Off Topic: Dealerships need to end

[theblooms]

I recently read something in a Mazda group:

"I'm a finance guy in the car business and a BIG fan of service contracts"

Well of course they are, the back room add ons and financing percentage hold-backs is where they make all of their money.

It should be *ILLEGAL* for a car dealership to offer financing on a car. Why? Because pretty much every single time they write a contract, they steal from the customer. Bank offers 4% but they tell the customer 8%, and then pocket the difference. That's straight up theft.

They're called "stealerships" for reason. Hell, the whole dealership model needs to be put out to pasture. It has zero use in the 21st Century other than stealing from people.

 

[Conrad 16.5]

Caveat Emptor

 

[theblooms]

Caveat Emptor

Which is exactly why I never walk into those places.

 

[Ninja_Matt]

I recently read something in a Mazda group:

"I'm a finance guy in the car business and a BIG fan of service contracts"

Well of course they are, the back room add ons and financing percentage hold-backs is where they make all of their money.

It should be *ILLEGAL* for a car dealership to offer financing on a car. Why? Because pretty much every single time they write a contract, they steal from the customer. Bank offers 4% but they tell the customer 8%, and then pocket the difference. That's straight up theft.

They're called "stealerships" for reason. Hell, the whole dealership model needs to be put out to pasture. It has zero use in the 21st Century other than stealing from people.

While I cannot entirely disagree, I do think there is also a lot of misunderstanding combined with anecdotal abuse that happens and causes a lot of mistrust between dealers and customers. For example, while yes dealers can mark up interest rates, typically that is maxed out to 2% but sometimes less and also depends on the bank underwriting and the term (length of loan). Most markup I've ever seen in my 11 years in this industry is 2.5% allowed on a max of 60 months, but some approvals especially on longer, higher risk loans are capped at 1% or even no markup allowed (bank provides a flat commission based on amount financed). As a matter of fact, for subprime customers many don't know dealers are usually charged large bank fees and are not typically allowed to pass the cost on to the client legally (at least not directly, queue bad dealer practices of throwing in extra finance products to offset this cost). Also, because dealers can mark up finance products for profit (and yes, unchecked can really abuse this depending on state regulations) this does not inherently make the finance products bad or not valuable. Not sympathizing for dealerships but hoping to be informative!

Most important thing is being an educated and informed buyer, when you understand how the game works you can strategize and play back to your benefit. Does GAP insurance make sense on a car you put 20% down on at a cost of $1,000? Probably not. Does GAP insurance make sense when you put little to nothing down at a cost of $400-$500? Absolutely.

All of that said, the dealership model is very outdated, bloated with costs and overcompensation and our company Auto Ninjas partners with trusted dealerships nationwide to provide an easy, transparent buying experience while offering the best discounts out there. We are a new vendor on Mazdas247 (although we have been operating since 2019!) and look forward to bringing value to these forums for anyone looking for a new Mazda or anyone just wishing to become a more informed buyer!

 

[ra59]

I recently read something in a Mazda group:

"I'm a finance guy in the car business and a BIG fan of service contracts"

Well of course they are, the back room add ons and financing percentage hold-backs is where they make all of their money.

It should be *ILLEGAL* for a car dealership to offer financing on a car. Why? Because pretty much every single time they write a contract, they steal from the customer. Bank offers 4% but they tell the customer 8%, and then pocket the difference. That's straight up theft.

They're called "stealerships" for reason. Hell, the whole dealership model needs to be put out to pasture. It has zero use in the 21st Century other than stealing from people.

How is it theft if the buyers are agreeing to pay those rates?

 

[txt990]

Just use any credit union for car financing. I avoid the dealership financing.

 

[Conrad 16.5]

Just use any credit union for car financing. I avoid the dealership financing.

That's not always the most advantages.

When we bought our CX, Mazda was offering a discount if their financing was used. I forget the amount, but it was considerable. I wasn't planning on financing at all, but the offer was too attractive to turn down. I accepted their financing, got the discount, and paid the loan off the following month.

 

[youri]

Exactly, no one is forced to take the loan with the car dealership.

I am in Canada, so the situation may be a bit different, but I usually don’t see a bank rate come lower than the dealership interest rate, and I have very good credit.

Also too many people only look at the interest rate and not the total cost. Like Conrad above, there are times where I financed through the dealer at higher rate, but it actually was cheaper overall because of the discounts. These great 0% rate we used to see often came at the same total cost, the car manufacturer was just including the interest cost in the price. Ford was famous for that, they would have their 0% deals for a few months, then would have their employee pricing promotion (lower cost at higher interest rate) for a few months later. The total borrowing price was the same.

