As something that involves significant amounts of money and paperwork, buying a car is a complicated, unfun experience even in the most favorable of economic environments. But lately, it's just been brutal. Since the pandemic hit, used car prices have shot up as much as 52 percent, according to some estimates, while incomes have only increased by 13 percent. Meanwhile, thanks partly to the Federal Reserve's recent spate of interest rate hikes, the average rate on a used car is now over 12 percent—almost double what it was two years ago. Times aren't especially easy on car dealers, either, who are facing the same price pressures as consumers, just a couple links higher up the chain at the wholesale auction level. Unlike, say, chicken feed prices, the economic indicators produced by the auto industry are deeply personal. An uptick in the car repossession rate isn't just a potential augur of a looming recession. It also means hundreds of thousands of people are suddenly without transportation, making it incredibly more difficult to do basic life tasks like getting to work or taking their kids to school—not to mention making it harder to secure credit in the future. For a country as car-dependent as America, if we all suddenly lost our wheels, the entire economy would grind to a halt. While this is all deeply unfair for consumers, the fact remains that if you get screwed when you buy a car, there are very few people in this world who will help you get unscrewed. But there is one individual who possesses the bravery, the reach, and the insider knowledge to educate buyers so they don't get screwed in the first place. That man is known on Twitter as CarDealershipGuy.Over the past year or so, this anonymous commentator has racked up hundreds of thousands of followers, thanks to his combination of consumer advocacy and big-picture economic insights. He's spun the success of his timeline off into a small media empire that includes a car listing site and a newsletter that's just as handy for learning which data to parse to determine a vehicle's true reliability (it turns out that the 2015 Mazda3 is kinda bulletproof) as it is a place for stock traders to find reliable data.Last week, I hopped on the phone with CarDealershipGuy to discuss why cars cost what they do, what people should know about car loans, and why you should steer clear of used German rides. He takes his anonymity seriously and declined to share his name or geographic location even when I turned my recorder off. "At this point, it's my alter ego," he told me of his nom de tweete. So instead, I called him Guy. VICE: Without divulging too many specifics, can you share a bit about your background? A lot of what you post speaks to larger implications beyond simply the used car market.
Guy: My background is in the dealership setting, whether it was working the lot, selling cars, financing cars, or all of the above. Over the years, I transitioned to leadership and, eventually, ownership roles. I've been on the inside and know what really moves this business and the high-level financials and economics that go along with it. When the consumer makes buying decisions for cars, it has a really strong correlation to the overall economy and health of the economy. I think that's why I have a massive following from people looking for those leading indicators.I think I've made a lot of wrong predictions. I've also made a lot of right predictions. But predictions aside, if you just follow the data I'm laying out, it almost always points you in the right direction of where prices are heading—and ultimately, how they may impact inflation. I think that's what people are looking for, and I think lots of people have found a lot of value in the data and the anecdotes that I share.Can you talk about all of these factors that go into the price of a used car?
There are a couple of structural changes that have happened in the last couple of years, but I think the biggest one is that we have underproduced 8.6 million cars in 2020. We have fewer new cars on the market, and the cost to produce a new car is up as well. It seems like car manufacturers have largely given up on making new entry-level models. You don't have the Honda Fit or the Chevy Spark anymore, each of which could be purchased new for under $20,000. Meanwhile, the most enticing cheap new vehicle is probably the Ford Maverick, but its price often gets drastically marked up by dealers. So if the average new car price is going up, does that create more of a market for used cars for those who have, say, $25,000 to spend?
New cars are a luxury good. There's no denying it. If [I'm an automaker] and I can sell a luxury car and make a higher margin, I'm much more incentivized to do that. That creates a really big backfill for affordable new vehicles—if somebody can figure that out, I think it's a trillion-dollar opportunity. But for now, if you want a car and don't want to spend $45k, you've got to go used. You don't have many other options.Has the impetus to switch from gas-powered cars to electric vehicles, as well as Tesla being viewed as the gold standard of the EV market, had an effect on the idea of new cars being luxury items?
