Monday, October 31, 2022

Is it Safe to Go Car Shopping Again?


To be clear, it’s never been safe to shop for, much less buy, a new or used car from a car dealer. The title to this article should read “Is it Safer again to go car shopping”. For nearly the last three years it’s been the worst, most dangerous market EVER for car buyers. With the advent of the Covid pandemic, the Ukraine war, supply chain shortages, severe inflation, and high interest rates, new and used car prices soared to all-time highs. Auto manufacturers and dealers are getting rich and auto buyers are getting “screwed”. 

As the saying goes, all good (and bad) things come to an end. It looks like the trend line is inclined toward things getting better for the buyers and worse for the sellers. New cars selling for thousands of dollars above MSRP, and used cars selling for higher prices than new is at an inflection point, trending downward. New car inventories are higher today than they’ve been in over two years. This isn’t only because the supply chain shortage has improved, but because buyers began balking at stupidly high prices, like tens of thousands above MSRP. 

A high inventory is something the car dealers haven’t seen in over 2 years and is “the kiss of death” to dealer profitability in a down-turning market. The biggest danger to dealers who don’t sell their cars fast enough is losing their share of the auto production from their manufacturer. The expression in the auto industry is “turn and earn”. This means that the faster a car dealer sells his cars, the faster the manufacturer ships them to his dealership. Car dealers are insanely competitive amongst the same-make dealers in their market. If there are 4 Toyota dealers in the same market, they don’t each get 25% of the cars that Toyota builds each month; they get the percentage they’ve earned based on how fast they’ve historically sold cars. The single largest dealer in each marketplace with 4 dealers can sell 50% of all the cars each month if he sells them a lot faster than the other 3 dealers. Of course, this translates into higher profits for that dealer and earnings for the salesmen. 

The cost of a high car inventory is also a negative factor for car dealers. Almost all dealers finance their new (and sometimes used) car inventories. Interest rates have recently soared. Insurance, incidental lot damage, and inventory maintenance are also cost factors to consider.
So, what do car dealers do who see their inventories growing so large as to cost them earned production from their manufacturer as well as higher interest and other costs? They must sell cars at a faster rate which translates into lower prices to attract customers from their competitors in their marketplace. A Ford dealer’s main competitors are the other Ford dealers in his market…not the Chevy, Honda, and other makes. The Ford manufacturer, of course, looks at it exactly the opposite. “Ford Inc.” doesn’t care which Ford dealers sells their cars, but they do reward the one that sells them fastest at lowest prices with more cars than they ship to the other Ford dealerships in the market.

The payoff for you, the car buyer, is higher inventories translate into lower prices. This doesn’t mean you rush out and buy a car today; it does mean that you can start the car buying processtoday. This includes carefully researching the best car for you (Consumer Reports is the best source of information). Begin the search for the car you’ve selected and determine which dealers have the largest inventories on their lots. I’m alerting you to the sad fact that most dealers and manufacturers are deliberately exaggerating on dealers’ websites, the true number of cars that are on the ground at the dealerships. Sadly, the only way to be sure is to visually confirm the inventory level by visiting the dealership. You can try to call and confirm first but seeing is believing. 

You should get several prices from different dealers and consider using www.CostcoAuto.com, www.TrueCar.com, and Consumer Reports car prices, build-buy service.
Finally, I’m not suggesting you buy a car today or even next month. I’m suggesting you begin the process. After you’ve done your due diligence, you can be your own judge on the price. Good luck on “going back into the “car-buying water”.

Monday, October 24, 2022

Should You Buy a New Car Today?

How much over MSRP will you pay?


I saw a friend of mine on the beach this morning, and he asked my wife, Nancy, and me if he should buy a used car that our dealership had for sale. At first, I said that I don’t recommend that anybody buy a used or new car today, unless they must, because prices are beginning to come down and inventory selections are rising quickly.
 
He asked me, nervously, why my price on this used Prius Prime (rechargeable hybrid) was higher than my price for a new Prius Prime. I told him that I have no Prius Primes in inventory and the waiting list for them is about ONE YEAR. He looked at me aghast, and I hurriedly explained why. That is, I’ve always had a policy of never charging above MSRP for a new vehicle. This was rarely an issue in the “pre-Covid” era. High demand, exceeding low supply rarely occurs in the new car business. Chevy dealers sell Corvettes way over MSRP, and Toyota dealers sold Supras way over manufacturer’s suggested retail, but this is rare.
 
I went on to explain that the Covid pandemic, microchip and other parts shortages, the war in Ukraine, high inflation, and high interest rates, have changed auto retailing and manufacturing into “Bizarro World”. The used Prius Prime on my used car lot was priced higher than a new Prius Prime because I have no new Prius Primes and Toyota can’t build and send me one for about a year. When I traded in the used one, I had to allow the buyer of the new Toyota a very high trade-in allowance because low supply and high demand for used car prices has soared. With my markup, the final retail asking price is higher than MSRP (my maximum price) for a new Prius Prime.
 
