Reader Brian emailed an ad for huge discounts on cars. The fine print is rather amusing: Must be subprime and must finance through Chrysler Capital.
Frequently, when you see an ad “only x available at this price”, there are really none available at that price. They all went to friends of the dealer.
I called about the 2017 Patriot and there were still some left but they were “going fast”.
The ad reads “Primary customer must have a FICO score below 620 and must finance through Chrysler Capital”
I asked what happens if my credit score was above 620. As expected, I could not get that price. For someone with a credit score of 800 the price jumps to $13,485.
I asked what happens if I pay all cash. That price is $13,995.
I asked about prepayment penalties and California does not allow them.
Still, the MSRP is $21,760 and you can get one for $13,995. That is a discount of 35.7% off the MSRP.
I do not know what this model typically sells for, but that seems like a hefty discount. A subprime buyer can pay $11,995. That is a discount of 44.9% off MSRP.
Since there are no prepayment penalties, one could immediately pay it off in theory. In practice, someone with a credit score below 620 is extremely unlikely to be in a position to pay the loan off immediately.
Regardless, feed this data into used car prices and inventory valuations.
Real CIPI Autos vs Overall
Inflation-adjusted, the first-quarter change in real private inventories at new and used car dealers was +27.2 billion vs a Nonfarm total of +7 billion!
Motor Vehicles and Parts Retail Inventories
Motor Vehicle Sales
Motor Vehicles and Parts Inventories Seasonally-Adjusted and Unadjusted
click on chart for sharper view
For further discussion, please see Bubble in Motor Vehicle Inventories? Precise Normalness!
I struggle with the construct of a huge inventory build, but hey, I am not the BEA or an auto dealer valuing cars on the lot.
Mike “Mish” Shedlock
A good crash will disabuse the economy of the excesses of finance.
I get a good chuckle when people write on sites like SeekingAlpha that the future of the financial sector, especially the insurers, is bright.
There is massive excess overcapacity in US finance
+ a million.
If 95% of finance jobs disappeared over night, everyone aside from direct beneficiaries, would be infinitely better off. The remaining 5%, are the same gang who still benefits from having leeches around, as bloodletting is the best available treatment for whatever ails them.
Just for clarification, that reader’s (me) first name is “Brian.”
The irresponsibilities seen in this offer are truly mind-numbing, yet somehow Fiat Chrysler needs to clear excess inventory so badly, they’ll take the massive hit in the next financial crisis.
You can be CERTAIN that there will be yet another bailout.
Thanks Brian
What about Joey @16, with no credit score at all, buying the darned thing, and daddy paying it off the next day? A brand new Jeep is pretty snazzy for a high school kid. And modern safety equipment, and a warranty, pretty reassuring for his parents.
Re; Finance vs. cash. Just bot a 2017 Honda. Wanted to pay cash. The Dealer Finance Guy said that Honda Finance gave a $500 discount if I finance it thru them. I asked about pre-payment penalty. None. Minimum time in the loan. None. Fine, give me the $500 off the final price. Done. Thank you.
Called Honda Finance the next day – got their address – and payoff amount. Was about $3 (?) more than the sales price. Wired them the $$. Thank you very much! Buh-Bye!!
Yep
Same at the place I called
This only works when there are no prepayment penalties
Does anyone know how many states do not allow prepayment penalties on such loans?
$3 was probably the one day’s interest accrual.
Yep – that’s what I figured.
How about EXTENDED WARRANTIES ?? !@#$#@#$% !!!!
I didn’t know better – and WANTED an 8 yr 100K miles coverage for everything. I am older and don’t want any stress over repairs. He quoted me $2800, but would give it to me for $1800 special. I said OK. A week later, a friend told me about the MANY places selling the exact same warranty online. Found it for $800. Tried to buy it from “ENDURANCEDIRECT.COM’ but their salesman told me NOT to buy anything until just before my 3 yr/36K warranty was about to expire. He said “call at 34,000 miles. Otherwise you’re just wasting money – as we won’t pay anything for over 3 yrs – and you’re paying us NOW”.
WOW – never had such a truthful salesman. Terrific information! I had 60 days to cancel my Dealer Warranty and get ALL my $$$ back. I did. Will buy the warranty in 3 yrs, IF I still own this car and am still alive!
Every time I buy a car they offer me either cash back or 0% interest. The only way to get cash back is to pay cash, so I pay cash.
