Buying & Leasing a Car

PODCAST: How to Get a Car Deal in a Crazy Market with Karl Brauer

As used car values soar, the old rules of how to get the best price still hold. Also, in the stock market, value stocks pull a rotation move on growth.

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Transcript

David Muhlbaum: Save money by buying your car used. You've heard that advice from Kiplinger and others before. Sure. But it's getting harder to do in this topsy-turvy market. We'll sort out what's going on with car prices and how you can still make out. Well, okay when shopping for wheels. Also, the rotation into value stocks will translate. All coming up on this episode of Your Money's Worth. Stick around.

David Muhlbaum: Welcome to Your Money's Worth. I'm kiplinger.com senior online editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing, Sandy?

Sandy Block: Tan, rested and ready.

David Muhlbaum: Good. Now, somewhat unusually for us, we have a third voice on our opening segment, but it's one that our listeners have heard before when we talk about investing. Welcome, Kyle Woodley, senior investing editor for kiplinger.com.

Kyle Woodley: Hello. Hello.

David Muhlbaum: So, Kyle and I collaborate on Kiplinger's stock market summary. It's called Closing Bell and every darn trading day, Kyle, or others on our investing team, write a few hundred words that discuss what stocks did that day and why. And we also try to connect the ups and downs and sideways of the market to trend stories that we're writing at Kiplinger. And I frequently edit these — or mangle, Kyle might say. And so some of the natural push and pull between writer and editor is about jargon of course, and stocks have plenty of jargon. So, when Kyle started using this phrase rotation into value, I threw a flag and said, "Hey Kyle, what the heck does that mean, 'rotation into value'?"

Sandy Block: Right. Is that like rotating the tires on your car? Or I guess that's the next segment, right?

David Muhlbaum: Rotation for value. Yeah. Right. So, Kyle, please tell the listeners what rotation into value means because it did turn out to be a valuable bit of shorthand. One that tells us a good bit about the market in 2021.

Kyle Woodley: Sure thing. So, I guess we'll start with the idea of rotations in general. Let's say you check the S&P 500 for the day and see that it's up 1%. That's a fair indication of what "stocks are doing," broadly speaking anyway. So, naturally all stocks don't really swim together like a school of fish. Certain areas of the market are stronger than others at any given time. Sometimes it's value stocks, that's generally just any stock that's perceived to be trading at less than its intrinsic value, but some sectors tend to be more value-priced more often than others. Sometimes it's growth stocks, like Tesla, Square, Etsy — companies that are expected to grow a lot and unlike value stocks, they often trade at very high multiples to things such as earnings, sales, what have you.

David Muhlbaum: They're expensive.

Kyle Woodley: They can be. So, a rotation is when investors see opportunity in one sector over another and they increasingly pile their money or rotate into those stocks.

So, growth has led the market for most of the past decade-plus, actually. However, over the past year or so, investors have been preferring value-oriented sectors because of what's happening with the economy and that it happens to favor them. Take energy, for instance. People are moving about the country more, that's helping to bring up oil prices. Investors want to harness this, so they're buying up energy stocks, which is typically a value-oriented sector and they're exploding as a result. Energy's up almost 45% so far in 2021; the S&P 500 is up about 14%.

Sandy Block: So, Kyle, can you rotate... I guess, translate these trends into specific stocks or tickers that the people might want to be aware of?

Kyle Woodley: Sure thing. So, because we have to eat, I'm going to point people towards the website for certain things. We've recently published value selections across both stocks and exchange-traded funds on kiplinger.com. So, just search best value stocks, Kiplinger, or best value ETFs, Kiplinger, or just visit us at kiplinger.com. But a couple of picks that stand out, Rent-A-Center, ticker RCII, is trading at nearly half of its historical forward price-to-earnings ratio. And it's 36% cheaper than the rest of the consumer discretionary sector. For ETFs, if you're looking for something that's just really cheap and straightforward, Vanguard Value ETF, ticker VTV is just 0.04% in annual fees, which comes out to just four bucks a year for every $10,000 you have invested in the fund. A really interesting play that I like though is called the Roundhill Acquirers Deep Value ETF. So that's ticker, D-E-E-P, D-E-E-P.

David Muhlbaum: DEEP.

Kyle Woodley: ... ticker DEEP—

Sandy Block: DEEP.

