By on March 7, 2014

carmax

100,000 miles?

200,000 miles?

300,000 miles?

Everyone has a certain point with their daily driver when they would rather see money back in their pocket, instead of seeing more money fall out of their pocket.

Time marches on. That old clunker loses it’s endearing qualities and then, what do you do?

Well, the answer depends a lot on what type of vehicle you’re trying to sell… which is why I’m introducing Carmax’s wholesale operations into this write-up.

carmaxa

A lot of us are already familiar with Carmax’s retail operation.

No-haggle pricing. No hard sells or bait-and-switch tactics. The foundation for what made Saturn such a successful new car brand back in the 1990′s has been refined, improved and eclipsed by Carmax.

Like em’ or hate em’, Carmax is now the official used car Goliath of the auto industry.

carmax2

This article from Automotive News does a great job of highlighting the retail side of their success. Carmax is now twice the size of second-place Autonation, and larger than the third, fourth, and fifth place automotive retailers combined. If Carmax manages to stay on track with a forecasted 500,000 units sold for 2014, and maintains their $2,150 in net profit per unit, they will likely eclipse over a billion dollars in profits… just with their retail operations.

That first billion is the one everyone here is already familiar with. However it’s the other side of their business, the wholesale side, that’s proven to be the more consistent money-maker during good times and bad.

This is how it works.

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You are tired of your car. More times than not, it has some type of problem that is either expensive or elusive. You have probably spent a fair penny trying to solve that issue, and even if you succeeded, you are weary of having to deal with yet another one down the road.

Enter Carmax. Have you ever noticed how much money Carmax spends on radio advertising? That little 30 second spiel about bringing your car in and getting treated right is more than just a hokey way of trying to get you in their door.

It’s arbitrage, with a churn that now numbers close to 7,000 vehicles.

Every… single.. week…

carmax4

Carmax inspects your vehicle. Appraises it’s value. Successfully buys it (or at least plants the seed for further business), and then they does something that is unique to automotive retailers.

They have weekly auctions for all of these vehicles. Wholesale auctions frequented by dealers who sometimes travel long distances to buy the very same cars that you are tired of driving.

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On average, a Carmax auction gets more eyeballs per vehicle basis anyone else. An auction with 100 vehicles will often have more than 100 dealers who are ready to bid up and buy all those vehicles.

It’s a free market, and because Carmax eliminates uncertainty by disclosing major defects to this dealer audience, they get a premium return for much of what they sell.

If the engine or transmission has mechanical issues. If there is frame damage or a salvage title, Carmax will disclose that issue in writing to all dealers before the sale.

carmax6

Even if it’s a $500 vehicle, you can dispute the vehicle if there was a major defect that wasn’t disclosed. I’ve done it successfully in the past many times and so have thousands of dealers who attend their sales. No system is perfect. But Carmax’s selling policy is designed to eliminate those uncertainties and provide disclosure with both the high end car, and the beater car.

That’s where you, the public, comes into the mix. Because Carmax can get the premium return along with a seller fee of about $165 for each vehicle sold, Carmax can pay more for certain cars than other dealers.

What types? In my experiences, Carmax tends to offer a solid edge to consumers in three distinct areas.

1) The unpopular car with expensive mechanical issues.

2) The Craigslist nightmare car.

3) The “I need money right now!” car.

carmax7

You may notice that these are the first two types are cars that few public individuals want to buy in the first place. That five year old Chevy Aveo with a bad automatic transmission, and a 25 year old Honda that looks like it got into a fight and lost, will have one thing in common.

They will both be lowballed by the general public. Once you put that Aveo online for $3000, someone will offer you $1500 over the phone and then not show up.

carmax7

That 1990 Honda Accord which has been driven 356,168 miles? Someone’s kid or an aspiring scammer is going to light up your cell phone with a never-ending torrent of stupid pointless questions.

“Is your car a diesel?” says the guy who doesn’t understand that the letters g-a-s do not equate to d-i-e-s-e-l.

“Is there anything wrong with it?” “Is it an automatic?” “What’s the least you’ll take for it?” “Can you drive it to my place?” “Um… Give me your address!”

It’s this moron brigade that helps Carmax make hundreds of millions of dollars. By giving you the opportunity to not deal with them, and giving dealers the opportunity to capitalize on your automotive misery.

carmax8

There’s also a more lucrative side for those dealers that visit these auctions. That Aveo I mentioned earlier? It can be bought for $2300. Then it will be fixed with a cheap tranny found through car-part.com, and then financed at $500 down and $260 a month for 36 months.

The sub-prime side of the car market can help a dealer more than double his money over the course of a few years. Not risk-free mind you, but the Carmax auctions provide them with a golden opportunity to buy 20 or 30 low-priced vehicles a week that actually come with mechanical disclosures.

Once you know what you’re buying and have the means to it marketable,  your risk of failure goes down substantially. This, along with the push of immediate competition, motivates dealers to pay more money for your impaired vehicle.

Nobody else does this when it comes to cheap older cars.

The creation of a free market with thousands of used vehicles, and fair disclosures, will likely net Carmax well over $300 million in profits by the end of this fiscal year.

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The average unit garners a little less than $900 in profit. Subtract Carmax’s seller fee of about $200, and you’re looking at only about a $700 spread on average between what Carmax will offer you, and what a large free market will pay for your vehicle.

Is that a better return than you will find on Craigslist, Autotrader, or a nearby car dealer? In some cases, without a doubt. The greater the uncertainty about the value of a product, the less an unknowledgeable person (or greedy person) will offer for it.

Personally, I would test out all of these avenues. If Carmax offers the best price, take it.

That is unless you live in northwest Georgia. In which case the address to my dealership is…

 

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195 Comments on “Should You Sell Your Car At Carmax?...”


  • avatar
    phatcow

    How does carmax determine whether or not they will retail the car versus sending it to wholesale?

    • 0 avatar
      Carrera

      Well, if you look at their lots, they normally have low mileage cars ( normally, not more than 3-4 years old, and no more than 45-50K miles). Occasionally, they will sell older, higher mileage cars, but it isn’t the norm. Also if the car has been in a wreck, they are reluctant to sell it on their lots. They will auction it. Back in 2009, I took my wife’s 3 year old Pilot ( had been in an accident with $7,000 damage) to CarMax just to try the waters. The car was fixed of course, and it looked great.
      Before we really said much, he ran the VIN and the CARFAX came back showing the accident. The car was almost 3 years old with 28K on it. They offered me 10,000 which was a crazy low number. Since I wasn’t going to trade it in anyway, it was easy for me to walk away. Their appraisal/salesman guy was really cool and almost apologetic about it for trying to screw me so hard, but I totally understood their business model after they explained me that since it was more than a fender bender, they will not sell my car on their lots.
      I was lucky because the car was fixed right after the wreck and now has 98K and is flawless.

      • 0 avatar

        Why would the sales person think they were “trying to screw you so hard?”

        A car is worth what it will bring at auction. The value of a car doesn’t change based on whether or not the dealer intends to retail it. As a wholesale buyer I am always ready to buy anything, even if I will re-wholesale it. But I’m not going to do it for free.

    • 0 avatar

      I worked for Carmax for a summer about 10 years ago, the criteria for a Carmax lot car is less than 5 years old and less than 50,000 miles. a Valumax car is up to 10 years old and up to about 100,000 miles. Anything beyond that is headed for wholesale.

      My role there was to put the cars on the lot after doing a final QC on them from the reconditioning center (ours was not big enough to have its own recon shop)

  • avatar
    flatout05

    I love Steve Lang’s work at TTAC. Pragmatic, real-world info that applies to me.

  • avatar
    sirwired

    You’d think, by this point, other auction houses would realize that decently-inspected used rides are a useful market to be in.

  • avatar
    bills79jeep

    In my one experience with carmax, I was not impressed with their offer – less that $1k for a car with known issues, but it was still too low. Instead, we used it as trade-in bait and got more than 3x than what carmax offered (prob 4x by the end of negotiations, but I think that was more around the dealer game with trade in offer vs. new vehicle price to game the final sale price, I don’t claim to be an expert, and it’s been a few years).

    Maybe I’m wrong, but I believe that all buyers and sellers in the market still pay a premium for the luxury of not having to haggle.

    • 0 avatar
      Syke

      And to a lot of people, it’s worth it. The kind of people who can happily live with the car they’ve bought, even knowing that somewhere else, sometime else, someone else bought the equivalent car a few dollars cheaper.

      I’ve been dealing on cars for 40+ years. As my father was a car dealer, I knew all that stuff from the beginning (holdback, trade in rates, etc.) and used it, usually to the shock of the salesman and his manager. Nowadays, thanks to the Internet, everybody theoretically knows this stuff.

      And I’ve bought four of my last five cars at CarMax. Why?

      1. I’m tired of slinging mud in the trenches. Feeling dirty and raped at the end of the negotiations, and having an immediate negative feeling towards the car I’d just bought.

      2. I appreciate knows that the odds of having bought a lemon are significantly lower there. And they’ll stand behind the car better than most dealers or independent lots.

      3. They put up with my incessant car testing before I’ve picked what I want. With no pressure to buy something now.

      No, CarMax is not the place for the person who’s determined that nobody ever will buy a car cheaper than he just did. But for someone who’s looking for something they can afford, can figure up if they can really afford it well in advance of looking, and who’d like car buying to be an enjoyable experience, they’re good.

      There are times when lowest possible price is not the be-all, end-all.

      • 0 avatar
        wstarvingteacher

        I think those were pretty much the feelings I had when I bought this 4runner and paid too much. After a worst ever experience I decided to avoid the trenches you mention. Small town and premium price for a car tat Carmax would not have sold. Everything works, the guy stood behind his sale (so far). I’m going to drive it a long time and not look back. I am not geared for the excitement of buying cars.

      • 0 avatar
        koshchei

        Very well said!

    • 0 avatar

      RE: “Maybe I’m wrong, but I believe that all buyers and sellers in the market still pay a premium for the luxury of not having to haggle.”

      You would be wrong. SOME buyers would pay a premium not to haggle, but there aren’t enough of them to make for a viable business. The reason “One Price” dealers have such a hard time is that their competitors are using their posted pricing against them to undercut their upfront prices and earn business. Those consumers who say they hate to haggle can’t wait to take the One Price someplace else to see if they can beat it. The only thing consumers would like more would be to do it from the comfort of the chair in front of their PC or other gadget.

      This is beginning to happen to TrueCar. Dealers are quitting TrueCar but still using TC pricing to validate their own. IN doing so, the dealer avoids the $300 TC fee most consumers don’t even know about.

      • 0 avatar
        burgersandbeer

        I think you are reading that statement the wrong way. What you quoted does not say all buyers are willing to pay a premium to haggle. It says all of those buyers that do enjoy the luxury of not having to haggle will pay a premium for it.

      • 0 avatar
        Thinkin...

        Funny thing about TrueCar. I tried to use them at a dealer in NJ to buy a new car. (a Kia Soul on the eve of the new one coming out.) They gave me a great price, I called the dealer to verify, wired my deposit, and arranged to pay cash and pick the car up the next week. The night before pickup, I got a call from the dealer to confirm the details of the sale…

        In one breath, he said, “okay, so you’re looking a price of X, plus X documentation fee, nineteen ninety-nine TrueCar fee, X in tax . . .”

        ME: “Sorry… What’s that extra fee? The TrueCar fee?”

        DEALER: “Yeah, nineteen ninety-nine. We just have to add that on to all the sales quoted over the internet. It’s a standard fee.”

        ME: “Right. Do you mean $20 or $2000?”

        DEALER: “Just under $2000. It’s $1999.”

        ME: “What?!? And nobody mentioned this to me until now?”

        DEALER: “Well you see we have to add that fee to keep our online price quotes competitive.”

        ME: “An extra $2000? That puts me at paying sticker for a car that is not only a model-year old but now a full generation old since the new ones are coming out. I don’t see how that’s competitive.”

        DEALER: “Sorry, that’s the best we can do.”

        ME: “And your other buyers are okay with this extra two grand you tack on?”

        DEALER: “It’s part of our standard fee structure, and if you’d like to finance the car I can arrange it so that it won’t impact your payments–”

        ME: Sorry. I think we’re done. Can you refund my deposit right now?

        DEALER: I can put in a note, but it will take 2-3 weeks.

        I sent TrueCar an e-mail documenting the whole experience, but if they cared at all about it, they sure didn’t tell me. I did get the cash back after a few days and several phone calls. I then got a fair deal on a better car from a dealer who gave me a straight quote on the phone, with no BS. (MINI of Westchester.) Nice to know they’re around. Though it makes me sad that so many people probably fall prey to such “standard fee” scams without ever knowing.

        • 0 avatar
          Beelzebubba

          I’ve been fortunate to have several good experiences using TrueCar. I’ve used them four times (once for myself, three times when helping friends/family negotiate a purchase). Three of those experiences were no BS- they honored the TrueCar price as expected, with the only additional expense being their “admin fee” of up to $599. I shopped the TrueCar price plus the ‘Admin Fee’ to see if any other dealers could beat it and even with the fee, TrueCar wss still the best price in those particular situations.

          The only less-than-great experience I had was helping a friend buy a 2014 Acura ILX. A dealer located 200 miles away (we’re in Atlanta) beat the other TrueCar dealers by almost $1800 on the price for a 2014 ILX ‘Base’. They sent a buyer’s order with the specs of the car she wanted and they asked for a $500 credit card deposit, but I would only agree to a $100 deposit. I told them that I knew that the ILX wasn’t exactly flying off dealer lots in record numbers and if they wanted to sell the car, they’d take a $100 deposit. So they did.

          We drove 200 miles to get the car and when we arrived, they had ‘accidentally’ sold it the night before! I contacted TrueCar as well as a friend who is GM of an Acura dealer in California and he gave me a number to contact a regional executive over the particular dealership that had sold the car that was reserved for my friend. It took about 10 hours to finally get it resolved, but the dealership (begrudgingly) sold her a 2014 ILX 2.0L Premium (with a $2,300 higher sticker price) for the price they had quoted and agreed to for the ILX 2.0L Base. She got XM radio, Xenon headlights, fog lights and a few other extras in the deal).

