By on May 16, 2011

Some folks say that stupidity is doing the same thing over and over again and expecting a different result.

Well, those folks have never been to an auto auction. Today we had over 95 dealers doing the same thing over and over again. Looking at a vehicle. Bidding it up to the nether-regions. Hoping that profit will come back via retail or buy here pay-here. Carmax has cutthroat middle-fingered competition at their dealer auctions and the prices reflect the screwing mentality that will likely be passed onto the bad credit consumer.

15 year old Explorers? $3000. A 14 year old stick-shift Subaru Impreza that came from the rust belt? $2900. Both of these vehicles were in clean condition… which means they are finance fodder at the buy-here pay-here dealerships.

The Explorer will likely be financed at around the $6k range when all the payments are said and done. The Subaru on the other hand? I don’t know what to make of it. I think the Latino BHPH dealer will find a willing customer who may finance it close to $6k.

You would be surprised how low that $6k balance can be if you spread it over a 24 month period. About $55 to $60 a week for what amounts to run of the mill transportation.

Then again, it can be even lower if you set it up for a 5 year run. The market for low mileage vehicles is just ridiculous. The Subaru in this case had 77k, which means that it can still make a healthy car note in rust-free Atlanta. But let’s look at the higher end side of the world and see if the air is any thinner up there.

2011 Jeep Wrangler Rubicon (2dr, Manual) $27,200

2007 Land Rover Range Rover Sport HSE $31,800

2007 Chevy Suburban 1500 LTZ 5.3L V8 4WD $23,000

2004 Dodge Viper Convertible SRT (67k ) $34,400

The buyer for the Wrangler will likely have around $28k in it once you add in the buyer fee and the Ebay fee. Will he get it? I don’t know. But it only had 3460 miles and looked mint. The stickshift puts it back a bit but the miles are excellent. We’ll see.

The Land Rover went to an exporter (surprise?). The Suburban was a dogfight between two dealers from North Georgia. It still went for $1000 below average wholesale which also happened to be right where the condition was on the vehicle. Overall this was a decent buy during tax season but definitely not something you want to hold since it had 71,000 miles.

The Viper is more of a curiosity than anything else. Given that a silver 04’ with half the miles no-saled on Ebay recently, I’m not too sure that the buyer will make an easy buck on it. I hope he already had a buyer on the hook.

One other item for those still looking for an older low mileage car. The going wholesale price (before fee) of an 11 year old Buick LeSabre with 72k and leather is $5000 according to one dealer at the sale. I’m sure Carmax rang up a $2000 profit on that one within a week. The dealer on the other hand may be able to double that profit. But it will probably take about 3 years and a small bit of luck to make that so.

About a third of finance dealers at the BHPH dealerships go south. Sometimes you get back a good car. Much of the time the cost in repo, repair and recon will average around $800. I’m lucky in that the very few I’ve had to get back this year are voluntary and still in good running condition.

There is an old saying in this business that, “You sell in February and repo in July.” I’m hoping that I can make this year hassle-free for everyone concerned. Now that the majority of my deals are finally cash again, I’m planning for a lot less headaches.

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43 Comments on “Auction Monday: Carmax...”


  • avatar

    BHPH lots are running the cost up on used cars to the point that you may as well buy new, even if you have to pay high prices, you can keep it for 4 to 5 years and take it to an auction and get new money for it

  • avatar
    KixStart

    I’m surprised to see that there are ’95 Explorers that remain uncrushed.

    • 0 avatar
      texan01

      My ’95 Explorer is still going strong, mainly because I’ve yet to find a suitable replacement for it. Mine is like an anvil, and looks a bit better than the red example pictured here, though it could pass for mine. 281,000 miles and its still working on its original engine. The pathetic excuse for a transmission though has been rebuilt at 225,000.

      Even in the DFW area they are still retailing for about 4 grand, private party is about 2 for one with as many miles as mine has, though I’ve gotten my pound of flesh out of it in the 10 years I’ve owned it.

  • avatar
    PeriSoft

    “The going wholesale price (before fee) of an 11 year old Buick LeSabre with 72k and leather is $5000…”

    WHAT?! I just did a search on craigslist, and the nearest major-ish city has loaded sub-100k LeSabres being sold for three grand. Or sometimes two. And occasionally 1500.

