People have always been very price conscious when purchasing a new or pre-owned vehicle. Let's face it, it's a lot of money we're talking about and people want to make sure they're making a great investment. That's sound logic, but are people really achieving that objective, making a sound investment, by haggling over the price they pay for their vehicle? The data says more often the answer is no.
When you make a purchase, one of your primary concerns has to be the value of what your purchasing two, three, four years, etc., down the road. For example, if you purchase gold, you know that for infinity, that gold is going to retain, and possibly increase, it's value. You know it will do that because gold is basically infallable in the sense that it will never tarnish. It will maintain it's same luster 50 years from now.
With vehicles we know the formula works differently. A vehicle doesn't retain it's worth like gold so it depreciates (loses it's value) each second it's on the road. The longer that vehicle is driving, the miles it racks up, the less value it's probably going to retain. Most consumers know this already. That's why they are so concerned about price because they believe that by paying less, they are reducing the chance of being "upside down" e.g. owing more for the vehicle than it's worth. On the surface this is a logical argument, but if you analyze it from an economics perspective, there's actually much more to this. Let me explain. In 1977, Chrysler announced a major financial crisis within the company. What resulted from that announcement? If you remember and/or study history, the government stepped in and provided bail out money to Chrysler. The other car companies also assisted by reducing the prices on their comparable vehicles. Why? Because although the car companies compete against one another, they also depend upon one another. If one car company goes down, they will need to liquidate their inventory which will reduce their prices and thus cause competing models to have to reduce their prices. Remember when American Motor Company went under? That was when many of the cash rebate programs gained their popularity, but what happened is everyone loses revenue. Another example is oil prices. Have you ever noticed that if Chevron is $3.50 a gallon, Texaco across the street isn't selling gas at $1.00 a gallon. They are at $3.50 also, or within a peny or so of the Chevron price. Why? Because the cartel, or price agreements, between the oil companies insures all of them are able to compete effectively.
Let's bring the discussion back to vehicles. If a car manufacturer offers you a $5,000.00 rebate, or cash back, many of you assume this is a great thing right? You get to buy the car cheaper? Let's go back to Chrysler and the oil companies and the examples given above. If Chevrolet gives those rebates so that their SUVs sell for $30,000.00 instead of $35,000.00 (due to the rebates given) then two, three years down the road, that vehicle that actually sold for $5,000.00 less is now worth that much less in value so that when you go to try and sell that car as a trade and get into a new one, you owe thousands more than that car is worth, not because you paid too much, but because the reduced amount you paid has driven down the value of that vehicle.
Now, at this point you may be saying "this guy is crazy. He's saying I should pay more when I buy a vehicle...I'm not going to listen to that!" Well, what I'm actually saying is no one is helping you by reducing the amount you pay up front because the more you pay for your vehicle, the more everyone else has to pay for that same vehicle which means the vehicle creates more value for itself which makes it more valuable when you go to sell it years later. It's the same principle as gold. Plus, when you have a strong vehicle like a Toyota, the value in what I'm arguing is born out with the resale value of the vehicles this company puts out. This is the reason Toyota's vehicles are slightly more expensive than some of the other makes, because these Toyota's are more valuable to you. The end result? CNN, Edmunds, Cars.com, and others consistently place Toyotas at the top of their lists for having the best resale value. Can you say that for that vehicle you got the $5,000.00 rebate on?
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