Claiming all dealer rates are scam is not accurate, and just shows a poor understanding of financing. Bottom line is you need to shop around for the car price, and the financing. Get the best combination for the total end cost.

 

[txt990]

That's not always the most advantages.

When we bought our CX, Mazda was offering a discount if their financing was used. I forget the amount, but it was considerable. I wasn't planning on financing at all, but the offer was too attractive to turn down. I accepted their financing, got the discount, and paid the loan off the following month.

You are right. Usually for new cars they give great offers if you have really good credit. On used vehicles I am not sure if they offer such great deals on financing.

In any case I bought my '16 Mazda CX-5 sport a few years back at a Ford dealership. They were offering me their used car loan and it was not worth it. I basically went to my credit union and got their loan at a better rate.

 

[theblooms]

Claiming all dealer rates are scam is not accurate, and just shows a poor understanding of financing.

I am well versed in financing. It's why I refuse to do it. The last time I made a car payment was 1999, and I'll never do it again.
If you don't have the cash, you can't afford it. Financing a depreciating liability is a recipe for financial suicide. You will never build wealth if you keep doing that.

 

[youri]

Great for you not financing depreciating assets. It is truly a great way to manage your finances, unfortunately not everyone can afford it for various life needs.

Your statement with regards to financing is not entirely correct however. Owning a depreciating asset is a money pit, not the financing aspect of it. You are being hard on dealerships for charging a few percent too much on the financing. a 2% over charge on a 40,000$ car over 5 years is only an interest cost of 2000$. Total cost of a 6%loan on the same car is 6,000$. The car will have depreciated that much in the first year. And twice to three time as much in the 5 years. It is also not very much compared to the maintenance cost of the car.

I have two cars, one that doesn’t get used very much, but we still need from time for various family needs. It is amazing how much maintenance money is sunk in that second car: tires, brakes, oil change, insurance, second set of children car seat, depreciation,etc. That has a much bigger wealth impact than the financing cost.

Financing cost you more, for sure. But it isn’t the part blocking all the wealth, or the devil you make it sound like it is. What is preventing wealth is buying cars above your means, and not keeping cars long enough past their financing period (ex: finance for 5 years, keep the car for 10 years). Year 5 to 10 is when depreciation diminish a lot and help reduces the overall depreciation cost. After year 10 depreciation drops off to almost nothing, but the maintenance cost starts offsetting that savings.

Furthermore, if you saved 40,000$ to buy the car cash, you might still be better off financing for the car payment and investing the 40,000$ if you can get a higher return than the interest cost. Loan interest are high right now, but investment returns are also higher. And you can keep that money invested for 10-20 years or more. Which will start collecting compounding interest. You may be losing money by buying the car cash, depending on the current market situation.

Never financing for anything is a good simple fool proof rule to follow, and one I also tend to use a lot, but it isn’t always the most value for your return.

 

[Conrad 16.5]

I am well versed in financing. It's why I refuse to do it. The last time I made a car payment was 1999, and I'll never do it again.
If you don't have the cash, you can't afford it. Financing a depreciating liability is a recipe for financial suicide. You will never build wealth if you keep doing that.

You did see my post above, right?

In some cases, financing gets you a better bottom line price, saving money. In some cases, not.

 

[Ninja_Matt]

Once upon a time I made a mistake while woodworking and took a palm router with a 1/2" bit to my left wrist, tore down to the bone but managed to graze or miss all the most important stuff. Could have been worse, but still have some permanent nerve damage years later. I've never touched a palm router again, I can't bring myself to it.

A palm router is a tool; financing is a tool. With lack of experience, I permanently injured myself with a palm router, but someone with all of the experience can build something stunningly beautiful and valuable with one. The average person off the street however, would be more likely to hurt themselves than build something like that.

The average person off the street probably doesn't have much experience with financing and therefore have more exposure to hurt themselves than help themselves. This is where I think @theblooms came into their position, and for many people he is not wrong - however, that doesn't make the tool a bad tool, it just means in order to use it for your benefit you need proper experience on how to use it right. Some people can leverage financing with amazing benefits.

TL;DR - Financing a car is a tool you need to know how to use, whether you benefit or get hurt depends on the person using the tool, but the tool is not inherently good nor bad.

 

[Powerslider]

Super weird that OP is ready to “end” dealerships simply because of their financing rates. There’s real advantages to having a local, independent dealer network. I wouldn’t want them to cease to exist.

 

[ColoradoDriver]

I am well versed in financing. It's why I refuse to do it. The last time I made a car payment was 1999, and I'll never do it again.
If you don't have the cash, you can't afford it. Financing a depreciating liability is a recipe for financial suicide. You will never build wealth if you keep doing that.