    The only other one was a 2000 with 105k on the clock – for eight grand. Guess what – buy-here-pay-here. $1500 down, 82 bucks a week. $320 a month for a ten year old POS with 100k miles. Throw in another sixty a month and you can lease a 1-series BMW.

    It really is expensive to be poor and/or badly educated, isn’t it?

    Jesus H. f@#!@ Christ are these BhPh guys ever scumbags…

    • 0 avatar
      CJinSD

      $1,500 down on a 2001 Buick means that every payment until the repo is gravy. The dealer has every penny he put in the car before it leaves the lot.

    • 0 avatar
      tankinbeans

      “It really is expensive to be poor and/or badly educated, isn’t it?”

      In a word, yes. My mom went to a BHPH lot to buy a car because her credit has been in the tank after years of some really bad luck and they were the only ones willing to talk to her. She got a 1998 Oldsmobile Regency, which was a nice enough car, but it was worth nowhere near the $7500 at 25%. The “dealer” claimed that they could justify the higher price because of their “warranty”, which was supposed to have covered the parts that, if defective, would render the engine inoperable. Long story short her crankshaft position sensor went out within 2 months and we took it in for a warranty repair, but it wasn’t covered and I had to cover the $300 for the repair because I wasn’t mechanically inclined enough to get in there and fix it. I can never understand why interest rates are so high for people who have bad credit. You take somebody who is already in trouble and then, if they need to buy a big ticket item, you force them to pay onerous rates on cars that are worth substantially less than the note and they continue circling the drain.

      I would think that many, not all, people who have had a run of bad luck would do well if people would give them a chance at terms that are palatable. They would probably appreciate that opportunity to prove themselves worthy without having to forgo other important items. I’m not naive and I understand that there are plenty of people out there who make a game of playing the system and “strategically” defaulting on their obligations, and these people make it worse for everybody who finds themselves on the lower end of the income scale.

      She was paying $150 every other week for this car until finally she got fed up and took a bath on a 2010 Focus with $400 payments. She got tired of dealing with the “finance” company and bit the bullet.

      Now my mom may not have a college education, but she is far from uneducated. She can’t catch a break from anybody and the more she tries to get ahead the more she gets trampled.

      • 0 avatar
        Steven Lang

        “She got a 1998 Oldsmobile Regency, which was a nice enough car, but it was worth nowhere near the $7500 at 25%.”

        Holy Cow! I financed one of those for less than half the money and interest rate. That IS highway robbery. I think she paid about $50 a week for that one.

        I remember the lady who got that also referred her son who bought a Ford Explorer from me. Paid it off. No problems. Both cars still on the road.

        Your mom is far better off financing the Focus and just keeping it for 12 to 15 years. That’s the way she will get ahead.

      • 0 avatar
        Suter

        How do you expect people to be treated if they are willing to buy POS car for double the price and with 25% APR?

        People who have very low credit score are getting higher prices and APRs because they are:

        1) most risky ones not to be able to pay,
        2) they can’t make right financial decisions, so they are easy targets.

        There is no luck involved in it. Buying shit load of junk on credit and not being able to pay for it is not “unlucky”. College education, or education at all, has nothing to do with it.

      • 0 avatar
        tankinbeans

        Suter -

        I’m so happy that you’ve never lost a job and that everything has always been hunky dory for you. It’s obvious that life has never shat on you and that you have been able to get through life without any issues. Buying on credit is a necessary evil for many people, especially those who can’t make high 50k a year, hell even 35k has been a struggle. My mother has never bought the frivolous “toys” that so many can afford, she has never gone for the new high-tech gadgets and has tried to make sure she doesn’t over-extend herself. The only things she has ever financed were a house, which was lost after a job loss and a pretty nasty separation, and the vehicles that she has driven. The loss of her house, more than anything really screwed her over. Oh, and those cars were usually bottom of the barrel basic transportation. She has never had anything more exotic that a 13 year old Volvo.

        Thank you so much for painting an entire segment of the population with such a broad brush. When life hands you a rotten hand and forces you into a bad situation don’t expect any compassion. I can’t take anybody seriously who doesn’t believe that once in awhile things don’t go well even if it’s never happened to you.

