May 9, 2024 • 41 mins
In this episode, John is breaking down the nature of bottom tier car dealerships and how they can make your credit go from bad to worse! Do your research people!
To learn more about John's Operation Hope initiative, visit: https://operationhope.org/how-we-help/credit-money-management/
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Episode Transcript
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Speaker 1 (00:00):
Welcome the Money and Wealth with John O'Briant, a production
of The Black Effect Podcast Network and iHeartRadio. Hey, so
John O'Brien this is a trending topic. This is actually
an old one because this story never gets old. Uh.
(00:23):
You know, there's a rapper in Atlanta. I won't name
his name because you know who he was, who was
very successful as a music producer, had a high profile girlfriend,
became his fiance. They almost got married. You can try
to figure out who I'm talking about. African American in
Atlanta within the last two decades. I'm gonna am I
(00:45):
gonna give you too much more information than that. I'm
not trying to embarrass him, but it is an interesting story,
and he was he was rolling. He bought a you know,
I bought it, rent rented, bought whatever, you know, the mansion.
I'm not sure of how that trend actually, I think
he bought it lost it, by the way. And most importantly,
he had bought a convertible Rose Rice along with other cars.
(01:08):
He's very, very proud of his car, flossing around town.
Cool cool, cool. He getting afforded cool until he couldn't
and he lost the ability to earn income, did not
pay attention to the fact that it was a music business.
It's the business of music, and you know, didn't pay
attention to his finances. But his so called accountant and
those who spent his money for him did pay attention.
(01:30):
And one day he realized that just like the postman
or the teacher or whoever who had two much month
at the end of their money, he was out of
money too. He just more zeros around his income and
his debt and when his income stopped. You if you
make thirty thousand dollars a year and you come up
short one thousand dollars or whatever, you can find that
somewhere through friends, maybe, But if you're making three million
(01:52):
dollars a year and you had to go from that
to making three hundred thousand dollars a year and you're
short two point seven million dollars, where you can't go
to Auntie Sue and get her to bail you out
for two point seven million dollars, you just stuck like Chuck.
So he was happy when the lenders gave him the
car loan, and he was ecstatic, and they gave him
(02:12):
a great deal, and they whined and dine him and
he said thank you and was all taking pictures with
him and all of that. But when he lost everything
what happened, he called the lenders racist. When they came
after him looking for the cars factor repossessed the cars.
He did a whole stick back. There was no social
(02:34):
media back then, so he couldn't, you know, go on
his Instagram, but it was in the press he called
this lender racist. Is a major bank in Atlanta, then
called sun Trust, now called Truist, one of my partners.
By the way, he called the lender racist, Well, I
know the transaction, and I know the lender, and I
(02:54):
know the applicant, and it wasn't racist. It wasn't racist
when he got the loan, when he got it at
prime rates and was happy about it, taking pictures with
the linders and all that. But when he couldn't pay,
supposedly they were racist. Let me tell you something. If
I loaned you some money and you don't pay me back,
I'm gonna take the car, right, And I'm not racist.
(03:18):
I'm a capitalist. Right. They loaned you some money, they
want it back. What's complicated about that? You couldn't pay them?
You should have talked, called them and negotiated a restructure
of that loan or given the car back. It always
kills me where you have these folks and their car
is about to be repossessed and they want to call you,
curse out the toe men and chase them with a crowbar.
(03:40):
You've seen the stories, you know, get in the car
after food, pull out guns. By the way, You just
going to jail. Now. You just made a bad situation,
I don't know twenty times worse. You've won the battle
and lost the war. You rearrange the deck chairs and
the Titanic of your life. The ship is sinking and
you're picking drapes and you'll be picking them in prison
(04:00):
soon too, because that's just stupid. We all seen the stories.
But it's emotional, emotional, emotion emotional. You can't pay. Just relay,
like here's the car, right, delay relay? You know we
actually don't delay. Just relay the title back to the
lender and be done with it. Renegotiate, negotiate your exit.
(04:23):
You can't provide your consistency the meaning making payments. Just
negotiate a dignified exit for yourself. Go buy a car
you can afford so you have transportation and reset your life.
I had to do that. Everybody has to do. We
all go through it. A saint is a center that
got up. It's because you make a mistake. Doesn't make
you a mistake, right, It's only when you make a
(04:44):
bad situation and make it worse. So this rapper lost
it all. Of course, the lender got their car back
and sold it and got their money back. And that
guy lost his public battle with the lender, and of
course we're ever able to do business with them there again.
And no other lender wanted the loan of money because
I said, well, when you loan, it's got money's and
to call your racist and not pay you back. By
(05:07):
the way, there are races, but it's typically not a
bank trying to get some money out of you. If
the bank makes money by making you a loan and
getting it repaid, why would a lender intentionally discriminated against
you when all they want is their payments. I mean, again,
there are races, but typically they're trying to not get
you credit, not to not give you a loan in
(05:28):
the first place. Right. So anyway, there you go. That's
the trending topic for the day. Let's continue this conversation
and make smart sexy again. We've been making dumb sexy
for way too long. We've dumbed down and celebrated it.
