Author Topic: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work  (Read 6431 times)

PDXTabs

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According to the WSJ liar loans are the new thing for cars. Sometimes the dealers are lying without the customer knowing it:
[A]n employee at Mac Mitsubishi, a dealership in West Hartford, Conn., filled out her loan application and stated she made $7,833 a month, according to Ms. López and a copy reviewed by The Wall Street Journal. Ms. López, 65 years old, said she didn’t realize that until months later.

Also this gem:
Some borrowers, including Ms. López, said their dealership told them they could return in a few months and refinance into a lower-interest loan, only to tell them later it wasn’t an option.

norajean

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #1 on: December 24, 2019, 10:00:00 AM »
It’s not uncommOn for dealers to sell you a car at a great rate, take your trade-in, then phone up a couple weeks later and announce they couldn’t get the deal through and will need a much higher rate and payment. Buyer beware.

The_Big_H

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #2 on: December 24, 2019, 12:15:50 PM »
It’s not uncommOn for dealers to sell you a car at a great rate, take your trade-in, then phone up a couple weeks later and announce they couldn’t get the deal through and will need a much higher rate and payment. Buyer beware.

Or let you try the new car for a weekend. Leave your old one at the lot and “oops there was a mixup we sold your trade in, it’s alredy gone. Here’s your $3550 for it please bring the new car back”

Trevor Reznik

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #3 on: December 24, 2019, 05:00:00 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

Wrenchturner

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #4 on: December 24, 2019, 06:37:07 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

I'm convinced that some people think financing is a form of magic.  Not from their words, but from their actions.

As for your second point, dealers aren't trying to sell something people can't afford, they're just trying to sell.  Predators aren't malevolent when they eat prey, they're just hungry.

Travis

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #5 on: December 24, 2019, 07:26:33 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

I'm convinced that some people think financing is a form of magic.  Not from their words, but from their actions.

As for your second point, dealers aren't trying to sell something people can't afford, they're just trying to sell.  Predators aren't malevolent when they eat prey, they're just hungry.

I've always wondered - when a dealership sells me a car I'm paying for it to the bank one month at a time. Did the bank cut a check to the dealership for the full amount or is the dealership receiving payment from the bank at the same rate I'm doling it out to them?

Wrenchturner

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #6 on: December 24, 2019, 07:33:54 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

I'm convinced that some people think financing is a form of magic.  Not from their words, but from their actions.

As for your second point, dealers aren't trying to sell something people can't afford, they're just trying to sell.  Predators aren't malevolent when they eat prey, they're just hungry.

I've always wondered - when a dealership sells me a car I'm paying for it to the bank one month at a time. Did the bank cut a check to the dealership for the full amount or is the dealership receiving payment from the bank at the same rate I'm doling it out to them?

I already told you it's magic. 

Actually I don't know.  I suspect the former since in the event of a repo, ownership goes to the bank I'm pretty sure.  I'm not even sure dealerships own the products to be honest.

Travis

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #7 on: December 24, 2019, 07:56:36 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

I'm convinced that some people think financing is a form of magic.  Not from their words, but from their actions.

As for your second point, dealers aren't trying to sell something people can't afford, they're just trying to sell.  Predators aren't malevolent when they eat prey, they're just hungry.

I've always wondered - when a dealership sells me a car I'm paying for it to the bank one month at a time. Did the bank cut a check to the dealership for the full amount or is the dealership receiving payment from the bank at the same rate I'm doling it out to them?

I already told you it's magic. 

Actually I don't know.  I suspect the former since in the event of a repo, ownership goes to the bank I'm pretty sure.  I'm not even sure dealerships own the products to be honest.

I've been told that salesmen are more concerned about getting cars off the lot than necessarily getting top dollar for them so it makes me curious about the payment structure on their side of the deal.  If the bank writes them a check for the full amount when you drive it off the lot, then there's no reason for the dealership to give a damn if the buyer can make the payments.  In fact, the salesman could make multiple commissions off the same vehicle if it got returned by the buyer or repossessed and brought back by the bank.

martyconlonontherun

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #8 on: December 25, 2019, 12:34:22 AM »
With the internet most cars are priced as 'minnys' where the salesman gets the minimum $250 or something per car versus a percentage of the profits. They get bonuses and retroactive escalators after certain amounts (10 cars, 20 cars etc). That's why they want to sell as many as possible and there is some truth to them trying to convince the manager to get it done. The dealership/managers need to flip these cars as soon as possible as they are depreciating assets and they are talking up cash flow. 90 cars for a car on a lot is a crazy long time and they will sell at a loss to make it go away. Managers though also care about their overall margins so they won't give most cars away.