        It’s a matter of needing to buy a car and having no other option. When you start on the downward spiral it’s hard to extract yourself.

      • 0 avatar
        Suter

        tankinbeans, there is one simple rule that I learned: If you dont have the money, you don’t buy.

        If you’re really in need, buy what’s most affordable. I can’t imagine there were no cheaper cars than $7500 financed on 25%. It seems your mom could afford $300/month for car payment. And later $400.

        If your mom needed a car to get to job, I’m sure something like 95′ Corolla for $1500 from craigslist would be sufficient. Most of them are still running even with over 150k miles.

        That’s where ability of making right financial decisions kicks in.

        Think about it. I made some very bad financial decisions in the past myself. They cost me a lot, too. And I have the urge to repeat those mistakes almost every day, but I remember about the pain in the past.

      • 0 avatar
        tankinbeans

        Suter –

        Thank you for further explaining where you’re coming from. Perhaps I was a bit strong in my response and harshly accused you of not getting it. I apologize for that, but I get bothered when people are telling me that my mother is an unsmart woman. She can afford her payment now, just barely, because the financial situation has calmed down a little since the bad days of yore.

        Bad decisions are opportunities to learn from mistakes. After all nobody learns by being perfect. It’s a balancing act and sometimes the balance is thrown off.

        I agree there are some people who habitually make bad decisions and buy expensive things (jet skis, ATVs etc) and can’t afford them, but people who are buying the necessities (and don’t have the cash to cash out a vehicle or what they need) are really in a tight spot. These people usually have to finance and can scrape together a payment if they must, but have a hard time saving on the front end. It’s a vicious cycle.

      • 0 avatar
        Suter

        “crape together a payment if they must”

        tankinbeans,

        You see, I’m coming from home that worked like that. It didn’t work. Money were spent up front. Nothing was left at the end. I really didn’t like watching my parents doing it. I educated myself financially a little (nothing to do with college education) and I’m trying to live a different way (although old learned habits are hard to get rid of).

        If someone can “crape together a payment if they must” it means he can do the same and put money aside.

        Introduce your mom to something like this: http://www.getrichslowly.org

  • avatar

    Have a bit of sympathy. If you don’t have any assets it’s all about the monthly payment. I’ve already taught the kids that low, low payments, usually means a ridiculous total price, no matter the product or service.

    It DOES cost more money in many ways to be poor…imagine being locked into a credit card you can’t pay off with a 30% interest rate. It should not be legal (google Usury), but it is.

    • 0 avatar
      Zackman

      Times have radically changed. When I was in the military from 1969 – 1973, I was rated worst of all in the financial world – single, military. Assigned risk for car insurance – pay by the month. Around $30 – $35 per minth – and that’s with a good record! A credit card? Are you kidding? Cash or lay-a-way. The saving grace for me when my car needed a transmission ($200.00), was the on-base credit union. Nobody – Sears, Penney’s – NOBODY would issue a guy like me a credit card unless I was married. Now, my dog could get any number of cards if I wanted to try!

      • 0 avatar
        Zackman

        EDITORS:
        I hope TTAC, my browser or the internet doesn’t do funny things today, hence my duplicate comment below – please remove that and this!

    • 0 avatar
      Zackman

      Times have radically changed. When I was in the military from 1969 – 1973, I was rated worst of all in the financial world – single, military. Assigned risk for car insurance – pay by the month. Around $30 – $35 per month – and that’s with a good record! A credit card? Are you kidding? Cash or lay-a-way. The saving grace for me when my car needed a transmission ($200.00) was the on-base credit union. Nobody – Sears, Penney’s – NOBODY would issue a guy like me a credit card unless I was married. Nowadays, my dog could get any number of cards if I wanted to try!

      • 0 avatar
        Jimal

        About 20 years ago I spent a couple weeks in Hawaii visiting a friend who was stationed out there in the Army. On a goof we went car shopping. The first question from the salesperson at the Ford dealer we visited was “what is your rank.” Based on that information they were willing to show us a particular price of car; in our case my friend was an E-5 (Sergeant for you civilians) so we were able to look at and test a Mustang LX 5.0. Had we been looking for me on my E-3 pay grade at the time (I was in the National Guard and very much living in Connecticut so it would have been a moot point) they would have directed us to the Escort and Festiva section of the lot.