It's time to make smart sexy again. Hey. Hey, it's
(05:58):
John ho'bryant. This is Money and Wealth on the Black
Effect Network. And this week I'm going to break down
something that's near and dear to all of our hearts
car dealerships. How does the car business work? So I've
(06:19):
got a lot of personal experience with this, and you know,
used cars actually make more money. The used car business,
on balance has a better what it's called margin profit margin,
or the area between well, the percentage of profit that
they have on the product. You actually would think they
(06:41):
would have more of a profit on a new product
typically because a lot of these folks are scoundrels. And
I'm going to have a dear friend of mine come
on on a future podcast, Tony Marzulo of gas Motor Cars,
who's a really honorable guy who deals with previously owned
high end vehicles. Who are Who's going to come on
and explain you some horror stories of how this business
(07:02):
that he has witnessed actually an industry, actually works. But unfortunately,
there's a lot of scandals and bad players in certain industries,
use car dealerships being one of them. I've got some experience,
as I've said, and I'll explain what happened when I
was coming up. But it might surprise you that actually
used car dealerships on balance make more money or have
(07:23):
a bigger profit margin. They may not make more money
because they're smaller operations and all that stuff, and they
can't scale. I'll explain why in the moment, mostly because
of reputation issues that inability to brand what they're doing,
so they may make a bigger profit margin, but have
a low overall profit, low overall viability as a business.
(07:44):
They just can't grow it. But again, I'm gonna stop
talking around it and talk right to it. When I
was coming up in well, it was south central LA.
My dad would go to the local car dealership and
buy a car because his credit was tore up from
the flow up. He was a small businessman, but you know,
(08:04):
he would pay cash lot and he would flow checks.
And you know, we've all done it. We've you know,
growing up in the hood. You know I'm talking about
we all have been there. So I'm not judging my
father in this situation, he did the best he could
what he had. He thought that the people in charge
of the bank were the branch manager, so he dealt
(08:26):
the only relationship he had was the branch manager, who
couldn't extend him credit. Really then or now, no diss
to the branch manager. It's just the way the banking
environment works. They have centralized their credit making authority, and
a lot of it has been automated using technology, as
you've heard me say before. So artificial intelligence is going
(08:47):
to make that even more this case, which is why
your credit score is so important to getting the math
right in your life. Another podcast for another time. So
my dad would go to the car a lot, and
he couldn't go to the major car lots because they
dealt with the major bank lenders and the manufacturing lenders
who wanted them to have wanted them to have a
(09:08):
good what credit score, which my dad did not have.
I didn't know this back then. So let's just say
my dad had a five hundred in something credit score,
which is probably accurate. So he would go to a
used car dealership lot and they would write him up
and you know, they would say, what do you know?
What do you want? To pay, and he would say, well,
I want a payment of X. I do remember a
(09:30):
couple of times my dad bought a raggedy vehicle. This
was actually pretty smart for cash. I actually recommend that
if you can buy some car for cash and have
no car payment for your first car, it's actually not
a bad route. But a couple of times my dad
got caught up in a situation where he wanted something
more flashy or whatever and ended up asking the wrong question.
(09:53):
You never asked what the payment is when there's an
interest rate attached. Okay, so now I'm going to stop
picking on my dad. I had start picking on me.
So my dumb ury and I went and lived with
my sister in San Diego. Later on, when I was
older and I was trying to be an actor, trying
to be an entertainer. Yes, that was a part of
my life too. I wasn't a very good actor or entertainer,
(10:16):
but I tried. I did a few things. I was sure.
I was going to tell you what I did, but
you might like it's too nosy and start searching around,
and then that becomes a conversation. So we're not going
to talk about that. I just tell you It wasn't
all that great. It wasn't my highest and best hues
being an actor. But I was in San Diego and
trying to floss and I wanted it was two different cars.
(10:39):
I wanted. I want a BMW three twenty I that
was the car back then, and it was blue. I remember,
it was like a midnight or it was not an
ocean like a midnight blue. I loved it. A tan interior.
Who I think, you know, there was a few actors
who had that car back then. I wanted that car,
that car. You know. This was convinced he was going
(11:01):
to make me cool and solve all my problems. Whatever
decision you make emotionally is a bad decision, and this
was an emotional decision. And I went to a car
dealership a lot in La Jolla, California, high in area.
It was a B paper lot or a sea paper lot.
A paper lot is the best credit you can get.
This was a B paper lot, maybe even a C
paper lot. So a paper lot. The dealership actually is
(11:25):
connected with a manufacturer, so Honda, Toyota, Mercedes, you know, whatever, Jaguar,
you know, Maserati. The lots you know where they forward,
where they own. Uh, well, they have a relationship with
the manufacturer. They give you preferred financing through the manufacturer.
They get you know, it's it's a proper situation. A
(11:48):
B lot is a lot that where you have impaired credit.
They've gotten fairly nice cars, they're previously owned, but they're
going to shop your credit a rund down to different
lenders who are less than prime, less than perfect word
less in prime leaning. It's not going to give you
(12:08):
the best raising terms, but you still get a decent deal,
not a good deal, but somebody is going to finance
your deal through the lender a CEA paper lot is
when they finance your paper themselves, and they're really in
the business of financing, not a business of selling cars.
So I bought one of these cars on a sea
(12:30):
paper lot. Well, no, it was a B paper lot
that was also a C paper lot. Because I remember
they tried to finance me through lenders. They let me
leave all the lot. They always ask this question, what
payment do you want? Never asked what the payment is
when there's an interest rate attached. If there's something they
charge costs more than one thousand dollars, do not go
with what the payment is. It's a trap. I fell
(12:53):
into the trap. What do you want your payment to be?
I told them what the payment, what I wanted the
payment to do. They pulled my credit. They held their nose.
And of course the salesman's just trying to sell a car,
so he writes the paper up. He gets me to
sign the documents, gives me the keys, make sure I'm bound,
which means that I've got insurance at least for the
day on the car. And sometimes they will buy and
(13:17):
being the insurance themselves with their insurance carrier, they get
an override fee for that as well, by the way,
depending on what the insurance company is. And I leave
the lot and the salesman is hoping he can place
his paper the loan on the car, and yes, there's
a purchase price I've agreed to for the car. Actually,
(13:39):
with the most of these dealerships, an actual purchase price
a secondary. That's not how they're making their money. They're
making their money on sales, they're making their money on service,
and they're making their money on financing. Typically there's a
couple other things like insurance. I'll get to this in
a minute. It's break down exactly how they make their money.
