Wing_Nut

Have any of you holiday hedonists paused for even a moment in your drunken debauchery and conspicuous consumption to think of your local new car dealer and what the New Year will bring for them?

I thought not!

2008 promises to be a lean year for the plaid jacket crowd.

• Hit #1 - Interest rates are up. Manufacturers already hard pressed to make a buck will find it painful to underwrite even more financing costs. That removes a big helping hand for the dealer.
• Hit #2 - Credit is tighter than it has been in many many years. Banks, reeling from the sub-prime meltdown in real estate are actually paying attention to the creditworthiness of borrowers these days. That will make harder for Earl to put you in a Bentley for $99 down.
• Hit #3 - Consumer confidence is rather low. That generally means people will delay the purchase of big ticket durable goods like cars. Especially when those purchases are discretionary and not a necessity.
• Hit #4 - Both real estate and equity markets are depressed at the moment. That leaves a lot of people who felt rich in assets a few years ago feeling suddenly poorer.
• Hit #5 - The economy has so far officially teetered on the edge of recession. Jobs creation and consumer spending have kept us inching forward barely ahead of a shrinking GDP. But, most economists admit that a slight shift in consumer spending could start the dominoes tumbling into job cuts and further pull back by consumers, and so on.
• Hit #6 - The weaker animals will be easy prey for the lions. The first to be really hurt will be the dealers with a weak product offering. My own personal projection is that Ford will not weather this storm well. Single brand stores are really at risk.
• Hit #7 - Both GM & Chrysler have announced restructuring of brands and the dealerships that support them. Again, single brand stores are really at risk. A good number of small dealers will likely cease to exist.

I know that like me, you genuinely care about your new car dealer. And, knowing that, I thought you'd want to take a minute to feel sorry for Earl & Billy Ray as 2008 draws nigh.

On the plus side for consumers, March could be a great time to go shopping. As inventories build up during the peak of winter and manufacturers are looking at posting 1st quarter sales numbers for the new year, dealers will have strong incentives to move product. If you have the cash and/or credit in 2008, Earl & Billy Ray will probably treat you like a king (until the sale is closed anyway).

On top of the buying power, the market is just full of the best product in the history of the auto industry. Everything from Trucks, to SUV's, to Sedans, to Vans, to Sports Cars is just packed with nice choices.

Start honing your predatory buying skills now. Er... I mean....lift a glass of champagne for your local dealer tonight!

fergyflyer

Right on the money. I've got the cash to buy what I want, and I'm really looking forward to this opportunity that has shown up at the right time.

Some of the dealers are starting to do stupid stuff just to generate cash flow right now to survive . My guess is at the end of 2008 there will be a smaller number of factory dealer outlets.

Red Bearded Goat

Wing,
Another accurate post mixed with a great sense of humor.... just wish your #4 hit... didn't hit so close to home (my 2nd home in FL that's on the market with a starting price $70k below what it may have sold for in 05)!

Red.

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Wing_Nut

Thanks, and chin up. I just went through the same thing back in August. We sold our PA home that we finished building Nov 2004 and became full time CT residents again. I think we sold it for about $50K less than peak market price but, I'll never really know. We didn't lose money. I think a quick tally indicates we walked away with about a $30K net gain in just under three years of ownership.

I really didn't get emotional about it even though we had the house custom built to our specs. The CT house is still nicer and given the market and credit crunch, we were happy to find a reasonable buyer who worked with us on terms like timing. That allowed the kids to finish the summer with friends and be back in CT before the school year started. It also allowed me to focus where I needed to career wise rather than worrying about an empty house 300 miles away or shuttling back and forth. And, when I say I didn't get emotional, I don't mean that there wasn't a fair amount of anxiety. I just tried not to let it influence my decision....much.

I don't know your situation so any advice I could give must be taken with a grain of salt, on a wide rimmed glass, filled with margarita mix.

But in general, I would advise you to not allow emotion or what the house was worth two years ago to get in the way of a good deal today. Whatever a good deal is for you.

Good luck!

And Happy New Year!!!!

Dan_E

Just bought a house this month, my first. It is/was a buyers market, having the VA to back me up sure made it sweeter.

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fergyflyer

Florida's a mess right now. It's probably the worst state in the country for this real estate mess.

Orlando/ Central Florida has over 20,000 houses listed on MLS for sale. There was 954 houses sold in November meaning there is at least 21 month supply of houses right now.

My sister bought a condo in Ft. Lauderdale in 1999. She paid 97,000. At the peak in late 2005 the unit next door to her sold for 355,000. Right now she would be lucky to get 250,000.

My house went from the 175k that I bought it for to a point where a house just like it sold for 225k 6 months after I bought mine. The last house that sold in my plan sold 2 months ago for 179k and it was 150sf bigger than mine.

