Monday, October 18, 2021
It Was the Best of Times (for Car Dealers), It Was the Worst of Times (for Car Buyers)
Did you hear the one about the 6-foot man who drowned while trying to wade across a river with an AVERAGE depth of 3 feet?
A recent Consumer Reports article reported that the average price (MSRP) of a new car has risen over $45,000 for the first time ever. The average transaction price has risen 7.7%. The interesting thing is that this 7.7% increase in the average price you pay represents more than a 300% PROFIT increase for the car dealer.
Of course, that $3,465 price increase (7.7% of $45,000) is a huge increase in profit to the dealer. The interesting thing is that this 7.7% average price increase represents more than a 300% profit increase to the dealer.
The average dealer margin on new cars was about $1,000 before the microchip shortage. Most car dealers, pre-covid, made relatively little net profit in their new car departments. In fact, quite a few lost money. They relied heavily on the large profits they made in the finance and service departments. The covid pandemic with its subsequent worldwide microchip shortage has brought unprecedented, record profits to car dealers. Car dealers are making so much profit on each car they sell, they can sell far fewer cars and make far more money than ever before.
What make this even worse for the car buyer is that the highest prices are being paid by those that can least afford it. These are the car buyers I often refer to in my articles as the “victims” …the less sophisticated, educated, English language impaired, the very young and the very old. Remember that AVERAGE big price increase of $3,465 is made up of lower prices by the sophisticated, educated buyers and higher prices by the victims. Unlike all other retail products sold, only automobiles are sold at a different price to each buyer…based on their ability to search out and negotiate the lowest price.
A shrewd buyer can buy a car for thousands of dollars less than a typical victim. I estimate that the average price increase to victims approaches $7,000 compared to the $3,465 average price for everybody. Sadly, these are also the people that are most likely to need a car. They are also the people that will pay very high interest rates in the dealer’s finance department.
If you’re interested in helping potential victims from being taken advantage of by unscrupulous car dealers, please consider volunteering for “Earl’s Vigilantes”. Please click on www.earlsvigilantes.com. If you qualify, I’ll even send you a free “Earl’s Vigilante” hat. 😊