But on these B and C paper lots, you may
surprise you. You're sitting at the spin all this time
(14:00):
negotiating the purchase price. And these folks, these jokers, are
making their money. They don't really care about that. They're
making the money on financing you, and they're getting an
override or kickback or a fee with the lenders to
finance you. And they're making the money when the car
breaks down or you break down and the car comes
back to them. But I'm getting ahead of myself on
(14:21):
the story. So I take this car, and I think
within a day or two they told me that I
needed to bring the car back, and that of course
made a small down payment. That became a negotiation. But
the guy was unsuccessful in getting me to place me
with a lender. So I added, bringing that car back
broke my heart. But now I'm like half pregnant. I
(14:41):
want to buy something. So he then gets me into
my second dream car emotional decision at that time, which
was a two eight z X. I love that car.
It dots him to aight Z and I won't get
into the story what happened to that car before I
lost it, because it's really embarrassing. I drove her from
San Diego to Los Angeles, got into some not so
(15:02):
honorable trouble and it was not good trouble. It was
just trouble. I didn't hurt anybody, didn't hurt myself, but yeah,
it was not my finest moment. I can smile about
it now, but I was really lucky so short version
on that that car got repossessed. And I've got several
of these stories about me and cars in life. Early on,
(15:23):
and you know, I mean I did. It was several
years I didn't pay my taxes. This was later on
in my life. I ended up having to get hit
with a bunch of tax fees and whatever, and I
had to file a bunch of returns, like six years
returns in one year in my early twenties because I
was so busy as I want to be entrepreneur. Now,
this is when I was actually being more honorable, and
I really I didn't pay, not pay because I was
(15:45):
a flake. I didn't pay because I didn't have it,
and that wasn't my priority to use the limited capital
I have I had, I was reinvesting in my business.
I ultimately end up having to file all those tax
returns in arrears and of course paid every dime. Oh
back to this story, this is a different version of me.
This was me that was trying to floss, trying to
(16:06):
impress girls, you know, guys, whatever, you know my friends.
I hung around the guys, the ladies I was trying
to date, none of which, by the way, in hindsight
matters spending money. You don't have to impress people you
don't know about things that don't matter, on things that
when you look back on that are just ridiculous. He's
(16:27):
like trying to be, you know, a six square block celebrity,
like you will to be a celebrity famous in your
six square block area. Later on in your life, you
will realize that was wasting a whole bunch of time
and energy, owing nothing and on nobody. So, yeah, I
lost that car. There was one decision I made that
was smart. I bought a used nineteen sixty seven Ford
(16:51):
Mustang with a hard top, and it actually is a
collector's card type. This particular car was toe up and
the flow up, but it looked nice. And I remember
I put retreads, which means not dependable wheels. I put
re treads on the car, and it was so hot
outside the retreads came off the car. Winning a car
(17:11):
was driving on the freeway. Another story for another time.
So let's get out. Okay, now that you're laughing your
tail off, and you know that I actually understand what
I'm talking about. But I did paper that car in cash,
that's the good news. And I had a cell phone,
a fake cell phone in the car. This story is
getting worse. I wouldn't have wrote to what was in
called radio shack and bought a cell phone kit, which
(17:31):
is the antenna. Remember this, somebody, you guys, remember this
antenna on the car and the hand cradle in the car,
and I put the cord underneath the dashboards. Is really embarrassing,
trying to impress somebody. This is my flossing period. All right.
Here's how a car dealership works. The revenue side of
the car dealership. These are traditional car dealerships. The primary
(17:52):
source of revenue for dealership is selling new and used vehicles.
Dealers purchase vehicles from manufacturers or I had auctions and
sell them to consumers of their markup. Be careful of
dealers that sell you a car at an auction. An
auction vehicle sometimes is really tow up from the flow up,
and they paint over problems and there's a reason the
cars at the auction because it did not make it
(18:15):
in a traditional buy and sell and trade in an environment,
and you buy a car an auction and somebody might
have turned back the odometer, the mileage meter and all
kind of crazy stuff, gotten to an accident, repainted it
might have been. You might have broken the frame or
something and welded it back together. You just never know
what you're getting at an auction. Financing and insurance is
(18:36):
a second way dealerships make money. Dealerships often offer financing
options to customers, allowing them to spread the costs of
the vehicle over time. That's pretty much all the time.
They also sell insurance products like extended warranties and gap insurance,
meaning the difference between what the car is worth if
something happens or you're trying to sell the car, whatever,
(18:57):
and what you owe against the car. That's a gap
that the insurance to cover the gap. I've had that
before on high end vehicles, which provide additional revenue for
the dealership. So they're making money on the gap insurance.
They're making money on selling you insurance. They're making money
on extended warranties. No problem with any of this if
it's honorable, and they're making money on financing. I'm gonna
(19:20):
come back to this because in a traditional car dealership,
well they're making money selling cars, primarily a new car dealership.
But that's not what I'm talking about here, and that's
not what I'm warning you about. Stay tuned here. Hold on.
The third area is service and parts. Dealerships earn money
through servicing vehicles and selling parts. These include routine maintenance, repairs, insulations,
(19:42):
and accessories. Last week I just had actually it wasn't
need a car dealership. It was an entire company. I
do business with installed and after market parts for me
on one of my cars and charge me. They may charge
me two thousand dollars. You know, that was mostly all labor.