          I planned to use TrueCar to buy my 2012 Mazda CX-9 GT (in Nov 2012). The dealer located closest to my office wasn’t a TrueCar dealer, but they had 15+ 2012 CX-9s left going into Dec 2012 and with the updated 2013 model sitting on the lot. So I knew they’d be willing to deal. I printed out the best pricing thru TrueCar for another Mazda dealer in the area and planned to have my preferred dealer beat that price (or at least match it) since they had so many previous-year CX-9s to move.

          I went to the dealer nearby and knew I could score a great deal when I saw the exact color/feature combo I wanted…and two more identical ones parked next to it. Long story short, the TrueCar dealer’s price was $31,288 (MSRP was $38,385) and I was pleased with that price. My jaw dropped to the floor when my dealer quoted their best price on the same vehicle at $29,706!!! I was willing to pay $1500 more, but I kept my mouth shut until they made their opening offer, then I was planning to start haggling…

          Needless to say, I accepted their selling price of $29,706, which dropped to $29,206 when I showed proof of ownership for my 2006 Mazda3. They also gave me KBB ‘Good’ Trade-In value for the Explorer I traded (and it was anything but ‘good’). I also paid cash (thanks to my generous dearly departed Nana) and the F&I guy didn’t get a cent out of me, no matter how hard he pushed the extended warranties, service plans,etc. I finally shut him up when I told him, “IF I can afford to write a check to buy the CX-9, I can afford to write one to fix whatever might happen in the future”….even if it wasn’t true….

          I veered way off topic there, sorry….it’s 1am and I’m recovering from shoulder surgery- they gave me some good stuff for pain and I’m a little buzzed at the moment, hence my inability to stay on topoic…

    • 0 avatar
      JimC2

      In regards to trading it in for 3x Carmax’s offer, have you ever known anyone who bought a new car, with no trade-in, and the dealer knocked about $2,000 off the price “just because?” My stepdad got that kind of a good deal once. Not an uncommon sales tactic… now what’s the chance that that happening to some guy, in the same area or same dealer, around the same time you traded in your old car?

  • avatar
    Carrera

    I bought two cars from them before. Normally, their cars, if it is a high demand used car ( low mileage Accord, or Camry) are priced high. If it is an odd kind of vehicle, they are priced at, or bellow NADA black book loan value. I needed a car for the wife back in July 2003 and as it happened I took a walk on their lot. They had a 2002 Mitsubishi Mirage DE which was sold new in November 2002 ( 2, door, AT, AC, Cd player, but not much else) for 7,000. The car had 7500 miles on it. Not a big market for that car. Comparable Civics were sold for crazy high prices. The little Mitsubishi was great. I kept for 3 years and sold it for 5,000 privately. Great little car with terrible paint ( no clear coat?). I had to wax it 5X year otherwise the red would become orange. Most of those Mitsus of my vintage were orange already after 3 years.

  • avatar
    dwford

    I’ve had mixed luck trying to sell my cars at Carmax. On my 2006 Honda Element and 2011 Hyundai Sonata I got majorly low balled (got $5000 more for the Sonata trading it at a dealer), but recently got a fair number on my moms 2008 Ford Focus. Definitely shop the number they give you.

    • 0 avatar

      I thought folks preferred no haggle? Just take their offer and go home, right?

    • 0 avatar
      CoreyDL

      I priced my GS430 there, they weren’t gonna give me more than $6500 for it. I sold it for $8300.

      • 0 avatar
        burgersandbeer

        Your GS430 doesn’t fit the criteria that Steve says gives carmax an edge. I’m sure you dealt with a few annoying people, but the moron brigade knocking on your door and calling your cell was likely much smaller than what you deal with trying to sell a car worth less than $4000.

        Having gone through that last year…never again. I’m going straight to carmax or a dealership the next time I need to offload a car with less than $4k.

        • 0 avatar
          FormerFF

          Hmm, I recently sold a $2500 car and it wasn’t that bad. I got some texts from some lowballers who said they’d have paid a lower price in cash that morning, I just texted them back and said no. I got a few calls and some other texts, but everyone seemed reasonable and I sold the car the first day.

          I did wind up selling the car to someone just as someone else was looking at it, which was a little awkward, but it wasn’t that bad of an experience. Not that I’d like to do it again this weekend, but to go through that every once in a while (it had been 12 years) is no biggie.

          The dealer who I bought my new car from offered $1000 against a discounted new car, so I came out quite a bit ahead.

    • 0 avatar
      Lex

      Had a similar, mixed experience ranging from an obscenely low offer for my ’11 Sonata SE this past weekend to an offer in line with NADA of over $1000 more than the best trade-in I could get from a dealer on an ’07 Acadia FWD, in the Mid West too. Who’dathunkit?

  • avatar
    mikenem

    Never cared for Carmax. After standing around waiting for some help, I realized I was simply in the car department of Best Buy..

  • avatar
    Land Ark

    I sold my beloved Dakota R/T to CARMAX a few years ago. It was starting to have some issues that I deemed to be substantial. I might have been wrong but I didn’t want to spend a ton of money to find out. Their offer was pretty low, about $7k less than I had paid for it 3 years earlier after putting about 12k miles on it. But I was in a position to sell it and have the cash. I didn’t feel right selling it to someone with unknown issues and sticking them with the problem, so I let them have it.
    I bought a car on a whim from them last year prior to arranging my own financing. I agreed to have them arrange the financing in the interim as I had a few days to get my own in order before the CARMAX financing went active. I have excellent credit (score in the 800s), no revolving debt other than a mortgage, and I make a good living. So I was shocked when they tried to saddle me with an over 8% interest rate. I still agreed to take it knowing I would get better financing but being unable to sleep that night, knowing I was paying too much for it since I bought it at CARMAX and not being 100% sure I could get my financing in order fast enough, I chickened out. Which is probably the best part of the CARMAX experience for me. I never took delivery of the car since it needed some stuff fixed (how did their comprehensive inspection miss that it needed a new shock that I noticed within the first 30 seconds driving it?) and when I showed up to pick it up, I ended up returning it. The process was easy and very fast.
    I recommend CARMAX to people of a certain mindset. It’s not for everyone, but it offers a lot for the type of person comfortable paying a bit more for a little bit more piece of mind.

    • 0 avatar

      CarMax uses internal scoring that doesn’t just rely on a person’s Beacon/Fair Isaac score. You probably needed to have more car loan history and some revolving debt to line up with their top tier criteria. This is a little too complex for the average consumers to grasp.

      • 0 avatar
        28-Cars-Later

        Do factors such as car loan history matter with Beacon/Fair Issac?

      • 0 avatar
        Land Ark

        That leads me to wonder, does my habit of paying off my car loans early ultimately hurt me when seeking a new loan?
        I have had 4 auto loans and paid off all of them early, never trading the car in with an active loan.
        I ended up buying a car similar to the one I returned to CarMax about 6 months later (it was actually 2 years ago, not last year). I just paid it off this week, 18 months into a 48 month term. Do lenders look at that as a negative, since they won’t make as much off the loan as someone who pays exactly what’s owed every month?

  • avatar

    We love CarMax. They offered us nearly twice the amount that an Audi dealership offered on a 2003 Audi TTS. That, and a no-BS aspect within their dealership made the entire experience very, very friendly and smooth. Compare to the Audi dealership where the salespeople are customers to the finance department and have to play the tired old game of haggling with them in the customer’s favor for a better deal. I really don’t know why that model still exists in this day.

  • avatar
    PrincipalDan

    At their Albuquerque and Phoenix stores (the ones I most recently search online) I’ve seen their prices move from “silly high” to “in line with the market”. The difference is the dealers “sticker price” leaves room to haggle, CarMax’s does not.

    If I were used car shopping and they had exactly the car I wanted with exactly the options, I would think about purchasing it there. If I was in a position of “well I want a sedan but I’m not sure about…” I’d be visiting dealers and looking at what was in stock.

    • 0 avatar
      yesthatsteve

      Dan, I’ve seen the same thing in Kansas City – their prices used to be stupid-high, but have come down so they’re closer to the rest of the market. My wife bought a CPO Accord at an area Honda dealer last week for the same money as an identical Carmax Accord with 12k more miles.

      One thing Carmax is good for – checking out a wide variety of late-model used cars without driving from dealer to dealer. Just by sitting in cars at the Carmax showroom, we found out that the rear seat head room in the Altima is awful. I’m 5’11 with a long torso, and my head hit the roof in the back seat, keeping me from sitting fully upright. With a 14-year-old son who’s nearly as tall as I am (and still growing), that was a deal-breaker. Forward visibility in the Camry’s front seats was also horrible. From the front passenger seat, the windshield was tall enough to let me to see everything less than about 5′ off the floor of the showroom. My hair also brushed the roof in the Camry’s back seat. The Mazda6 was OK, and the Accord was much better. My wife’s a brand snob who still believes the reputations Detroit and Korea earned 20+ years ago, and I’m not yet ready to trust German reliability, so that left us with the Accord.

    • 0 avatar

      It is highly unusual for traditional dealers, especially franchise dealers, to price their used vehicle inventory high to leave room for “haggling.” The industry has adopted sophisticate programs that price inventory based on gaining front page views when a consumer sorts “lowest priced first.” A leading tech provider is vAuto, owned by AutoTrader. There are others.

      • 0 avatar
        PrincipalDan

        Ruggles, you’ve got to know the dealers in your area. Going 300 miles in any direction from Gallup will knock a few thousand off the price on the sticker. Some dealers still inflate.

  • avatar
    brn

    I live in a major metro area and I wish CarMax were an option for me. Having recently sold and purchased a used car, I quickly grew tired of the dealer games. Everything I hear about CarMax is that they don’t. Take the offer or leave it.

    Not all dealers play games, but sorting through them is quite a pain. Private sellers tend to significantly overvalue their vehicles (want the same price as a dealer). It’s worth a few hundred dollars for the transactions to be quick and painless. I don’t know if CarMax would have gotten my business, but it’d be nice to have the option.

    • 0 avatar
      Land Ark

      Many of the prices at CARMAX are higher than or equal to other dealer asking prices. So essential you could get the same experience going to a used car dealer and paying their asking price.
      As others have said, it depends on the car, but if you’re looking for a good deal, CARMAX is generally not the place to go.

      • 0 avatar
        carrya1911

        Right…their asking price is well north of what you can negotiate elsewhere. But the appeal is that it’s not a negotiated price. I don’t know why, but many people out there seem intimidated by the proposition of hashing out a price on a car and will let go of thousands of extra dollars to avoid having to do it.

        • 0 avatar
          Land Ark

          I have also encountered people that refuse to sell their car for a penny under $$$ to a person but when trading in or selling to CARMAX will take well less than that. It’s always been odd to me that people give up so much when they walk into a dealership.

          • 0 avatar
            danio3834

            Authority is a powerful thing. Also, some people are just dicks and would rather lose money than let you have a good deal.

            A while back I found a listing for a Stratus that I wanted to buy as a parts donor for our Lemons car. The owner had it listed for $500 and within the ad was, “Don’t lowball me, if I can’t get $500 for it, it’s going for scrap next week”. I called the guy anyway and offered him $300 and explained that’s all it was worth in scrap, and I would hault it away. He refused.

            If he did scrap it, he probably got $200-$250 from some jawa whos only intention was to make a quick but small profit.

          • 0 avatar

            Quick Answer: The Sales Tax credit.

          • 0 avatar
            Japanese Buick

            If a car has problems or potential problems a lot of people feel better about a dealership taking it than some poor sucker. That clear conscience is worth money to some.

        • 0 avatar
          Syke

          You’re right, many people don’t want to hash out a negotiated priced. 40 years ago, I’d happily go toe to toe with any dealership, just to save an additional fifty bucks.

          Today’s I’d rather walk than go thru that crap again.

        • 0 avatar
          Arjay

          Some people find dealing with the typical car dealer personnel so disgusting that it’s worth money not to have to do that.

      • 0 avatar
        CoreyDL

        This is what I’ve noticed.

        For the record, Cincinnati had a Carmax and apparently it didn’t go over well. They closed it down for between 5-8 years, and now it’s back open on the same location!

  • avatar
    Zackman

    Nice info. I suggested my son check them out when wanting to replace his aging 2000 Eclipse. I believe he got a pretty good deal at a local Honda dealer, instead. He bought a very nice low-mileage 2010 Civic coupe SI.

    Always enjoy Steve’s articles and bank away vital info that I may use.

  • avatar
    Jeff Waingrow

    I think CarMax exists (and prospers) because of the inefficiencies and odiousness of many of the dealings people have with dealers. I always wondered why the individual dealer model persisted. You buy a washing machine from Sears and you don’t dicker on price. Why don’t the automakers do away entirely with individual dealers and sell directly to the public? Service centers would obviously need to exist, but they’d have uniform pricing, and a buyer could include servicing and repair costs into his calculations. My impression is that the car selling business is still stuck in an archaic business format, albeit often disguised by modern surroundings.
    Perhaps other posters can point out if I’m being simple-minded here.

    • 0 avatar
      Jeff Weimer

      Automakers aren’t allowed to sell directly – the ones that once were were lobbied out of existence by….dealers getting legislatures to create franchise laws to protect their businesses. Google or Bing what Tesla is going through trying to set up company-owned stores.

      • 0 avatar

        RE: “Automakers aren’t allowed to sell directly.”

        How so? Other than a few states Tesla is selling direct, right? What prevents traditional automakers from selling direct is their own contractual obligations to their franchise dealers and the fact they know they don’t know how to retail cars. Why would they undermine their own partners when the relationship has worked so well for so long?

        • 0 avatar
          koshchei

          That’s a matter for debate. I’m sure that it rankles the car makers to spend millions constructing the perfect marketing message and environment for their product, only to have some semi-sapient weasel with a gold chain and reflective scalp trample all over it in order extract another $200 from his “up”.

          • 0 avatar

            @ Koshchei: What’s a matter for debate?

            If car makers are “rankled” as you say, what is keeping them from buying out their dealers and showing them how things should be done?

            Take your “semi sapient weasel with a gold chain:” If this fictitious person is a career auto sales person, it is probably because he/she is effective. Market forces tend to weed out those who can’t earn enough to eat. After all, most car sales people are only guaranteed minimum wage, and if they are on it for more than a couple of months, they are probably long gone. If this person is NOT effective, they won’t be around long.