        These days outside military bases are where you are most likely to find pay day lender and other credit predators. I think the military tries to do a better job training their personnel about the risks of credit but then again much of the advice is of the “don’t make the same mistakes I did.” nature, which probably doesn’t help much.

      • 0 avatar
        dastanley

        “These days outside military bases are where you are most likely to find pay day lender and other credit predators.”

        Or in a rez border town next to the Navajo Nation.

        When I was based at Camp Lejeune, NC, the base CO would simply declare certain off base businesses “off limits” to all Marines if these businesses established a pattern of being less than honest to military personnel. The “off limits” list was updated weekly in the base newspaper. And yes, many Marines had to learn some hard financial lessons with rent-to-own and payday loan companies.

    • 0 avatar
      geozinger

      We’re going through a similar issue. My kid’s roommate’s car died a couple of weeks ago. College age, working class, no help from parents. Tried a BHPH lot, got close to a deal, but at last moment revealed $3K in “additional” finance charges. The kid walked, but I don’t blame her, either. It went from a $7K deal to a $10K deal, with no additional value for the money. Don’t know if a cash deal would be better or if she can be “bought” at a reasonable rate for a low end Kia car or something similar.

      You’re right, it should not be legal. I taught my kids that credit cards, payday loans and any ‘easy’ credit schemes are really just legalized loan sharking.

      • 0 avatar
        Secret Hi5

        @Geozinger,
        Smart kid. Unfortunately, many others don’t realize the fine print, or have no other choice.

        “You’re right, it should not be legal.”
        That’s quite a dilemma. Should the government protect people from themselves? Strong arguments have been made for both sides of the issue.

      • 0 avatar
        Detroit-Iron

        Even the honorable Mr. Lang is obfuscating a little here. “About $55 to $60 a week” is $200-$250 a month. You could get into a new econobox for that kind of money.

      • 0 avatar
        geozinger

        @Secret: Yes, she does have an option right at the moment, which is to borrow my daughter’s car (they work opposite shifts), but my daughter isn’t too wild about this. She’s the one looking even harder to find a suitable ride for her roomie.

        @Detroit: Well that’s the way the BHPH lots describe the payments to folks. You’re right, though, one could get an econobox for that money IF you have a credit history/rating/bank backup. For college students, and folks who’s credit has been tarnished, it seems to me, they’re doomed.

      • 0 avatar
        Steven Lang

        I don’t see what’s confusing about what I wrote.

        Fact of the matter is, if someone has unpaid debts they are a credit risk… and they are not going to get approved for a new car purchase at the monthly rates you just mentioned.

        That person has already cost someone thousands of dollars. It may be a credit card company, and auto finance firm, or a housing lender. But the fact of the matter is that they are a RISK, and in most cases that is why they end up purchasing from a BHPH.

        Some of those places are rip offs. Others are not. It’s all a matter of how the operator wants to run the business.

  • avatar

    If not for the sub prime credit market, America would be hurting more than it is now. At least that sub prime customer can get a car. If we had nothing but prime markets, they’d be walking to work indefinitely. Nowadays, you can get entry luxury cars on the cheap.

    • 0 avatar
      PeriSoft

      I don’t buy it. You’re telling me that profit margins per bhph vehicle sold (along the chain, not just dealer-level) are equivalent to prime markets? Sorry, I can’t believe that the additional subprime risk of default (which in this case entails the loss of money for repo and flipping the car, not total loss of principle… Err, principal) drives the real cost of a car up by 400%. Bullsh-t.

      Your ‘the economy would be worse witout it” argument is cute, too. One could make the same argument about crime – without it, imagine all the out-of-work cops, gunmakers, and prime time drama writers! Criminals are a vital part of our economy!”

      • 0 avatar
        Steven Lang

        I never said it drives the real cost of a car up by 400%.

        The profit for ‘prime’ customers is usually far lower than typical BHPH sub-prime consumers.