I think it was all labor. Actually, so they paid
their people that say, you know, fifteen bucks an hour.
(20:04):
If they charge me the equivalent of forty five dollars
an hour or whatever, then the difference minus the costs
of their cost of your business is their profit. And
I'll tell you about what the cost of doing business
is for a car dealership in a moment trade ins
when the customer trades in their own vehicle for new one.
Dealerships may refurbish and resell their trade in adding to
(20:24):
their revenue fees and add ons check this out. Dealerships
may charge fees for processing, paperwork, delivery, or other services.
They may also offer add ons like rust protection, paint,
sealantor then etching for an additional charge. I have paid
for like you know, rims. You know, if you rub
(20:46):
your rims against the curb. I paid a warranty to
cover that for members of my family and myself for
high end vehicles, and so if something happens to the rim,
you take it back to the dealership. They repair it
or replacement for free. But that's not again, the kind
of I'm not talking about honorable folks and people like
(21:07):
me who can afford to pay these things for high
end cars and a new dealership are quality previously on.
I'm talking about folks who are trying to rob you
in broad daylight and calling it a traditional business. Here's
the traditional cost of running a car dealership. Vehicle acquisition.
So the dealerships have to purchase vehicles from the manufacturer
(21:28):
or auctions or from you to resell it. The costs
these vehicles affect their profit margins. Of course, operating expenses.
This includes expenses like rent, their rent, utilities, their insurance
for those facilities that they are purchased that they're operating from.
Salaries for their employees, and marketing costs and equipment, inventory costs,
(21:49):
holding inventory ties, capital and incurse costs such as depreciation,
financing charges, and storage costs. So a car dealership has
a proper one has a finance vehicle. That finance is there.
That's the floor inventory for the car dealership. Let's say
it's making this up. They have a million dollar line
of credit if you will, to put cars on the
(22:12):
car lot, and then as they sell it to you,
they pay down that line of credit. Hope doesn't make
sense to you. So they can't core afford to hold
cars for a long long time. They're trying to get
them off the lot as soon as possible, which is
the advantage for you to negotiate. If car's been sitting
there for a long time, you typically can get a
better deal. And while service and parts of generating revenue,
(22:34):
they also have a costs associated with labor, parts, inventory,
and equipment. Just covered that with the car tire company
I mentioned that's doing some install for me. Advertising and
marketing dealership spend money on advertising to attract customers and
promote their business. Okay, there's nothing there's nothing you know
crazy about any of that, right, And the profit margin
(22:55):
is the difference between the costs and their revenue. Now,
you might be shocked to hear that the real way
these folks make their money the less than honorable ones,
the ones that hope you have a six hundred or
five hundred credit score right or a seveator credit score.
You're just not that bright and are not that wise,
And somehow you've fallen yourself into a B or C
(23:17):
paper a B or C paper dealer. Are you just
drove by someplace and emotionally you got captivated with some
incredibly sexy car and you walked yourself into a B
or C paper auto dealership didn't know that you were there.
It is real sin if you have a seven hundred
credit score and you end up on these places and
don't know that you're being preyed upon. But certainly they're
(23:38):
searching for somebody who doesn't have optionality, because if you
show up at one of these places with a semilar
credit score. I'd hope that you have enough sense that
the snuff out, even with you being em you're making
a decision emotionally is a bad decision. That's another podcast
episode that I would do at another time. But I'm
hoping that if you have a similar credit score, even
if you just really love this car, you'll go find
(23:59):
that same cars someplace else. This b paper dealership is
going to shop your loan. So first of all, you're
gonna go there and the car's gonna be twenty thousand
dollars on the sticker. You're gonna try and negotiate that down.
I'm making this up to you know, you're gonna say
eighteen thousand, they're gonna say nineteen thousand and five. Twenty
(24:20):
thousand dollars car. You're gonna say eighteen thousand and five.
They're gonna say nineteen thousand, two hundred, and you guys
are gonna ultimately, let's say agree on nineteen thousand, one
hundred whatever. You know, you said, Oh, I've got these
folks down almost a thousand dollars. Fantastic, you know. But
in this example of five eighty credit score, and you're saying,
what's the payment. This is not gonna correlate, but I'm
(24:42):
gonna just say the payment's, you know, six hundred dollars
a month that they tell you that your payment's going
to be, or you say that's what your payment cannot exceed.
They walk into the financing department. Now this is where
they really make their money. They then talk to Joe's
finance company and they have a relation ship with Joe's
finance company, and they say they got a sucker, I mean,
(25:03):
a client in front of them, and the purchase price
is nineteen thousand, one hundred and your credit for courus
five to eighty, and you want to pay men six
hundred dollars a month. The lender comes back and tells
the dealership Schmuckville, USA, will finance this guy. We want,
(25:24):
you know, fifteen percent interests. And the Schmuck Auto dealership
company wants a brokerage fee. They want to points, they
call it. They want points against this nineteen dollars purchase.
So you think you're just paying a commission whatever is
in the documentation to sell the car, they're actually making money,
(25:49):
a lot of it on a brokerage fee with the lender.
You have a right to know what that is. You
should ask are you making a fee from the lender?
If so, what is it? You might fall out your
chair to find out how much you're being paid. So,
even though you've got to discount on that purchase price
and they've made a profit another profit on the financing,
(26:11):
it's points and interest, so points meaning they're getting let's
say it's a you know, maybe five points so out
of fifteen percent interest in this example, maybe they're getting
five percent of the ten percent as a buyback or
a kickback. Really, so it's really the lender maybe saying,
you know, they want a net a ten percent per
(26:31):
interest from you per year from you, and the lender
is getting five percent per interest as an override. So
even if you leave that lot for the length of
that car, you're paying you don't know this, you're paying
as much as you know, in this example, five percent
commission every month to this secondary lender. This sorry, this
(26:52):
schmuck auto dealership that's acting like a lender. I'm getting
real complicated, but you get the gist. And then when
the car breaks down or you can't afford to pay
it or both, uh, the car comes back to them,
and you and you, and they give you a lecture,
and then they've shown they've sold you some bum insurance,
by the way, which they're also getting a kickback on properly.
