As we reported just the other day, analysts are somewhat confused by the continued rise of used car prices to near-record highs, despite a flood of lease returns hitting the market.
This just goes to show you the stupidity of most people who call themselves “analysts.” There’s absolutely no reason to think that used car pricing will go anywhere but up in the near future. If these analysts had ever spent a single day in a used car department at a franchise dealership, they’d understand why. Unfortunately, they haven’t.
But guess what? Your friend Bark has! And I’m here to tell you why this used car bubble isn’t going to pop any time soon.
I own a Ford Flex. It’s true. Well, technically, Ford Credit owns it, but I’m only 12 months or so away from getting the real title in my hands. I’m constantly being told by people — hell, even by commenters on this website — that the Flex is a great car, but that people just don’t seem to like it. Of course, since I bought one, I completely disagree.
The Flex is just one example of a car that people who fill up comment sections of automotive websites seem to love but never buy for themselves. The list of such automobiles is quite long: The Pontiac G8. The Mazda RX-8. The Fiesta ST — wait a second, what the hell is going on here, I’ve owned all of these!
Just what is it that makes a car popular with enthusiasts but unpopular with the general public?
There’s been a slow, yet steady change in the automotive marketplace over the last eight years, and you, the consumer, have been the lobster sitting in the pot as the change has occurred. The market has gotten significantly worse for car buyers. The number of franchise and independent dealers has been reduced by almost half. And yet, those surviving dealers have had an unprecedented run of year-over-year growth since 2008.
But as that growth has slowed in 2016, car buyers find themselves paying more money for used cars than ever before. We know that the typical American household can’t afford the typical new car sold in America, but we may soon be approaching a day when that same household can’t afford the typical used car, either. In fact, according to NADA Data, the average used car transaction price in 2016 will crest $20,000 for the first time in history, and will be 59.1 percent of the average new car transaction price of $33,903.
What does all of this mean to you? That buying used may not be the smartest financial choice you can make. In fact, it might not be very smart at all.
I always buy new. I know, I know.
There’s a financial wizard of the Internet around every corner, ready to pounce and scream “DEPRECIATING ASSET” at me. But the reality is that I — like most shoppers — like to get a good deal when I buy anything, and that includes five-figure investments. Also, like most car buyers, I feel that “good deal” really means “the dealer didn’t make a dime on me.” Yes, I know that car dealers need to make money on used car sales to stay in business (and to continue perpetuating the myth that they don’t make any money on new car sales), but that doesn’t mean I’m their mark. On a new car, I can know with 100-percent certainty if I got a good deal.
When one of my Twitter followers asked me why the dealer’s cost isn’t the starting point for negotiation on a car, I quickly replied (as I was walking to dinner) that “used cars have recon cost.” However, upon further reflection, I realized that’s just the tip of the iceberg and if a Twitter user didn’t know why used car costs are so nebulous, most of y’all probably don’t know either. Transparency on used cars simply doesn’t exist, and it never will. Here’s why.
One of my favorite pieces that my dear older brother has ever written is his recount of his experience with Matt Farah’s Million Mile Lexus. His epic takedown of the very notion inspired a good amount of heartburn amongst the Best & Brightest, generating nearly half a thousand comments on the way to becoming one of the most viewed articles ever posted here.
I was reminded of it today when I was browsing through the new Facebook Marketplace for my zip code. There are dozens of cheap cars posted daily, ranging from $300 for a Suzuki Reno without a motor to $3,500 for a Jeep Grand Cherokee with a rear window that’s sadly fallen off its track, destined to lazily lay halfway down its frame for eternity. However, in each of the corresponding comments sections for the listed cars, at least one person asks the following question: “What’s wrong with it?”
And that’s when you begin to understand how buying a cheap car can become an incredibly harrowing, terrifying experience.
Here at TTAC, it’s been a tradition of sorts to call out poor examples of car reviews. In fact, we’ve done it so often over the years that I wondered if doing it again would be overkill. There’s such a multitude of miserably bad car reviewers on the minor car blogs of the Internet that it hardly seemed worth pointing out yet another case.
Well, I did wonder that. Then I read some reviews by Tim Esterdahl of Car Revs Daily. I wondered no longer.
For over four years now I’ve contributed to this site and others as “Bark M.” Initially, there was some confusion about who I was, why I had a pseudonym, and if I was possibly Jack Baruth in disguise. I’ve spent that time giving you my insights on the automotive industry, the inside scoop on what goes on at dealers, and everything I know about the car-buying business.
Yet, now and then, somebody who disagreed with me would pipe up: “You don’t know what car dealerships are like,” or “What are your credentials, buddy?” I could never really share anything other than, “Trust me, I know what I’m talking about.”
