The Truth About Cars » CarMax http://www.thetruthaboutcars.com The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Sat, 13 Sep 2014 13:51:12 +0000 en-US hourly 1 http://wordpress.org/?v=3.9.2 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars editors@ttac.com editors@ttac.com (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » CarMax http://www.thetruthaboutcars.com/wp-content/themes/ttac-theme/images/logo.gif http://www.thetruthaboutcars.com Question Of The Day: Would It Be Better To Test Drive A New Car… Without The Dealership? http://www.thetruthaboutcars.com/2014/05/question-of-the-day-would-it-be-better-to-test-drive-a-new-car-without-the-dealership/ http://www.thetruthaboutcars.com/2014/05/question-of-the-day-would-it-be-better-to-test-drive-a-new-car-without-the-dealership/#comments Tue, 13 May 2014 10:40:27 +0000 http://www.thetruthaboutcars.com/?p=819593 Imagine over 500 cars at your disposal, and you pick the exact ones you want to test on the open road. There are no mind games. No bait and switch tactics. Nothing but you going to a computer, figuring out the most worthy candidates, and letting a salaried employee fetch the keys and answer the […]

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Imagine over 500 cars at your disposal, and you pick the exact ones you want to test on the open road.

There are no mind games. No bait and switch tactics. Nothing but you going to a computer, figuring out the most worthy candidates, and letting a salaried employee fetch the keys and answer the relevant questions to your car search.

Sounds too good to be true? Well, it’s already happened. There’s only one problem.

The place that does it primarily sells used cars, not new cars.

 

exterior

Thanks in part to the inordinate hassles of buying a car, Carmax is now the largest automotive retailer in the United States. In fact, they are now bigger than the #2 and #3 automotive retailers combined. They managed to do this tall order with just a small fraction of storefronts, and without the easy access to certain financing sources that help new car dealerships move their inventory. This is no small feat given the level of hardball tactics dealer lobbies usually inflict on state legislatures.

The almost universal desire to get away from bias and manipulation is a huge challenge for millions of new car buyers. Who offers the best car? It’s hard to say when advertising is all over the place and the chance to test drive all the new cars, without blatant bias at nearly every turn, is virtually impossible.

For consumers who are often firmly entrenched in the online search for a new car, the 21st century new car buying decision still hits the thick brick wall that is the early 20th century method of retailing cars.

The inherent costs to the Carmax model, for example, is still in the several billions of dollars even though they contract out a lot of their reconditioning activities. Between purchasing 500,000+ vehicles, investing in the real estate and physical infrastructure, hiring and training thousands of employees, designing the transportation logistics and the myriad of IT platforms, and finally, looking out for shareholders, Carmax can’t afford to offer the lowest price on a routine basis.

But despite this financial handicap, they still serve a large swath of the general public without resorting to the lower forms of salesmanship. People will pay a premium for honesty. If the new car business wasn’t in a legal stranglehold, chances are a lot of the fixed costs in buying a new car would go away.  Or at least consolidate to a competitive superstore / online order / specialty store world where consumers simply pick their best fit.

All of these sales channels are as common as kudzu these days for anything but new cars. Thankfully there are other alternatives; although their presence is usually fleeting.

For example, when many of us head out to the larger auto shows, we get the same unique chance to look at and test drive a lot of brand new cars.  The opportunity to walk around in one place and test drive what’s out there motivates millions of people to spend their money on a show that features things that you can usually go see for free. Just not under the same roof.

If you headed out to the more rural areas of the USA not too long ago, county and state fairs used to offer folks the same opportunity to go out and test drive a variety of new sheet metal. Maybe they still do, but I haven’t seen it here in Georgia for quite a while.

Finally, there are the rental car agencies, car sharing programs, and PR events that allow everyday folks to test drive what’s out there outside the new car dealership.

Except sometimes the new car is simply not what you want, and when it comes to rental cars in particular,  the vehicle may be too used to be new.

This brings me to the big question. If there was a place where you could test drive a new car, any new car, every new car, would you go? I’m sure you would so let me throw a knuckleball into that equation. Would you be willing to pay $20 for the opportunity to drive whatever you want for an entire day? Let’s keep it short drives. Fewer than 10 miles. But as many cars as you wish without being four-squared and stuck in a miserable cubicle for hours on end.

Think of it as an auto show that never ends. Would it be worth $20 to figure out which car will be your next car?

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Should You Sell Your Car At Carmax? http://www.thetruthaboutcars.com/2014/03/should-you-sell-your-car-at-carmax/ http://www.thetruthaboutcars.com/2014/03/should-you-sell-your-car-at-carmax/#comments Fri, 07 Mar 2014 10:00:14 +0000 http://www.thetruthaboutcars.com/?p=766585 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 […]

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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.

carmax3

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.