(27:13):
And then they're going to repair that car in their
own shop and threaten you if you don't pay them X, Y,
and Z bring that car back that they're going to
damage your credit. So you may be paying an inflated
amount for the repair of the car just to release
yourself from liability. But in any case, they're going to
repair their costs at their shop and resell that car
to somebody else under similar terms and conditions. And this
(27:35):
is capitalism. Don't don't get angry with these folks. When
somebody's sitting across the table from you doing business. Remember this.
Their job is to get as much money from you
with the least value as possible transferred to you. Your
job is to get the most value transferred to you
for the least amount as possible. Did you hear that
or repeat it? Capitalism is a gladiator sport. It's not personal,
(27:57):
it's just business. Your job in that negotiating table is
to pay the least it's possible for the most value.
Their job is to extract the most from you in
costs for the least amount of value. They're not trying
to Most people are not just trying to jam you
up and rob you. They're just trying to make a profit,
and you're trying to get a good deal. Most great deals,
(28:20):
or when most the buyer and the seller both don't
feel great about it, you feel okay about it. That
means you probably got a pretty good deal. The third
dealership example, it is really crummy and that's where they
own the car and the financing. That means your credit
is toe up. Your credit so bad. It's not credit,
(28:42):
it's credit. My dad used to call it credit. He said,
using my credit is bad. And you know, I don't
know for one hundred and five ten, five point fifty,
just bad, right, Like nobody wants to leave you money
and you're so poor you can't afford the are you
just pop peel And that's when they got you. Because
(29:05):
you want this car and it's and when you buy
that car and eighteen percent twenty percent interest, it's a
mobile bomb. It's not a Mercedes. You bought is mercy?
These payments and they got you. You know that car
is going to explode. That car is bought at an auction.
They past it together with bondo glue, they painted over,
they put rims on it. They made it smell good.
(29:26):
Somebody threw up in the car. Somebody died the car,
somebody did weed in the car. Who knows. They sprayed
it with you know, deodorant, whoever. But the car is
a bomb. The o'domino has been turned back. Whatever bad
you think about it, that's what's happening with this car.
They have wrint their own paper, meaning they've really not
a car dealership. They're a lender masquerading as a all dealership.
(29:46):
They've written their own paper, asked you what the payment was,
don't care what it is because they know they're going
to get the car back. They're giving you twenty five
percent fifteen twenty five percent interest, some crazy thing, which
means for every dollar you give them yearly getting seventy
five cents of value. You'll never get out of this.
It's just modern day slavery, financial slavery. You're going to
(30:07):
get robbed. It's just a matter of time. You're renting
the car essentially to drive it around, so they're gonna
cover all their their costs in their front end. They're
gonna so that cars worth ten thousand, they're gonna sell
it to you for eighteen thousand and either going to
pay it in the upfront purchase price, or if you're
smarty pants and you know what the car really goes
for because you check comps, then they're going to ramp
(30:28):
it up in the financing costs and bury it in
the agreement over time. But one way or another, they're gonna
get their pound of flesh from you because your credit
is toe up, and you're financially illiterate, and you're emotionally
tied to this car. Are you getting this? It's really
important because a lot of us are hooked up in
these really bad auto loans, and today I'm hearing you know,
(30:49):
the average auto loan payment, even on good credit, is
seven hundred eight hundred dollars nine dollars. This is approaching
what you pay for rent. That's not sustainable, and why
should you be Why should you be doing that? Is
another question. I have high end vehicles now, but I
don't think about the payment. If you had to think
about the payment, you don't need the car. I actually
made money on the car recently. But you know, you
(31:12):
need to understand that ninety nine percent of cars are
depreciating assets, not appreciating assets. It's good debt and bad debt.
Good debt is tied to something that may or does
go up in value, and bad debt is tied to
something that is or is or is likely to depreciate
or go down in value. And an auto loan typically
(31:37):
ninety nine percent of time it's a depreciating asset. So
it's actually bad debt unless it's good debt. What you meaning.
It's either bad debt or it has a good purpose.
You're buying the car to get yourself to work. You're
buying the car to transport your family. You're buying the
car because it is your work. You're an uber driver,
a lyft driver, you're a man. You know you're drive,
(32:00):
we're living some way. Yeah, it's essential transportation. If you're
flossing the car, I'm not quite sure in what industry
that would work. I guess maybe the entertainment industry. But
I can tell you a whole bunch of folks who
went broke because it had a bunch of loans on
expensive cars that they didn't actually own. Couldn't afford, they
(32:21):
lease it, they buy at it. You know, they're not
paying attention to details, and literally the cars are building
their wealth. Getting back to the story, now, this third
type of car dealership is really a vulture, and i'd
encourage you to do your research before you figure out
what discide why you're going to do business with one
of these companies. If the story's just going to end badly.
(32:44):
They make their money on the financing that they have
in house, and then the car breaks down and they
jack you up on the repair fees, and then they
may even finance the repair fees, meaning they may you
don't have the money to pay for the repairs and
you need transportation, and you owe them money for the car,
and so they they then pour the financing into the
(33:06):
refinance of the car and then jacket up some more.