Kyle Woodley: ... DEEP, which targets deeply undervalued small and micro-cap stocks. It's a very aggressive way to chase value, but one that you can squeeze for a lot of juice if you're highly convicted.

David Muhlbaum: Okay. But what does this rotation mean and these different classes mean to someone whose involvement in stock investing is occasionally rebalancing the holdings in their 401(k)? How do they care?

Kyle Woodley: It depends on the person. So, keep that in mind. But I feel like a lot of people are going to be diversified enough in their 401(k)s that it won't even matter. If you really like to fiddle with your 401(k), maybe you adjust your holdings to include a little bit more value if you think it'll keep up, if you think this movement into value will keep up. If you own actively managed funds though, those managers, depending on the rules that they operate under, they might be making the shift into value for you. Most people aren't really going to be very tactical in their 401(k)s and given the time horizon they're investing over, in those accounts, they really don't need to do much.

David Muhlbaum: Got it. So when might this rotation into value end? One of the things that's jumped out at me is when you said... I don't know if it was the energy sector overall or a particular stock, but you mentioned up 40%. And I thought, "Well, okay, is it still a value?"

Kyle Woodley: What do I look like to you, Ms. Cleo?

Sandy Block: No, you do not!

Kyle Woodley: No. I'm not going to pretend to have an exact answer to that because no one actually knows, but when value sectors stop looking so value-priced, especially relative to growth, your areas of the market, that's going to be one possible trigger for a cooling off. When this rapid economic push that's been spurred by the whole reopening play starts to wane, people are probably going to become more interested in tech and traditional growth again. And there's a lot of money that's out there that can rotate back out of value. I just saw on CNBC, it was a week or so ago, they were quoting Goldman Sachs and they were saying that mutual funds are overweight value to the largest degree in the eight years that they've been gathering such data. So, when a move happens, it could be strong.

David Muhlbaum: All right. So, when rotate back out of value becomes the phrase that we use instead of rotating into value, well, we'll tell you about that then. Thanks so much, Kyle.

Kyle Woodley: Thank you for having me. See you later.

David Muhlbaum: Coming up in our main segment, we talk about what's going on with car prices with analyst Karl Brauer. How can you still get a deal on your next ride these days?

Used Cars with Karl Brauer

David Muhlbaum: Welcome back to Your Money's Worth. For this segment. I'll be joined by the editor of Kiplinger's Personal Finance Magazine himself, Mark Solheim. Now, he and I think we know something about cars and the auto market, but to ensure that we get the latest, we've brought on Karl Brauer, whose current title is executive analyst at iSeeCars.com. He's worked for KBB, Autotrader, and Edmunds.com as well. So yeah, we know he knows cars. Welcome, Karl. Thank you for joining us.

Karl Brauer: Hey, great being on with you guys, always fun talking cars.

David Muhlbaum: And thanks to Mark, too. Mark, this is your first podcast. Welcome to Your Money's Worth. I know you've been listening to us, because you have to.

Mark Solheim: Yeah, I listen every week and try and find some errors, something to criticize, but it's getting harder and harder to do that.

David Muhlbaum: I'm sorry.

Mark Solheim: I have to say that I think of David and myself as a bit of a yin and yang of cars. I covered cars for about six or seven years, 20 years ago. Started 20 years ago and David, after I went onto some other things, David took over covering our cars. But David's always been much more of a gearhead than me. I think he knows almost everything about cars in detail. He's got that sort of a steel-trap mind. I'm much more interested in the financial side of things. It always leads to, "David, when are you going to do that big feature article on leasing?" And David goes, "Oh, no. I don't know."

David Muhlbaum: Right. Yeah. And in fact, we haven't had a full-length car buying chat here on Your Money's Worth since almost a year ago, when I was the guest talking with my predecessor as the host, Ryan Ermey about used-car buying strategies. And so, used-car buying strategies, which Mark has written about recently. Well, that's the exact sort of thing we want to come back to today, but it got to start out by looking at the car market writ large this year, because – and I use this word with care – it's nuts out there! Karl, I've got my used-car price anecdotes. I'm sure you and Mark do too, but can you start please by giving us all some data, what is going on with used car prices? Why are they so high?