Today, I’m here to tell you that my name is Mark Baruth, and for the last four years I worked on the inside of one of the biggest companies in the automotive world. This is my story.
How old do you think the average new car buyer in America is? Go on, take a guess. Based on all of the ridiculous advertising strategies you see lately, you might think that the average new car buyer was a hip, trendy, Generation Y hoopy frood, wearing his beanie to buy organic, fair-trade coffee at the Park Slope Starbucks. (Confession: I went to the Park Slope Starbucks daily during the New York Auto Show this year. Parking was surprisingly easy.)
But no! According to the NADA, the average new car buyer is 51.7 years old, and earns about $80,000 per year. In comparison, the average age of Americans is 36.8 years, and the median income is roughly $50,000. In other words, Baby Boomers are buying all of the new cars right now. There are all sorts of people on the Internet who will tell you why this is a horrible comment on today’s bleak economic landscape (oh, here’s one), but I’m here to tell you that the future of new car sales could be changed with just a bit of clever marketing.
Not all used cars are created equal.
Used cars have become somewhat commoditized in the last five years, thanks to the rise of pricing tools and third-party advertisers, but there’s still some truth behind the old school notion that every used car is a unicorn.
While most car dealers mean that each car is unique in its mileage, color, trim level, and condition, there’s one hugely important factor that most dealers would prefer you ignore: how they obtained the car.
Each car on the lot has its own story, and knowing those stories might help you figure out if you want a particular car to become part of your life story.
We (me M52, F39, M15, F10) really need to step up our fleet (2006 Honda Pilot 240K mi, 2005 Honda Element 170K mi). We need to replace the Pilot as family car, and probably (for now) keep both Hondas rolling for my use and, soon, my son’s use too.
In the fullness of time I’d like to get us a plugin C-Max, especially given the uneventuality of the TTAC Long-Term Test C-Max. But, the rear legroom is less than our Pilot and our 15-yo boy is not getting any smaller. This would not be a good solution for weekend family expeditions of any length.
For now I’d like to start the fleet upgrade with a used Flex, post 2013 for the design refresh, has to be AWD because we have snow and a very steep, twisty drive home, really want the 6-pass version to keep the kids out of each others’ hair (2nd-row bench seat has proven contentious in the Pilot), really want Ecoboost and Limited/Titanium because why buy used if you can’t get it loaded?
Two weeks ago, I told you the story of my friend “Jenny” and her purchase event at Orlando Kia West. I’m happy to report that the dealer has resolved the issue to her satisfaction.
She received a personal call from the general manager offering a set of floormats, and she’s seeking to refinance the vehicle through her stepfather’s credit union. According to Jenny, the general manager was quite apologetic, but he also said that “90 percent of the numbers in that article were wrong.”
Mr. GM, you still have my e-mail (it’s email@example.com, if you lost it), and I’m happy to print a retraction on anything that I got wrong. (In the meantime, we’re still happy to show up on the first page of results when people search for your dealer on Google. –Ed.)
But, in the meantime, let’s talk about what Jenny could have done differently, and what you can do the next time that you’re looking to buy a car to avoid all the hassle and pain she experienced.
The best thing about writing the Ask Bark series since the beginning of the year has been the feedback that you, the Best and Brightest, have given to our questioners. I might have a few good answers, but I’m only one man, and there are literally thousands of people who read each Ask Bark column. Collectively, you have wonderful ideas.
However, individually, you have some real clunkers. Today, we’re going to talk about the often given advice I’ve seen in the comments. Some of it isn’t just wrong, it’s flat-out harmful.
On May 4th, my friend “Jenny” (whose name is changed for the sake of her privacy) could not contain her excitement. She posted the photo seen above to Facebook, sharing with her friends that she had just bought what she believed to be a brand-new 2014 Kia Soul from Orlando Kia West. She got what she also believed to be a rip-roaring deal, too, paying $4,000 under sticker.
Although the car was a 2014 model with 530 miles on the clock, Jenny said the dealer claimed it had never been sold to a private customer, but Orlando Kia West had to list it as a used car because it had purchased it from another dealer.
The minute I saw that, I immediately knew something was up. I contacted Jenny and asked her some questions about her experience. Fifteen minutes later, we were both furious.
When our esteemed Managing Editor, Mark Stevenson, gave you, the Best and Brightest, instructions for nominating the TTAC Ten Best and Worst Automobiles Today, he gave you several criteria: Looks that stop traffic, the “WTF” factor, misused technology, and misery factor. Essentially, you could nominate any car you wanted to (except the Compass), you just had to give a reason.
Mark instructed you to act like travel critics who’ve never left their hometown or restaurant critics that don’t go out to eat. In other words, TTAC allowed you to nominate cars you’ve never driven, have never sat in, or — heck — never even seen on the street.
That ain’t right.
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