This becomes basically a payday loan situation you cannot get
out of, and they own you, lock stock and barrel
at some point, and then the car breaks down after
a year, fifteen months, whatever you've you know you can't
afford any more. There's drama nor the payment, so you
give them the car back with the security deposits you
(33:29):
put up or whatever. So they take that and you
know they're threatening to destroy your credit and chase you
for life. You don't want that. Some local dealerships, so
they know where you live, they know who you are,
you know, blah blah blah, and then they take that car,
go in the back, bondo it together again, fix it,
resell it to the next sucker. I call you a sucker,
(33:53):
but I'm saying that's how they see That's how they
see you. That comes along with a five fifty credit score,
which means you don't pay your bills. And by the way,
I've been there, I was the sucker. I was the
guy with a five fifty credit score who didn't pay
his bills. So I know the target market and know
what it looks like. So I just gave you an
example of how the car dealership industry works. This is
(34:15):
not the honorable dealerships in the first tier, per se.
This was second and third tier dealerships that I want
you to stay away from if you can. If you can't,
then I want you to do your research. Do not
ask what the payment is when there's an interest rate attached.
Look at your documentation, Read your documentation. Be smart, about
money and finance. Come to my Operation Hope team for
(34:38):
coaching and counseling. Read my book Financial Literacy for All.
Every week at the kitchen table, have a family meeting
and break down what's going on in the family for
that week, and really build a budget for yourself. I
have a budget every month. I check it every month
and I'm doing I guess you can say I'm rich,
(34:59):
but I have a budget. Everybody is a budget. People
who are wealthy, you know, it's not about what you make,
it's about what you keep right. So I want you
to be smart about your money. I want you to
monitor your credit score. My team can help you with
that at Operation Hope, with have offices across the country.
It's scholarship for you, meaning that I have sponsors that
have paid to fund financial coaching and counseling. And Hope
(35:22):
Light is available to the public. And Hope you know
Classic and Hope Platinum or services that are part tied
to our partners, and that's worth thousands of dollars every
year for those lucky enough to be tied tied to
one of our partners. But you can call Operation Hope
today and get Hope Light for free. There's no cost.
(35:43):
Don't let somebody charge you money for credit counseling that
don't do that. Come to me and we will give
you the services for free and help you get your
credit score up, your debt down, your savings up. Read
the book, and of course keep listening to this weekly podcast.
It's my ministry of hope. This is my ministry of
finance every week. This is my pull pit every Thursday.
(36:04):
Tell your friends and I hope this was enlightening and
maybe even a little entertaining. This is John O'Bryant. This
is money and wealth. Every week I break down how
stuff works, love and light. I'm out. So We've got
(36:31):
fan questions always, and I'm always honored to honor them
to respond to them. I'm gonna tell you this one
fan question here came from somebody that I love, and
it's not so much a question, but it was a
question to me. But I'm saying it to you without
(36:54):
giving them attribution because I don't want to embarrass him.
But I'm telling you there is no shame in the
game of asking questions. Is the only shame in not
asking questions. And Andrew Young would say that men and
women fail for three reasons, arrogance, pride, and greed. Right,
my dad was prideful. He was not greedy, he wasn't arrogant.
He was full of pride. Pride kills. So this young
(37:16):
lady who I know, twenty four years old, twenty five
years old, beautiful, smart, young lady went to college and
through her friend, she came to me and she said, look,
I need to ask you a question. Sure, what's a stock?
What's equity? And I'm proud of her because at least
she asked and we had a good conversation about it.
(37:37):
I'd answered her question right, and she's better for it.
And now she's hopefully invested in the stock market and
understands that she's building equity. So if you're buying, in
this example, a car, and you've bought it for twenty thousand,
and over time you paid it down to ten thousand dollars,
So now you have a loan of ten thousand dollars
(37:59):
on your month statement. He purchased it for twenty thousand dollars. Right,
Your payment every month and making this up is five
hundred dollars a month. You have insurance of one hundred
dollars a month. When you're buying a car, you have
to factor in that cost of insurance or in the
cost of maintenance and upkeep, or you'll have a bad
you'll have a bad outcome. Okay, So the cost for
(38:20):
her every month is six hundred dollars for this car.
What is her equity when she sells this car, if
she trades it in. If she can sell this car
were she bought for twenty thousand dollars, and she's able
to then sell it to the dealer when she trades
it in, or sell it to you the buyer on
the open market, and she's willing to sell it for
(38:40):
making this up fourteen thousand dollars. She owes an example
ten thousand dollars. Her monthly payment is five hundred dollars
a month and one hundred dollars in insurance, and she's
able to sell that car before the next payment comes
due five hundred plus one hundred, six hundred dollars. She's
able to sell that car and receive the proceeds in
(39:02):
that same thirty day period to pay off that ten
thousand dollars balance on the statement from her lender, what
does she have equity in this example? She sold us
for fourteen thousand dollars. She has four thousand dollars of equity.
That is her equity. If you have stock that you
(39:23):
own and you've paid one hundred dollars for that stock,
and it has gone up to one hundred and forty dollars,
and you pay for that stock in cash, you have
one hundred and forty dollars of equity. So your equity
is your value minus what you owe against that value.
All right, love and light, John O'Briant, let's go change
(39:47):
the world together. Go to Operation Hope and take your
life back. This is the Black Effect Network podcast called
John O'Brien on Money and Wealth. See you next week.
(40:12):
Money and Wealth with John O'Brien is a production of
the Black Effect Podcast Network. For more podcasts from the
Black Effect podcast Network, visit the iHeartRadio app, Apple Podcasts,
or wherever you listen to your favorite shows.