        Prime customers have lower interest rates and when negotiating for their vehicle, they usually focus on the total price instead of the payment. On the retail level prime customers are also far more willing to shop around than the sub-prime customer with bad credit.

        The sub-prime risk of default is usually not a ‘fatal blow’. The car in most cases can be reconditioned and resold. When that happens the vehicle may often get the same, or nearly the same financial terms that it did beforehand.

        That is not true at all with the ‘prime’ consumer. The few cars that get repossessed in those cases usually have higher levels of depreciation from when the loan began because… they are financing a far more expensive car (in most cases).

        Auto finance companies that focus on ‘prime’ customers will usually sell that vehicle for what it can bring at the auction and let that be that. That’s because these firms are banks that care primarily about paper… not retail sales. Capital One Auto Finance, Citi Financial, Wells Fargo… are all excellent examples of this.

        On the other hand, the BHPH dealer will usually ‘recycle’ that repossessed vehicle by selling it back to a retail customer. He may lose money on the first note. But come out ahead in the ‘net’.

        Long story short… sub-prime customers in the BHPH segment are usually far more profitable than prime ‘IF’ you successfully manage the risks involved in serving that population. That means you charge a far higher interest rate, develop decision models that accurately assess the risks involved, and unlike the ‘prime’ customer…. you track the vehicle.

        The final part is not required. But when you have a vehicle that is worth $$$$$ it can be the difference between a $10,000 profit and a $10,000 loss.

    • 0 avatar
      Xeranar

      The sub-prime credit market is a loan shark zone because our form of capitalism justified it. Instead of continuing New Deal era programs we cut most of them out to “let the market be free” and found the market drove credit rates up on the poorest (and thus hardest to pay). If they simply capped credit cards at Prime + X it would dry up somewhat but as it stands fewer and fewer people really qualify for prime because credit ratings are subjective.

      The biggest influence on the credit score anymore is your job. Lawyers that are piss poor and barely can make their bills get great rates because the threat of a legal fight is enough to keep the scammers at bay. Essentially credit is being handed out on your ability to resist and fight back.

      • 0 avatar
        geeber

        When rates were capped, many low-income people were completely frozen out of the credit market. They therefore relied on real loan sharks, who, in addition to charging high interest rates, used collection methods that were considerably more brutal and direct than annoying phone calls.

      • 0 avatar
        M 1

        You mean “let the market be free” by forcing lenders to give loans to people who are not qualified? Newsflash, “loan sharks” don’t generate enough activity to matter at macroeconomic scales. Big banks do, and large corporations don’t give a rat’s ass if you’re black or white or some other supposedly-disenfranchised group. They run the numbers and if the numbers look good, you get a contract. Which, by the way, is an obligation on the buyer’s part to a far greater degree than it is on the lender’s part.

        Enter government regulators waving the race card every election season and “taking action” by lowering the standards, and viola — the bubble begins to inflate. Run it forward a few decades until everybody stops thinking about how we got here, and pretty soon, BOOM… disaster strikes. Political correctness casts borrower defaults as some sort of victimization, because god forbid anyone actually take some responsibility for their actions — even contractual obligations.

        Which brings us to the present.

  • avatar
    nrd515

    I work with a lot of 20 somethings and due to one thing or another, they are dealing with the BHPH dealerships. What a mess. It’s kind of sad in a way, but one guy had his car repoed at 18 years old, then filed bankruptcy, and now has bad credit. I don’t know how bad exactly, but after trying to get a car at several “regular” car dealers, he ended up at one of the better (Seems to have better cars than most of the other places) BHPH places. Between his payment, and insurance, he’s paying what I am for my 2010 Challenger, for a 10 year old Avenger. Another guy bought a Taurus, a 1999 from J.D. Byrider, and his payments are off the deep end too.

    • 0 avatar
      Toad

      If a person has had a car repo and a bankruptcy (which means a lot of other debt also went unpaid) it is fair to assume that they have TERRIBLE credit. In fact, a person with this track record should probably not borrow money at all since they do not appear to be able and/or willing to pay it back. Would you loan your money to a person with this kind of payment history?

      This is not unfair, this is simply the consequence of bad decision making.