Karl Brauer: Yeah, so they have gone through the roof and I don't think most people consider used cars an appreciating asset, unless there are some kind of rare classic, unique, limited production car – and they're out there. But most people wouldn't consider an F-150 or a Honda Accord an appreciating asset, under normal circumstances. But they have been for the past year, they've actually gone up in value over the past year. And it varies between different makes and models. But we've seen these prices shoot up approximately 16% in the past year. And normally, they don't change at all. If you take a one through five-year-old car, used car price and you look at it and every year you're going to take the next, you're going to move the years up one because you're always looking one to five years old, normally the change. Well, from 18 to 19, we tracked it, like down 0.2%. And then from 19 to 20 it was up 0.3%. And then all of a sudden you get a 16% bump in one year.

David Muhlbaum: Right. And for the individual car owner, like the person who owns one or two cars, the word they've used all over the years was depreciation. Like I have this thing, it loses value every year until I buy another one.

Karl Brauer: That's how it usually works.

David Muhlbaum: Right. That's how it usually works. And maybe we'll get back to the idea, crazy idea of like speculating in cars, but for most people, they don't speculate in cars. You buy a car because you need a car. And it's an unusual situation. People are getting sticker shock when they're going out to buy the thing that we always say was the place to save money, buy a used car and save money. So why?

Karl Brauer: Well, used cars follow new cars, literally and figuratively. And so if people don't get rid of their current car to buy a new one, they restrict the used car market. And a lot of people have not bought new cars for the past year because of reasons that we can all probably guess pretty easily. But when you had initially a shutdown of new car production and new car buying, everyone was stuck in their house for several months, that restricted the trade-in of your existing car for a new one. And then when people finally decided not only do they want a car, but they probably want a car where they might not have before, you had a lot of urban dwellers who took public transportation. And again, for reasons we don't have to go into, but I think we all know., suddenly the idea of taking public transportation or being the 800th person in an Uber in the past week wasn't as appealing.

Karl Brauer: And the technology has proven that a lot of people can work from home that didn't know it. And a lot of bosses that might not have put up with it have now acknowledged it works. So all of a sudden the idea that you have to live in the city and use public transportation to go about your daily life has been kind of blown apart. And a lot of people who used to live in cities and take public transportation or shared transportation, now live in suburbs and need a car. So, you combine a restriction in new car supply with an increase in new car and used car ownership. People who didn't have a car a year ago, now want one, and you've got both things moving in the wrong or right direction, depending on how you look at it. Both supply being somewhat constricted and demand shooting up.

David Muhlbaum: Since we're using these wonderful macroeconomic terms like supply and demand, I want to throw in another one, which is, well, money, right? One of the things that people were taking their stimulus checks and turning them into were wheels.

Karl Brauer: 100%. 100%. And not only that, but on top of that, you had people who weren't going on vacations anymore, or weren't going to movies, or even out to dinner as much anymore. So, they looked in their savings account and they were like, "Huh, I've got more money in there than I expected to have at this point in time. Maybe I'll go get a car instead." So, they unintentionally saved their money and when you save money and you'll see a big chunk, what you used to dwindle away on a per day or per week or per month basis, now it looks like plenty for a down payment on a new car if you want one. Finally, the more recent thing that's really still hitting the cars, I can give you the numbers more recently, is the chip shortage, right?

We've got a microchip global shortage, because cars are like computers. They need all these chips, but so do personal electronic devices like cell phones and laptops and iPads and gaming consoles. And guess what also went up like crazy in the last year as we were all stuck inside? Personal electronics, where you could at least sit in your house and still entertain yourself. So, a lot of people bought new computers, putting a big demand on computer chips, and that's still an issue, and it's still restricting new car production in the midst of all these other factors we just talked about.

Mark Solheim: And is it true that cars are sitting in huge lots around America, just waiting for these chips to be delivered?

Karl Brauer: It's 100% true. And there again is the irony, right? You've got dealer lots bare. There's not very many, if any cars there and they're scrambling to get more cars in, new and used the dealers are wanting, but then you've got a whole bunch of cars sitting where you can't buy them at the kind of back lots and parking areas outside of manufacturing sites with not quite all the chips they need. And that's the old joke that a lot of people may or may not know, which is that a car has 5,000 parts. And if you've got 4,999, you still can't sell the car. You still can't do anything until you have all 5,000.

David Muhlbaum: Now, this is the sort of question that I would be tempted to ask at the end, but I'm just going to jump ahead. How long is this going to last?