Welcome the Money and Wealth with John O'Briant, a production
of The Black Effect Podcast Network and iHeartRadio. Hey, so
John O'Brien this is a trending topic. This is actually
an old one because this story never gets old. Uh.
(00:23):
You know, there's a rapper in Atlanta. I won't name
his name because you know who he was, who was
very successful as a music producer, had a high profile girlfriend,
became his fiance. They almost got married. You can try
to figure out who I'm talking about. African American in
Atlanta within the last two decades. I'm gonna am I
(00:45):
gonna give you too much more information than that. I'm
not trying to embarrass him, but it is an interesting story,
and he was he was rolling. He bought a you know,
I bought it, rent rented, bought whatever, you know, the mansion.
I'm not sure of how that trend actually, I think
he bought it lost it, by the way. And most importantly,
he had bought a convertible Rose Rice along with other cars.
(01:08):
He's very, very proud of his car, flossing around town.
Cool cool, cool. He getting afforded cool until he couldn't
and he lost the ability to earn income, did not
pay attention to the fact that it was a music business.
It's the business of music, and you know, didn't pay
attention to his finances. But his so called accountant and
those who spent his money for him did pay attention.
(01:30):
And one day he realized that just like the postman
or the teacher or whoever who had two much month
at the end of their money, he was out of
money too. He just more zeros around his income and
his debt and when his income stopped. You if you
make thirty thousand dollars a year and you come up
short one thousand dollars or whatever, you can find that
somewhere through friends, maybe, But if you're making three million
(01:52):
dollars a year and you had to go from that
to making three hundred thousand dollars a year and you're
short two point seven million dollars, where you can't go
to Auntie Sue and get her to bail you out
for two point seven million dollars, you just stuck like Chuck.
So he was happy when the lenders gave him the
car loan, and he was ecstatic, and they gave him
(02:12):
a great deal, and they whined and dine him and
he said thank you and was all taking pictures with
him and all of that. But when he lost everything
what happened, he called the lenders racist. When they came
after him looking for the cars factor repossessed the cars.
He did a whole stick back. There was no social
(02:34):
media back then, so he couldn't, you know, go on
his Instagram, but it was in the press he called
this lender racist. Is a major bank in Atlanta, then
called sun Trust, now called Truist, one of my partners.
By the way, he called the lender racist, Well, I
know the transaction, and I know the lender, and I
(02:54):
know the applicant, and it wasn't racist. It wasn't racist
when he got the loan, when he got it at
prime rates and was happy about it, taking pictures with
the linders and all that. But when he couldn't pay,
supposedly they were racist. Let me tell you something. If
I loaned you some money and you don't pay me back,
I'm gonna take the car, right, And I'm not racist.
(03:18):
I'm a capitalist. Right. They loaned you some money, they
want it back. What's complicated about that? You couldn't pay them?
You should have talked, called them and negotiated a restructure
of that loan or given the car back. It always
kills me where you have these folks and their car
is about to be repossessed and they want to call you,
curse out the toe men and chase them with a crowbar.
(03:40):
You've seen the stories, you know, get in the car
after food, pull out guns. By the way, You just
going to jail. Now. You just made a bad situation,
I don't know twenty times worse. You've won the battle
and lost the war. You rearrange the deck chairs and
the Titanic of your life. The ship is sinking and
you're picking drapes and you'll be picking them in prison
(04:00):
soon too, because that's just stupid. We all seen the stories.
But it's emotional, emotional, emotion emotional. You can't pay. Just relay,
like here's the car, right, delay relay? You know we
actually don't delay. Just relay the title back to the
lender and be done with it. Renegotiate, negotiate your exit.
(04:23):
You can't provide your consistency the meaning making payments. Just
negotiate a dignified exit for yourself. Go buy a car
you can afford so you have transportation and reset your life.
I had to do that. Everybody has to do. We
all go through it. A saint is a center that
got up. It's because you make a mistake. Doesn't make
you a mistake, right, It's only when you make a
(04:44):
bad situation and make it worse. So this rapper lost
it all. Of course, the lender got their car back
and sold it and got their money back. And that
guy lost his public battle with the lender, and of
course we're ever able to do business with them there again.
And no other lender wanted the loan of money because
I said, well, when you loan, it's got money's and
to call your racist and not pay you back. By
(05:07):
the way, there are races, but it's typically not a
bank trying to get some money out of you. If
the bank makes money by making you a loan and
getting it repaid, why would a lender intentionally discriminated against
you when all they want is their payments. I mean, again,
there are races, but typically they're trying to not get
you credit, not to not give you a loan in
(05:28):
the first place. Right. So anyway, there you go. That's
the trending topic for the day. Let's continue this conversation
and make smart sexy again. We've been making dumb sexy
for way too long. We've dumbed down and celebrated it.
It's time to make smart sexy again. Hey. Hey, it's
(05:58):
John ho'bryant. This is Money and Wealth on the Black
Effect Network. And this week I'm going to break down
something that's near and dear to all of our hearts
car dealerships. How does the car business work? So I've
(06:19):
got a lot of personal experience with this, and you know,
used cars actually make more money. The used car business,
on balance has a better what it's called margin profit margin,
or the area between well, the percentage of profit that
they have on the product. You actually would think they
(06:41):
would have more of a profit on a new product
typically because a lot of these folks are scoundrels. And
I'm going to have a dear friend of mine come
on on a future podcast, Tony Marzulo of gas Motor Cars,
who's a really honorable guy who deals with previously owned
high end vehicles. Who are Who's going to come on
and explain you some horror stories of how this business
(07:02):
that he has witnessed actually an industry, actually works. But unfortunately,
there's a lot of scandals and bad players in certain industries,
use car dealerships being one of them. I've got some experience,
as I've said, and I'll explain what happened when I
was coming up. But it might surprise you that actually
used car dealerships on balance make more money or have
(07:23):
a bigger profit margin. They may not make more money
because they're smaller operations and all that stuff, and they
can't scale. I'll explain why in the moment, mostly because
of reputation issues that inability to brand what they're doing,
so they may make a bigger profit margin, but have
a low overall profit, low overall viability as a business.