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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.

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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.

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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.

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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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Hammer Time: The Return Of The 1967 Arabs! http://www.thetruthaboutcars.com/2012/09/hammer-time-the-return-of-the-1967-arabs/ http://www.thetruthaboutcars.com/2012/09/hammer-time-the-return-of-the-1967-arabs/#comments Mon, 03 Sep 2012 16:19:23 +0000 http://www.thetruthaboutcars.com/?p=458829 9:15 A.M. Labor Day. I get a surprise message on Facebook this morning from a guy who bought an old Volvo 940 wagon from me nearly six years ago. “That BMW? What did it go for?” A month ago, I posted this article regarding the grey market Bimmer.  It had sold on the block for […]

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9:15 A.M. Labor Day.

I get a surprise message on Facebook this morning from a guy who bought an old Volvo 940 wagon from me nearly six years ago.

That BMW? What did it go for?”

A month ago, I posted this article regarding the grey market Bimmer.  It had sold on the block for a mere $2,300 due in part to a broken odometer. I clicked on the Ebay listing hoping for a fair disclosure. Instead I got…

No disclosure of the fact that Carmax had sold it earlier as, “Not Actual Miles” and “Odometer Inop”.

A 16 digit VIN listed instead of the actual VIN number on the vehicle.

From my side of the fence, it’s the dealer that bears the responsibility of telling their audience about any title and mileage issues. It can be a tricky line in our professional world.

Some folks are not willing to hear out anything that someone else may have done in error. The 16 digit VIN listed on this vehicle’s title is obviously not correct. Go to the last picture, and you’ll see that the 10th digit of the VIN is without an ‘H’ that signifies a 1987 model and that the title lists this vehicle as having 6 cylinders, which is also incorrect.

However these were just two small ingredients in the recipe of mistakes and omissions. When I checked for the databases I use for vehicle histories, nothing popped up. I did find out through this decoder that the vehicle was actually produced in September 1986. But inserting a ‘G’ as the 10th digit generations nothing.

As someone who has traveled the country liquidating 10,000 vehicles a year, and even bought grey market cars, I can’t say I have ever seen anything quite like this. 16 digits on the title? A close-up of the VIN on the vehicle would add wonders to this seller’s audience, and perhaps their ability to verify the miles.

Mileage issues are nothing new in the world that is older used cars. Dealer auctions sometimes have to deal with sellers who think that an exempt car, a car that is 10 years or older, doesn’t have to have known mileage issues disclosed.

They do. It’s required by law.  Though I don’t believe the folks at Bring A Trailer have anything but the best of intentions for classic car enthusiasts, at least now they have an extra incentive to verify VIN numbers when the opportunity to do so is there.

They have been contacted and hopefully their article and the Ebay listing will be amended.

This saga brings on a more personal question. What was the most misrepresented vehicle you ever saw in your life? Sometimes auctions will get the details wrong as we witnessed in the earlier post about this car. Some of them will go through thousands of cars over the course of the year, so that’s understandable.

But a guy who bought and kept a car like this with ‘True Miles Unknown’ announced on the block, and written on the bill of sale? So many unusual coincidences in one listing? What says you?

Special thanks to John Dillingham, a long-time fellow brick enthusiast and all around good guy, for tracking down the listing. 

 

 

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Carmax: A good value? http://www.thetruthaboutcars.com/2011/07/carmax-a-good-value/ http://www.thetruthaboutcars.com/2011/07/carmax-a-good-value/#comments Thu, 07 Jul 2011 09:07:35 +0000 http://www.thetruthaboutcars.com/?p=401743   Have you ever been to an auto auction? Some may consider an auctioneer to be a ‘carny’. He talks at over 200 mph. Mumbling what appears to be nothing more than gibberish and random numbers. But if you added all the sales up by those supposed hucksters, you would soon realize that only Wall […]

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Have you ever been to an auto auction? Some may consider an auctioneer to be a ‘carny’. He talks at over 200 mph. Mumbling what appears to be nothing more than gibberish and random numbers.

But if you added all the sales up by those supposed hucksters, you would soon realize that only Wall Street and Walmart sell more goods over the course of a year. Over ten million cars are bought and sold at auctions by these professionals. Hundreds of thousands of dealers have access to the vehicles. With all that free market competition taking place, Carmax is just one of many dealers that must compete for all those cars.

Can Carmax offer a ‘good value’ compared to all that competition?

The fairest way to look at this is to compare apples to apples. Ebay is a godsend in this respect. Their online auction marketplace offers the products of thousands of dealers and with a ‘completed items’ section, it’s fairly easy to match and pair similar products that Carmax offers  with ones from online dealers that have strong positive feedback.