Add in finance commissions on most sales, it makes sense to turn as many cars as possible.

Michael in ABQ

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #9 on: December 25, 2019, 03:17:03 AM »
Typical new car dealerships make around $1,000 in profit on each vehicle sold. On used cars, they will generally make around $3,000. However, the real bread and butter is the service department. Finance department is generally second.

When you buy a new car, you are more likely to bring it back to the dealership than to go to an independent mechanic. Especially when the brand makes it difficult if not almost impossible for others to work on their new vehicles. This wasn't as easy years ago but with the amount of electronics and computers in modern vehicles it's a lot more about having the very specific tools and software, not just mechanical knowledge. Dealerships can make sure they have first, or exclusive, access to certain parts and even tools. Plus, they can usually be more efficient by specializing in a limited number of vehicles which means they might quote you the same time as an independent mechanic, but will do the work faster.

Dealerships can afford to sell cars at or below cost because they know they'll probably make it up on the back end with the service. And if they're lucky, a few years down the road that same buyer will trade their vehicle in and start the cycle all over again. Except now the dealership gets to make a nice profit on a used vehicle - potentially one they can certify and charge even more for.

Uturn

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #10 on: December 26, 2019, 06:08:04 AM »
I worked as a car salesman for 2 months back in 95.  I don't know how much has changed since then.  As a salesman, I didn't care if you paid cash or financed, as I only go commission on the final price of the new car, and a commission on the difference between what the customer accepted for trade in and what the used car manager bid.  The finance guy really did want you to finance because he got commission from the bank for selling the loan.  I suspected my manager got some commission on financing because he would always push it. 

The bank pays the dealer in full for the vehicle, then the bank puts a lien on it.  The bank only owns it if they repossess.  Tote-the-note lots (the seedy ones on the outskirts of poor neighborhoods) will self finance.  They still title the vehicle in the new owner's name, but there is a lien.  I would guess their profit comes 50/50 sale and financing.  They often will sell a car multiple times.  Take a down payment, finance it, repossess after non-payment, repeat. 

At a new car dealership, everyone except the receptionist and people doing paperwork in the back office are on commission.  Most of the dealership's profit comes from service and used cars.  The new cars are just what gets you in the door. 

Wrenchturner

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #11 on: December 26, 2019, 09:05:25 AM »
Very interesting, thanks for the replies.

mtn

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #12 on: December 26, 2019, 09:31:00 AM »
It’s not uncommOn for dealers to sell you a car at a great rate, take your trade-in, then phone up a couple weeks later and announce they couldn’t get the deal through and will need a much higher rate and payment. Buyer beware.

Or let you try the new car for a weekend. Leave your old one at the lot and “oops there was a mixup we sold your trade in, it’s alredy gone. Here’s your $3550 for it please bring the new car back”

This doesn't happen unless you've signed the title over to them, which would be stupid beyond belief.

If it does happen, and I'm sure it has, the dealership would soon be shut down. If it happened to me (i.e. they sold my car without the title), the police would be there and I'd probably be in a brand new car FO' FREE.

The_Big_H

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #13 on: December 26, 2019, 08:54:24 PM »
It’s not uncommOn for dealers to sell you a car at a great rate, take your trade-in, then phone up a couple weeks later and announce they couldn’t get the deal through and will need a much higher rate and payment. Buyer beware.

Or let you try the new car for a weekend. Leave your old one at the lot and “oops there was a mixup we sold your trade in, it’s alredy gone. Here’s your $3550 for it please bring the new car back”

This doesn't happen unless you've signed the title over to them, which would be stupid beyond belief.

If it does happen, and I'm sure it has, the dealership would soon be shut down. If it happened to me (i.e. they sold my car without the title), the police would be there and I'd probably be in a brand new car FO' FREE.

The police wont do jack squat to help you... civil matter or not worth their time.

mtn

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #14 on: December 26, 2019, 10:42:25 PM »
It’s not uncommOn for dealers to sell you a car at a great rate, take your trade-in, then phone up a couple weeks later and announce they couldn’t get the deal through and will need a much higher rate and payment. Buyer beware.