I’ve been a car dealer since 1968 owning several franchised dealerships. This is the first time that I’ve ever literally had zero new vehicles in my inventory. Every new vehicle I sell and deliver, 200-300 monthly, was ordered months ago after my customers placed their orders. This month I’ll deliver about 250 new Toyotas to customers that ordered their car up to one-year ago. The average wait is about 5 months. These cars come in daily on trucks, carrying about eight cars each, and are washed and prepped for delivery in a day or two.
 
Why would anyone wait up to a year for new Toyota? It’s because I’m the only Toyota dealership in the USA, as far as I know, that caps his out-the-door price at MSRP, the manufacturer’s suggested retail price. I charge no hidden fees. The only extra charges over MSRP are Florida sales tax and the license plate. All other dealers, Toyota, and every other make, are charging thousands of dollars above MSRP as well as adding hidden dealer fees on top of that!

You might be wondering why anyone would buy a new Toyota from any dealership except mine. The reasons are (1) I’m only one of about 2,000 Toyota dealerships in the USA and most people don’t know I’m selling for thousands less. (2) Most new Toyota buyers either can’t or won’t wait months to take delivery of their new vehicle. If you want something bad enough, many people (who can afford to) are willing to pay up to have the instant gratification. (3) The less educated, sophisticated buyers often are unaware of that they’ve paid thousands over MSRP.

The red flag to any car buyer of any make should be the number of new vehicles a particular dealer has in inventory, sitting unsold on his lot. The larger the inventory a new car dealer has, the higher his prices. They should have taught you in Economics 101 that sellers pricing their products too high, will have much larger inventories than those that don’t.

Monday, October 10, 2022

How to Avoid Buying a Flood Car After the Hurricane Ian Disaster


As I write this column, the terrible toll of human injuries, lives lost, and homes and vehicles damaged and destroyed by hurricane Ian are still being tabulated. It’s clear that Ian will go down in history as the costliest hurricane in Florida’s history.
 
We think of hurricanes’ danger as being mainly the high winds, up to 145 mph in Ian’s case. But the real culprit is the flooding. In Ian’s case, on the west coast of Florida, the storm surge raised the sea level high enough to put much of southwest Florida’s coastline underwater. Thousands and thousands of vehicles were immersed in varying depths of water for hours or days.
 
When an insurance company “total’s” a car because of flood damage, the car isn’t scraped; it’s sold by the insurance company for pennies on the dollar. Those who purchase these “totaled cars” resell them, usually to car dealers. Guess who the car dealers sell them to; they sell them to you if they can get away with it.
Even when there aren’t storms, hurricanes, or floods, cars are flooded, totaled, and resold every day. Heavy rains creating deep puddles and running off roads into canals happens often. It’s “buyer beware” anytime you buy a used car, but with hurricane Ian, the danger of buying a flood car has increased astronomically.
 
You’d think that consumers would be protected from accidentally buying a car that had been underwater and totaled by the insurance company, but that’s not so. All 50 states in the USA have varying rules on titling cars that have been damaged or flooded. The used car buyers and sellers of flood cars know which states they can get phony titles to hide the fact that the car they’re selling you was previously “underwater”. Flood cars bought in Florida can get “clean” titles in Mississippi, New Jersey, and other states.

As you probably know, since the advent of Covid, new and used car prices have soared. Just recently used car prices have begun to come down slightly, but hurricane Ian will certainly reverse that trend, at least in Florida and other states impacted by Ian. Regular readers of my column know that I advise not to buy a new or used cars at the present time unless you absolutely must. Sadly, many victims of Hurricane Ian will have to buy a car.
 
There’s a very good reason that insurance companies total flood cars. A car that has been in water as high as the dashboard is just as worthless as a car that’s been totaled in a head-on crash. The only difference is a crashed car is obvious and many can be repaired. A flood car can be made to look “as good as new” and is far from obviously being worthless. Today’s high-tech cars are particularly vulnerable to water permeation. All vehicles today are more computerized and electronic than they are mechanical. A modern car that’s been immersed in water for only a short time might run fine for a few months or longer, but eventually the water inside its computerized and electronic parts will fail.
 
The unscrupulous sellers of flood cars are masters of disguise. They can make a flood car look, smell, feel, and even drive (for a while) like a perfectly good car. In fact, one of the things an investigator of a possible flood car looks for is that the car is too nice and clean. The serious damage to a flood car, inside the computer and electronic modules, is completely invisible.
 
If you must buy a used car today, take it to a qualified auto technician that you can trust. Ask him how much he’ll charge to examine the car you’re thinking of buying and tell you whether the car has been underwater. A fair price for this is between $200 to $250 and will be the best $200-$250 you ever spent.