How Marketing Manipulates You
Too_Many_Tools
And when buying an used car overwhelmingly is a better deal in almost
all cases, the article chips away at that fact to push you into buying
new.
TMT
Motley Fool
When a New Car Beats a Used Car
Tuesday August 7, 10:10 am ET
By Mary Dalrymple
You've probably heard the maxim of car-buying, which warns you that a
new vehicle will lose 20% to 30% of its value the moment it's driven
off the dealer's lot. Beware the heady and intoxicating perfume of new
car smell, all ye car-crazy Fools. You'll end up with a sorry hangover
dragging down your bank account.
Well, rules were meant to be broken, right? Even this rule of car
depreciation doesn't always hold true when you look more closely at
reality. Both buyers and sellers need to get specific about vehicle
depreciation. Let's start with buyers.
A guaranteed money-loser
All car buyers should first remember that a car isn't an investment.
It won't appreciate in value and leave a Fool richer than when he or
she started. That's why personal finance columnists, myself included,
often equate new vehicles and car loans with moldy old cheese. They
stink.
Even though cars, trucks, and monster SUVs tend to lose a lot of value
during their first few years, some lose that value faster than others.
In fact, a few hardly lose much value at all. If you've tried shopping
for a hybrid, or an especially trendy car, you've probably found out
that a used car won't be the bargain you had hoped.
As an experiment, I took a look at some typical cars from
DaimlerChrysler (NYSE: DCX - News), Toyota (NYSE: TM - News), and
Honda (NYSE: HMC - News) to see how prices fell as you go back several
model years. I used the Kelley Blue Book, but there are plenty of
other resources you can use, including the Edmunds website, Internet
sites like eBay Motors or Cars.com, or even just patrolling local used
car lots and private-party ads to get a better feel for the market in
your neighborhood.
What's hot, what's not
The first vehicle I looked at was a kid-friendly Dodge Grand Caravan.
The price of a 2008 model starts at $22,470, according to the
company's website. Kelley Blue Book says I can find a 2006 Grand
Caravan in excellent condition with standard features selling for
about $16,345 at my local used car dealership.
While I'm sure a 2008 will have some extra bells and whistles that
won't appear on the 2006 used car, the comparison suggests I can save
over $6,000 just by buying a slightly used minivan.
Not so, however, if you're looking for something, say, smaller and
greener. You won't find such bargains when shopping for a Toyota Prius
or a Honda Civic Hybrid. A new Prius starts at $22,175. A 2006 Prius
in excellent condition, according to Kelley Blue Book, might carry a
retail value of $22,570.
Yep, you read that correctly. The used hybrid retails for just as much
as a new one. That's a major drawback of shopping for a scarce or a
popular car. You just won't find the same bargains by shopping used.
The fuzzy math of taxes
Let's make the math even trickier. What happens when you factor in
other things, like the hybrid car tax credit? That can knock a sizable
chunk of change off the purchase of certain new hybrids, but it's not
available for used cars. Or, what if you get special financing for a
new car, which narrows the cost gap between a new and a slightly used
one?
These factors may make it worth your time and money to consider buying
new. For the same price, or just a tiny bit more, you'll get a brand-
new vehicle with all the bells and whistles you want. Or, it may be
time to reconsider whether you need that trendy Mini Cooper after all.
Buyers aren't the only ones who should ponder the nature of
depreciation. Sellers should take a moment for reflection, too.
Fool contributor Mary Dalrymple does not own stock in any company
mentioned in this article. She welcomes your feedback. The Motley Fool
disclosure policy drives a convertible.
Logan Shaw
> Here is an example of how marketing will try to manipulate you to buy.
>
> And when buying an used car overwhelmingly is a better deal in almost
> all cases, the article chips away at that fact to push you into buying
> new.
I don't think the writer from The Motley Fool is a marketing person trying
to get you to buy a new car rather than a used one. Instead, I think it's
an article about the fact rules have exceptions. In this case, the rule
that buying a late-model used car is a better deal than buying new is the
rule with exceptions.
And, as far as I can tell, it's a bona fide exception. In recent years,
some hybrids have been just as expensive used as they have been new. In
that case, buying used means getting an inferior product for the same price.
Not a good deal, and definitely an exception to the rule.
