Buy, Finance or Lease - the Car Conundrum

[don]

not for me - I pay what I can afford in cash. But it's been awhile. Americanos seem to own Lease Central. That's what all the dealerships were pushing. A relative bought a Honda Civic. Three grand down - that was their prescribed limit on a lease down payment - and $187 a month, with a three year buyout of $13,600. At that point maybe they would have another $3K to throw in, financing (8.9% at the dealership today) the balance over 3-5 years. Crank those numbers up against a cash sale of $18,600. Yowza.

[BK]

Re: Buy, Finance or Lease - the Car Conundrum

Honda - financing - is the 1.9% financing available?
http://www.hondafinancialservices.co...nal-new-offers

[don]

Re: Buy, Finance or Lease - the Car Conundrum

Honda - financing - is the 1.9% financing available?
http://www.hondafinancialservices.co...nal-new-offers

For well-qualified buyers and buyers that qualify for the Honda Graduate Program criteria

I wonder how many qualified.

[GRG55]

Re: Buy, Finance or Lease - the Car Conundrum

For well-qualified buyers and buyers that qualify for the Honda Graduate Program criteria

I wonder how many qualified.

Lots of people qualify don.

But those are the people, like you and me, that don't want the credit...we pay what we can afford in cash.

BTW, what did you decide to do about the Big Boss' purchase? I have visions of her touring around in the Florida sunshine in a lipstick red convertible...

[GRG55]

Re: Buy, Finance or Lease - the Car Conundrum

not for me - I pay what I can afford in cash. But it's been awhile. Americanos seem to own Lease Central. That's what all the dealerships were pushing. A relative bought a Honda Civic. Three grand down - that was their prescribed limit on a lease down payment - and $187 a month, with a three year buyout of $13,600. At that point maybe they would have another $3K to throw in, financing (8.9% at the dealership today) the balance over 3-5 years. Crank those numbers up against a cash sale of $18,600. Yowza.

As some of you know I used to be a hot rodder and weekend gymkhana racer during my high school and college days. One year, during the mid-70s recession, when engineering student summer jobs were pretty hard to come by I ended up selling cars one summer to pay tuition. Not a really fun experience, but I learned a lot about how the auto dealership business really works.

Other than the occasional instance when a particular model proves wildly popular and dealers cannot keep them in stock, new car sales are the lowest margin part of the dealership business. Part of the reason for this is the cost of inventory. For some reason buying cars continues to be an emotionally-driven, almost spontaneous purchase for most buyers (albeit more expensive than buying mints or a magazine from the display at the supermarket checkout). Although most everyone will claim they do intensive purchasing research, in reality the majority of buyers still make their final decision on the basis of what they see physically that emotionally grabs them. If not for this human characteristic the manufacturers would have gotten rid of their costly dealer networks in favour of internet sales (integrated with a just-in-time custom manufacturing schedule) long ago. Even the very high end, limited production luxury car manufacturers like Aston Martin, who tend to build mostly customer-specified vehicles, have not been able to eliminate their showrooms.

The highest margin part of selling new cars is the options. The profits on good used cars are much greater. Part of the reason for the wide difference between the new car "sticker price" and a cash deal selling price is so the apparent value of a trade-in can be boosted to close a non-cash deal. Dealers prefer someone who has a low-mileage trade-in over a cash buyer for a new car, especially if the trade-in is their own product. If you are a buyer you can use that to your advantage in the negotiations if you don't plan to trade your old vehicle in. Servicing vehicles is the most labour intensive part of the business, but it's also the most profitable.

Back then lending money to buy a car was already well established, but leasing was just starting to enter the marketplace. Leasing was exclusively to businesses who had certain tax advantages that made it a viable option over having large amounts of capital tied up in vehicle inventory. Delivery services, taxi companies, and any business that required a fleet of vehicles that they turned over after a few years often benefited from lease related operating cost tax deductions. Back then a lot of the dealers had their own private finance companies to make conventional car loans to private buyers and leases for business buyers. Properly managed, these affiliated finance companies were even more profitable than selling and fixing cars. As the manufacturers eventually figured out.

Finally, what is the absolute best time to try to sell someone a new car? Any guesses?

[don]

Re: Buy, Finance or Lease - the Car Conundrum

Finally, what is the absolute best time to try to sell someone a new car? Any guesses?

