New Or Used? : The Three Fatal Errors Edition

Sajeev Mehta and Steve Lang
by Sajeev Mehta and Steve Lang
new or used the three fatal errors edition

Hi Steve,

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

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

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

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

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

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

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

Steve Says:

You are committing three fatal errors of judgement.

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

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

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

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

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

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

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

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

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

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

Sajeev Says:

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

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

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

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

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

Chew on that.

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2 of 28 comments
  • Krhodes1 Krhodes1 on Jan 29, 2013

    I have to call out Steve on one point - what history is this car going to have, exactly? It has 19K miles on it. That means it has (hopefully) had ONE service, which consisted of an oil change and a few visual inspections, and that is it. So service history on a car that new doesn't mean much. I do think that when spending $20K+ I would at least go have a good look at the car, and not buying sight unseen. The warranty is going to protect you from major mechanical issues, but not a stinky smokers or dog owners car. Or general didn't care and the car is beatup inside and out. Negotiating in person also shows you mean business, even if you end up having to make two trips. It's a few hours, not the other side of the country! If this, or any other used car, is THE car you have been looking for, in the spec you wanted, and in the right condition, what's $1000? Pay it and enjoy the car. As someone said, every used car is unique, and in this case, these cars are very thin on the ground to start with. I also find it amusing how many people still think that being a "cash buyer" is somehow a position of strength and thus deserves a deeper discount. The dealership is going to get paid regardless, and they will probably get paid MORE if you arrange financing through them. Finally - Dear God people - yes, you can buy a new Camry for the price of one of these Volvos used. Who bloody cares?!?!? Life is too short! I could have bought a PAIR of Camrys for what I paid for my daily driver, I would rather walk than face that every day! For that matter you could buy TWO base model Versas for the price of a used C30 - wheeee!

  • Polestar R Design Polestar R Design on Jan 30, 2013

    First car was an '80 Ford Courier for $2400-drove the hell out of it and laid it to rest. My second car was for $2700 and was a '67 Ford Mustang. Loved it, maintained and restored it to look hot for the girls 30 years ago. I still have this car and it is coming up to being fifty in a few. Bottom line is that despite the liability cost of $100/month got insurance, I KNOW all of this time and effort made be a much more resourceful individual today...richer in multiple ways. You can have the IPhone or blackberry. I'll take the $350 IPAD and Starbuck's Wi-Fi any day for the memories of a good quality, good looking vehicle.

  • Nrd515 I bought an '88 S10 Blazer with the 4.3. We had it 4 years and put just about 48K on it with a bunch of trips to Nebraska and S. Dakota to see relatives. It had a couple of minor issues when new, a piece of trim fell off the first day, and it had a seriously big oil leak soon after we got it. The amazinly tiny starter failed at about 40K, it was fixed under some sort of secret warranty and we got a new Silverado as a loaner. Other than that, and a couple of tires that blew when I ran over some junk on the road, it was a rock. I hated the dash instrumentation, and being built like a gorilla, it was about an inch and a half too narrow for my giant shoulders, but it drove fine, and was my second most trouble free vehicle ever, only beaten by my '82 K5 Blazer, which had zero issues for nearly 50K miles. We sold the S10 to a friend, who had it over 20 years and over 400,000 miles on the original short block! It had a couple of transmissions, a couple of valve jobs, a rear end rebuild at 300K, was stolen and vandalized twice, cut open like a tin can when a diabetic truck driver passed out(We were all impressed at the lack of rust inside the rear quarters at almost 10 years old, and it just went on and on. Ziebart did a good job on that Blazer. All three of his sons learned to drive in it, and it was only sent to the boneyard when the area above the windshield had rusted to the point it was like taking a shower when it rained. He now has a Jeep that he's put a ton of money into. He says he misses the S10's reliablity a lot these days, the Jeep is in the shop a lot.
  • Jeff S Most densely populated areas have emission testing and removing catalytic converters and altering pollution devices will cause your vehicle to fail emission testing which could effect renewing license plates. In less populated areas where emission testing is not done there would probably not be any legal consequences and the converter could either be removed or gutted both without having to buy specific parts for bypassing emissions. Tampering with emission systems would make it harder to resell a vehicle but if you plan on keeping the vehicle and literally running it till the wheels fall off there is not much that can be done if there is no emission testing. I did have a cat removed on a car long before mandatory emission testing and it did get better mpgs and it ran better. Also had a cat gutted on my S-10 which was close to 20 years old which increased performance and efficiency but that was in a state that did not require emission testing just that reformulated gas be sold during the Summer months. I would probably not do it again because after market converters are not that expensive on older S-10s compared to many of the newer vehicles. On newer vehicles it can effect other systems that are related to the operating and the running of the vehicle. A little harder to defeat pollution devices on newer vehicles with all the systems run by microprocessors but if someone wants to do it they can. This law could be addressing the modified diesels that are made into coal rollers just as much as the gasoline powered vehicles with cats. You probably will still be able to buy equipment that would modify the performance of a vehicles as long as the emission equipment is not altered.
  • ToolGuy I wonder if Vin Diesel requires DEF.(Does he have issues with Sulfur in concentrations above 15ppm?)
  • ToolGuy Presented for discussion:
  • Kevin Ford can do what it's always done. Offer buyouts to retirement age employees, and transfers to operating facilities to those who aren't retirement age. Plus, the transition to electric isn't going to be a finger snap one time event. It's going to occur over a few model years. What's a more interesting question is: Where will today's youth find jobs in the auto industry given the lower employment levels?