Of course, when used prices are the same as new, it does make things sound
a little fishy, so what's going on? Well, personally, I think it's a matter
of pricing quirks. Pricing is a complex thing. Think of supply and demand,
but there are also a bunch of other variables, many of them psychological,
that influence prices.
The important thing in this case is that hybrid vehicles were an unexpected
hit for the auto industry. They sold way more than they projected. So, what
happens in the auto industry when a model is in much more demand than projected?
Well, a couple of things. First, the auto industry works in such a way that
the products (cars) almost always sell for less than the price on the sticker.
There is some room for negotiation built in to the sticker price, and
negotiating is the norm. Second, the auto industry is a pretty stable
industry. Automakers stand to lose millions or billions if they introduce
a model that's a flop, so they are pretty conservative with things. They
usually have a pretty good idea in advance how well something is going to
sell.
So, in the auto industry, if a product is in strong demand, the automaker
doesn't need to do all that much to adjust the sticker price. The leeway
that's already built in for negotiating will generally take care of that;
the dealers just get less flexible on how much they'll be talked down.
And because prices are stable, not only do they not need to do much to
the sticker price, but there is also not that much precedent for it.
Automakers will adjust the sticker price by $500 or even $1000 sometimes
during the course of a model-year, but not much more than that.
The net result, I think, is that the demand went up but the prices stayed
the same. And since the demand went up, the actual selling price rose.
And since the demand went up spectacularly (by auto industry standards),
the actual selling price rose to the point where it actually matched the
sticker price. And when the sticker price is the actual selling price,
you sell out of the cars. And if you're the auto industry, apparently
you don't respond by raising the sticker price. You just let the cars
get back-ordered. (And maybe you have reasons for doing this, like that
the volume of orders is low and you stand to lose more in public relations
than you gain in profits by raising the prices.)
So what that amounts to is that the sticker price didn't budge (much?),
and the prices on new hybrid cars became artificially low.
But the same did not happen with used hybrid vehicles. The prices there
weren't set by automakers but by individual used car lots. So they were
free to set the price how they wanted. So the prices were not artificially
low on used vehicles.
So basically, the point is this: if prices are artificially low on new
vehicles but aren't artificially low on used ones, then maybe it DOES make
sense to buy a new vehicle.
- Logan
Rod Speed
Logan Shaw <lshaw-...@austin.rr.com> wrote
> Too_Many_Tools wrote:
>> Here is an example of how marketing will try to manipulate you to buy.
>>
>> And when buying an used car overwhelmingly is a better deal in almost
>> all cases, the article chips away at that fact to push you into buying
>> new.
>
> I don't think the writer from The Motley Fool is a marketing person trying
> to get you to buy a new car rather than a used one. Instead, I think it's
> an article about the fact rules have exceptions. In this case, the rule
> that buying a late-model used car is a better deal than buying new is the
> rule with exceptions.
>
> And, as far as I can tell, it's a bona fide exception. In recent years,
> some hybrids have been just as expensive used as they have been new. In
> that case, buying used means getting an inferior product for the same price.
> Not a good deal, and definitely an exception to the rule.
>
> Of course, when used prices are the same as new, it does make things sound
> a little fishy, so what's going on? Well, personally, I think it's a matter
> of pricing quirks. Pricing is a complex thing. Think of supply and demand,
> but there are also a bunch of other variables, many of them psychological,
> that influence prices.
> The important thing in this case is that hybrid vehicles were an unexpected
> hit for the auto industry. They sold way more than they projected.
It was more that they produce much less profit per car for the manufacturers
and they chose to restrict the number they produced for that reason.
There's a reason that so few manufacturers even bother to produce them at all.
timeOday
When I was looking at minivans, a 1-2 year old Honda or Toyota with up
to 25K miles cost virtually as much used as new.
Too_Many_Tools
Good discussion but....
Consider who paid this writer to write the article?
And why is Yahoo repeatily posting it?
I smell marketing attempting to make a sale.
TMT
Too_Many_Tools
Anthony Matonak
It's not just those either. Try pricing a used Lamborghini.
Anthony
George
> Here is an example of how marketing will try to manipulate you to buy.
>
> And when buying an used car overwhelmingly is a better deal in almost
> all cases, the article chips away at that fact to push you into buying
> new.
>
> TMT
>
year old replacement car and found the described scenario where there
was little difference between new and 1~2 year old. I can think of at
least 3 friends who typically buy 1~2 year old cars who have recently
bought new because they found the same thing.