            About the $200 bump you mentioned. Imagine yourself with a business to sell. You want $900K for the business, but would take $700K. A perspective buyer offers you $750. You say, OK. What happens next?

            Or imagine yourself buying a used car. The price is $12K. You offer $9500 because you think you’re low balling. The seller says, okay, come with me and we’ll do the paperwork. What do you do?

        • 0 avatar
          Arjay

          In http://www.justice.gov/atr/public/eag/246374.htm

          it states that “… direct manufacturer auto sales are prohibited in almost every state by franchise laws requiring that new cars be sold only by dealers.”

          • 0 avatar

            Again, there is nothing in this phrase that says OEMs can’t hold new car dealer licenses. In fact, many of the OEMs own corporations that also hold state dealer licenses.

      • 0 avatar

        @ Jeff – Yes, there ARE a FEW states that prohibit OEMs from holding dealer licenses. They are in the minority. How many company owned stores does Tesla have? If OEMs were not allowed to sell direct, how could this happen?

    • 0 avatar
      Toad

      Remember that all new car dealerships are independent franchises that set their own retail pricing. The dealer that independently goes to “no haggle” pricing is always going to be undercut by the nearby dealer who will haggle to a lower price. The no haggle dealership effectively becomes the price benchmark that customers use to haggle for a lower price elsewhere. That’s why no haggle pricing has never really worked out for dealerships representing the major car brands.

      • 0 avatar

        Said so well!!!

      • 0 avatar

        > The no haggle dealership effectively becomes the price benchmark that customers use to haggle for a lower price elsewhere.

        The same is true for any product; you can also haggle down the price on that TV benchmarked at the big box store. If you’ve ever been in a developing country there’s a major contrast between the bazaar next to the new westernized stores.

        The key insight here is that the dealership system is still stuck in the bazaar model in large part due to legislation which protects it from immediate/marginal competition, and manufacturers don’t care enough to drag down their own wall st. grades to make a better experience:

        http://www.thetruthaboutcars.com/2014/03/should-you-sell-your-car-at-carmax/#comment-2919786

        • 0 avatar
          koshchei

          So true. My wife and I frequently travel to Ukraine to visit family (ебать Путін), and if you’re willing to live without the “Made in Italy” tags, you can get literally the same goods from a bazaar for about 20% of the price. The other trick is to not speak if you have an accent (otherwise the price inflates by about 4x).

      • 0 avatar

        The largest Honda dealer in CT is no haggle and is consistently growing. The basic concept is they price cars at the lowest price most dealers would be willing to sell at. They are counting on volume to prevent competition. And it seems to work. I used to work at a boat dealer that did the same thing he had lower overhead then everybody else so he knew he was safe selling with a tiny mark up because he got the volume.

        • 0 avatar

          Should also note the pay sales staff salary no commisons any where in the place, same thing at the boat dealer I worked at no real incentive to screw anybody.

        • 0 avatar
          Sam P

          Same case with a massive Toyota dealer in Wilsonville, OR. I looked at a used BMW there about 5 years ago. Ended up buying a different car but their price was very competitive and the car was a 1 owner vehicle in great shape.

        • 0 avatar
          Beelzebubba

          When I was 19 (20yrs ago), I went with my mom to buy her very first new car. It was also the first vehicle (new or used) that she had ever been allowed to choose for herself! My dad was a total d-bag and he chose what she would drive when they were married. So it seemed so appropriate that she was buying the new Jeep after three years of fighting my dad for her half of the marital assets! She got a check for almost $90k- $26k for the Jeep and she built my grandmother a small house next door with the remaining $64k!

          Anyway, there was only one Jeep dealership within a 50+ mile radius of where we lived (in North Georgia). They were the highest volume dealer in the state for a number of years and the highest volume in the Southeast at least one year also. They were a ‘no-haggle’ dealer with the price hanging from a big tag on the rearview mirror. I snagged one of these tags which had the MSRP on one side with the NO HAGGLE price written in black marker. The flip side had all the vehicle info including VIN, base price, options pricing and destination charge. I used the one I took and we visited several dealers in metro Atlanta. They couldn’t match it, much less beat it! The closets one was $700 higher and the highest was just $500 off MSRP (and thousands higher than the no-haggle dealer).

          My mom wanted the power sunroof which was on the option sheet but had just gone into production a few weeks earlier. The no-haggle dealer even tried to look at all the ordered stock vehicles that weren’t built and couldn’t find one with a sunroof. So I convinced her to order one exactly how she wanted it and that’s what she did. The no-haggle dealer surprised me because he took the NO HAGGLE price of an identical vehicle except for the sunroof, then added the INVOICE price for the sunroof option and that was the price!

          To be honest, I think their prices were too low because they were determined to beat every other dealer with a 500-mile radius, give or take. They were depending on service, body shop and used car sales to bring home the bacon. Most dealers would also be banking on profit generated by F&I on financing, extended warranties, protection packages, etc. But the salesman at this dealer simply said, “If you haven’t arranged financing, we can help you with that.” Not exactly going for the hard sell, right?!?

          The no-haggle, lowest price setup appeared to work until around 2001. Chrysler revoked the owner’s franchise agreement and basically repo’d the dealership and closed it. The owner had a well-known drug and gambling problem, so I’m sure the dealership was starved for cash at times. He was arrested for several drug-related charges shortly after Chrysler booted him. The local paper reported that he had lost as much as $60k per night gambling and when he ran out of money, he’d start betting inventory vehicles. I can see it now, cards in hand, “I’m in for a….Chargold (yes, they actually made a godawful color and called it that) Dodge Intrepid”…and everyone ran away in fear of winning it! =) If he was still at it today, he’d be trying to bet Dodge Avengers…if I was there, I’d rather have the change in his pocket, but that’s just me…

      • 0 avatar
        3Deuce27

        Reg; “The no haggle dealership effectively becomes the price benchmark that customers use to haggle for a lower price elsewhere.”

        And that is why the BRZ is outselling the FRS. Subaru dealers in the NW are discounting the BRZ while Scion dealers have to stick to Scion fixed pricing.

        The Scion dealership in my little town has (5) FRS’s on the lot, most are 2013′s. They can’t discount, so they sit there getting older by the day in the freezing cold to hot weather.

        Makes no sense.

        • 0 avatar

          RE: “And that is why the BRZ is outselling the FRS. Subaru dealers in the NW are discounting the BRZ while Scion dealers have to stick to Scion fixed pricing.”

          A VERY good point. There is a culture in a so called “One Price” store that isn’t aggressive. They don’t know how to promote. Its why SATURN was starved for product by GM. Same with SCION. Give consumers what they say they want on surveys and they’ll betray you every time. That’s been they iron clad rule in the auto business forever. auto consumers have never had it so good and they’ve never been more dissatisfied. There’s a message there for those who choose to see it.

        • 0 avatar
          FormerFF

          According to Good Car Bad Car, Scion has sold 1961 FR-S’s in the first two months of the year, while Subaru has sold 1209 BRZs.

    • 0 avatar

      RE: “Why don’t the automakers do away entirely with individual dealers and sell directly to the public?”

      It might have something to do with the contracts in place. OEMs and their dealers are partners with contractual agreements. After all, a dealer didn’t spend or borrow $20 million without some kind of contract with his supplier. Besides, every time an automaker decides to sell direct it becomes an expensive failure. Why would they want to undermine their own partners?

    • 0 avatar

      I posted this in the other thread but it’s worth iterating here:

      From what I can piece together about the reasons for this setup (from pch et al), the primary seems to be that manufacturers as a class of companies with ~4% expected margin don’t want to absorb dealers as a retail org w/ ~2%. Stock-equity/etc on wall st. is generally graded into these bins and from external experience with the other end of that spectrum it’s beneficial to be higher up.

      So apparently the Real™ reason why we’re stuck with dealerships is the way our financial system is set up.

      • 0 avatar
        Pch101

        Margins are part of it. The fact that retailing and production require separate skill sets and resources are another aspect of the problem.

        Ford spawned the franchise system because he wanted to run his factories at full tilt, and pass the inventory management risk onto other people. Ford wanted to make money, irrespective of demand cycles — his goal was to maintain such a stranglehold over dealers that he could force them to take inventory even when demand became sluggish.

        • 0 avatar

          > The fact that retailing and production require separate skill sets and resources are another aspect of the problem.

          The point isn’t so much the necessity of specialization but the aggregate results; Apple for example would beg to differ on doing some retail though they’re well on the other side of wall st margins. Though car salesmen are often good at the hard sell, they’re evidently bad at courting new buyers.

          Frankly vertical integration in general requires more product insight than writing synergy on a page between two other words. The former’s less common than people might think in the business world.

          • 0 avatar
            Pch101

            Apple is an exception to the rule. The fact that it has become the go-to rebuttal for everything illustrates how few good examples there are of successful vertical integration.

            Just look around your house, and the homes of your friends and relatives — most of the products there were sold to you by companies that did not produce them. Even a lot of store brand products, such as those from Ikea and Trader Joes, are made by third parties.

            Just because people hate car dealers doesn’t mean that vertical integration is the answer. A lot of the flaws of the dealership model could be fixed with a decent set of regulations that would mandate clear, simple disclosures, but there doesn’t seem to be much interest in that.

          • 0 avatar

            > Apple is an exception to the rule. The fact that it has become the go-to rebuttal for everything illustrates how few good examples there are of successful vertical integration.

            Apple is an exception but the rule in business should be to learn from success no matter whose instead of accepting mediocrity. What Apple does right can also be seen as what others are doing wrong.

            > Just because people hate car dealers doesn’t mean that vertical integration is the answer. A lot of the flaws of the dealership model could be fixed with a decent set of regulations that would mandate clear, simple disclosures, but there doesn’t seem to be much interest in that.

            I wouldn’t necessarily say complete vertical integration is the answer. Apple also got into retail because generic stores do their job so badly. They just set a high standard whatever they do and the brand benefits.

          • 0 avatar
            Pch101

            What Apple does “right” is selling what are otherwise commodity goods with extremely high markups. That extracts more money from consumers to the benefit of shareholders.

            Americans complain about car prices now, even though they are paying far less than those in other developed nations. Vertical integration would push up prices, which is one reason that liberals have frowned upon it — competitive retail markets lead to more variety and lower prices.

          • 0 avatar

            > What Apple does “right” is selling what are otherwise commodity goods with extremely high markups. That extracts more money from consumers to the benefit of shareholders.

            Sure, but that’s more of a side-effect of the Jobs (ultimately failed) product philosophy than the general model. HP or Dell can also design integrated products which play well together and tight ownership processes (eg. “Genius” bar) for really not much more money; they’re just relatively incompetent.

            > Vertical integration would push up prices, which is one reason that liberals have frowned upon it — competitive retail markets lead to more variety and lower prices.

            As a business justification, maybe, if you’re the only competent one in the room. But like you said competition can be good.

          • 0 avatar

            RE: “Apple is an exception to the rule.”

            Apple has carved out its own niche by creating markets where there was previously no market. They have also provided a pricing umbrella that allows other business models to enter and still make plenty of money. That should tell you how much gross profit Apple retains.

            But to try to compare gadgets with vehicles is just absurd. One can buy a gadget with some open line on a credit card. There are no negative equity trade ins on gadgets or complex finance issues to work out.

            RE: “Apple is an exception but the rule in business should be to learn from success no matter whose instead of accepting mediocrity.”

            So why don’t we see anyone except Tesla trying to sell cars like Apple sells gadgets?

            RE: What Apple does right can also be seen as what others are doing wrong.”

            What Apple does “right” in their business can be seen as “right for their business.” It doesn’t translate, but those who are willing should feel free to try.

            RE: “Just because people hate car dealers doesn’t mean that vertical integration is the answer.”

            Some people hate car dealers but enough like them enough to purchase millions of vehicles each year. What people don’t like is the process. Just convince the FTC to allow dealers to fix prices and they’ll be happy to make consumers happy.

            RE: “A lot of the flaws of the dealership model could be fixed with a decent set of regulations that would mandate clear, simple disclosures, but there doesn’t seem to be much interest in that.”

            And some examples of those regulations would be? ……………….. What you REALLY want is for a dealer to have to quote a fixed price and stick to it to make it easier to shop. You want the game rigged in a way you think would advantage consumers. The fact is that for those of you analytical types with good credit who demand a better than average price there has to be some others who pay more to maintain the average. Good luck with the FTC on that one.

            Hasn’t anyone on this thread ever studied business law?

            I wouldn’t necessarily say complete vertical integration is the answer. Apple also got into retail because generic stores do their job so badly. They just set a high standard whatever they do and the brand benefits.

          • 0 avatar

            RE: “Vertical integration would push up prices, which is one reason that liberals have frowned upon it — competitive retail markets lead to more variety and lower prices.”

            Voila! And the FTC enforces this precept.

          • 0 avatar
            Pch101

            “What you REALLY want is for a dealer to have to quote a fixed price and stick to it to make it easier to shop.”

            What I REALLY want is for you to learn enough English so that you can read things correctly.

            We’ve gone over this before. I’ve stated quite clearly that I don’t favor fixed pricing. Do you have a poor memory, or are you just being disingenuous, i.e. a stereotypical car salesman?

          • 0 avatar
            Pch101

            “Sure, but that’s more of a side-effect of the Jobs (ultimately failed) product philosophy than the general model.”

            Much of Apple’s business model consists of adding a user-friendly cool factor and aesthetics to consumer electronics. In exchange for that je ne sais quoi, it slaps on a high price premium and tries to make the customer feel good about paying the high markup.

            Arguably, BMW already does that. (It’s debatable that Tesla does, as Tesla has yet to demostrate that it can sell cars for a profit.) Not everyone can do this; it’s a niche strategy.

            And most consumers don’t really want to pay Apple-level markups for cars. For automakers to have Apple-level profit margins would require enormous price premiums over what we’re paying now.

          • 0 avatar

            > Much of Apple’s business model consists of adding a user-friendly cool factor and aesthetics to consumer electronics. In exchange for that je ne sais quoi, it slaps on a high price premium and tries to make the customer feel good about paying the high markup.