I know several people that bought houses in the last 2 years that have lost more money than they have made in income. One friend paid 525,000 for a house in May of 06. The builder right now is building the exact same house for 329,000 with some extra upgrades that he doesn't have. It'll be 10 years before he has equity in the thing. He put 165,000 down so he can't walk away, he's just stuck.

raspantienator

I for one do not share your feeling of sorrow for the car dealer( even though it's a spoof). Car dealers have not changed their practices since the 50's. The tools have become more sophisticated but practices have remained constant. It's nice to see your financial minds ticking and analyzing the effects of a recession on real-estate and how that may translate into purchasing a car. The real-state market is bad depending on your prospective. Perhaps now is the time to become a slum lord.
A good deal at the dealer still means they make a profit... they would have too. Every percentage point they make translates into money in their pocket. I've never sold cars for a living but I do not know anyone smart enough to out deal the dealer.
I've did sell stocks and bonds...and I always had the "smart invester" tell me how he can do better. If he had 100 grand, I'd say buy a seat on the street and good luck.
Your either a consumer or a dealer- I've cancelled my subscription to the wall street journal 8 years ago and exist happily away from the delusion of knowing whats going on.
I spend my days happily with family and cars and I support local business as a wide eyed consumer.

Wing_Nut

In truth, US dealers have made an effort to clean up their image and practices over the last two decades. You can thank the Europeans and Japanese for showing consumers there can be a better experience. Even domestic manufacturers have put the screws to their plaid jacketed snake oil salesmen in an effort to stay competitive. And, I think the industry has made some meaningful progress. But.....let's face it, that salesman across the desk from you ain't working at the Pontiac store because he graduated from an Ivy League school Summa Cum Laude. No, he needs to scramble to make a living. And, top salesmen can make well over six figures.....by taking money out of your pocket.

Of course the dealer and salesman are in business to maximize their profit. They are not your friend. They don't care if you get yourself in over your head financially. They don't care if an eighteen year old kid drives off in a high powered car he has no business driving. Nor should they! That's our problem as consumers!

As for losing money on a transaction, you don't appear to know much about the industry or compensation structures between manufacturers/dealers. They lose money on transactions all the time. It's just a good business decision.

There are potentially multiple incentives in place at any given moment that encourage (theoretically) dealers to cooperate with manufacturers to accomplish the manufacturers goals. Aside from that, they have an inherent economic incentive to deal with slow moving inventory that has been sitting on a lot for months racking up finance charges (aka sunk costs).

Incentives may take the form of general volume incentives, volume incentives for a particular model, advertising assistance, higher allocations of hot models, etc. A smart dealer will and should look at the big picture and seek to maximize overall profits.

If that means selling a few units at or below cost to achieve the manufacturer's goals near the end of a key measurement period, they will do it. Unless they're just stooopid! Let's say that the dealer is 1 - 5 units away from making a key incentive that could mean $100K for the business for the 1st quarter. They would gladly take a $1K loss on every one of those unit sales and tack on an extra commission for the sales force to make sure they don't lose that $100K. Now, they won't want to trash their long term pricing so, don't expect them to give you the car at some ridiculous price. But they will be more willing to deal at certain times than others. Also, don't expect to walk away with the latest "gotta have it" model at huge discounts. These will almost never be included in incentives because they're not needed with all the idiots running around desperate to impress their neighbors.

OK, why would the manufacturers want to do this? Well, it could mean that they don't have to deal with temporary plant closures and restarts which cost them money, disrupts the supply chain, and can introduce quality issues. Or worse, they may avoid a permanent closure and reduction in force with all the bad publicity and huge termination costs. Or it could be a marketing play such as bragging rights in the case of Toyota finally overtaking GM as top dog. Or, Ford being able to claim that the Taurus was the number one selling car in America (even though it sucked).

The bottom line is you can get a car below dealer cost. Do they still make money? Yes, but it's coming from someone else's pocket. This is the goal in any negotiation. All sides must win. If you can accomplish your goal without using your cash, it's a good day.

OK class over.

raspantienator

Wow- I'll remind myself never to get into a debate with you Wing Nut.

The next class you hold, I would like to further discuss who eventually is responsible to pay under those financial practices. It sounds like a pathway to GNP destruction to me.

Wing_Nut

Hardly.

First, a free market is self correcting. Any action will cause a reaction. The market is incredibly resilient because of this. The chances of any economic practice like incentives destroying long term GDP growth before another force counteracts it is almost zero.

Second, the auto industry has been using incentives like this since the sixties with no overall adverse effect on GDP. Quite the opposite! Throughout a manufacturing boom in the postwar era, to "offshoring" in the 90's, and "globalization" in the 21st century, the auto industry has found a way to survive and grow in North America thereby contributing to US real GDP growth. Incentives have played an important part for manufacturers, allowing them to guide behavior consistent with their larger economic strategy legally and without government intervention. Believe me, when it no longer makes economic sense, incentives will disappear. But, I wouldn't hold my breath!