Back when I was young a major Toyota dealer, one of the largest in the country, was shut down for a couple weeks because they were offering different prices depending on how the customer was paying. That was illegal in CA then, not sure about now.
I always negotiate the price as if I’m financing as much as possible then change my mind right before I sign the deal. I know they still practice the same tactics but hide it.
That’s crazy. I always figured you’d get a BETTER deal if you paid CASH. But then I realized they probably made more money on the financing than on the sale of the car!
Financing, warranties and their packages are what they count on for the bulk of their profits. They often make little on the actual sales price of the vehicle. When I buy a car I only buy the car and absolutely no extras.
The last deal I made I had the finance guy physically shaking and he had to take a cigarette break. I faked a trade in, faked interest in all the garbage he was selling and faked my interest in financing. You have to make them think they’re going to clean up on the deal then slowly pull everything out after the negotiated price has been settled on. I had him print the contract with all the financing details. Then I calmly told him how irritated I was at how he was pressuring. I pulled out my phone, took my good old time transferring money to checking then told him I decided to just pay it off. He started raising his voice, started stuttering, a little sweat on the forehead then walked out. I knew they couldn’t do anything because they already negotiated the sales price and wrote the final price on their stupid white sheet of paper with the squares. That becomes a binding offer, regardless of how you pay for it.
You can get a car under invoice if you play your cards right. Just turn the tables and play their game better than they can play. I actually enjoy the process. Takes me half a day but I walk out with what I want. Having cash is the key.
They spend day after day screwing people so I don’t feel bad doing the same to them. Family members often ask me to help them through their deals. I usually get free entertainment (squirming salesmen) and lunch out of it.
Bravo!
The only thing the auto market has to make money is the credit spread, and Subprime offers them an opportunity to make money in a deteriorating environment… That is until the buyer defaults, which, in that case, they get a car back into inventory that may not have sold in time. Cars have a practical shelf life too.
“Part of the boom in this segment is thanks to a technological advances that give banks more comfort lending to borrowers who may not be able to pay them back. Devices installed in cars let collections agencies remotely disable the vehicles when the borrower falls behind on repayment. Since these controversial and potentially dangerous devices make repossession easier, they dramatically reduce risk to the lender, opening up a new market of cash-strapped borrowers that banks were previously hesitant to approach. And the money’s excellent, with average subprime auto loans carrying a 10% annual interest rate, although some lenders will push rates above 20%, according to a New York Times investigation (paywall)”.
https://qz.com/913093/car-loans-in-the-us-have-hit-record-levels-and-delinquencies-are-rising-fast-too/
PS: Volkswagen has about 300.000 diesel vehicles just sitting on lots around the US. How long can hey sit before they deteriorate and are no longer salable?
A couple months ago, driving south on I-25 by Pueblo, Colorado, saw an enormous number of what looked like VWs in a temp storage area to the west of I-25. We were recently told they were part of VWs diesel fiasco buy-back. I imagine *their* sell-by date is well past…
They should be able to sell them overseas, in less discriminating markets. At least unless the engines are literally bricked in the absence of the cleanest of modern low sulfur diesel fuels.
Back in the way-back-whens, I helped out someone who were making a nice buck shipping fridges and freezers with suddenly illegal to sell refrigerants, to Africa. When your kids are dying from infections resulting from the inability to keep food cold, the Ozone layer isn’t exactly your prime concern. You’d think similar reasoning would be at play wrt perfectly functional, nice cars, that just happens to be stranded for failing what, to third worlders, must surely seem like a technicality.
The question is whether it will be worth VW to try to sell them at all after they sit for a long time and when considering the cost of moving them. remember in some ways it will cut into future sales.
Can someone explain to me why low credit score can get you a lower price? Are there hidden costs (higher interest rates) or just bogus marketing, or what?? I do understand that the opposite should be the case, so what makes this possible or even rational?
Interest rate on the loan will be sky high and you have to use the specified lender
@mish, did you inquire on the subprime interest rate? it would be interesting to know the total cost over time assuming a paid as agreed loan.
Darn – I didn’t
Making the buying process unpleasant for cash customers will motivate them to buy used, or keep the vehicle they have for a few extra years.
My current ride I bought off craigslist. Land of cash or cashier’s check. When you eliminate (too easy) financing deals can be had … provided you’re allowed to have your mechanic have a look see first.