Karl Brauer: We're thinking, at least through the calendar year. There is just too much of this new demand from these new-car buying constituents, people that didn't really care about cars and now all of a sudden they want one, and there's too much restriction in chips globally. So, this will rebalance, like everything, but it's not going to happen next month. And it's probably not going to happen in September. It probably will start to happen right at the end of the year or into next year. Don't forget that he most popular buying season is between say, May and September. It always slows down dramatically in November through March. So we'll have a natural reduction in demand, just cyclically, that'll help rebalance things as the chips come up on the production.

Mark Solheim: And I have to say the current Kiplinger Letter has a little section on this, and they're saying exactly what you're saying, Karl. Six months, at least, but more likely a year before things get back to fully normal.

Karl Brauer: Yeah. Yeah. That's what we're looking at.

David Muhlbaum: Be that as it may, people need and want cars, they're going to go out there. They may have to shop now. Could we touch on some strategies about how you can still get the best deal on used cars, and maybe Mark, you just wrote about this, because I didn't.

Mark Solheim: I did. And I wish I had better advice. In fact, one of those real-world stories, my niece is looking for a car and she's got her heart set on a 2021 Honda HR-V, a subcompact SUV. Unfortunately, right now, she's still in Denmark. So, she's trying to negotiate a new car sale from Denmark. She's coming back to Michigan. And I just see on WhatsApp that she sent the quote that one dealer gave her. And it didn't even bother to give her the price of the car. He just told her what the financing would cost, $712 a month for three years. And her mom chimes in, "Try this other dealer." And I've been trying to tell her — competition and knowing what you want and all doing your homework and, frankly, not looking for an SUV of any sort or a truck because prices are so high for those because everyone wants that, right? But I don't know, Karl, maybe you can help answer this question.

I'm saying to her, "This is the absolute worst time to buy." I guess, going back to the timeline on when this is all going to end, you'd be much better off in say, November.

Karl Brauer: Yeah, you would. Again, the winter months, we always have our study every year that shows kind of the best and worst times to buy a car and believe it or not, if you're going by purely holidays, it's Martin Luther King, Jr. Day is actually one of the best holidays to buy, but really any time between November and February, mid to late February is your better timeframe. And again, that'll be emphasized this year because we should start to see some of these other forces start to diminish beyond just the seasonal buying habits that happen every year. The other thing to do is to... There's two things, right? One is flexibility. As soon as you told me... I hear the word, heart set. It's like, "Uh-oh, we're in trouble here."

David Muhlbaum: I though it was the other H-word, when she said "Honda."

Mark Solheim: I know, I know.

Karl Brauer: Well, both of those make your life tougher if you're trying to buy a car because Hondas are in good demand too. But no, flexibility is your friend anytime you're car shopping, right? And that's flexibility on everything from which make, which model, which color, which features, which location. A lot of times, people forget that if you're doing a search and you're doing what most people do and they just restrict themselves to 20, 30, maybe even 50 miles within their home to go buy a car, well, there's a lot of dealerships out there and they aren't just within 50 miles of your house. And if you go from 50 to 150, depending on where you live, you could dramatically increase your ability to buy a car.

Karl Brauer: Now, people are like, "Well, I don't want to drive 150 miles to buy a car." If you're going to save, I don't know, $1,000. And you could save more than that going 150 miles, but $1,000. If someone told you right now, "I'll pay you a $1,000 to drive 150 miles." I think most people would be like, "Okay, I'll do that." Even 300 round trip. So... Go ahead.

David Muhlbaum: Well, I think what you're touching on there reflects changes in the market. And by that, I don't mean the supply and demand market. I mean the how-to of how people go around about buying used and new cars. Like, Mark's niece is trying to buy a car from Denmark. That's not crazy anymore. So, the idea of buying a car that you may not have even laid eyes on is actually becoming more and more common. And Mark's article lays out a lot of the platforms that are making this kind of transaction a lot easier. I'm not going to get into the pricing angle of it, but the idea that you can really look over sort of frame by frame a car in question, and know that it's got certain warranties to it for the things that you can't see or inspect yourself, and then go ahead and drive those 150 miles and close a deal. Yeah. People need to consider that more.

Karl Brauer: 100%.