            For all their superficial value (much of which isn’t trivial to replicate at a technical level), Apple products are also designed to function very smoothly within their internal ecosystem. This extends to the ownership process where any product issues (a wide assortment most of which might as well be magic to owners) can be quickly resolved at the same retail store.

            It’s certainly something their competitors haven’t figured out, a broken dell means dealing with interminable hold times or shady 3rd parties, and that assurance adds value to the product even if retailing is low margin.

            > And most consumers don’t really want to pay Apple-level markups for cars. For automakers to have Apple-level profit margins would require enormous price premiums over what we’re paying now.

            The point is that some better design (ie some smart guy’s time at the keyboard) doesn’t necessarily cost more. It just so happens that Apple can charge more because their competitors are too incompetent to be competitive.

            Similarly as you said retailing is already low margin, but doing it better than the competition means leveraging that to justify some extra price or pass the value onto the customer for free and gain marketshare instead.

            It’s true not everyone can do it because it’s hard, but that doesn’t mean it can’t be done.

          • 0 avatar

            > Arguably, BMW already does that. (It’s debatable that Tesla does, as Tesla has yet to demostrate that it can sell cars for a profit.) Not everyone can do this; it’s a niche strategy.

            To expand on the Apple “exception” into the auto world, what they do is not unlike what the Japanese did with lean. For example, for their laptops they tightly integrated with suppliers like Intel to ensure earliest delivery of the lowest possible power chips (despite lower aggregate volume). They literary structure their design/production process (both HW/SW) around these marginally advantages to make sure their machines always have longer battery life than the competition. Dell in contrast would pay the same, get their chips later, and overall lackluster power management anyway ensures mediocrity. Same though less technical for their machined unibody cases (an “aesthetic” item) at price points nobody else can match.

            It just so happens the Japanese leveraged such advantages into the mainstream while Apple (wrongly) choose the luxury market. These two distinct matters are easy to conflate because the smart exceptions are uncommon and insight into the inner works by the business community are frankly rare. That’s in part why detroit failed to recognize what they were doing wrong for the longest time.

        • 0 avatar

          RE: “Ford spawned the franchise system because he wanted to run his factories at full tilt, and pass the inventory management risk onto other people. Ford wanted to make money, irrespective of demand cycles — his goal was to maintain such a stranglehold over dealers that he could force them to take inventory even when demand became sluggish.”

          Actually, auto dealer franchising began before Henry built the first Model T. You can find that in the piece almost everyone here quotes, authored by a guy who represents himself as an expert on auto dealer franchise law. The specific line in question from Roger Quinland’s piece is, “Direct automaker-to-consumer sales are now prohibited in almost every state by franchise laws requiring that new cars be sold only by licensed, independently owned dealerships.”

          While the statement is “true” on its face the uninformed take his statement as gospel. I guess it never occurs to people that Tesla owns its own points around the country. Ford owned many. As of today there are MANY wholly or partially owned OEM dealerships around the country INCLUDING TX.
          And there have been in the past. If what Roger says is true, how could Ford have owned all of those stores back during the great Ford Collection experiment? GM once owned MANY Saturn stores.

          I’ll leave you all to figure this out. How can Roger be right when the evidence CLEARLY shows he is wrong?

    • 0 avatar
      Pch101

      “You buy a washing machine from Sears and you don’t dicker on price.”

      Speak for yourself. You should be haggling when purchasing expensive items from a department store, otherwise you’re leaving money on the table.

    • 0 avatar

      @ Jeff W RE: “I think CarMax exists (and prospers) because of the inefficiencies and odiousness of many of the dealings people have with dealers.”

      CarMax exists because they have carved out a niche for themselves using money raised via the stock market. They developed proprietary software that has since been cloned, but they jumped out ahead and continue to build new stores. They don’t have the burden of a new vehicle franchise. Some people like their business model, while some don’t.

      RE: “I always wondered why the individual dealer model persisted.”

      Because it works.

      “You buy a washing machine from Sears and you don’t dicker on price.”

      That’s a personal choice. You don’t have to dicker at the car store either.

      RE: “Why don’t the automakers do away entirely with individual dealers and sell directly to the public?”

      One reason is they have voluntarily entered into contracts with their partner dealers. Another is that they don’t see any financial benefit to attempt it. IN fact, they see a HUGE financial downside.

      RE: “Service centers would obviously need to exist, but they’d have uniform pricing, and a buyer could include servicing and repair costs into his calculations.”

      If you could persuade the FTC to allow it you could have uniform pricing now. But then the trade in has to be negotiated along with complex finance issues for most people. Fully a third of car buyers are sub prime to BHPH buyers. Only about 20% are turn key finance candidates

      RE: “My impression is that the car selling business is still stuck in an archaic business format, albeit often disguised by modern surroundings.”

      That’s the opinion most amateurs have. You aren’t alone.

      RE: “Perhaps other posters can point out if I’m being simple-minded here.”

      I just did.

  • avatar
    challenger2012

    I sold 2 cars there. They beat dealer trade in value both times. I think their prices are on the high side, but you get a good car. You can’t say that about some dealers.

    • 0 avatar

      I was actually rather shocked when someone at work sold their jeep to them and got very close to private party book value for it. I assumed they would get an extreme low ball. I think he was only off by 800-1000 on a 12,000 dollar sale in which case it wouldn;t be worth your time to private sell it.

  • avatar
    mnm4ever

    So what you are saying is the only benefit to selling to CarMax is you can get your money TODAY, or if your car is essentially crap they will still buy it for their auction.

    That’s been my experience as well, and I have been going there for 10 yrs. I have only sold one car to them, a lease buyout they offered enough to pay off early. Most offers are laughably low, the most recent one for my essentially perfect GTI was OK, but not good enough to consider. Its worth the 30 mins just to see what they will do.

    As for buying from them, I think their cars are a joke. Almost always overpriced and really not great cars. They market themselves as selling a “special product” but the experience is geared towards the grossly uneducated and credit challenged. The add-ons they sell are extremely overpriced, the interest rates are a joke. I browsed the lot for an hour or so, the cars were no better than anything you see at a typical mid-level used car dealer. Many had minor body damage that would be fixed at a new car dealer, they were not especially clean or low mileage, just nothing special. I see no reason to shop there versus shopping CPO programs. And the last few new car dealers I have been to were more pleasant to deal with than the guy working me at CarMax.

    • 0 avatar
      bball40dtw

      Your perfect GTI needs to be sold to the right buyer. It took me almost a month to sell mine because people are stupid. The trade in offers from different dealers were higher than some private party customers ask. There was no way I was going to sell my MKV GTI with 33K miles, new tires, winter tires/wheels that spent 3 out of its 4 years of life in Arizona being driven by a 24-28 year old woman with a Masters Degree for $8500. Go away. Sorry, I got carried away. I eventually sold th car to someone that works at Audi of America for more than Blue Book. He’s hoping to take it back to Germany when Audi moves him back. I don’t know if it will be worth it. I told him I would always buy it back.

      • 0 avatar
        mnm4ever

        I think is why I haven’t tried selling it yet, just don’t want to screw around with the riff raff and low balling. But I am also not in a situation where I really NEED to sell it, I mean, I do like the car and I am not buying anything new for a bit anyway. I wish I had traded it in last year when we got a car for our daughter but I wasn’t quite ready to give it up then.

        • 0 avatar
          bball40dtw

          I’m still not ready to give it up. I miss my GTI.

          • 0 avatar
            mnm4ever

            The GTI is really a great car, its a tough decision. But I am kind of over it, the little minor annoyances add up. Plus, I can only have so many cars and I am just at a point where I want something different. My other cars are paid for so it makes more sense to keep those. Sounds like you really didn’t want to sell yours, you should have kept it! Want to buy mine?? :)

          • 0 avatar
            bball40dtw

            Hahaha. I didn’t want to sell it, but it was the right decision. The C-Max that replaced it fits my life better, even if I miss driving the GTI. If I buy another performance car, it will probably be a new Mustang. I’ll wait a year or two to see what performance models they offer.

            (I’d actually prefer a black on black Mustang based Lincoln sedan with the Coyote. If Ford came through with such a car, I would put a deposit down today.)

          • 0 avatar
            mnm4ever

            Haha that’s exactly what I plan to get next… New mustang. I also might wait to see how the performance models stack up. That’s why I want to sell my GTI now while the miles are low and nothing expensive has broken yet!

  • avatar
    heoliverjr

    “That is unless you live in northwest Georgia. In which case the address to my dealership is…”

    Where was this post a few years ago, I would have definately tried that route instead of Carmax with my old Taurus(which I think ended up being a monday mileage champ).

    Instead it went full circle brought and sold to Carmax the selling experience went so smooth I gladly sell to Carmax again. But buying it the first place was such a hassle that I would never buy from Carmax again.

    The Taurus was the 3rd try is a charm car. I went for a 2000 Malibu which kept cutting off on me over a 3 week period, went back for a 2002 Sable that I never even got to see because after 3 days they couldn’t figure out why it kept cutting off, ended buying the 2002 Taurus they had me using as a loaner car(after complaining about them squeezing my 6’2″ self into a couple of Grand Ams).

    • 0 avatar
      Toad

      Taurus, Malibu, Sable, G6? You really have suffered enough; it’s time to treat yourself to a nicer car.

      • 0 avatar
        28-Cars-Later

        Your suggestion?

        • 0 avatar
          Toad

          None if he is happy with rental spec sedans. But most people that populate “enthusiast” sites want something a little more interesting than fleet spec mid size four door domestics.

          If you like sedans a mid 2000′s Lexus LS is nice, and you can pick them up in the low teens with all dealer service and around 125k miles. Hell of a step up from a Sable.

          But Ann Landers used to say “unasked for advice is unwanted advice” and that is probably true in this case.

          • 0 avatar
            heoliverjr

            I appreciate advice, just not the time, got rid of the Taurus 2 years ago. Also my standards are low, the Taurus replaced a 2000 Cavalier, which had replaced an 88 Sunbird. The Taurus was a big come up for me! I have 2010 Legacy By now which for me is the greatest thing since sliced. bread! Yes kind of sadly for someone on an entusiast’s site a 256hp V6 is the most powerful engine I have ever had.

      • 0 avatar
        heoliverjr

        If it had been a G6 I might have been okay, but it was a Grand Am, got the Taurus a few months before the G6 was out. Did replace the Taurus with By related 2008 Malibu LS.

  • avatar
    Avatar77

    I do live in NW Georgia and would love to know which of the 100s of used car dealerships in the area is Steve’s.

    More to the point, for me Carmax is where I go to get a baseline price when I’m about to sell my car. It’s a good safety net and is a great reply to the lowballers.

  • avatar
    timcc23

    I recently had a very positive experience purchasing and then selling a car to Carmax. I was looking for a G37 sedan with specific options and color combination that was not common in the local dealers’ used inventory. After months of waiting for a good condition car of my specifications to show up locally, I simply did a search on Carmax’s website and had a low-mileage example of the exact car I wanted shipped to my local Carmax for a few hundred dollars. One of my main gripes is that they will not let you take the car to have an independent mechanic check it out. I had to purchase the car and then take it to the mechanic, but they have a 5-day no-questions-asked return policy, so I wouldn’t be out much money if there was a major mechanical problem with the car.

    I then shopped my old 2004 Subaru Legacy sedan around to local dealers, but got no offers better than Carmax’s. My car had 95K miles and would likely need a new timing belt, tires, and possibly head gaskets replaced in a year or so. It seems like their purchasing algorithm does not take these things into account and seeing as my car was under 100K miles and had no mechanical issues, I got a decent offer (especially compared to local dealers).

    Could I have saved money by buying from a private seller or negotiating with a dealer and selling my old car on my own? Sure. But, I spent a little extra money and had a very quick and pleasant experience buying a new car and getting a somewhat fair price on my “trade-in.” $300 for shipping the car locally, ~$1000 less if I had negotiated the new car price at a dealer, and ~$1000 more if I had sold my car on my own. So, $2300 for convenience, a pleasant experience, and getting the exact car I wanted with low mileage. With my very busy work schedule, it was worth the money . For others, it might not be.

    For those who want specific features or color combinations on a used car that are hard to find, I recommend Carmax. They have a national network of dealers to shop online. If you have a car with less than 100K miles that will need some substantial work in the future, I would also recommend getting a quote from Carmax, as they won’t be as harsh on the mileage or future repair costs as a dealer might be. If saving as much money as possible is the bottom line for you, however, I would not recommend Carmax.

  • avatar
    NotFast

    The biggest issue with selling a car to Carmax in Illinois is you lose the tax break if you don’t also buy a car from them. With sales tax of ~ 8% and a hypothetical $10k car — Carmax has to do more than $800 better to make it worth your while.

    • 0 avatar
      Jeff Waingrow

      I’ll second that. The selling dealer has a big advantage in this regard. It can amount a very large price differential. And it’s why I don’t even bother any longer with shopping around for offers on my trade. It’s almost never enough to make up for the sales tax burden. Not to mention the ease of dropping off and picking up at one time.

      • 0 avatar
        FormerFF

        +1, provided your trade is a good one. If it’s old and cheap, selling it private party will get you the most money. We traded my wife’s 8 year old Odyssey, but not my 12 year old Focus.

  • avatar
    johnhowington

    My most recent dealing with carmax was a mixed bag. I purchased a 2011 Scion xB with about 20k on the odo from them which was customized with leather seats. The seats were great. The car however clunked consistently on takeoff from the front suspension, which told me it was abused. I then researched carmax’s repair department, and found several complaints and horror stories about their inability to repair vehicles. On day 3, i took advantage of their no questions asked return, and walked. I was happy of that 5 day return policy, but I was not going to give them a chance to repair it which no doubt would have lapsed the 5 day policy.

  • avatar
    28-Cars-Later

    Why is Carmax’s auction dealer only?

    I can see no other reason than to keep out riff-raff.

  • avatar
    Steven Lang

    Also, think about this.

    If you bought a crappy used vehicle from a dealer, would you go back to them? Would you recommend them?

    Carmax makes more than three times as much money from the retail side of their operations. Convoluting their retail image with a substantial portion of rough wholesale inventory would not be a smart formula for long-term success.

