There was a WSJ piece a few months ago about this. The bottom line is that the dealerships make more money on the financing than on the actual sale, which is often only a few hundred dollars. And they don't just make it on their internal financing, apparently kickbacks from local banks and credit unions are common.

I have worked with a local VW dealership for years. Small, no advertising, relies on repeat customers. Anyway, the GM told me upfront that he could take another $500 off if we financed it. So we did, and paid it off 2 months later.

It is even worse if you try to shop the higher end cars. BMW/Auid/Volvo do not seem to want cash customers at all. Cash buyers do not support the lease/CPO system where they sell the same car twice, get the financing incentives and have the buyers tied to the dealership.

Dealers do often make more on financing than on the new car. They give so much business to their bank that they get good incentives, plus they can often beat your own bank on interest rates. In my case I froze my credit with all 3 bureaus back in 2016 when my ID was stolen and it's still frozen. So it's a hassle to unfreeze, although Transunion and Experian are pretty easy but Equifax is totally incompetent. Depends on which bureau they use. If there had been a nice $$$ incentive if you financed it might have been worth it as long as no early payment penalties. You also have to look at how much interest you might pay in that 1st month. Could offset any $$$ incentive.

BTW, it's pretty easy to freeze your credit and in many states they can't charge you for doing it.

Yeah. They have nearly designed these things to be unworkable when stuff breaks. You certainly can't work on it yourself, most independent mechanics can't either because the proprietary nature of things now. Which means your only option is to take it to the dealership.... which means that in many circumstances the cost of the repair is beyond a realistic option.

Ask yourself this.... why don't you see any older BMWs and Benz' on the road any more? It used to be that those things would last forever. hmmmmm

Funny, that was my experience as well.

I spent years in the car business when I was young including working for a subprime auto lender. I had the chance to wear all the hats and know the business intimately. I got out right after 9/11 when interest rates went to zero and the used car market folded. The wife got a new Toyota last December. It was amusing to chat with the sales and finance manager while nodding my head to their BS. Things have changed but a lot of the tactics are the same.

The dealers don't make a whole lot of money on the financing anymore because the laws have changed. If it's an incentivized rate they might make a couple hundred bucks in commissions from the bank (Toyota Motor Credit). We were going to pay cash for my wife's car but I found an extra grand rebate if we financed at a "non incentivized" rate. The rate they gave me was terrible compared to the incentivized rate but I didn't plan on keeping the loan very long anyway. The finance manager told me I had to "make 3 payments" or they would take the rebate back (complete BS). The reason he said that was the lender would recapture their commission if I paid it off too soon. I called Toyota motor credit a few days later and paid the car off in 6 days which cost me $36 in interest.

The reason why dealers prefer leases (aside from repeat customers) is because there are frankly more ways to screw the buyer. Paying cash is cut and dry and easy to shop against other dealers. Lease buyers are generally payment sensitive and there are more ways to hide profit in money factor mark ups and other "fees" which may or may not be legit. The more variables you introduce (financing, lease, trade in, etc) the more ways I could make your head spin before you come "out of the ether".

I don't even know how small mom and pop dealers survive anymore. Most dealers are now large corporations (Auto Nation, etc). They actually lose money on each car, pay their salesman nothing and make it up with factory-to-dealer incentives based on sales volume.

Personally I buy my cars from CarMax. No BS, just choose what I want from the website, walk in, sign the papers, and pick it up. Of course I may be paying slightly more for a used car, but I know it isn't a turd and I don't have to haggle.

Did that once, worked fine. Might do it again. I rarely buy new anyway, like to do my own MX and that can be an issue with warranties. A detail shop can remove the sticker.

You'll pay full retail at Carmax but it is a lot easier. Years ago my wife's friend totaled her Saturn. Carmax wanted $9200 for the same year/model. I did some shopping around, found the same car for $6000. Also, some places have part time dealers who'll buy a car at auction for you and mark it up $500 or so. That was 15-20 years ago thou, a medically retired USAir Captain ran an auto repair shop near CLT and knew the guy who would buy at auction.

I've got my wife's hand-me-down 2014 SUV, it only has 43K miles and now that I'm out on medical I barely put 100-200 miles a month on it. Before the lockdown she traveled around a fair amount with her hobby but since she has other medical conditions that put her at high risk if she gets the virus she's pretty much been home for 2 months. She got a new SUV last summer and it's just sitting in the garage.

CARMAX is not the cheapest used car available, but if you're not certain what you want it's nice to be able to shop a lot... especially if you're my wife, no way could I pick out a car sight-unseen for her. Cheaper than new, and some assurance of reliability.

Carmax usually prices their cars on the very high end (thousands more) than what I see elsewhere. I'm not really sure what you get for that over any other dealer.

Assurance of reliability is questionable especially if you don't know the car's history. I used to buy hundreds of cars a month from the auctions along with a trade-ins. There are lots of tricks to hide (temporarily) slipping transmissions, bad seals, etc. People knowingly would mask issues right before getting rid of their car. Also, people who get their cars repo'd generally aren't doing the best preventative maintenance. Flood cars can be re titled from out-of-state. Frame damage can be hidden. Don't trust that Car fax report. I've seen it all.

If you are buying a "beater" to drive around for a couple grand then none of this really matters. If you can buy an off lease car still under warranty that is usually your best bet. I don't blow my money on expensive cars anymore. But if I did, I'd only lease a new Mercedes/Audi/BMW, etc. The repairs on those cars (out of warranty) will kill you.

I don't buy new cars very often so I like to buy new and keep them forever. The resale on Toyota/Honda is so high that you really aren't saving that much money buying used (IMHO) if you spread out the depreciation over 10+ years (Domestic cars are a different story). Plus, when I'm on day one on the other side of the world, I don't want to get a call from the wife about the broken down car because I was too cheap to buy a new one (and I'm not around to fix it or deal with the mechanics).

I'm sure people will say they bought tons of used cars and never had issues. I bought a five year old car from my mother-in-law that is now 15 years old and still running.