by "Steven Lang" (StevenLang)
Published 12/11/2017 at 17:57
by "Steven Lang" (StevenLang)
Published 12/11/2017 at 17:57
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STARS: 2
Car dealers are often called to the whipping post of public outcry because a not so small army of them will charge you a bogus finance or documentation fee. It’s a stupid and pointless exercise of greed – but it’s done for one simple reason.
When you buy and sell cars, you operate in a business where the plentitude of fees are the norm.
Car dealers, even those blessed few that run their own show such as Tesla, routinely pay fees out the yin-yang to a very small cabal of conglomerates. Forget one simple inflated bogus fee. When you buy or sell cars for a living, the fees never stop because the billion dollar businesses you pay fees to are mostly protected from any real pricing competition.
The annual wholesale car market of over 9 million used vehicles has only a few strong competitors on a national level, and these companies have a chorus line of fees that would make a Broadway banker belt out showtunes: buy fees, sale fees, registration fees, internet fees, consignment fees, no-sale fees. Whatever you do or don’t do as a dealer, there’s usually a fee or two for it.
This fee culture is passed down from the dealers directly to you, the retail customer, Chances are if your car is ever leased, traded-in, repossessed or totaled, it will be sent to a dealer auction where the competition is restricted to a licensed few who have paid big money for access to a heavily protected wholesale car market.
One company in particular handles a large volume of roadworthy cars, from 20 year old trade-ins to 2 month old Bentleys, along with those that are worth more dead than alive – KAR Auctions Inc. Yes, it really is spelled with a K as in, ‘Ka-Ching!’.
There is little incentive to innovate in this wholesale market because the mega-auctions like the ones KAR operates have an extreme level of pricing power in a marketplace where the competition is either bought out, or limited due to technological barriers to entry. In the last six years, alone according to KAR’s web site , the company has built only two new auctions while nine separate businesses have been acquired. This lack of innovation has meant higher fees for car dealers and, as a consequence, a used car market with artificially high prices.
Jim Brumbaugh, owner of AA Motor Sales for 14 years, has experienced the fee-driven market firsthand in the Florida auction market. When KAR Auctions bought out a formerly independent sale, Sanford Auto Dealers Exchange, the purchasing costs on even the smallest of transactions increased by over 40%.
“On a $900 car, I now have to pay a buy fee of one hundred ninety dollars. Last month the auction only charged me 135 bucks on a low-end beater. That’s a 40% hike!”, says Mr. Brumbaugh, who has bought hundreds of vehicles annually at this Central Florida sale.”
“Now on a $1300 car they charge $230! On a $1500 car it’s now $280, and on a $2000 car they get an extra $310. I get charged a 15% to 20% markup every single time I buy a car. How can I not charge my customers these ridiculous fees?”
You may know plenty about cars and feel like you could easily purchase a car from a wholesale market, but your knowledge and expertise doesn’t matter because state laws are specifically designed to keep retail consumers away. You’re not invited. To make matters worse for the rest of us, there is one other pesky issue that can’t seem to go away. The stiff markup that the public now pays for the same exact vehicle.
This spread is now in the thousands of dollars. According to one industry study, the spread between the wholesale and retail premium on used car prices was recently over 35%. That’s on a retail used car transaction that averaged a hefty $18,500 back in 2015 and was just recently $19,134 in 2016.
That’s a lot of wasted money for a protected market that shouldn’t even exist. But that pricing premium is paid by everybody who isn’t at the very top of the used car pyramid – and that rickshaw of financial woe can be as painful as it is abrupt.
Sometimes poverty is caused by handouts. Not handouts to the impoverished or the penniless, but those given to the well-connected. These are the legalized theft cartels of the modern day.
That’s the multi-billion dollar reality that now exists for all of us; the wealthy, the poor, and every other car buying consumer out there. It begs the question, “How can this heavily restricted wholesale market that benefits a chosen few become a retail market for the many?” The answer is politically complicated, but perhaps, if we want to become a nation of owners instead of debtors, it’s the one question that can’t be ignored.
If we want to lower the costs of buying and selling used cars, opening up the market to more buyers and sellers would be the easiest and fairest way to do it. After all, who the heck should ever have to pay thousands more for a product that we now have well over 260 million of in the United States?
Steven Lang buys cars , sells cars , finances cars , fixes cars, auctions off cars , and even is rumored to have been a car in his past life. Hopefully it wasn’t this car. However if you want to find out the long-term reliability of your car, feel free to click here and visit Dashboard Light.
"Future next gen S2000 owner" (future-next-gen-s2000-owner)
12/11/2017 at 18:19, STARS: 2
This why I believe OTD prices are the only ones that matter. I don’t care what fees you charge me if I like the final price.
"E90M3" (e90m3)
12/11/2017 at 18:22, STARS: 3
Exactly that. I “paid” a $700 document fee on the 3 series. I told them I don’t care how you make your numbers work, this is what I’m going to pay. I don’t care if you make the car $1 and the rest is the doc fee, as long as I agree to the price, I don’t care how you make the numbers work.
"themanwithsauce - has as many vehicles as job titles" (themanwithsauce)
12/11/2017 at 18:41, STARS: 2
Mmhmm. But a lot of people don’t know how much to pay for a car. Or they feel trapped and don’t have many options due to poor credit or not a lot of cash. And to be specific - it isn’t that they are in a terrible situation, but their perception is that they are because that’s what everyone tells them.
"nermal" (nermal)
12/11/2017 at 18:41, STARS: 0
I missed the connection between the wholesale auto auction oligopoly and poor people paying more. Fees levied at wholesale auto auctions get passed down to the retail customer, regardless of their financial well being.
The question becomes - In our current environment favoring reduced regulations, will we see auto sales regulations reduced? That being franchise laws and requirements for attending auto auctions.
"nermal" (nermal)
12/11/2017 at 18:43, STARS: 1
This is why advertising has become a bit of a joke. Check out the cheapest new version of your vehicle of choice on AutoTrader. Chances are it’s out of the DC area, where they also add on a $1k doc fee and require dealer financing at inflated rates.
"Future next gen S2000 owner" (future-next-gen-s2000-owner)
12/11/2017 at 18:45, STARS: 2
There is no excuse to not know how much a car is worth anymore. The multitude of free resources makes that inexcusable.
If you fail to do basic research on statistically the second largest purchase you make, I don’t really feel bad for you.
"themanwithsauce - has as many vehicles as job titles" (themanwithsauce)
12/11/2017 at 18:50, STARS: 1
It’s easy when you speak the language. It’s not easy when you have limited knowledge of how cars work and what to look for. Especially when you’re talking about the wilderness of sub 5000$ used cars. Lots of people swear they got a “great deal” on a well maintained car, only to find out a few weeks later that it wasn’t that well maintained or that an achilles heel of the car came to the forefront.
"Highlander-Datsuns are Forever" (jamesbowland)
12/11/2017 at 18:56, STARS: 3
Cheaper cars have a disproportional higher selling fees than a more valuable car.
"Steven Lang" (StevenLang)
12/11/2017 at 19:48, STARS: 0
^ This!
"BaconSandwich is tasty." (baconsandwich)
12/11/2017 at 21:59, STARS: 1
Stuff like this rubs me the wrong way. Basically, the customer becomes powerless. I’d love to see these guys get knee-capped - either legal means or through a competitor coming in and taking them out. Unfortunately both of those are unlikely to happen.