    • 0 avatar
      bball40dtw

      Don’t kill the goose that lays the golden eggs.

      Do they ever sell vehicles they take on trade? If I were to bring in, for example, a clean 2012 Chevy Cruze, so that I could purchase a nicer used vehicle, would they sell that car themselves, or auction it off?

      • 0 avatar
        Steven Lang

        It would depend on the condition and the history.

        There is no internal policy that I know of that would make a trade-in ineligible for the retail lot. However, it would have to pass the same standards as all their other retail units.

        • 0 avatar
          Kyree S. Williams

          That’s what they told me. They said that if the car could pass their standards, they’d consider putting it on the lot. And it would be stupid not to. Thing is, when we were selling our Murano to Carmax, the clerk went into a whole speech about how they “don’t even make money on the wholesale side”…which I knew wasn’t true.

        • 0 avatar
          Beelzebubba

          “There is no internal policy that I know of that would make a trade-in ineligible for the retail lot.”

          My 2006 Mazda3 was involved in a pretty nasty accident back in 2010. It was rear-ended by a Camry going 45mph and shoved into the back of a BMW X5, causing the driver’s side airbag to deploy. I felt certain that the car was a total loss and, when the adjuster from State Harm made contact, I told her that I knew my car was worth at close to $11k and I’d take a check for $10,500 and they could close the claim. Much to my surprise, they refused and insisted on repairing it! The initial estimate (done by the guy they work with at the body shop I chose) was for just over $7300. I went over it with the guy line-by-line and insisted that everything down to the seatbelt buck and seatbelt webbing be replaced! I also demanded OEM Mazda parts. The estimate was almost $9,600 when I finished. They still wouldn’t total it and, ultimately, I found several more things they needed to replace. In the end, they paid almost $12k to repair it and $1300 for my rental car when they could have just settled for $10,500 and totaled it!

          I also filed a Diminished Value claim after I got it back from the shop and had it appraised. It was an 18-month battle, but I finally got a check for $2600 from them. One way that I supported my claim was by getting trade-in offers in writing from dealerships. It had 72k miles on it at the time, not a dent, ding or scratch inside or out and it really looked amazing when I got it back from the body shop. But all three of the Atlanta-area Carmax locations I visited told me that it couldn’t be sold on their lot because it had an airbag deployment (and subsequent replacement, which created potential liability on their part if it failed to function properly in a future crash). The Mazda dealer where I bought it new and another one in the my area told me the same thing. A Service Tech at one of the Carmax locations was actually interested in buying it and offer KBB Private Party Value minus $1000. Had I really been trying to sell it, I would’ve taken him pu on it in a heartbeat!

          I’m not sure if that’s an unwritten policy or just a decision from top management at each location. But as an insurance agent, I can understand why they would be afraid of selling a car with a replacement airbag (and with almost every other part of the restraint system replaced).

  • avatar
    Beelzebubba

    Back in Nov 2012, my mom wanted to buy a new Mazda CX-9. Her 2007 Explorer Eddie Bauer had 138k miles on it and had been thru two radiators, two A/C systems, numerous electrical and electronic failures and the transmission was dropping out of O/D at random, so it needed to go! Before we went to the Mazda dealership to talk trade-in, I took it to Carmax to see what they’d offer. KBB trade-in value was $7600, so I told mom not to expect over $6500 from Carmax. I was very surprised when they handed me an offer for $7500! The appraiser even noticed where the paint on the top of the front fenders had been blended when the hood was replaced due to hail damage right before mom bought it in 2008. Even with the high miles, they offered close to KBB trade-in value.

    We got a great deal on a leftover 2012 CX-9 GT ($8300 off sticker) but the douchebag Used Car Manager wouldn’t go any higher than $7250 trade-in for the Explorer. I showed him that Carmax was ready to cut a $7500 check for it and he told me I needed to go sell it to them then!!! That pissed me off enough to go find the General Manager’s office, walk in unannounced and I told him what an SOB his Used Car Mgr was and asked if he wanted to sell a CX-9 to us or not! Needless to say, we got $7500 trade-in!

    Anyway, I was impressed by what I considered a very fair offer from Carmax.

    • 0 avatar
      This Is Dawg

      Haha oh god that sounds like a salesman’s nighmare! But it sounds like it paid off. Great story.

      • 0 avatar
        Beelzebubba

        The salesman was fantastic through the entire process and has even followed up after the sale. He was clearly in a difficult position because of the User Car Manager and he even admitted that he felt powerless in the situation. If he or his Sales Manager ran to GM, the Used Car Manager would find ways to tank more of their sales! The GM wouldn’t take action even when they had asked for his help. But Mr. General Manager was responsive when a mad-as-hell customer (that would be me) marched into his office and started throwing around four-letter words. (By the look on his face when I first walked in, I almost expected him to say something like, “Hey, hey, hey! Watch your language, there are mechanics and service advisors who can hear you!”)

        My mom and I were there for nine LONG hours that day! It was on Black Friday 2012 and they only had one F&I guy working and there were two customers in line ahead of us to see him! Never mind that my mom was writing a check to pay for it and not financing. The F&I guy came out while the customer before us was signing the last of his paperwork and loan docs. He sat down and I bluntly told him NOT to waste our time or his because we weren’t spending another cent for anything he had to offer. To make my point crystal clear, I had mom write out the check right then for the exact amount on the Buyer’s Order and Bill of Sale! Then I took her check book away and put it in my pocket!

        That little troll waited until I went to the restroom, then he grabbed mom and took her to an office as far away from the showroom as possible (not where he had been working all day)! The receptionist told me where to find them and when I walked in, he said that I would need to step out while he had my mom sign severl documents allowing me to be in the room when he discussed her credit report and other private information. I almost responded with a F%$K YOU, but instead I told him that my mom had NOT consented to a credit check at any point and he had violated the law by puling her credit report! It was clearly written on the Buyer’s Order that she was paying CASH, so they had no right or reason to access her consumer file! My parents were actually in the middle of a mortgage re-fi and I made the dealership have the inquiry removed a few weeks later because the bank had a major issue with it!

        He was extremely pissy after that, but he didn’t realize that I wasn’t his problem….not by a long shot! After a few more rude comments, he did something that he very quickly regretted- He pissed off the MAMA! He tried to be nice when he realized that his life might be in danger, but it was too late. He even tried to push the Extended Warranty despite the situation and she stopped him, mid-sentence and said, “If I can write a check for the G.D. car, I can afford to write one for anything that goes wrong with it!” Then she instructed me to find the GM again and tell him if we weren’t driving the car off the lot in 15 minutes, she was shredding the check and we’d go to the Mazda dealer across town! Amazingly, it was wrapped up and we had the keys in exactly 12 minutes!

        Before we left the showroom and with the Used Car Manager and F&I Manager standing nearby, she told the GM that he needed to get rid of those useless SOB’s and they’d sell a lot more cars! All I can say about my Mom is that I’m VERY glad that she’s on my side!

        But our salesman was really a great guy, as I said. They had to order the splash guards and I took it back the following week to have them installed. My mom gave me a sealed card with the salesman’s name written on it and asked me to leave it on his desk or with the receptionist. I left it for him and went back to the service dept and he walked in a few minutes later with a huge smile on his face. It was a thank you card and $500 cash as a thanks for putting up with us all day and working with those rude MoFos (not abbreviated) every day…

  • avatar
    DC Bruce

    As always is the case with your articles, Steve, they bring a unique perspective. I was pretty familiar with CarMax’s retail side . . . even bought a car there for my daughter in 2002. Their pricing used to be really good, then it got higher, now it’s “do your homework” before you pull the trigger.

    I’ve bought used cars from dealers (a CPO BMW), from used car shops (an Rx-300 for another of my daughters in LA), from private parties; and I’ve bought new cars. Buying from private parties is a lot of work, because you can only check out one car at a time.

    Selling a car yourself is a much bigger PITA, so I definitely see the CarMax advantage as an alternative to the trade-in route. What I didn’t know was the benefits of CarMax in unloading a car that’s just not that desireable. It so happens I have such a car, which in about six weeks (when my daughter goes overseas for 2 years) I will need to unload. The car is an orphan brand (Saab); my daughter has dinged the body in multiple places, including 3 of the four corner light lenses (so it will not pass a Maryland or Virginia inspection). The engine runs well and doesn’t light up the dashboard with a Christmas tree of warning lights, but shows obvious signs of main bearing oil seal failure on both ends. It does, however, have good tires, plus a second set of wheels with good snows on them.

    I’m not planning on buying another car, so the trade-in route is closed.

    So, thank you Steve for reminding me of why I should visit CarMax.

    • 0 avatar
      Japanese Buick

      I know from a lot of co-workers that single women like to sell to CarMax so they don’t have to deal with strangers selling privately. They see it as a safety issue. That perspective surprised me but it made sense. I wonder if CarMax knows that and takes it into account when preparing offers for used cars brought in by women.

  • avatar
    cdnsfan27

    I am a big fan of CarMax, there is one an exit away from the dealership I work at and when I have a conservative appraisal on a trade we won’t keep I often send the customer to CarMax. If they offer more than us they cut a check and I pick up the customer and bring them back. Very convenient.

  • avatar
    Kyree S. Williams

    We sold our 2005 Nissan Murano to Carmax, with 108,000 miles, and got over $4000 more than the dealership offered as a trade. I’m convinced that we could have done a private-party sale for another grand or so, but it wasn’t worth the hassle.

  • avatar
    AlfaRomasochist

    When people ask me about Carmax I tell them it’s a great place to sell a car, not so much to buy a car. My experiences:

    2004 Mazda B2300 X-cab 5-speed: Sold in 2007 for exactly the same price I had bought it for private party a year and 10k miles earlier.

    2005 Mazda RX-8: Sold in 2010 for exactly the same price I had bought it for on eBay (but from a local seller) 8 months and 7000 miles earlier.

    2009 Hyundai Elantra: Grandma’s last car; sold for 1000 less than she bought it for 2 years and maybe 12k miles earlier. And with plenty of bumper car action / paintwork. We took the keys away after she decided to park in a space at Wal-Mart already occupied by a motorcycle.

    My current sales process with my “normal” cars (vintage stuff goes on enthusiast forums or eBay) I go to CarMax first, get an appraisal, then put it on private party classifieds for a week at $1k more than the offer. If I don’t get any bites I take it in before the offer expires. Sometimes I sell it private, sometimes it goes to CarMax but it makes it easy to shut down lowballers when you show them the CarMax offer.

    On the flip side their retail prices are really top dollar with no haggle. No thanks.

    • 0 avatar
      kvndoom

      They wanted to sell us a 2011 Juke with 22,000 miles for $3000 more than the one we wound up getting, which was a 2011 with 13,000 miles.

      Now that we’re selling it. The first thing we did was get a Carmax quote. that’s our baseline minimum before we venture into the shark-filled waters of craigslist.

      Their above-average buying power is supported by their high, no-haggle prices. In that light, I respect their place in the auto industry.

  • avatar
    KrohmDohm

    I’ve sold 3 cars to Carmax. Once to avoid the private sale hassles. Twice because trade in offers were horribly low. In order a 1995 C1500 Silverado, sold it in 2006 with 87,000 miles. 2005 Subaru Outback, sold in 2007 with 25,000 miles. Latest was a 2007 Odyssey sold in 2012 and God as witness I can’t remember the mileage. Probably around 80,000. Each time the evaluation to 30-40 mins. The offer was fair considering the convenience factor. Each car was sold in less than 90 minutes, including the initial eval. I know there are those that dislike Carmax for a variety of reasons. As far as I can tell they are a generally honest, forthright and aboveboard operation. The employees were courteous and professional and never pressured me during the process.

    Just remember when you’re getting a offer to buy your car from them. In all areas of life, you pay a premium for convenience. And they are immensely convenient to those of us that remember the hassle of buying and selling used cars in the 80′s and 90′s.

  • avatar

    For starters, SATURN was NEVER successful. It was propped up by a stubborn GM trying to prove a point. They were relieved to get rid of it.

    Other dealer operations will also write a consumer a check for their car. Consumers need to understand that they are parting with their vehicle for wholesale, not retail while at the same time giving up any sales tax advantage they might have by trading in. There are a few states where that isn’t the case, with CA and MI being two. I find that reprehensible as it constitutes double taxation.

    CarMax has done a great job. A lot of their success has to do with the inventory software they developed which tells them which vehicles move the fastest. The pre-owned business is driven much more by the Web than the new vehicle business. CarMax was able to move out quickly with public money as they were among the first through their Circuit City connection. That gave them a toe hold and they have made the most of it. I rarely meet anyone who complains about CarMax. But then, I know I lot of franchise dealers with high CSI scores and happy customers too.

    A lot of the dissatisfaction with auto dealers happens during financing. Less than 20% of the population has a “fast trackable” credit score, typically defined as a score over 720. Some consumers DO have a credit score over 720 but their DTI (debt to income) makes them a ticking credit time bomb. These are among the most livid consumers when they don’t get what they think they have coming. They are often radically upside down in their trades. A bank might approve their loan, but not for the amount they need to make the deal bankable.

    Then you get into the credit tiers. There are typically 4 credit tiers, from 580 – 719. (Most cut off at 620.) All lenders don’t tier the same. The risk priced interest rates are all over the board. So are DTI standards as well as job time requirements, mortgage or renter requirements, etc. etc. Then there are the “stips.” A lender might approve a deal but require tax returns, a letter from an employer, pay stubs, copy of mortgage or lease, etc. etc.

    CarMax has their own finance company. I don’t know exactly how they deal with finance issues as they are quite secretive. I once went to a CarMax with a video camera to document one of their locations for a Japanese client as an example of a new American trend. They wouldn’t even allow me to film.

    • 0 avatar
      28-Cars-Later

      This is a good post. Its also important to note data analytics is a huge business.

    • 0 avatar
      krhodes1

      I really don’t understand why anyone would go into a car dealer without having financing in-hand from their own bank or CU first. Seems like a recipe for being taken advantage of. When I bought my Abarth a year ago, I walked into FIAT with a 1.9% pre-approval from my CU. Their advertised rate on the Abarth was 2.9%, but they were able to get me .9%, which was the advertised special deal rate for the Pop that allegedly excluded the Abarth. I have no doubt that had I not gone to the CU first, they probably would have just given me the 2.9% and pocketed the difference.

