crews.  How times have changed.

Anyway, the local dealer has one on the lot, used with 900 miles on it, but asking $32,000.   They also have the exact same truck - in fact three of them - brand new on the lot, with asking prices of $29,000.  What is going on here?  Why is a new car less costly than a used one?  Not only that, why is this something that happens more often than not?   The answers are various, but get down to the attitudes and self-esteem of the buyers involved in new and used cars.

I asked the salesman why the new trucks were less expensive than used ones.  He replied with his gobblygook message:
We do have new ones listed at 29 thousand for our internet price but that's not going to be your sales price you have to add back in what ever the rebate is on the F-250, freight, military, and college to get a taxable sales price. The only thing I would say that would be different is the rates on new vs. used
 Huh?   I am expected to pay more for a used truck "just because" and for some reason should "back out" the rebates on the price of the new one to make a comparison?   This is literally nonsense - Alice in Wonderland stuff.

The real reason is, of course, that used car buyers rarely cross-shop with new cars, and moreover will often take whatever shitty deal is offered to them, even if it means paying more for a used car than a new one.   This is not only a matter of low-self-esteem, but poor thinking in every sense of the word.   The new car buyer is expected to have a better credit rating, be more educated, and more astute - and do more research.   The used car buyer thinks a used car is always cheaper than a new one - but never bothers to actually check.

He also is more likely to have damaged credit, less education, and less likely to go online and comparison shop.   He is more likely to be the guy who shows up on the lot with nothing more than a checkbook and a W2 and is "sold" a vehicle by a salesman, who saddles him with onerous financing and a padded price - all based on monthly installment costs, not overall costs.

Of course, there are good deals on used cars out there - but they are rarely from dealers.  Private party sellers are not interested in getting a kickback from the finance company, nor are they sophisticated enough to bamboozle you with nonsense and price-padding.   And that in a nutshell is why all the "books" of used car prices (KBB, NADAguides, Edmunds) show private party sales prices at 10-20% less than dealer retail.

But used car dealers?   Nope.   You are going to be given the runaround every time.   And that is one reason we walked away from the boat here in Annapolis - it was being sold by a dealer, and he was trying to use all the cheap psychological tricks to get us to buy it - playing games with the price, and our emotions.   We are now headed to North Carolina to look at another boat, for sale by owner, for a lot less money.   Whether we buy it or not, the point is, we don't have to dick around with a salesman in the deal.

And if we buy a truck to tow it with, we will look for one from an individual, not a dealer, and we don't need nonsense and gobblygook in our lives, and since we are not chained to the finance company to pay for it, we don't have to go to some salesman and hand him our checkbook and say, "you just write down a number that you think is fair, and we'll pay it!"

But of course, the other option is to opt-out entirely.  We don't "need" a boat to live or have fun. We could rent boats at various places we'd like to go boating.  We could do other things.  We would wait until next year, when perhaps economic conditions put a lot more boats on the market - at far lower prices.   Buying a motorized toy during an economic boom time is never a good choice.   During the downturn, however, you can snap them up for cheap.

Something to think about.  The minute you decide you "have to have" something, you are screwed.

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