Or let you try the new car for a weekend. Leave your old one at the lot and “oops there was a mixup we sold your trade in, it’s alredy gone. Here’s your $3550 for it please bring the new car back”

This doesn't happen unless you've signed the title over to them, which would be stupid beyond belief.

If it does happen, and I'm sure it has, the dealership would soon be shut down. If it happened to me (i.e. they sold my car without the title), the police would be there and I'd probably be in a brand new car FO' FREE.

The police wont do jack squat to help you... civil matter or not worth their time.

Grand Theft Auto? That’s a pretty big deal.

joleran

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #15 on: December 27, 2019, 09:02:35 AM »
Grand Theft Auto? That’s a pretty big deal.

Also the person driving it around either can't register it or is driving with a forged title.

dezfreeze

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #16 on: January 08, 2020, 07:25:06 AM »
Most of the time the dealer doesn't even technically "own" the cars on the lot.  A finance company will offer them "floorplan" financing at a fixed interest rate.  Many times it's the OEM providing financing to the dealer to incentivize them to order a lot of cars.  Dealerships are just a place where the ownership transfers from one finance company to the next, unless you happen to be paying cash.  It's all a big magic show where the finance company sits back, does no work, and makes all the $$$!

mtn

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #17 on: January 08, 2020, 07:42:47 AM »
Most of the time the dealer doesn't even technically "own" the cars on the lot.  A finance company will offer them "floorplan" financing at a fixed interest rate.  Many times it's the OEM providing financing to the dealer to incentivize them to order a lot of cars.  Dealerships are just a place where the ownership transfers from one finance company to the next, unless you happen to be paying cash.  It's all a big magic show where the finance company sits back, does no work, provides the capital to make the cogs churn, takes all of the risk, and makes all the $$$!

FTFY. Fun to hate on the banks/finance companies, for sure, but having worked in repossession I don't forget that the financers aren't always the bad guys the internet makes them out to be. Not to mention they do provide a service that for many people is "life saving" (in quotes because hyperbole).

talltexan

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #18 on: January 08, 2020, 08:03:59 AM »
I worked as a car salesman for 2 months back in 95.  I don't know how much has changed since then.  As a salesman, I didn't care if you paid cash or financed, as I only go commission on the final price of the new car, and a commission on the difference between what the customer accepted for trade in and what the used car manager bid.  The finance guy really did want you to finance because he got commission from the bank for selling the loan.  I suspected my manager got some commission on financing because he would always push it. 

The bank pays the dealer in full for the vehicle, then the bank puts a lien on it.  The bank only owns it if they repossess.  Tote-the-note lots (the seedy ones on the outskirts of poor neighborhoods) will self finance.  They still title the vehicle in the new owner's name, but there is a lien.  I would guess their profit comes 50/50 sale and financing.  They often will sell a car multiple times.  Take a down payment, finance it, repossess after non-payment, repeat. 

At a new car dealership, everyone except the receptionist and people doing paperwork in the back office are on commission.  Most of the dealership's profit comes from service and used cars.  The new cars are just what gets you in the door.

I don't know why you think this commission structure would have stayed the same with all the financial engineering that has happened since 1995.

John Galt incarnate!

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #19 on: January 08, 2020, 12:59:46 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

Smooth-talking dealers can convince the innumerate that they can  afford monthly payments which, in actuality, are utterly unrealistic.

Innumeracy has undesirable consequences.

 
« Last Edit: January 08, 2020, 01:07:15 PM by John Galt incarnate! »

John Galt incarnate!

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #20 on: January 08, 2020, 01:13:57 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

I'm convinced that some people think financing is a form of magic.  Not from their words, but from their actions.


During a man-in-the-street interview  about funding for single-payer healthcare  a reporter asked a woman  about the source of its funding.

She replied "The government can print more money."

Wrenchturner

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #21 on: January 08, 2020, 01:15:59 PM »
If your income is $660 a month why would you even be at the car lot looking at an expensive 2018 there is no way you can afford?  There's two problems here, some people are absolutely desperate to buy stuff they can't afford and the car dealerships are desperate to sell people something they can't afford.

I'm convinced that some people think financing is a form of magic.  Not from their words, but from their actions.


During a man-in-the-street interview  about funding for single-payer healthcare  a reporter asked a woman  about the source of its funding.

She replied "The government can print more money."

If magic does exist, sovereign debt might be a good example of it. 

