Op-ed: How we abandoned our inborn common sense about new-car pricing

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Op-ed: How we abandoned our inborn common sense about new-car pricing
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George Will, an American journalist and author and a keen observer of human behavior, has written, “This is an age in which one cannot find common sense without a search warrant.” Reading that, my first thought was that he must have been talking about new-vehicle shoppers.

Read more: How new car dealers make the big bucks

You and I aren’t stupid…

I have always been amused by this dichotomy:

1. We buy hundreds of things every year for ourselves and our families, and no one can tell us what the seller paid for any of those products or services.

2. But for decades, we’ve swallowed — hook, line and sinker — the preposterous notion that the auto industry has been providing us with the price dealers really pay for the second most expensive product we buy.

For most new-car shoppers, that notion is still a given, chiseled in stone.

I understand how that stone got chiseled. For decades, we were fed that fiction by trusted organizations like Consumer Reports, which ran advertising in its monthly magazine claiming it could tell us “the dealer’s true cost” and how much “wiggle room” we had between that cost and the automaker’s suggested retail (sticker) price. That promise motivated generations of consumers to purchase its New Car Price Service, a significant revenue source for the company since the 1980s.

Presented on November 27, 2012 with the irrefutable evidence that “the dealer invoice price” has had no relationship to any dealer’s cost since the Internet arrived, Consumer Reports discontinued its New Car Price Service. (Will you visit me when I have to join the witness protection program?)

The fact is, just as in every other product category, no one can tell you what any dealer pays for any car.

Did that fairy tale ever make sense? Put yourself in the retailer’s shoes.

If you wanted to own a reasonably profitable new-car dealership today, you’d probably need about 25 years of managerial experience in the car business and a net worth of at least $10 million, or the ability to borrow that much. (Want a Lexus franchise? Figure $15 million.) And all that money would be sunk in your store.

Was it stupidity that got those dealership owners to $10 or $15 million?

You and I aren’t stupid. If we owned a retail store selling something as expensive as new cars, and our suppliers published on the Internet anything close to our real cost numbers, wouldn’t we go ballistic?

But car dealers don’t. They never did, even before the Internet arrived in 1995, and now you know why. 

If that ain’t plain old common sense, Willie ain’t no country music legend.

Read more: The eye-opening truth about dealer invoice price

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James Bragg About the author: James Bragg
James Bragg has been a full-time consumer advocate/activist for over 20 years as the day-to-day, hands-on founder/manager of FightingChance.com, a national information service that’s helped over 130,000 consumers buy or lease a new vehicle for the lowest price. His latest book is a revised edition of Letting the Cat out ...Read more
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