  • avatar
    Steven Lang

    Most BHPH lots have to play with OPM.

    That cost is not cheap.

    First you have to deal with the floorplan company for the line of credit. They get a very healthy interest rate plus fees for the lot’s access to those funds.

    Who is the largest moneymaker in the business? Why that would be Manheim. The largest auto auction company in America. They are owned by Cox Communications which also happens to own the largest online auto sales site in the country (Autotrader), the most widely used price book in the country (Kelly Blue Book), as well as hundreds of TV, radio, and newspaper outlets throughout the USA.

    Some BHPH dealers tote the note. Others will sell the note after a certain period of payment to an auto finance company. In both cases it will take quite a while for that dealer to get out of the hole. If something bad happens, they take the loss… which is a lot more frequent than you would imagine.

    It’s a risky business and a lot of them go bust. But compared to what most banks, pawns and legalized oligopolies charge for their services it’s actually not nearly as lucrative as you would think.

  • avatar

    That is a cheap Rubicon, I say. Depends on the condition, of course, but I am assuming a cool-down off-load. My 2010 was 30+ new.

  • avatar
    KixStart

    Jeepers… I’m used to paying $10K or less for a 5-6 year old vehicle. I’m currently looking at a 9-10 year old vehicle and thinking $1.5K, they’re asking $2K. These are expensive cars, by my standards, even before the BHPH costs.

  • avatar
    lahru

    Steve,

    just how bad is this [used car values] thing going to get?

    I know that it would at best be a guess, but you are closer to the problem than I am.

    My guess is it might allow Mfg’s to shrink the cash on the hood and allow them a more balanced position on the new vs used tightrope that most buyers encounter.

    Yours?

    • 0 avatar
      Steven Lang

      When the employment figures improve substantially and folks can afford better vehicles.

      When the credit lines start opening up on the retail end of the market.

      When all the bad debts that are on credit reports for sub-prime consumers begin to get discharged.

      When auto finance firms are willing to take on the levels of risk they did through most of the 2000′s.

      Then you will see used cars plummet in value.

      There may also be a temporary bubble burst at some point if financing resources for the major BHPH dealerships disappears. But right now the retail car market shows no signs of letting up. Prices for used cars are at their highest point in 40 years (inflation adjusted) and inventory at the auctions may be at it’s lowest point in decades. I’ll find out for sure in a couple of months when Manheim and ADESA share their metrics with the auto dealers and remarketers.

  • avatar
    Detroit-Iron

    Hopefully this works out for me. I am trying to sell a 2003 Ford Focus Stationwagon with 113k.

  • avatar

    who is bryce?

  • avatar
    obbop

    Do unto others before they can do unto you?

  • avatar
    tankinbeans

    I must either be incredibly lucky, or incredibly stupid. I’ve been working to build my credit since I turned 18. I had a cosigner when I graduated, the loan was my graduation gift (something I wouldn’t have been able to get otherwise) and I have not been more than a month late with any of my debts. When I bought my current car I managed to get out with a 7.5% loan for 72 months. I know that 72 month loans are something to stay away from, but the payments are doable and I like the car. I would never buy from a BHPH because of my mother’s bad experience (see above). I just hope that I can maintain and learn as many positive lessons from those around me so that I can stop circling the shark-infested pond of indebtedness.

    I’ve learned at the tender age of 22 that debt sucks and I hope in the future the only debt that I need is the debt to buy a house. Of course I have some debt now that I’m working to pay down.

    • 0 avatar
      Sinistermisterman

      As a relatively recent immigrant to Canada (2 years ago) and the fact that my credit history in the UK wasn’t perfect, I decided not to bother ‘importing’ my credit history and start from scratch. I’ve had to put collateral down for a credit card with RBC and after a year of using it I decided to go for a car loan. Despite not having a permanent resident status I was offered 2.5% over 3 years with $4k down on an $11k 2010 Chevy Slowbalt back in February from a local GM dealership. I’m really surprised at the difficulty so many people south of the border seem to be having getting any kind of reasonable interest rates. I’ve got damn all credit history (although what I do have is immaculate) and I got approved for the loan within a few hours.
      Incidentally I’ll have the car paid off by the end of the year.


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