I'm no economist (or magician) unfortunately.

talltexan

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #22 on: January 09, 2020, 08:41:23 AM »
Sovereign debt is no magic at all. It's money that is lent to the government against the remarkable ability to create income through taxation.

jinga nation

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #23 on: January 09, 2020, 09:47:04 AM »
Innumeracy has undesirable consequences.
Stop using big words... innum-what?
What's a conseq-thingy?
And that un-word... uggh! Why don't you just say what you mean.
Person who uses more big words than small is just flaunting his book of fancy long words.


I've heard such comments in my years in retail putting myself through college.

If people don't want to learn their 3Rs, they deserve to get bent over at the dealer. It's why many prefer to use the USAA/PenFed/SamsClub/Costco/other car buying service. "It must be a great deal because it's Costco."

PDXTabs

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #24 on: January 09, 2020, 10:38:13 AM »
If people don't want to learn their 3Rs, they deserve to get bent over at the dealer.

Really? Because it's your tax dollars that keep them fed, clothed, and housed in old age. Which is sort of like saying that there was a direct transfer of wealth from you to the dealer in question.
« Last Edit: January 09, 2020, 10:39:52 AM by PDXTabs »

Wrenchturner

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #25 on: January 09, 2020, 03:51:34 PM »
Sovereign debt is no magic at all. It's money that is lent to the government against the remarkable ability to create income through taxation.

But the debt doesn't get paid.  The interest is what dictates the burden on the taxpayer, and therefore the debt limits, as far as I can tell.  The magic is that sovereign states can all bid up each other's debt loads; as long as the ratios stay close, the forex is stable.  Or something like that.  It seems fundamentally relativistic.

marty998

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #26 on: January 10, 2020, 03:25:09 PM »
If people don't want to learn their 3Rs, they deserve to get bent over at the dealer.

Really? Because it's your tax dollars that keep them fed, clothed, and housed in old age. Which is sort of like saying that there was a direct transfer of wealth from you to the dealer in question.

It’s ok, we benefit by being invested in the auto companies and finance companies making profits off these guys.

jinga nation

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #27 on: January 13, 2020, 01:30:04 PM »
If people don't want to learn their 3Rs, they deserve to get bent over at the dealer.

Really? Because it's your tax dollars that keep them fed, clothed, and housed in old age. Which is sort of like saying that there was a direct transfer of wealth from you to the dealer in question.
Dunno how you correlated this with a direct wealth transfer, but perhaps my statement was a tad bit incendiary, I'll admit.
My tax dollars would have gone to them in old age, regardless of their car purchase today. I honestly don't expect to get any SS Income at 62, for various reasons.

What I meant, and should have wrote is: If people were taught the 3Rs but refuse to use them judiciously, then they will get bent over, because dealers are ruthless.

@marty998  is right.

PDXTabs

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #28 on: January 13, 2020, 03:24:24 PM »
What I meant, and should have wrote is: If people were taught the 3Rs but refuse to use them judiciously, then they will get bent over, because dealers are ruthless.

That's certainly true.

My tax dollars would have gone to them in old age, regardless of their car purchase today. I honestly don't expect to get any SS Income at 62, for various reasons.

I'm not sure that I agree. Some people don't use government housing and food stamps in their old age. Some folks never need to use medicaid, others do. The more money you start with (the less that unscrupulous dealers took from the financially illiterate) the better your (our) odds are.

bostonjim

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #29 on: January 15, 2020, 10:20:28 AM »
This American Life did a great show where they followed the salespeople at a car dealership around for a month a few years ago: https://www.thisamericanlife.org/513/129-cars

I never would have thought it possible, but I actually had sympathy for salemen after listening to it. 

DadJokes

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Re: WSJ: An $809 Car Payment, a $660 Income: How Dealers Make the Math Work
« Reply #30 on: January 15, 2020, 10:46:25 AM »
This American Life did a great show where they followed the salespeople at a car dealership around for a month a few years ago: https://www.thisamericanlife.org/513/129-cars

I never would have thought it possible, but I actually had sympathy for salemen after listening to it.

It's a broken industry that refuses to change. Why are dealerships necessary at all in this day and age? Carvana & Carmax have the right idea, and the same concept for new cars would be a lot more pleasant.

I'm 15 minutes in, and it sounds very interesting so far. But I don't anticipate feeling bad for anyone who chooses to do this. I remember interviewing for an outdoor sporting goods store in the gun department. One of the first questions I was asked is how comfortable I would be with selling warranties. I finished the interview and turned down the job offer.