Well, it's a couple things. In the good times, Tesla's market share has gone up more than other [car manufacturers], and in the bad times it's gone down proportionately. But there are people who love electric, and there are people who love internal combustion engines, and there are people who want to get something that is affordable at a good price and they don't necessarily care. The idea of making cars fully electric in the span of a decade is way too ambitious, if you ask me. The last time I bought a used car ended up being a very emotionally intense experience for me. There were a lot of positive and negative triggers between test-driving, thinking about loan terms and monthly payments, and feeling a sense of urgency because my old car was on its last legs. How would you say a person's behavior changes in a dealership environment?
It's interesting. Different people have different shopping preferences. Some people don't want to haggle or don't know how to haggle, so they go to CarMax. Other people actually want to haggle and they enjoy it, so they go to a traditional dealership. Meanwhile, most dealers have realized that buyers prefer something more low-touch, where you're empowering the customer to have control and make their own decisions without the pressure of another human being. I think that's come a long way. Most dealerships nowadays offer some form of a digital retailing experience, some more than others. But many dealers really let you have almost the entire sale done online.Let's say that I'm the average American, with a median income and a normally low level of automotive knowledge, and I want a Subaru Outback but I'm flexible about it. What do you wish that I, as a consumer, knew?
I just wish that everyone made independent decisions. Don't make a decision based on others, like if your neighbor has this car or that car. At the end of the day, spend as much as you want on a car—please—but just make smart decisions that are actually good for you. Loan terms and car prices have never been tougher for the consumer. Think three times, four times, about which car financing is right for you. I noticed on Twitter that you're specifically against buying used German cars. Why is that?
Their cost of ownership is always higher relative to Japanese cars, specifically. The cost for repairs is higher and the cost of maintenance is higher. On top of that, each brand has different issues—it's true that Land Rovers are known for electrical issues. These stereotypes exist for a reason, and if you're not prepared for them, you're making a mistake. Most people want a car to get them from Point A to Point B, and then maybe to spoil them a bit. German cars are amazing if you get them low miles or if they're new. But more issues pop up with them at a higher rate [as they age] than with Japanese cars. I think that cars with the lowest cost of ownership are the most appropriate for most people who are not looking to break the bank. At what point should someone replace their current car?
Well, typically a car's value drops when it eclipses on manufacturing warranty. Depending on what the warranty in your car is, your car takes a hit in value, [and then it may take another] when it hits over 100,000 miles. Now's probably not a great time in the market [for buyers] because there's more demand — customers are coming [into dealerships] with tax refund checks, so there are more people trying to buy the same amount of cars. OK, last question. So in 2020, I was looking for my phone under the passenger seat of my car. Something was wedged in there, and after I pulled it out, it turned out to be $5,000 in twenty-dollar bills.
No way.I felt like I needed to tell you that because it's the wildest car-related thing that's ever happened to me. How common is that?
We usually uncover anything before it gets to the consumer. We once bought a car at auction and we saw a fold underneath the carpet—not the floor mats, but the actual carpet. When we started pulling it out, we found thousands of pennies.
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Guy: My background is in the dealership setting, whether it was working the lot, selling cars, financing cars, or all of the above. Over the years, I transitioned to leadership and, eventually, ownership roles. I've been on the inside and know what really moves this business and the high-level financials and economics that go along with it. When the consumer makes buying decisions for cars, it has a really strong correlation to the overall economy and health of the economy. I think that's why I have a massive following from people looking for those leading indicators.I think I've made a lot of wrong predictions. I've also made a lot of right predictions. But predictions aside, if you just follow the data I'm laying out, it almost always points you in the right direction of where prices are heading—and ultimately, how they may impact inflation. I think that's what people are looking for, and I think lots of people have found a lot of value in the data and the anecdotes that I share.
