New Or Used? : The Three Fatal Errors Edition

Hi Steve,

First, thanks for the articles about purchasing cars and your perspective on things. I’ve read the entire series on buying a used car, and they contain some useful pieces of information on how to approach things. However, one thing that was left out was how to purchase a used car from a dealership that’s still on warranty.

Here’s my issue: I’m looking at a used 2011 Volvo C30 R-design with 19k miles that has most options included, that’s located a few hours away at a used car dealership. Being a newer car, it’s still on warranty so I’d imagine there’s no reason to inspect it. Volvo also provides complimentary routine maintenance for a few years anyways. The car is also far enough away so I can’t easily talk to the salesperson or see the vehicle beforehand. Unlike a new car I don’t know what the dealership paid for it so I can’t look at invoice. Also the car isn’t a very popular car, which means that while the price should be lower, it’s harder to find other examples nearby.

Their selling price was for $22,990. They had initially posted it on eBay and while I “won” the auction at $18.6k it didn’t meet the reserve price.

• I called them up and offered $19k. Told them I was willing to be there to buy it on Sunday.
• The salesman said the reserve price was $22k.
• I then countered offered $21k,
• Then he said he would “talk to his boss.” That “I’ve gotta eat” and that “someone who took a few test drives is looking to buy the car tomorrow.” Which I assume is all bullcrap.

Anyways, tomorrow comes (Saturday) and I never hear back. I call the guy again, and he tells me his boss says “we’ll be losing money on this deal” and that he can’t do anything about it. He doesn’t counter offer, so I politely reply that “well, I was intending to buy a car this weekend. If you change your mind, please let me know. You’ve got my phone number.”

I don’t feel like I really did that good on negotiation. How would you handle this? I’ve read that used cars often are priced with a markup of 25-40% so was my offer fair? I was intending to just buy it with cash if it matters.

I know that’s a lot of text, but if you care to read it and respond, thanks a lot. In any case, thanks for your contributions at TTAC, it’s always nice to get a different perspective.

Steve Says:

You are committing three fatal errors of judgement.

First, whenever you buy used, you are not buying a car so much as acquiring the prior owner’s treatment of that car.

I have seen countless low mileage vehicles at the auctions abused to the absolute edge of kingdom come. If you don’t know how to detect that abuse, then you need to find someone who is able to make that distinction. Hire them.

Past maintenance records always help a bit. But a more thorough inspection from an experienced set of eyes will be infinitely more helpful; especially given that this was a sport edition that was likely either a lease or a repo. Whoever had it may not have ever given any serious thought towards maintaining it.

Second, you assume that cash deals are more lucrative for the dealer. If only it were so!

A dealership usually makes far more money on a finance deal. At the auto auctions I regularly see plenty of popular vehicles sell right close to retail because the dealer purchasing the vehicle has been given exceptionally lenient terms by the finance company.

Automotive asset backed securities nearly doubled this past year on the sub-prime segment of that market. Why? Because a 20+% annual return these days on a five to six year note is easily worth the risk, so long as you can repackage that loan among thousands of others and sell it in the open market.

A default on a house simply makes you a renter, even if you have limited funds. The downside is limited.

A default on a car can deprive you of mobility, and make you have to eventually take a 12 year old beater of a Buick instead of a 2 year old hot car with an extended warranty.

The people who buy hot hatches usually want to keep them. America is a transient place. As much as I hate to say it,a lot of folks value their financed cars far more than their rented apartments and houses. After all, if they don’t like where they live, they can find plenty of others just like it or better. That’s not the case with a car.

The final error of judgement I’ll leave to Sajeev. All the best!

Sajeev Says:

Wait…there’s a third error here? And it doesn’t involve the lack of consideration of Panther Love? Oh dear…

Steve pretty much nailed it. That could easily be an abused auction vehicle, hire someone to inspect it for signs of such concerns. Cash deals work better on craigslist for private party buyers, most dealerships will wait for/prefer the finance buyer if their margins are getting slim. Or non-existent, which is possible in this case. The third? Perhaps they think they can get you for the full “reserve” price. Or perhaps…

…(calling Steve right now)…Hey dude, mmm-hmmm, uh-huh, mmm-hmmm…OH DAMN SON!

Truth: consider a Volvo dealer’s lifetime value of an R-design customer. Consider this in terms of parts and service. Would they prefer to sell this (zero-profit?) car to someone local? Because you’re gonna hand them a check and probably never come back. But if it goes to one of their established customers, they will see this vehicle again: in the service drive.

So what’s the deal? They aren’t dying to sell this Volvo…yet. Perhaps they bought it way too high (as a trade-in, to ensure a sale on another Volvo) or perhaps they can find a more valuable customer for a hot commodity, via financing or longer term service. This is a niche vehicle, and you don’t necessarily get a smokin’ deal on such rides at the factory matching dealership. While this isn’t an ’05-06 Ford GT waiting for a new owner in a blue oval showroom, it kinda actually is!

Chew on that.