Mark Solheim: Right. And just being able to look nationwide, if you want to on these sites gives you so much more information. And Karl, you're right. Like go out there and drive back or have it delivered for $1,000 to your house. And whether you do that through a private party or a dealer, and of course there's this whole relatively new, all-digital phenomenon of the Carvanas and Shifts, et cetera. But what do you think of those? Do you think you can find a better deal or as good a deal, they claim there's no dealer showroom, no overhead, but is that really true?

Karl Brauer: Well, it's a fascinating question. And thankfully, we've got some good data crunchers here at iSeeCars.com, and we looked very closely at that. And not surprisingly to me, what we found was that your best place to get a used car — if you can still get one, there's far fewer now because a lot of them have gone out of business — was a rental car. Rental car agencies were where you can get your cheapest cars. Now, people are like, "I don't want to buy a rental car." That who knows how that was treated. But they forget that a lot of times the rental cars from these big agencies come with some kind of limited warranty and they have full records of how well they were serviced, which you often will get with a lot of other cars. But if you don't like that, then there's the regular used car dealer, then there's the Carvanas and these online shoppers.

Karl Brauer: The highest price, and it was on average $400 more per car. Online shoppers, you paid more. I think people were still doing it because of all the other things you've mentioned, that convenience. So I think plenty of people it's like, "I can avoid going to a dealership," and they don't know this. They're just like, "I'll do that." If someone came to him and said, "Yeah, it's $400 more and you'll never talk to a salesman." Okay, they'd still pay that money, right?

Mark Solheim: People hate to haggle.

Karl Brauer: Right. Right. So whether they know they're paying more or they don't, and they don't care, the reality is transaction price-wise, you're paying more at these online retailers. And they know it, the retailers of course know it and they're still making money. And of course, if they really don't have all this overhead, they're making okay money. So, it's not a bad deal for them. But the other thing to keep in mind too, when you're shopping used cars is not everything's gone up crazy. Most things have gone up, but some have gone up somewhere between say 1% and 5% versus 18% to 25%. The average is 16.8%. And things like trucks and coupes and convertibles, believe it or not are typically between 20% and 25%. But I've got a list and it's interesting to me, Mark. We've got a list we just did in a few weeks ago at iSeeCars on the smallest price changes.

Karl Brauer: One of the cars on that list is the Honda HR-V. It's "only" gone up 6.9% or call it 7% in the last year. So, you should be potentially able to find one of those, might have to widen your search term or your daughter might have to widen the search term, but if you can be a little more flexible on where, you might still find a decent deal on an HR-V versus say some of these other SUVs that have gone up much more.

David Muhlbaum: Interesting. Can we dig in a little bit more into particular models in particular sectors that are higher or lower?

Mark Solheim: For example, just real quick. When I was doing my article about buying these cars in our June issue, someone from a competing website mentioned EVs such as the Bolt, Volt, and LEAF, and of course, small sedans that people love when they lived in the city and maybe they don't love as much anymore in the suburbs, but those are just a couple of ideas that others threw out.

Karl Brauer: 100%. There's definitely themes between segments that have gone up more or less. And I can tell you right now, I'm looking at the list we had from iSeeCars and pickup trucks, coupes, and convertibles are the top three and minivans, SUVs, believe it or not, and hatchbacks are the bottom three. And the average against 16.8%. So, minivan, SUV and hatchback are 15.3%, 14.4% and 12.3% respectively. Whereas pickup, convertible, and coupe are 25.3% 25.1%, and 22.2% up in the past year.

David Muhlbaum: One of the flip sides of this situation is that people who have a car who want to trade it in might find, "Hey, my asset has appreciated. This thing that we used to think lost money is worth more." That is literally happening to people.

Karl Brauer: If you want to get away from averages on percentage, just talk numbers. Pickups on average, $7,300 more. Convertibles, $6,000 and coupes, $6,600 more. So these are $6,000, $7,000 appreciation values. Now, the tricky thing is we all know when you go to a dealer is no matter what everyone knows and it's universally known that used cars worth lots of money. Guess what happens when you go to a dealer, no matter what car you're trading in, "Well, we really don't need one of those on the lot." "Really? I don't see any other car on your lot for sale. Maybe you do." And, "Well, um, errr." So, you've got to go to the dealer and make sure the dealer knows that you know.

And literally, I would go to a dealer with a truck right now and I'd have all sorts of fun and stuff like, "So, what's it going to take for you to get me out of this car today?"