Don K
news:FYqdnXemV4JADWLb...@comcast.com...
I wonder if it's a matter of asking price vs. actual selling price.
I would think a plot over time of actual selling prices should look like
an S-shaped curve that's been stretched out over time.
It would start out fairly close to the new price minus some offset,
and slowly decrease the 1st couple of years,
then decrease faster in the middle years,
then slowly approach the $100 scrap value out past 15 to 20 years.
Don
Logan Shaw
> The Motley Fool neglected the fact that, for several years, the Prius
> and other hybrids were selling for several thousand dollars OVER MSRP
> (via Added Dealer Markup stickers). So the used ones on the market now
> are actually selling for less than they cost new, as they should.
Interesting point. I had no idea car dealers ever marked things up above
the sticker price. I assumed that was sort of taboo, but I've never been
in the market for a model where it would happen, so it was just an assumption.
> Another factor propping up the prices of used Priusi, at least in
> California, is the fcat that CA is no longer handing out Carpool Lane
> Access OK stickers for hybrids. If you want one of those (and, IMNSHO,
> that's the primary advantage to owning a hybrid), you have to buy a
> used Prius that already has one. This demand helps keep prices for the
> used ones high, as well.
I can see an argument for not changing the rules on people who already bought
a hybrid vehicle, but that still seems like kind of a nutty way for California
to write its laws. Seems like at the least, those stickers should be phased
out over time or should be non-transferable. However, if I still lived in
California and I could get a car with a sticker that let me drive in the
carpool lane, I'd do it in an instant!
At least, I would if I could get such a car that scored very well in safety
tests, because the way that whole system with carpool lanes is set up is
incredibly dangerous. During rush hour, you've got cars in one lane at a
complete stop, and cars in the immediately adjacent lane moving at 70 mph.
When people pull into the carpool lane, there's a very serious hazard,
especially if there is a curve in the road that reduces visibility even
further. But I digress.
- Logan
Too_Many_Tools
> Logan Shaw <lshaw-use...@austin.rr.com> said in
> misc.consumers.frugal-living:
>
> >I don't think the writer from The Motley Fool is a marketing person trying
> >to get you to buy a new car rather than a used one. Instead, I think it's
> >an article about the fact rules have exceptions. In this case, the rule
> >that buying a late-model used car is a better deal than buying new is the
> >rule with exceptions.
>
> >And, as far as I can tell, it's a bona fide exception. In recent years,
> >some hybrids have been just as expensive used as they have been new.
>
>
> The Motley Fool neglected the fact that, for several years, the Prius
> and other hybrids were selling for several thousand dollars OVER MSRP
> (via Added Dealer Markup stickers). So the used ones on the market now
> are actually selling for less than they cost new, as they should.
> California, is the fcat that CA is no longer handing out Carpool Lane
> Access OK stickers for hybrids. If you want one of those (and, IMNSHO,
> that's the primary advantage to owning a hybrid), you have to buy a
> used Prius that already has one. This demand helps keep prices for the
> used ones high, as well.
> More reasons why PayPal SUCKS:http://www.youtube.com/watch?v=lr_7--e5A1g
This only lends more support to my contention that this is an article
to get you to the dealers to BUY another car.
They are taking an exception to the rule and trying to use it to
motivate the reader to act.
TMT
Columbia_University_for_sale
>
> I think its truthful information. I have been casually looking for a 1~2
> year old replacement car and found the described scenario where there
> was little difference between new and 1~2 year old. I can think of at
> least 3 friends who typically buy 1~2 year old cars who have recently
> bought new because they found the same thing.
So, trying to haggle on a used car price is virtually useless then?
Too_Many_Tools
wrote:
No..always, always haggle.
It always depends on the car model, the seller and the particular
incident.
Some times companies have so many cars, offer a good pricing for a
short period of time, have a slow mover, transferrable warranties,
etc. that the new price equals or is lower than that of an used price.
Sorry...there is no easy way short of doing your homework each and
every time.
One rule of thumb that does work is that the more people who have had
to profit from the car means a higher price...in other words buying
from a dealer rather from the ORIGINAL owner will cost more...each
needs a bit of the action.
I say ORIGINAL owner because many people buy and sell used cars that
are not their own...they are just "dealers" working around the tax
man.
TMT