So let’s compare…

 

Ebay (96+% positive feedback) Carmax
2008 Chrysler Town & Country Touring 2008 Chrysler Town & Country Touring
53k Miles : $17,480 53k  miles : $21,599
VIN# 2A4RR5D13AR493039 VIN# 2A8HR54P98R737110
2010 Toyota Camry LE 2010 Toyota Camry LE
6k Miles: $18,500 10k Miles: $21,147
VIN# 4T4BF3EK8AR052894 VIN# 4T1BF3EK8AU058026
2008 Chevy Silverado Crew Cab 4×4 Z71
2008 Chevy Silverado Crew Cab 4×4 Z71
61k Miles: $21,780 69k Miles : $23,998
VIN# 2GCEK13C681142333 VIN# 3GCEK133X8G184284
2007 Nissan Murano SL 2007 Nissan Murano SL
46k Miles: $21,480 46k Miles: 24,998
VIN# JN8AZ08T57W506251 VIN# JN8AZ08W87W662259
2008 Cadillac Escalade EXT 2008 Cadillac Escalade EXT
26k Miles: $39,478 26k Miles : $41,998
VIN# 3GYFK62848G198870 VIN# 1GYFK63898R270953
2007 Toyota Tundra 2dr Reg Cab 2007 Toyota Tundra 2dr Reg Cab
45k Miles: $15,473 44k Miles: $18,147
VIN# 5TFJV52167X002345 VIN# 5TFJV52137X001766
2006 Chevrolet Cobalt LS 2006 Chevy Cobalt LS
55k Miles : $7,105 49k miles: $11,988
VIN# 1G1AL15F167823351 VIN# 1G1AK55F767865131
2003 Chevrolet S10 LS Ext Cab 2002 Chevrolet S10 LS Ext Cab
32k Miles: $8,805 59k Miles: $11,748
VIN# 1GCCS19X038102904 VIN# 1GCCS19W628142300
2003 Mercedes-Benz E320 2003 Mercedes-Benz E320
60k Miles: $15,480 70k Miles: $17,147
VIN# WDBUF70J03A132576 VIN# WDBUF65J93A194478
2007 Ford Explorer XLT 2002 Ford Explorer XLT
87k Miles: $9,500 90k Miles : $11,147
VIN# 1FMEU73E27UA84069 VIN# 1FMZU73E92ZC28780

This wasn’t surprising. To be blunt about it, Carmax has to pay a lot of middlemen. They have a fully staffed corporate office, over ten thousand employees and $4 billion in long-term debt. Between the shareholders, executives, bondholders, employees, and contractors, there is a lot of margin that needs to be made on each one of their cars.

An online seller doesn’t have anywhere near this expense. Since virtually all dealer auto auctions cater to independent used car dealers, the barriers to buying the same cars as seen above is between small and non-existent.

Carmax can acquire some vehicles in ‘closed sales’ where the manufacturer will restrict purchases to new car dealers. However these opportunities are very few and far between and most Carmax dealerships have no new car franchise.. As shown by some of Ebays larger sellers, you can generally get the same type of vehicle without having to pay a healthy four-figured premium.

Does Carmax have some advantages? Absolutely. You typically don’t have to wait as long to buy your car. Like any brick and mortar dealership, you also have an extensive number of vehicles to check out and test drive beforehand. A lot of folks like to kick the tires first before buying anything. Carmax does offer that luxury along with the assurance of a 5 day money back guarantees and a 30 day ‘Limited’ warranty.

But there is also nothing stopping the same customer from test driving a vehicle at a local dealership and then buying it online for thousands less. This is where Carmax falls short. For those who already know what they want and are patient with the buying process, online dealers are the way to go. Many of the vehicles that are sold by Carmax already have manufacturer warranties that far eclipse the 30 day ‘Limited’ warranty. So the assurance of this restrictive warranty is usually minimal at best.

Unless you need it right now, the large scale online dealer will usually have the better deal.

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Piston Slap: The Sonata’s Ideal Coda? http://www.thetruthaboutcars.com/2011/06/piston-slap-the-sonatas-ideal-coda/ http://www.thetruthaboutcars.com/2011/06/piston-slap-the-sonatas-ideal-coda/#comments Mon, 13 Jun 2011 17:39:15 +0000 http://www.thetruthaboutcars.com/?p=398382 Mark writes: We will be buying a new car soon and that will leave us with an extra one. My experience selling a car myself makes me think we don’t really have the motivation to do it ourselves this time around. The car is located in CT and is a White 2007 Hyundai Sonata SE […]

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Mark writes:

We will be buying a new car soon and that will leave us with an extra one. My experience selling a car myself makes me think we don’t really have the motivation to do it ourselves this time around.