Mark Solheim: I like that one.

Karl Brauer: Because I know it's a truck and I know where trucks are right now. "So, make me an offer. Otherwise, I'm going to the next dealer down the block and we'll see who gets my truck first."

David Muhlbaum: "And I've wrapped my seatbelt buckle in duct tape. So, it's gonna to be hard."

Karl Brauer: That's right. You're not getting these keys until the check is written.

Karl Brauer: So, yeah. That's the thing though, and of course it's like houses, guys. We see our house prices go up like, "Oh wow." And then we see the house we want to buy next. And we're like, "Oh." So, you got to get rid of the right vehicle if you're trying to do that at all and buy the right one. But you sell a pickup, you buy a hatchback, you're going to make up some good ground in today's market right now.

Mark Solheim: But that's another question I have, and I was trying to tell my niece, but I didn't have a good answer. Can you really negotiate? She doesn't have a trade-in. She wants to buy this HR-V, and she's trying to negotiate. Our dealers just... I go back to buying my 1986 Nissan Sentra. And what did they call them then? There was adjusted markups or they were adding a price markup-

David Muhlbaum: Dealer markup.

Mark Solheim: ... to the sticker price. And when I went in with my Kiplinger's car buying guide and said, "This is what I want to pay," the dealer laughed in my face. And I'm wondering if that's the same situation now, many, many decades later, it seems. Can you negotiate?

Karl Brauer: This is definitely the worst probably time for having strong negotiating power on buying a new or used car because of the reality. But I still always say that once a dealer knows you're a serious buyer and you're about to spend real cash and they might not get that cash, another dealer might, that is your biggest power as a consumer. It drives them crazy to think that in the next 72 hours, somebody's getting a lot of cash out of you and it might not be me as the dealer.

Mark Solheim: Competition.

Karl Brauer: Yeah. So, what I would do with anyone like someone trying to buy an HR-V right now, again, I'd widen the search. I'd be flexible on the location and as flexible as you can be on color and options too. And basically make these guys play against each other. Get a price from one of them, go to the other one and try to get a price. And whoever's got the lowest price, go back to the other two and say, "Well, this one's willing to go down to this," and see if they'll drop below that one's price and stuff. And you can do that through email relatively easily. You don't even have to talk to someone. So for people who don't want to negotiate and don't like the conflict of in-person talking to the salesman, do it through email if you have to.

Mark Solheim: And by the way, I have to say that when I got my Ranger a year ago, the dealer dropped the price $26 because they made me send the VIN of the competing vehicle I was trying to play off of them with. And he said, "Yeah, we want your business, we want to make you happy. We'll cut $26 off."

David Muhlbaum: Go have lunch.

Karl Brauer: Yeah. Pay for your first tank of gas. He is right. That's not bad.

Mark Solheim: Yeah, exactly.

David Muhlbaum: Well, when we're talking about amounts like that, one of the things that could come into play when you're doing that wider search, particularly if you're looking at a new car versus a used car, when you do that wider search and you're encompassing other states, you could get into the question of  the hated dealer processing fee, which is basically what they charge you to ring up your car. In some states, there are caps on how much that can be. And in some states, there are not. So, if you live in a place where you have the ability to shop multiple states, multiple dealers, by broadening your search, as Karl suggests, that can come into play as well. This is three-figure stuff, but it could help.

Karl Brauer: Yes. Yeah. And again, that's really what... Any time you're buying a car, new, used, you want to take your power as the person who's got money and someone else wants it. And I always feel bad when consumers forget that because I think they feel like the dealer's got all the power and it's all about attitude and confidence and knowledge. And if you know that you've got multiple choices on anything related to car purchasing, you get your financing ahead of time. So, you've already got a baseline rate you're going to get, and then you go to the dealer and watch them and don't tell them that and say, "Yeah, what kind of financing?" And guess what happens when they say, "Well, I don't think we can get much below 4% right now." "Interesting. I got a credit union about to do 1.9%." "We can match that. Yeah, we can match that."

Then you get, "Oh, we can't go lower than this price right now." "Well, there's a guy who's on the other side of town and I have no problem going there and he can get me the same basic car for this much." "Well, we can match that." So, you really got to play your knowledge in the market to your favor and not... I always tell people don't fall in love with a car. Don't buy the first car you see. Don't go to only one dealer. These are big investments. These are often the second most expensive thing people buy. Take the time, educate yourself and exercise and flex the knowledge is power capability that you can have.