      No CarMax near me, unfortunately. Though I usually have people lined up to buy my cars. I have yet to trade one in, though the Abarth may be the first, due to the sales tax issue. We’ll see next year or the year after.

      • 0 avatar
        Wheeljack

        I did something similar once – I had pre-approved financing from my credit union on a used car. I decided to have a little fun with it when I went into the dealer:

        Salesman: “Sir, how are you planning on paying for this today?”

        Me: “I have financing arranged through my credit union”

        Salesman: “What rate did they give you? Maybe we can do better”

        Me: “I’m not going to tell you that. Make me your best offer and we’ll see who wins”

        And low and behold, they came in well below my credit union so they won my business. I ended up paying the loan off early even though the rate was great at the time for a used car.

        • 0 avatar
          krhodes1

          My iron clad rule for car buying is payments or out-of-warranty repairs, never both on the same car. So I always take the longest term I can get at the lowest possible interest rate, but it is paid off by the day the warranty runs out.

          And I don’t believe in extra-cost warranties. Vegas has better odds of paying out.

  • avatar
    Matt Fink

    Thanks for the article. I’ve gone to Carmax to test drive a few different models at the same location. I kind of felt like I was using them because at their prices, I wasn’t going to buy from them. Anyone know if their salesmen make commission?

    I’ve taken 2 cars to them to sell. My loaded 2008 CR-V last year that they offered $16,000. That was fair. It took me 2 months, but I was able to sell it for $19,000 private party. The other was a 5 year old Saturn Vue. V6, low miles, and they offered me… $750. Obviously I did not sell that to them either. They were always friendly there.

    • 0 avatar
      Beelzebubba

      Unless they have changed their compensation plan in the last year or so, they pay Sales Associates a decent (for sales) base salary and a flat fee for each sale.

      I have also used their dealerships to test drive multiple vehicles at one location (and in a low-pressure environment). But I would never buy from a No-Haggle dealership based on principle alone. My grandpa was a car salesman and eventually co-owner of a Ford dealership and he would roll over in his grave if I didn’t negotiate the best deal possible! Haggling is one of my favorite parts of buying a vehicle!!! (Note- I had to learn to use the term ‘haggle’ when I realized as a teenager that using ‘jew’ as a verb was horribly pejorative! And I’m one-eighth Jewish! =) BTW, Sales Managers an the F&I guys usually HATE me before it’s all said and done! =) But after spending hours hammering out the best deal I possibly can, I have stopped by my poor Salesman’s desk on my way out the door and dropped a few $100 bills on his desk!

      Back to Carmax, even among ‘No-Haggle’ dealerships, their prices tend to be higher than most. They’re selling a low-stress, simple buying experience and a lot of buyers are willing to pay more for that. My step-mom bought a 2007 Hyundai Sonata from them in 2009 and she raves about the Carmax buying experience! She paid about $1500 more than the car was worth, but it was worth the expense to avoid the traditional car buying experience…

    • 0 avatar
      CJinSD

      >I’ve taken 2 cars to them to sell. My loaded 2008 CR-V last year that they offered $16,000. That was fair. It took me 2 months, but I was able to sell it for $19,000 private party. The other was a 5 year old Saturn Vue. V6, low miles, and they offered me… $750.<

      People often tell others that their money is just as well spent on any make of car these days, excellence being universal. Hah.

  • avatar
    lon888

    When I went to go buy my 2012 GTI, the jerks at dealership offed me only $3100 for my excellent condition 2005 Civic Si with 170K miles. CarMax offered me $6500 (which I thought was generous and per Blue Book). Guess who I sold the Honda to…and then went to a different dealer to buy my GTI.

  • avatar
    kvndoom

    I’ve had mixed experiences with Carmax. I sold them my 2011 Accord for 21,000 when stealerships were trying to get me to trade it in for 16,000 (I lauged in one guy’s face and stormed out).

    Conversely, I had a dealership offer me $7500 trade in on the 2006 TSX while Carmax only offered $5000. I wound up selling it myself for $10000.

    I’m also pretty sure Carmax’ buy and sell prices on “sellable” cars fluctuates by region too.

  • avatar
    Safeblonde

    It has been a few years, but last time I went to Naperville, IL Carmax with a blah-average Mazda sedan I got an offer with the following conditions: there was a $100 “acquisition fee” that came off the top of my offer. Then they were paying me with what they called a “Bank Draft”. Having recently taken the Uniform Commercial Code financial instruments training class at the Fed, I questioned them on what the hell that meant. No good answer, they were making it up as it went along.

  • avatar

    RE: Selling one’s car to CarMax: They do always need inventory. AND they DO always need to have people coming to their site. AND since most people owe more money on their trade than its worth, they need to trade it in to have a chance to get financing on a different vehicle. So sometimes CarMax can sell someone on trading in instead of just selling their ride. After all, there is no check to issued in many cases. Often the consumer has to pony up their own check to complete the payoff of their car. If the consumer is hell bent on a new vehicle, they are probably better off going to the new vehicle dealer. They will receive an immediate dividend in the form of the sales tax credit in most cases and in most cases the dealer’s F&I office can gain financing those consumers couldn’t get on their own.

  • avatar

    RE: “Do factors such as car loan history matter with Beacon/Fair Issac?”

    Yes, but there are all sorts of credit scores including car loan score, mortgage score, credit card score, with different weighting. Lenders don’t just go by credit score UNLESS they have established a “fast tracking” system. And then, it is probably only limited to scores over a threshold.

    My father has a high credit score but hasn’t had a car loan in his life and no mortgage for 30 years. Others in the family have higher scores than he does despite the fact he has never missed a payment on anything in his life. Doesn’t seem fair, but the credit system is what it is.

    • 0 avatar
      28-Cars-Later

      I’m in a similar position to your father, I have and had revolving credit type loans but never a “car loan”. All cash sales.

    • 0 avatar
      krhodes1

      That is the real secret – you have to actually use credit to have a really high score. Which is why the “I always pay cash for everything” crowd amuses me so much. They are ultimately screwing themselves for those times when they actually NEED credit. Especially in these times of “free money” interest rates.

      As in so many things, moderation is the key. Not too much debt, but not too little either.

      • 0 avatar
        Demetri

        It depends, if you can buy a house with cash, like I did, what do you really need credit for?

        • 0 avatar
          krhodes1

          Technically, I could pay off my house tomorrow. But at a tax-benefit adjusted interest rate of well under 2%, why would I? That $100k is making far more than that in the market, even conservatively invested. Even if I lost the whole $100k tomorrow, I’m still better off with the mortgage because the interest is less than the rate of inflation – I’m better off paying it off with future dollars that are worth less than today’s dollars.

          Ultimately, the reason I can get a mortgage at 2.75% is that I have absolute top notch credit. It gives you the flexibility to manage your money better. My general rule of thumb is that if I can borrow at less than the rate of inflation, I do. Otherwise, I too tend to pay cash.

  • avatar

    RE: “I really don’t understand why anyone would go into a car dealer without having financing in-hand from their own bank or CU first.”

    Anyone can try. Relatively few, in the credit score cross sections, succeed. Fully a third of consumers are BHPH and sub prime credit. Only about 20% are fast trackable. Everyone else has an adventure. Some can’t buy a car without a rebate. That almost forces them to buy a domestic as lenders, for some reason, still look at a rebate as cash down. The folks who are “automatic” when it comes to financing are less than 1 out of 5. Why? Many of those just pay cash.

    • 0 avatar
      krhodes1

      Interesting. I guess it just baffles me that so many people who seemingly can’t afford a new car are buying them. I never bought new cars until I was at a stage in life where a car payment was rounding error in my finances. I always bought $5-10k used cars Privately and paid cash.

      • 0 avatar

        I spent a LOT of years in the new car business and one thing I figured out early on. EVERYONE DRIVES A USED CAR. Once they’re purchased they are all used. So why not buy one where the bulk of the rapid depreciation has already taken place?

        Of course, if everyone listened to me there would be no used cars. If there are no used cars sold from new, where would used car inventory come from?

        • 0 avatar
          FormerFF

          It seems to me that the depreciation curve has flattened out rather a lot in the last 10 years, ans I don’t think used cars have that much of a cost savings as they used to.

          I ran the numbers on this a couple of times. I finally realized that when buying a car there is a transaction cost that consists of two parts: the seller’s profit, and whatever taxes you pay, so it behooves you to do as few transactions as possible. Our tax rate is 6.75%, and that applies to both dealers and private party sales. Additionally, the dealer is going to expect to make $1500 – 2000 or so, depending on the price of the car.

          I look at the fixed cost of the car as consisting of three parts: depreciation, maintenance, and repairs. If you have a very old car you may save a couple hundred dollars a year on insurance by dropping collision and comprehensive, but it’s fairly insignificant. If you have a new car under warranty, your repairs are zero, your maintenance is low, but your depreciation is high. As the car gets older, maintenance increases, and the occasional repair is required. Older cars require fairly frequent repairs and continued maintenance, until something major breaks and the car’s done.

          When I recently went out car shopping one of the cars I looked at was a CPO 3 series BMW. The one I was looking at was about 24,000, with mileage in the upper 30′s. It probably sold for around $35,000 new, so that’s around 32 percent depreciation. I then estimated what that car would trade for in five years, as I’ve settled on wanting to drive cars that are no more than 8 years old. Using Edmunds.com, whose prices I’ve found are more realistic than KBB’s or NADA’s, I estimated the tradein value at around $8000. In terms of dollars per year, that’s not particularly lower rate of depreciation than from new. Plus, that car was going to need a set of tires in a year or so, was probably well into needing front brakes, was halfway into needing struts and shocks, and whatever other maintenance a BMW gets at 50,000 miles. If I compared that to getting a new one and keeping it for eight years, the cost of maintenance, depreciation, and repairs wouldn’t be much more, only a few hundred dollars per year. Plus you get all the new technology, new safety stuff, and a better warranty. You can pick out exactly what you want and don’t have to worry if the previous owner got drunk and ran the car up on the median or something similar. I’d be driving a car that would be an average of four years old over its life rather than five and a half for very little more money.

          • 0 avatar
            28-Cars-Later

            This is a well written and concise post. I’m happy to see you are factoring in tire replacement, brakes, and other parts costs in your decision. The curve may have flattened a little in the past ten years but wearable items are still a static cost.

  • avatar

    RE: “That leads me wonder, does my habit of paying off my car loans early ultimately hurt me when seeking a new loan?”

    NO!! It HELPS a lot.

    RE: “I have had 4 auto loans and paid off all of them early, never trading the car in with an active loan. I ended up buying a car similar to the one I returned to CarMax about 6 months later (it was actually 2 years ago, not last year). I just paid it off this week, 18 months into a 48 month term. Do lenders look at that as a negative, since they won’t make as much off the loan as someone who pays exactly what’s owed every month?”

    The resent the loss of income but it boosts your credit score and keeps your DTI well under the required threshold. Lenders should be competing for your business.

  • avatar

    RE: “That is the real secret – you have to actually use credit to have a really high score. Which is why the “I always pay cash for everything” crowd amuses me so much. They are ultimately screwing themselves for those times when they actually NEED credit. Especially in these times of “free money” interest rates.”

    All TRUE!!! People need to understand this. Even if you can pay cash, charge it, make a few payments, then pay it off. Damn, we sound like Suze Ohrmann here.

    • 0 avatar
      Beelzebubba

      My mom’s credit score is in lower 700s and my dad’s is in the upper 700s, but they have never financed a car! They have a mortgage and tons of revolving credit that stays in the 20-40% utilization range. At the ages of 60 and 65, that appears to be sufficient to qualify them for the lowest rates and promo offers.

      When my mom bought her Mazda CX-9 in Nov 2012, they were offering 0% APR financing for up to 60 months on the 2012 model (the 2013 was already on the lot). She qualified for it and might have taken advantage of it if she and my dad weren’t in the middle of refinancing their mortgage. She and my dad have are the only people I know who pay cash for a new car and immediately start making payments into a savings account to pay for their next one in 5-7 years! Meanwhile, between the ages of 16 and 37, I never kept a car long enough to pay off half the original loan balance! I was 37 (2yrs ago) when I finally kept a car long enough to pay it off. I remember getting the title in the mail from the bank and I wasn’t sure what to do with it…but I have loved not having a car payment for the last two years! Best of all, my car (2006 Mazda3) only has 96k miles on it and looks almost new, so I may have another 4-5 years without a payment!

    • 0 avatar
      Beelzebubba

      “Damn, we sound like Suze Orman here.”

      I’m not sure why, but it just sounds better coming from an attractive, middle-aged lesbian with a stylish wedge haircut and a thing for jackets with collars and snazzy pant suits!

      I love my Suze! And she is as genuine and friendly in person as you’d think she’d be! A total sweetheart!

    • 0 avatar
      Demetri

      I’m pretty sure you have to make more than a few payments. When I was looking at making an investment in real estate, the bank cited two issues that essentially regulated me to zero credit history status. #1, the loans I had previously were all older than 3 or 4 years old, and #2, I didn’t make many payments on the loans before paying them off.

    • 0 avatar
      VoGo

      People need to realize that your credit score isn’t a measure of how good a person you are, or even how good a credit. It’s a measure of how much money the banks expect to make on you.

      • 0 avatar
        Beelzebubba

        “People need to realize that your credit score isn’t a measure of how good a person you are, or even how good a credit. It’s a measure of how much money the banks expect to make on you.”

        Your credit score is a representation of your creditworthiness and your spending and payment patterns.

        • 0 avatar
          JimC2

          “It’s a measure of how much money the banks expect to make on you.”

          I think a better way of expressing it is that it’s a measure of how much money they expect to *lose* on you. (How likely or unlikely you are to default.)

          • 0 avatar

            RE: “It’s a measure of how much money the banks expect to make on you.”

            If your credit score is above a certain point, your interest rate won’t reflect much likelihood that you’ll default. Below a certain point banks will add in interest rate to pay for added collection and default costs they expect. When your score gets low enough, the only way you get financed is with a large chunk of down payment AND high interest rate. And you pay every payday and your vehicle probably has a GPS locator AND a starter interrupt on it.