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There are a couple of structural changes that have happened in the last couple of years, but I think the biggest one is that we have underproduced 8.6 million cars in 2020. We have fewer new cars on the market, and the cost to produce a new car is up as well. It seems like car manufacturers have largely given up on making new entry-level models. You don't have the Honda Fit or the Chevy Spark anymore, each of which could be purchased new for under $20,000. Meanwhile, the most enticing cheap new vehicle is probably the Ford Maverick, but its price often gets drastically marked up by dealers. So if the average new car price is going up, does that create more of a market for used cars for those who have, say, $25,000 to spend?
New cars are a luxury good. There's no denying it. If [I'm an automaker] and I can sell a luxury car and make a higher margin, I'm much more incentivized to do that. That creates a really big backfill for affordable new vehicles—if somebody can figure that out, I think it's a trillion-dollar opportunity. But for now, if you want a car and don't want to spend $45k, you've got to go used. You don't have many other options.
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Well, it's a couple things. In the good times, Tesla's market share has gone up more than other [car manufacturers], and in the bad times it's gone down proportionately. But there are people who love electric, and there are people who love internal combustion engines, and there are people who want to get something that is affordable at a good price and they don't necessarily care. The idea of making cars fully electric in the span of a decade is way too ambitious, if you ask me. The last time I bought a used car ended up being a very emotionally intense experience for me. There were a lot of positive and negative triggers between test-driving, thinking about loan terms and monthly payments, and feeling a sense of urgency because my old car was on its last legs. How would you say a person's behavior changes in a dealership environment?
It's interesting. Different people have different shopping preferences. Some people don't want to haggle or don't know how to haggle, so they go to CarMax. Other people actually want to haggle and they enjoy it, so they go to a traditional dealership. Meanwhile, most dealers have realized that buyers prefer something more low-touch, where you're empowering the customer to have control and make their own decisions without the pressure of another human being. I think that's come a long way. Most dealerships nowadays offer some form of a digital retailing experience, some more than others. But many dealers really let you have almost the entire sale done online.
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I just wish that everyone made independent decisions. Don't make a decision based on others, like if your neighbor has this car or that car. At the end of the day, spend as much as you want on a car—please—but just make smart decisions that are actually good for you. Loan terms and car prices have never been tougher for the consumer. Think three times, four times, about which car financing is right for you. I noticed on Twitter that you're specifically against buying used German cars. Why is that?
Their cost of ownership is always higher relative to Japanese cars, specifically. The cost for repairs is higher and the cost of maintenance is higher. On top of that, each brand has different issues—it's true that Land Rovers are known for electrical issues. These stereotypes exist for a reason, and if you're not prepared for them, you're making a mistake. Most people want a car to get them from Point A to Point B, and then maybe to spoil them a bit. German cars are amazing if you get them low miles or if they're new. But more issues pop up with them at a higher rate [as they age] than with Japanese cars. I think that cars with the lowest cost of ownership are the most appropriate for most people who are not looking to break the bank. At what point should someone replace their current car?
Well, typically a car's value drops when it eclipses on manufacturing warranty. Depending on what the warranty in your car is, your car takes a hit in value, [and then it may take another] when it hits over 100,000 miles. Now's probably not a great time in the market [for buyers] because there's more demand — customers are coming [into dealerships] with tax refund checks, so there are more people trying to buy the same amount of cars. OK, last question. So in 2020, I was looking for my phone under the passenger seat of my car. Something was wedged in there, and after I pulled it out, it turned out to be $5,000 in twenty-dollar bills.
No way.I felt like I needed to tell you that because it's the wildest car-related thing that's ever happened to me. How common is that?
We usually uncover anything before it gets to the consumer. We once bought a car at auction and we saw a fold underneath the carpet—not the floor mats, but the actual carpet. When we started pulling it out, we found thousands of pennies.