The car is located in CT and is a White 2007 Hyundai Sonata SE with ~73k miles on it.  The only option is the Sunroof.  For whatever reason the side mirrors seem to attract having the outer housing broken, they are still functional but the housing rattles. I’ve replaced one, unpainted grey, and will be replacing the other shortly.  There are no other issues with the car as I can tell.  The emissions test is due next month, so I’ll have to have that done.

I need your advice on the easiest way to sell used car. Thanks.

Sajeev answers:

That’s pretty cut and dry: trade it at the dealership where you buy your new ride. Depending on your region’s tax code, the trade lets you avoid capital gains taxes when your car turns into a pile of cash. My only concern is when would-be buyers mention their trade in during the negotiation. And never discuss monthly payments: focus on the purchase price of the vehicle first. Which leads me to another point.

Consider getting an “offer letter” from another dealer, especially the big-box chains like Carmax. It’s a good number to fall back on after negotiating a sale price. If the selling dealer offers you almost nothing for your trade, it means they want to get some money back after making you a smokin’ deal on your new car.

At the end of the day, this quandary comes down to the level of convenience versus the amount of cash in hand.   From your interest level and description of the Hyundai, my guess is that trading in the vehicle as-is, with no reconditioning is the best way to save money on taxes, repairs and save a ton of headaches.

Best and Brightest: share your stories for and against my position. That’s how we all learn!

Send your queries to sajeev@thetruthaboutcars.com. Spare no details and ask for a speedy resolution if you’re in a hurry.

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Piston Slap: Save Me From My X5! http://www.thetruthaboutcars.com/2010/01/piston-slap-save-me-from-my-x5/ http://www.thetruthaboutcars.com/2010/01/piston-slap-save-me-from-my-x5/#comments Mon, 11 Jan 2010 16:15:03 +0000 http://www.thetruthaboutcars.com/?p=341399 TTAC Commentator PG writes: Sajeev, In their December 2009 issue, Car and Driver has a great article about how extended warranties — such as those offered by U.S. Fidelis and others — are largely scams that deceive customers, don’t really cover the cost of repairs at all, and don’t give refunds at cancellation. My parents […]

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The ticking timebomb? (couretsy:gio-trading.com)

TTAC Commentator PG writes:

Sajeev, In their December 2009 issue, Car and Driver has a great article about how extended warranties — such as those offered by U.S. Fidelis and others — are largely scams that deceive customers, don’t really cover the cost of repairs at all, and don’t give refunds at cancellation.

My parents own a 2002 BMW X5 4.4. They bought it from Carmax and have the extended warranty from that dealership. It’s a fantastic car, but it’s had some very costly repairs — thankfully, those have been covered in full or at least in part by Carmax’s warranty. The thing is, that warranty expires this month and can’t be renewed.

The ‘rents are thinking of getting an extended warranty for the Bimmer, but after reading that C&D story I’m pretty convinced they would be throwing their money away. My question: are there ANY extended warranties out there that they can use? What can they do to help avoid the full cost of repairs?

Buying a new/different car isn’t really an option right now, because they want to keep the X5 as long as they can. The car has about 80,000 miles on it and still runs well, except for the occasional hiccup, but those can be pretty pricey on a BMW.

If you or the best and brightest have any suggestions, I’d love to hear them.

Sajeev replies:

There’s a reason why the Carmax warranty cannot be renewed: genuine warranties (not the ones you see on TV) are interested in making money, not bleeding dry by the costs of older, premium German vehicles. More to the point, the current crop of “scam warranties” aren’t even remotely similar to a genuine plan underwritten by OEMs/large corporations, sold through dealerships, and subject to paperwork before coverage commences.  It’s a far more evil form of the classic “cash grab.”

The question is: will a used car dealer sell you a warranty? A real warranty sold by a real people from a real company? The dealer will try their best, as a hefty commission is on the line.

Probably not, given the BMW’s future potential to vacuum money out of your wallet faster than sand in a Dyson on the beach. I’d dump it sooner than later, as your folks won’t be enamored with “The Ultimate Driving Machine” after the first un-covered mechanical/electrical failure: my parents cried a little (probably) when Dad’s BMW 7-er left him over $2000 poorer and the dealer (yes, the dealer) still couldn’t get the HVAC to blow cold in a Houston summer.  Never again for them!

More to the point: it’s time to buy something with cheap parts and (though I hate to say it) non-European engineering. Such is the curse of living in The US of A.

[Send your queries to mehta@ttac.com]

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