If you can take advantage of dealer financing when they run 0% interest or 0.99% interest deals (Mazda did this several years ago), and you can take the cash you would have spent to buy the car in full and instead even just throw it into a 4-5% HYSA or some other better investment avenue like the S&P 500 where it'll average closer to 8-12% returns over the years, then to me it seems dumb to pay cash.

If on the other hand you are the stereotypical Dodge customer with subprime credit, no money down, paying 24% interest for 96 months, then sure, I would agree you can't afford it.

Even if your interest was say at 5-6%, I'd say you can still outdo that rate with your cash invested, so to me it doesn't necessarily make sense to pay for the car in cash. Are you taking the hit if someone totals your car leaving the dealer lot?

My general rule has been at least 20% down, 5 year loan max, less preferable (I did 4 year on mine), and I was throwing more money into investments instead as my rate at the time was 2.99% on the car loan. My CX-5 has been payed off since 2017.

Now to say that's what everyone does would be wrong, but I'm just saying, I don't really see much point in paying cash for a car...depending on how the numbers work out, what incentives are active, and how I might better allocate the money to grow vs just blowing it all in one giant purchase. You play your cards right and that money will net you more than whatever the finance costs.

 

[Sig cx-5]

My issue with typical car dealers is not with their financing rates. That's probably the most transparent part of the process. If they aren't offering a special rate, like 0%, you can usually do better with a bank or credit union. You should already be preapproved before stepping in. If they can beat it, make them put it in writing.

My issue/s begin when they advertise a vehicle at a set price, but once you walk in, they say that's the price only if you qualify for all current incentives, which is impossible. It also doesn't include their required "special package" like VIN etching, undercoating, LoJack, etc... There's also the issue with them not taking the time to know the vehicle they're selling.

When we bought our Tesla last year, I was trying my best to buy something else. I used email to communicate with a sales manager at my local Hyundai dealer for an Ionic 5. After a few back-and-forths, I had agreed to a price and made an appointment. When we got to the dealer, we took the car for a drive and were ready to sign. That's when the sales guy said the email price I was given was incorrect. It was actually $5k higher, plus they needed to add their $2k package that wasn't disclosed in the email. I told them they were nuts and walked out.

I went home and logged onto Tesla's site, picked the options I wanted, paid a $250 deposit and was given a window of when it would be available. I got a VIN emailed to me a couple weeks later with a tighter window. A couple days later I was given the date it would arrive and I needed to pick when I would be there to inspect and take it, if all looked good. All paperwork is done online. You can finance through them with a clear rate, which includes your payments, or you can go in with a bank check. This is how buying a vehicle should be in this day and age.

 

[theblooms]

I went home and logged onto Tesla's site, picked the options I wanted, paid a $250 deposit...

Tesla wanted to completely do away with the utterly useless dealership model, but because car dealers bribe, I mean, donate to the campaigns of so many politicians, that ancient model is baked into almost every state's code of laws. Without actually changing the laws on a state by state basis, we're stuck.

Crooked for sure.

 

[Buzzman12]

In some cases, financing gets you a better bottom line price, saving money. In some cases, not.

I bought a used Lexus RX350 this spring. The dealer had some interesting "policies".
If you pay cash, there was a $3,000 premium on the car. Simply put, the dealer gets a cutback from the finance institution that they use. They have inflated rates for starters, and they also get a cashback from the lending institution. So, they lose money on cash purchases, so they up the price.
In my case, I got the initial price reduced, along with some concessions, and then told them I was paying cash. Told them point blank I was not paying the cash premium. They waved it pretty quickly.
I've had the vehicle now for a few months, and it has been great. No issues. Runs and drives like new. Gotta love Toyotas.

 

[Conrad 16.5]

I bought a used Lexus RX350 this spring. The dealer had some interesting "policies".
If you pay cash, there was a $3,000 premium on the car. Simply put, the dealer gets a cutback from the finance institution that they use. They have inflated rates for starters, and they also get a cashback from the lending institution. So, they lose money on cash purchases, so they up the price.
In my case, I got the initial price reduced, along with some concessions, and then told them I was paying cash. Told them point blank I was not paying the cash premium. They waved it pretty quickly.
I've had the vehicle now for a few months, and it has been great. No issues. Runs and drives like new. Gotta love Toyotas.

Sometimes you have to play hardball with these guys and call them on their bluff. If they won't give, you have to be ready to walk, most often they won't let you walk out the door.

Their sales 'strategies' work on most folks, not all.

 

[dougal]

It is called the free market. Free Market. America. Home of the Free...market.