  • avatar

    RE: “At the ages of 60 and 65, that appears to be sufficient to qualify them for the lowest rates and promo offers.”

    Subventions generally stretch down to 680 FICO but the “fast track” minimum is generally 720 – 740.

    You don’t hurt yourself in any way credit wise by trading in before you pay off a car.

  • avatar

    RE: “I’m not sure why, but it just sounds better coming from an attractive, middle-aged lesbian with a stylish wedge haircut and a thing for jackets with collars and snazzy pant suits!”

    That’s why she’s making bank, and I’m not.

  • avatar

    RE: “The key insight here is that the dealership system is still stuck in the bazaar model in large part due to legislation which protects it from immediate/marginal competition, and manufacturers don’t care enough to drag down their own wall st. grades to make a better experience:”

    Actually, it largely has to do with the franchise agreements the OEMs have executed with their various dealers. Franchise law merely clears up the gray areas created by the high priced and most imaginative attorneys who work for the OEMS. Try getting a partner to invest $20 million or so without contractual assurances with their supplier. Trying to blame franchise law for the current system is either due to ignorance or disingenuous. The franchise agreements in place don’t preclude an OEM from buying out a dealers. BUT if an OEM wants to sell direct, there is an easier way for them to try it. Why didn’t Toyota establish SCION as a direct purchase division? Hell, why don’t they do it now? SCION dealers would LOVE to sell their SCION ticket back to Toyota.

    Consumers are free to shop for a “better experience as it is,” and the FTC likes it that way. If you want price fixing to make consumers happy start with the FTC. Other than that, the math will stay as it is. For every consumer who negotiates a better than average deal, someone has to pay above average to maintain the average.

    The toughest negotiators come from countries or regions where barter is part of their culture. People from India and Korea come to mind. U.S. buyers from ranch and farm country also come to mind. My suggestion to the timid is to go to a One Price store or take an Indian or Korean with you on your shopping trip.

    But OEMs are free to buy out their dealers. Ford already did it once as part of their grand experiment. If they think that’s a good idea, what’s stopping them? TX might be a problem, and perhaps a couple of other states, but by and large there is nothing standing in their way except deep enough pockets. The OEMs understand the current distribution method works well for them. They understand that selling vehicles at retail isn’t something they can more cheaply than their current dealers.

    RE: “and manufacturers don’t care enough to drag down their own wall st. grades to make a better experience.”

    No kidding. Imagine the exodus of capital should they announce such an initiative. Perhaps the government should buy the dealerships and operate them as a public service?

  • avatar
    ajla

    Maybe this comment belongs more on Curbside Classic than TTAC, but that CarMax commercial where the guy trades in his cherry 1st generation Plymouth Voyager caused me to audibly moan.

    I mean, how can you do that man?

  • avatar

    RE: “Should also note the pay sales staff salary no commisons any where in the place, same thing at the boat dealer I worked at no real incentive to screw anybody.”

    The incentive is to do business at minimal gross profit. Over time, these things have a way of taking care of themselves.

  • avatar

    The car business is easy. Just look in the book and find out the value of a used car. Anyone can do it. Wonder why it is necessary to pay $150K to get a good UCM?

  • avatar

    RE: “Ruggles, you’ve got to know the dealers in your area. Going 300 miles in any direction from Gallup will knock a few thousand off the price on the sticker. Some dealers still inflate.”

    New car, used car? Without trunk money many vehicles don’t have thousands of markup in them. The occasional anecdote doesn’t make a generally true statement.

  • avatar

    I bought a new car from Carmax and traded in my old truck. There are a handful of Carmax stores that also have new car dealer franchises, and the one near me has a Nissan dealership. I bought a leftover 2012 Pathfinder (for about 9k under sticker after rebates and discounts) and traded in my 2006 Ranger.

    They gave me $6500 for the Ranger. Blue book was around $8k, but it did have over 100k on it, a previous accident, and was bright yellow. I probably could have gotten more from Craigslist, but it would have been a hassle, plus I would have had to have 2 cars registered/insured/ect until I sold it.

    I would consider buying a used car from Carmax if I was looking for a very specific car – they will ship from between dealerships for a reasonable fee, so if you are looking for something specific it’s an easy way to buy it. Also, Doug DeMuro (who used to write for here and now writes for another car blog) swears by their extended warranty on his Range Rover.

  • avatar
    chicagoland

    My brother was able to find a manual trans 2011 Fiesta, in green. Now, I am sure the original owner tried to trade in at a “normal” dealer and got low balled. So off to CMax!

    And there were other manual Fiestas at other Carmax stores in the area. But, but he got one shipped in from TN, since it had less than 30K miles.

  • avatar
    CapVandal

    I have never met anyone that was negatively implicated by a lack of consumer credit because they paid cash.

    People that have a lower score because they don’t use consumer credit tend to not want it and/or not need it.

    Assets are always better than credit.

    • 0 avatar
      highdesertcat

      IMO, cash is the only way to go. No hassles, no stress. No muss, no fuss.

      My approach to buying is to ask what the dealership needs to sell something for. Invariably, I’m always asked how I intend to pay for it (as if the two are even remotely related).

      My answer always is, “by personal check if you accept a personal check”. And my experience has been that most dealers will high-ball me at which time I thank them for their time and walk away. They get one shot at me but most dealerships always want to dance. And then they act surprised when I don’t play along.

      That said, my last new car bought was a 2012 Grand Cherokee in Phoenix, AZ, and that sales manager didn’t dick around.

      He shot me his best and final offer price from the start and the rest is history, although he did lament that he would dearly have loved to take my wife’s 2008 Highlander 4X4 Limited in trade.

      • 0 avatar
        Beelzebubba

        “That said, my last new car bought was a 2012 Grand Cherokee in Phoenix, AZ, and that sales manager didn’t dick around.”

        I’d be very interested in hearing how things are going with the 2012 JGC, if you don’t mind!?

        My mom likes her CX-9 and, for now, she needs to keep it because we take care of my 94-year-old grandmother. I can’t get her in and out of my Mazda3 because the car sits so low, so had that in mind when she bought it.

        Anyway, my grandma won’t be around too much longer. I see her struggling just sitting in her recliner working on another quilt she’s making. I know that her quality of life has really been on a hard slide for the last 9-12 months, with FOUR different UTIs and four separate hospital stays (she was in the hospital for 32 days in all last year).

        When my grandma is gone, my mom wants to trade-in the CX-9 for a slightly used/CPO Jeep Grand Cherokee Limited (2013 model, maybe)? A RWD V6 is all she wants/needs, so I’m hoping we’ll find a pristine off-lease example that fits the bill.

        She has only had one car in my entire life that I knew she was crazy about! It was a special-ordered 1995 Jeep Grand Cherokee Laredo, 2WD with the legendary AMC 4.0L I6 and she chose a color called Wildberry that looked more like “bloodclot” to me! =) It had Medium Driftwood fabric upholstery because the leather used in the JGC at the time was so ugly! It also had the dual power seats, Infinity AM/FM/CD with amp & sub and it even had the ‘tubular’ bars mounted beneath the bottom edge of the doors on both sides. A Power Moonroof had been added to the Options List for 1995 but they didn’t add it to the production line until November of that year. Mom wanted the Moonroof, so her JGC had to be ordered and we waited almost 10 weeks to get it! My (step)-grandfather (1915-2007) was a Chrysler Retiree and he called someone higher up in the Labor Union and someone he knew in Michigan also. You should be in acting, cuz you’re a natural!

        • 0 avatar
          highdesertcat

          Beelzebubba, our 2012 JGC is doing fine – no problems so far.

          Maybe we just got lucky. Maybe it was made on a day when the UAW workers had all their faculties working simultaneously and all were lucid of mind, like maybe mid-morning assembly before the drinking, smoking and toking commenced.

          I say that because my wife’s three sisters all traded their Highlanders for a 2014 JGC each, during March-April 2013 and had issues with them. Some serious!

          You can read about their experiences on cars dot com/kicking tires under 2014 Grand Cherokee Recalls. There were so many comments they only display a small number.

          We bought the 2012 Overland Summit V6 in Auburn-metallic color, not by choice but by default because it was the only one like that there.

          It was a dealer swap and no one wanted to buy a $49K JGC with a V6, Trail Rated SelecTrac II, full pop. IMO, it has too much equipment that never gets used.

          Long story short, the wife loves it, now has close to 40K on the clock and hopes to keep it until the end of this year or the end of next year, without any problems.

          Goodyear tires went relatively fast and had to be replaced by 25K miles at nearly $2K for 4 – 20″ wheel size Michelins.

          Electro-Hydraulic power steering fluid seems to disappear without leaking out anywhere and I had to add some twice within the last year, just to bring it up to factory level.

          I use Castrol 5-30W conventional motor oil (6qt) and change oil between 3-5K miles depending on mileage and color. About once every six months, sometimes more often if we travel great distances, or tow a trailer.

          When I change the oil, it is usually down one full quart in 3-5K, so I refill with 6qt fresh oil and a new Purolator oil filter at change.

          I rotated the tires myself every 5-6K miles and the Michelins on there now seem to wear a lot better than the OEM Goodyear.

          Windshield wipers seem to wear quickly, though. I was surprised to have to replace them after six months already so I bought 4 sets of three (22″, 21″ and Rr Rocloc 12) from Amazon. Definitely cheap rubber OEMs came with the car.

          As long as it all works, we’re happy campers, but I’m not going to recommend it based on the lousy experiences of my wife’s sisters.

          When we trade this GC, my wife and I have decided on buying a 2015 Sequoia 5.7 to replace it, if they still make them. If not, we thought an Armada 5.6 might be worth a try.

          If there is such a thing as recommending a JGC, a friend of ours bought a 2012 Limited 5.7 and is very, very happy with it.

          Then again, she owned a Murano before that, which managed to blow two CVTs in five years, so anything she got was an improvement.

          I apologize for the delayed reply but my schedule is packed to the point that I only read ttac before going to bed at night, just to unwind from the day.

  • avatar

    RE: “In variably, I’m always asked how I intend to pay for it (as if the two are even remotely related).”

    I good answer might be, “With money.” It’s cagey questions like this, called “short cut questions in the trade,” that just piss people off. When asked “short cut” questions I recommend the consumer not even try to be nice. Sales person question: “How much do you owe on your trade?” Answer: “How long has it been since you last beat your wife and kids?” Question: “What do you do for a living?” Answer: “You writing a book?” Question: “What’s the most you’ll spend?” We’ll find that out, won’t we?”

    Summary: I’m here to get information, not give it.

    Yes, there is still to much of this going on. I understand sales people trying to take shortcuts especially if the dealership runs an “open floor.” There is no sales process that appeals to every consumer. Some dealers take the One Price approach. Their competitors love them for it.

    • 0 avatar
      highdesertcat

      Thanks Dave! I have to go through the buying process again in Dec 2014 when we trade off my wife’s Grand Cherokee, and buy a 2015 Sequoia 5.7 for her, if they still make them by then.

      Since I am a no-nonsense kinda guy, I may end up keeping the Grand Cherokee and passing it down to one of my grandkids, like I did the 2008 Highlander, now the daily driver for our 16-yo grand daughter. It may not be sporty or flashy, but it beats walking or riding the school bus.

      In a way it is sad to realize that me buying the 2015 Sequoia and, later, a new 2016 Tundra 5.7, signals the end of my new-car buying, due to age.

      When people get to be my age they start to focus more on buying that ‘last’ car for the remainder of their lifetime, and hoping to enjoy a trouble-free ownership experience for the duration.

      I’m too old to wrench and tool on my cars now, and don’t bend well around the middle anymore. I’ve considered Leasing, like so many who have preceded me, but haven’t finalized my decision yet.

      • 0 avatar
        Beelzebubba

        “I have to go through the buying process again in Dec 2014 when we trade off my wife’s Grand Cherokee, and buy a 2015 Sequoia 5.7 for her, if they still make them by then.”

        So what’s up with the move from the JGC to the Toyota Sequoia? It’s kinda like moving up from a Jack Russell to a Rottweiler!

        I’m kidding, but the Sequoia is definitely larger than the Jeep. My best friend’s neighbor traded in an older Acura MDX on a new Sequoia a few years ago. When they got it home, they realized that they couldn’t close the garage door because a couple of inches was still sticking out the back! I just checked, out of curiosity, and the JGC is 189.8 inches long and the Sequoia is 205.1 (15.3 inches longer). For reference, the 2015 Chevy Tahoe iss 203.9 inches, very similar to the Sequoia.

        I can’t believe I’m about to suggest the vehicle I’m about to suggest- but have you considered the 2014/2015 Dodge Durango? I never dreamed that I would recommend the Durango to anyone, but I’m very impressed with the latest model! It’s classified as a full-size SUV even though it was a mid-size in the past. I recently drove one with the 3.6L Pentastar V6 and 8-speed automatic (new for 2014) and to say it blew me away would be an understatement! The exterior design is handsome, if a little bland and generic, but the interior was the first thing that really impressed me. It looks and feels like the interior of a $60k car, material quality is excellent and they even manage to assemble those materials properly with uniform gaps and seams and no squeaks or rattles. For Dodge, that is a milestone achievement- building an interior that doesn’t look and feel like old Tupperware.

        I noticed your comment, “if they still make them by then”. The last I heard, Toyota was planning to continue offering all of their body-on-frame (aka- truck-based) SUVs for the foreseeable future (and that was their position seven months ago). So that includes the 4Runner, Sequoia, Land Cruiser, Lexus GX46o and LX470…although dropping the GX would make the world a much prettier place. Talk about falling out of the ‘ugly tree’ and hitting every branch on the way down!