New cars are much better than used cars nowadays. The engine and drivetrain are the same, but safety features are way better and they have many of the features of a cell phone.
I’ll never get a car that lacks a backup camera.
I was told I had to submit to a credit check even though I was paying cash, I still haven’t figured out their game with that.
I also read that having a car or other installment loan improves credit score over all cash purchaser.
Sometimes int rates on car loans are so low it makes sense to borrow vs using HELOC etc but this bad credit score/Chrysler credit deal turns everything upside down. Maybe FIAT factories are using upside down financing incentives to move their low quality products to low quality customers. I’m sure GM/Ally will be following along.
a credit check would only be required if you are applying for financing thru the dealer. my guess is they wanted to offer you a financing deal which you might opt for in lieu of paying cash.
I had to get a credit check to pay cash, too. I bought my current car using cash 11 years ago. And when I say cash, I mean a cashier’s check from my bank, not a wad of bills. The salesman said there were issues with cash purchases because they could be done to launder drug money. They made me go through the credit check plus some kind of financial evaluation process that took a few days. Unfortunately, I’ve forgotten most of the details because it was so long ago. Now I wonder if it was just a pressure tactic to get me to finance. I’m your basic, boring, employed, middle-aged suburban female, and this is the only time in my life that I’ve ever had anyone tell me they need to make sure I’m not a drug dealer.
I could be wrong about this, but if you are paying the full amount with a personal check rather than a cashier’s check, you drive out of the dealership with the car while they wait for the check to clear – if the check doesn’t clear they have to come after you. So they are doing what they can to ensure the probability the personal check will clear. I showed one dealer my phone app bank account balance in lieu of them spending labor on a credit check.
The last time I bought a car they wanted me to put 5% on a credit card and write a check for the rest. I guess the 5% would cover repo costs if needed. I get cash back on my CC, so it was fine with me.
Yep – I get 2% back from my Visa. They would only let me put $3,000 on it. I would have put it ALL if they let me..
lets not forget that GM has 110 days of inventory on hand.
In 1973 I bought a car, and went out saturday AM shopping. Went to a dealer and negotiated but teh price was not as good as they could do, and the manaer asked what would it take to put you behind the. wheel and I gave an absurd price. they countered and then I stood up and told then I was going to lunch and woudl think about it–they followed me out the door to my car and came down to a few bucks over what I offered so I said yes.
The “leverage” I had was that I did not care either way-my curent car was good and they knew it.
Lesson Learned: in any dealing you have to have leverage better than the other side.
You could have your 18-year old daughter with no credit buy the car and then buy the car from her so she could pay the loan in full immediately.
18 year old kids don’t have subprime credit ratings. Unless they’ve defaulted on credit cards.
🙂
I just asked the same question.
What do teens with no history at all, and no income, start out with as far as credit scores go?
I think that would trigger a double Sales and USE tax here in California. You pay tax on the value of the item even if no money changes hands. So you pay once at the dealer, and again upon transfer.
Also the value you pay for the benefit of someone else is a gift. I don’t recall the details, but a friend had to pay the IRS (original tax and fine) after buying a car for his daughter.
Yep – on the twice taxed deal here in TX, normally.
HOWEVER, one can GIFT a car to a member of their own immediate family for a fee of $10.
My daughter and I ‘gifted’ each other our cars (traded) – as mine was better – so I could trade HERS in when I recently got a new one….$20 fees total.
Drove by the local Hyundai dealership yesterday. They have cars parked in neighboring property off their lot right now. Never seen them spill over as much as they are right now.
IIRC, they typically carry about 300 new cars. Right now they are over 525 new and over 150 used. They already have 100 of the 2018 models on hand.
Reblogged this on World4Justice : NOW! Lobby Forum..
Hate to say this but Jeep Patriot has crappy rankings among all cars, trucks, etc. Sure it’s cheap but YGWYPF.
Completely agree on quality of their junk boxes. My thought process would be: drive it for the length of the warranty, then get rid of it and buy a Toyota or a Honda. I think you’d still do ok when you trade it in with such a sizeable discount.
How appropriate there is a demon on the ad.
I find no joy in negotiating with car salesmen!
Does anybody here see anything wrong with demon worship? Yet, that is exactly what San Leandro Dodge is advocating! Maybe these overt spiritual problems explain their monetary corruption!