David Muhlbaum: Shopping for outside credit is one of those things we've always advised people. On the other hand, especially back, early pandemic, I'm not really quite sure about the rates now, so many of the promotions were structured around 0% or really aggressive financing backed by manufacturers. Again, this is new cars. So, one of the things that I always wondered is what about the person who wants to put down more cash or who has the cash to put down? How can they turn that promotion into their favor? If they're not really that interested in the financing, how can they lower the price?

Karl Brauer: It's tough because once upon a time, cash was king and you could go up and tell them, "Hey, I'm going to pay all in cash." At this point, they often get some kind of benefit by helping with the financing even if it's 0% financing, don't forget, we all live in a data farm world now. So, if you're going to go buy a new Dodge Challenger and there's financing through Dodge that's 0%, it's going to be hard to do better than that anywhere else, but the dealer still wants you to buy through them just for the data component, just to have control... Just to be able to get all that information to their... That's one of the things they still benefit from even at 0%.

David Muhlbaum: Or sometimes the dealer stands to benefit from the financing arm simply by getting you to finance with that outfit?

Karl Brauer: Exactly. Exactly. So that's why having cash doesn't really speak that powerfully anymore like it used to. The dealership's like, "Well, you're going to say, you're going to buy all in cash and you want another $1,000 off. We don't really care. We actually do better and it's simpler for us when we got to deal with like transporting $25,000 cash and making sure nothing happens to it before we get it to the bank, because you've got that in your bag right there. It doesn't really help us. So.

David Muhlbaum: Right. And I think that counsel sometimes falls a little hard on some ears at Kiplinger because we have people who are definitely into the idea of save your money, buy it with cash, avoid financing. And yet that doesn't always break the way you'd hope it would.

Karl Brauer: Yeah. You still get all the other benefits. You're not paying an interest on the car and you own it outright. If you have to sell it, there's no way you're underwater on your loan if for some reason you had to sell it a few weeks or months or years later. So, there's plenty of advantages for buying a car, whether it's cash or wire, whatever the form takes, not having a loan, but it doesn't really help you negotiate a price at the dealers these days.

David Muhlbaum: Since you mentioned that U-word, underwater, it makes me wonder a little bit about the future. Are a lot of buyers now going to find themselves underwater in X years and have buyer's remorse? Another thought about buyer's remorse is not financial, but those new car buyers, those people who said, "Not riding that bus anymore," and bought a car and it was all fine and well for a year of no-traffic driving, it's going to choke back up again. Can we look a few years out and guess what it's going to look like out there in the used car market?

Karl Brauer: It's a great question. I do feel like there's been something of a paradigm shift. I think we've gotten to a new stage of capability technologically, and that has enabled more and more people to work from home. And I don't see that going back. So, I think the technology really already existed, then the requirement of legal and prudent health concerns forced the use of the technology that really already existed. And it illuminated those capabilities to a wide range of people. And I think there's a lot of people like, "I don't want to ever have a commute again." Or, "I don't want to ever live in a city again," or whatever. And so, I think we're going to kind of have an ongoing increased number of people who want cars and that should keep it from having any kind of whipsaw effect in another 12 months. Like you're saying where all of a sudden, nobody wants their car anymore.

Again, it'll balance out and this crazy demand it's still growing. So, all we got to do is just get it to where it's equal in terms of pricing for the used and new cars. And we're going to be better off than we've been for buyers in the last year. But I don't think we're going to see a huge contraction anytime soon and maybe really not ever. This might be... We've heard the term, new normal used at various times in the last 10 years. This might be our new normal for car demand.

David Muhlbaum: We have covered such great ground today with Karl. Thank you for joining us. And thank you too, Mark. I hope the first round was good for you.

Mark Solheim: Oh yeah. I had a great time, David.

David Muhlbaum: Cool. Thank you both so much.

Karl Brauer: Great being on with you guys. Take care.

David Muhlbaum:That will just about do it for this episode of Your Money's Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and review. And if you've already subscribed, thanks, please go back and add a rating and review if you haven't already. To see the links we've mentioned in our show, along with other great Kiplinger content on the topics we've discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. And if you're still here, because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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