        I was curious about the Sequoia’s sales volume and they sold 13,xxx each year from 2010-2013. In 2008, the first year of the current model, they sold 30,693. But 2009 sales dropped to 16,387, a victim of gas prices and the recession, I’m sure. I was surprised to see that the top-of-the-line Sequoia Platinum 4WD stickers for just over $66k! The Sequoia SR5 base price starts at $44k, a huge 22k difference. But the Platinum appears to be a Lexus except for the missing Lexus badges! I’m impressed by the fact that I can’t find anything bad said or written about the Sequoia. But now, more than ever, I can’t understand why they still sell the Land Cruiser??? It costs $80k and Lexus has the LX570 which is the same SUV….these are the things I ponder and why my brain is full of totally useless but utterly fascinating (to me) information. =)

      • 0 avatar
        highdesertcat

        Beelzebubba, the 2012 JGC purchase was an aberration for us. My wife bought it because she loved the styling and color when she saw it on a trailer parked adjacent to I-10 as we hurled east through Phoenix in her 2008 Highlander in Nov 2011.

        My wife and I will be 68 on our next birthdays and the next vehicles we buy will most likely be the last vehicles we purchase for the remainder of our driving life.

        We’ve had really great ownership experiences with Toyota products so we will be buying in our comfort zone when we buy the 2015 Sequoia and the 2016 Tundra.

        We converted to Toyota in 2008 with the purchase of that Highlander and have not been disappointed. We’ll stick with the known and trusted.

        We’ve already had the rest, 50 years worth of it. Now it’s time for the best. If I could afford a Lexus, I’d buy it. But I can’t afford it.

        I have two 8-yo twins grandkids to help put through school and buy cars for like I’m doing for my 16-yo and 21-yo grand daughters, so I need every cent I can scrape together to make that happen.

        But often the best-laid plans turn to sh!t because of unforeseen factors and unintended consequences, so if I can make all this happen, so much the better.

        If not, it’s back to square one and formulate another approach to goal achievement.

  • avatar

    RE: “I have never met anyone that was negatively implicated by a lack of consumer credit because they paid cash.”

    You have. You just don’t know it.

    RE: “People that have a lower score because they don’t use consumer credit tend to not want it and/or not need it.”

    No one needs consumer credit until they do. Its better to be safe than sorry.

    RE: “Assets are always better than credit.”

    No one here said different. Its better to have both.

    • 0 avatar
      krhodes1

      Without exception, the 1% got to be the 1% using other people’s money.

      I would LOVE to be at a point in life where I don’t need to worry about anything to do with credit and just pay cash for everything. But until a long-lost relative dies and leaves me $20M or so, I am going to take whatever little advantages I can to get ahead financially. And not turning down FREE money is one thing that adds up quite nicely over the course of the years. You can’t be stupid about it, but hairshirts are not terribly comfortable either.

  • avatar

    Why might borrowing be beneficial when one can pay cash? An example might be when an OEM offers a subvention like ZERO percent or .9% or anything significantly back of market. If your money is making 8% in the stock market you’d go backwards significantly if you pulled money out to pay cash.

    AND if you couldn’t get the cheap money because you are a “ghost” in the bureau because you pay cash for everything, you miss an opportunity.

    To be fair, MANY of the subventions are either/or, rebate or rate subvention. But that’s not always the case. My theory is that the OEMs have already priced in the next round of rate subventions expected because interest rates will most certainly rise. After all, after Joe Garagiola, the strategy was to price in the money the OEMs knew they would probably give back. And the system became VERY complex. Most dealership employees don’t know the true cost basis of their own products. And that’s by design.

  • avatar

    RE: “And I don’t believe in extra-cost warranties. Vegas has better odds of paying out.”

    Actually, an extended service agreement is one of the best values available DEPENDING on the coverage you get and the price you pay. ESAs are quite complex to shop for. The Dealer has the advantage because they can lump the premium cost into the loan so the consumer pays it monthly. Consumers might want to consider saving back some down payment money to use it to better negotiate their service contract. Consumers almost always collect on service contracts. I’ll take ESA odds or Vegas any day, and I live in LV. For example, if you buy the right coverage, your ESA pays for a rental while your vehicle is in for warranty work. Today’s cars are full of glitchy electronic gremlins that can be a fortune to find and fix. If there is anything Dealers are consistently guilty of it is charging consumers “flat rate” when “flat rate” can be beaten, but trying to charge “open time” when it can’t. When you have an ESA, you don’t have to worry about it. The issue is handled between the dealership and the ESA company. Having a transferable ESA on your car makes it easier to sell it or trade it in. HINT: When looking at pre-owned vehicles, look for any evidence your vehicle of choice might already have an ESA on it from the previous owner. If it doesn’t, the dealer won’t tell you about it. For the consumer, paying a transfer fee is sometimes better than buying a new ESA. At least it provides options.

    • 0 avatar
      krhodes1

      Ruggles, I have to strongly disagree with you on this one.

      I got my start in the insurance industry, and an extended warranty is nothing but an insurance policy. In order for someone to “win”, a lot of someones have to “lose”. Otherwise the company backing the policy would rapidly be out of business. After all, there has to be enough profit in the policy to give everyone in the selling chain their piece of the pie, have enough money left over to pay out for repairs, and still make a nice profit.

      Ultimately, insurance only makes sense when losing a little bit of money can potentially save you a HUGE amount of money in the event of a claim. Thus we pay $1000/yr to protect us against a $300-400-500K auto liability claim. Or $500 a year in case our $250K house burns to the ground. Or a few hundred a month in case you get cancer. Paying a couple thousand dollars to protect against the possibility of a few thousand (or even $10K) dollars in car repairs is lunacy.

      So again, rather like buying and selling at CarMax, it comes down to are you willing to pay a potentially STIFF price for the convenience of whatever happens to go wrong with your car in x years and y miles only costing you whatever the deductible is? And the warranty companies are exceptionally good at writing the small print such that they get out of an awful lot of common, expensive repairs (for example most will not cover infotainment systems). 95%+ of the time you WILL be better off putting that money in a savings account and using it to pay for repairs, IF they happen. And the worst part is you are effectively pre-paying for repairs that are going to be at best 4-5 years down the line – and typically paying interest on them to boot! So you are losing the time value of the money and the beneficial side of inflation – a dollar today is worth more than one 4-5 years from now. And while a transferable warranty may make the car easier to sell – it is a very expensive spiff. You will NEVER make your money back on that, any more than on any other expensive option package on a car.

      Anecdote does not equal data, but I do not know anyone who bought an extended warranty on a car who came out ahead on it. Even on the BMW forums, every time someone posts that they made out on one, there are 10-15 replies from people who bought one and never used a penny. If you can’t afford to fix a car when the warranty is up, you can’t afford that car, period.

      I do agree with you on the “everyone drives a used car” post though. A new car is in many cases (and much more so in more normal times) an expensive indulgence. But of course as you said, if no one bought new cars there would be no used cars! Catch-22!

      • 0 avatar

        RE: “Ruggles, I have to strongly disagree with you on this one. I got my start in the insurance industry, and an extended warranty is nothing but an insurance policy. In order for someone to “win”, a lot of someones have to “lose”.

        If you pay $2K for a service contract and only collect $1K, one could say you lose. But your comment was that service contract buyers aren’t likely to collect anything. The fact is, most DO. They might not collect as they pay in premium however but they are at least covered in the case of a catastrophic mechanical failure.One is much more likely to experience a mechanical failure than to have one’ house burned down.

        I have no vested interest one way or the other. I’d never pay dealer retail for an Extended Service Agreement ESA which is why I advised shopping carefully for one rather than just adding it into one’s car loan at dealer retail. One might find the car one wants at one dealership and the right ESA at another.

        If you want coverage of infotainment systems you need to opt for the “technology” add on. Like I said, it can be complex to buy the right coverage and shopping carefully is important. Dealers make money two ways in the Service Contract business. They make money when they sell an agreement and they make money when they do the service. When a customer brings in their car for a breakdown, it is a pleasure for a dealer to charge the ESA company full retail for the repairs while telling their customer “no charge” or collecting a small deductible. Some dealer ESAs include a dealer reserve program which is then re-insured. There is often investment income to be had. Each state has its own laws regarding Service Contracts, Extended Service Agreements, and Extended Warranties and how they can be assembled and administrated.

      • 0 avatar
        Wheeljack

        I bought an extended policy on my Stratus that cost me around $560 and I got around $2,200 in repairs out of it, so I definitely came out ahead. The big expense was the replacement inner tie rod ends, which were unavailable on that car, at least from Chrysler. They only sell outer tie rods, so it required replacement of the complete rack assembly. Replacing the rack on that car requires dropping the subframe, so it’s not an easy job. Michigan roads are brutal on front end components so it’s not a “Dodge” thing before everyone goes there.

        The aftermarket will sell you inner tie rods, so you could argue that I could have had them replaced cheaper than what I paid for my plan by an independent shop. That would be a good argument, but I did have a few other things repaired (sunroof, horn switch, etc) that still put me ahead given what I paid.

        I’m not arguing that it’s right for everyone, but it did work out for me.

  • avatar

    RE: “it states that “… direct manufacturer auto sales are prohibited in almost every state by franchise laws requiring that new cars be sold only by dealers.”

    The first thing you should read is: “The views expressed herein are entirely those of the author and are not purported to reflect those of the United States Department of Justice.”

    If it is true that franchise law prohibits direct sales by auto OEMs, why has Tesla been able to “sell direct” in most states? How was Ford able to establish the Ford Collection, until that experiment cratered because it was such a HUGE money loser? The fact is, it is the OEM’s own franchise agreements that keep them from trying to compete with their own dealer/partners.

    In a sense what you posted IS true but you probably aren’t interpreting the line properly. If you want to sell vehicles at retail, you DO need a dealer license. In most states an OEM can acquire a dealer license but they might need to form a separate corporation to do so. To sell used cars to end user you also need a dealer license, something that has nothing to do with OEM or dealer lobbying.

  • avatar

    RE: “Ford spawned the franchise system because he wanted to run his factories at full tilt, and pass the inventory management risk onto other people. Ford wanted to make money, irrespective of demand cycles — his goal was to maintain such a stranglehold over dealers that he could force them to take inventory even when demand became sluggish.”

    Good points here. Henry was almost “single handedly” responsible for the dealer push back that led to strong state franchise law. Without banding together it is impossible for a single dealer to stand up to their OEM. This is one reason you see so many dealers these days with multiple franchises. Its also why you see the OEMs monitoring the public dealer groups so closely. OEMs resent dealer groups who command a lot of market.

    Demand cycles still impact auto OEMs. The customer of the OEM is the dealer. The end user is the customer of the dealer. The OEM charges the dealer for each car the moment it rolls off the line. For a dealer to get a franchise agreement the dealer has to have a substantial floor plan account and grant open drafting authority to the OEM. The dealer system allows for inventory buffering that allows the OEM production model work. Otherwise, the OEM has to have access to HUGE open air lots to park vehicles they build on speculation. They get to keep the asset on their books at the price they would charge a dealer if only they could find a dealer to sell it to. But there is no positive cash flow. Cash flow in the auto business can dry up faster than those who have never participated in the business can comprehend.

    If Tesla is successful in establishing and maintaining a direct sales model long term, it will indeed be a triumph. Will it mean the end of the current traditional system? Why would it be?

  • avatar

    RE: “Though car salesmen are often good at the hard sell, they’re evidently bad at courting new buyers.”

    Most car sales people aren’t good at much of anything, which is why there is incredible turnover in the business. But the business on the whole does just fine courting new buyers. There isn’t that much to it. People NEED vehicles. Just hang out a shingle and stock some inventory and they’ll come to you. Its simple, right?

  • avatar

    RE: “What Apple does “right” is selling what are otherwise commodity goods with extremely high markups.

    Americans complain about car prices now, even though they are paying far less than those in other developed nations. Vertical integration would push up prices, which is one reason that liberals have frowned upon it — competitive retail markets lead to more variety and lower prices.”

    BINGO! And the FTC like it this way.

  • avatar

    As an aside: As one who watches the pre-owned market closely I can tell you what was taking place in 2008. Nissan Armadas, which had stickered well over $50K were SELLING at auction a like new year old for $13.5K with mid teen miles. Those who had LEASED those vehicles had nothing to worry about. Other heavies suffered similar fates.

    • 0 avatar
      ajla

      This story perhaps underscores the wisdom of not purchasing a $50K vehicle in the first place if you can’t afford to keep it when outside forces begin to conspire against you.

  • avatar

    Regarding Tesla and TX. Tesla has a showroom in Austin. I’ve been there. It is a two minute walk from the TrueCar call center in Austin where I have also been a guest, although a reluctant one.

    It isn’t called a dealership and it doesn’t have inventory, but none of the showrooms in any of the states carry inventory. A friend in Dallas has leased many of them. Despite stories to the contrary Teslas can be had in TX. There is also a showroom in Dallas as well as Houston.

    Are these showrooms being called “retail stores” in other states? If they are illegal, why do they exist?

  • avatar

    LOL, wall of worthless ruggles posts where he believes he’s being clever by posting everything to the main trunk but only makes it easier to figure out what his sort’s about.

    http://www.thetruthaboutcars.com/2014/02/teslas-latest-filing-the-good-the-bad-and-the-eps/#comment-2876937

  • avatar

    RE: “What you REALLY want is for a dealer to have to quote a fixed price and stick to it to make it easier to shop.” What I REALLY want is for you to learn enough English so that you can read things correctly.”

    I was replying to the guy touting the Apple model, not to you.

    RE: “We’ve gone over this before. I’ve stated quite clearly that I don’t favor fixed pricing.”

    YES, you HAVE, and to your credit. Again, my comment was to those touting the Apple model as if gadget sales somehow translates into new vehicle sales.

    RE: “Do you have a poor memory, or are you just being disingenuous, i.e. a stereotypical car salesman?”

    See above.

  • avatar
    cpthaddock

    As a late follow-up, I put this CarMax info to good use in vehicle changes that concluded last week.

    After learning so much about CarMax wholesale and their model in general from this piece and the comments, I initially tried them out to get trade-in baselines to guage dealers offers for my trades.

    This tactic helped me to guage the seriousness of dealers interest in gaining my business. No matter how knowledgable you are or how much research you’ve done, having hard $ numbers from CarMax helps to cut the BS out of the debate.

    In the end, I also purchased the replacement vehicle fromt them as well. The whole business ended up being not the slightest bit hassle free, but at least the hassles didn’t come from being treated like a halfwit or trying to get to sensible prices for the overall transaction.

    I would now recommend anyone looking to trade a vehicle get a price from CarMax just for the extra leverage it gives you with a dealer.


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