Recently divorced? 50th birthday?

(The Big Boss is happy with a get-around 2013 'Blue Sky' Hyundai Elantra. More bang for the buck in that class of car)

[jpatter666]

Re: Buy, Finance or Lease - the Car Conundrum

Finally, what is the absolute best time to try to sell someone a new car? Any guesses?

Right out of college?

You're naive, you've got real money for the first time, NO clue on finances and the "impress my friends and women" play works.

[don]

Re: Buy, Finance or Lease - the Car Conundrum

"impress my friends and women"

See recently divorced and turning 50 . . .

[shiny!]

Re: Buy, Finance or Lease - the Car Conundrum

Tax refund season?

[Polish_Silver]

New car sucker timing

Finally, what is the absolute best time to try to sell someone a new car? Any guesses?

Here are my guesses:

1) One year after they have bought the last new car. Buy that time the novelty has worn off and "buyer's remorse" has set in.

2) Right after they have been divorced, or dumped by a girl friend. They are looking for someway to cheer up and increase thier attractiveness.

3) When newspapers are proclaiming a new era of prosperity.

About leasing:

Puplava used this as an example of moral hazard in commercial media. He used to do a short radio program about financial issues. He had found that leasing a car was a bad deal, at least for consumers.

The radio station wouldn't let him do this article, because a huge fraction of the advertisers were car dealerships.

About low rates:

When the rates are like 2%, wouldn't it makes sense to borrow that money, knowing that your gold coins would appreciate faster than 2% during the life of the loan?

Practically speaking, borrowing money to buy the car usually results in a more expensive car, not just paying for the car gradually.
(same thing for houses, of course)

Aren't the loan rates so low because it's so easy to reposess the car? I mean, it's hard to evict people from a house, and hard to garnish wages. But getting the car back just takes a tow truck!

[metalman]

Re: Buy, Finance or Lease - the Car Conundrum

Finally, what is the absolute best time to try to sell someone a new car? Any guesses?

easy one... last car broke down & left your new car prospect on the roadside what do i win?

[shiny!]

Re: New car sucker timing

Here are my guesses:

1) One year after they have bought the last new car. Buy that time the novelty has worn off and "buyer's remorse" has set in.

2) Right after they have been divorced, or dumped by a girl friend. They are looking for someway to cheer up and increase thier attractiveness.

3) When newspapers are proclaiming a new era of prosperity.

Good lord! When I want to cheer up and feel more attractive I buy a $4 lip gloss.

[GRG55]

Re: New car sucker timing

Here are my guesses:

1) One year after they have bought the last new car...

P.S. has the closest answer...

The highest probability of making a new car sale comes on the day the customer makes the last payment on the loan on their current vehicle.

You call them up, get them down for a test drive and show them how they can trade their 3/4/5 year old car for a brand new one (that has the looks, new features, reliability and warranty of a new car, and has that nice new car smell too!!) for the exact same monthly payment as they've been making all along (the line is the new car "doesn't cost you any more"). Worked better than I could have ever imagined. And this was before the FIRE era really got rolling.

[Edit added: Personal note; I don't know what it's like to be on the other side of that phone call. I buy good used vehicles (only twice have I bought new, and one of those was for the Minister of the Interior, aka The Big Boss), pay cash, give them meticulous maintenance, and run them until there is nothing left of them. There is no reason why you can't get 250k+ miles out of a modern vehicle. Absolute cheapest per mile way to own a car.]

Here's another: Obviously married couple walk into the showroom. He heads straight for the loaded up silver and white hardtop. She heads for the brown on brown (remember, this was the '70s) basic sedan. You need to sell them a car to bank some dough for tuition and books. What do you do??

[jk]

Re: New car sucker timing

Here's another: Obviously married couple walk into the showroom. He heads straight for the loaded up silver and white hardtop. She heads for the brown on brown (remember, this was the '70s) basic sedan. You need to sell them a car to bank some dough for tuition and books. What do you do??

i'll bite: sedan with slightly flashier color scheme and bigger engine?

[don]

Re: New car sucker timing

This is exactly what my neighbors did on a lease. The payments were exactly the same for a new one! How could we go wrong.

Wrong, wrong, wrong . . . .