(07:44):
They just can't grow it. But again, I'm gonna stop
talking around it and talk right to it. When I
was coming up in well, it was south central LA.
My dad would go to the local car dealership and
buy a car because his credit was tore up from
the flow up. He was a small businessman, but you know,
(08:04):
he would pay cash lot and he would flow checks.
And you know, we've all done it. We've you know,
growing up in the hood. You know I'm talking about
we all have been there. So I'm not judging my
father in this situation, he did the best he could
what he had. He thought that the people in charge
of the bank were the branch manager, so he dealt
(08:26):
the only relationship he had was the branch manager, who
couldn't extend him credit. Really then or now, no diss
to the branch manager. It's just the way the banking
environment works. They have centralized their credit making authority, and
a lot of it has been automated using technology, as
you've heard me say before. So artificial intelligence is going
(08:47):
to make that even more this case, which is why
your credit score is so important to getting the math
right in your life. Another podcast for another time. So
my dad would go to the car a lot, and
he couldn't go to the major car lots because they
dealt with the major bank lenders and the manufacturing lenders
who wanted them to have wanted them to have a
(09:08):
good what credit score, which my dad did not have.
I didn't know this back then. So let's just say
my dad had a five hundred in something credit score,
which is probably accurate. So he would go to a
used car dealership lot and they would write him up
and you know, they would say, what do you know?
What do you want? To pay, and he would say, well,
I want a payment of X. I do remember a
(09:30):
couple of times my dad bought a raggedy vehicle. This
was actually pretty smart for cash. I actually recommend that
if you can buy some car for cash and have
no car payment for your first car, it's actually not
a bad route. But a couple of times my dad
got caught up in a situation where he wanted something
more flashy or whatever and ended up asking the wrong question.
(09:53):
You never asked what the payment is when there's an
interest rate attached. Okay, so now I'm going to stop
picking on my dad. I had start picking on me.
So my dumb ury and I went and lived with
my sister in San Diego. Later on, when I was
older and I was trying to be an actor, trying
to be an entertainer. Yes, that was a part of
my life too. I wasn't a very good actor or entertainer,
(10:16):
but I tried. I did a few things. I was sure.
I was going to tell you what I did, but
you might like it's too nosy and start searching around,
and then that becomes a conversation. So we're not going
to talk about that. I just tell you It wasn't
all that great. It wasn't my highest and best hues
being an actor. But I was in San Diego and
trying to floss and I wanted it was two different cars.
(10:39):
I wanted. I want a BMW three twenty I that
was the car back then, and it was blue. I remember,
it was like a midnight or it was not an
ocean like a midnight blue. I loved it. A tan interior.
Who I think, you know, there was a few actors
who had that car back then. I wanted that car,
that car. You know. This was convinced he was going
(11:01):
to make me cool and solve all my problems. Whatever
decision you make emotionally is a bad decision, and this
was an emotional decision. And I went to a car
dealership a lot in La Jolla, California, high in area.
It was a B paper lot or a sea paper lot.
A paper lot is the best credit you can get.
This was a B paper lot, maybe even a C
paper lot. So a paper lot. The dealership actually is
(11:25):
connected with a manufacturer, so Honda, Toyota, Mercedes, you know, whatever, Jaguar,
you know, Maserati. The lots you know where they forward,
where they own. Uh, well, they have a relationship with
the manufacturer. They give you preferred financing through the manufacturer.
They get you know, it's it's a proper situation. A
(11:48):
B lot is a lot that where you have impaired credit.
They've gotten fairly nice cars, they're previously owned, but they're
going to shop your credit a rund down to different
lenders who are less than prime, less than perfect word
less in prime leaning. It's not going to give you
(12:08):
the best raising terms, but you still get a decent deal,
not a good deal, but somebody is going to finance
your deal through the lender a CEA paper lot is
when they finance your paper themselves, and they're really in
the business of financing, not a business of selling cars.
So I bought one of these cars on a sea
(12:30):
paper lot. Well, no, it was a B paper lot
that was also a C paper lot. Because I remember
they tried to finance me through lenders. They let me
leave all the lot. They always ask this question, what
payment do you want? Never asked what the payment is
when there's an interest rate attached. If there's something they
charge costs more than one thousand dollars, do not go
with what the payment is. It's a trap. I fell
(12:53):
into the trap. What do you want your payment to be?
I told them what the payment, what I wanted the
payment to do. They pulled my credit. They held their nose.
And of course the salesman's just trying to sell a car,
so he writes the paper up. He gets me to
sign the documents, gives me the keys, make sure I'm bound,
which means that I've got insurance at least for the
day on the car. And sometimes they will buy and
(13:17):
being the insurance themselves with their insurance carrier, they get
an override fee for that as well, by the way,
depending on what the insurance company is. And I leave
the lot and the salesman is hoping he can place
his paper the loan on the car, and yes, there's
a purchase price I've agreed to for the car. Actually,
(13:39):
with the most of these dealerships, an actual purchase price
a secondary. That's not how they're making their money. They're
making their money on sales, they're making their money on service,
and they're making their money on financing. Typically there's a
couple other things like insurance. I'll get to this in
a minute. It's break down exactly how they make their money.
But on these B and C paper lots, you may
surprise you. You're sitting at the spin all this time
(14:00):
negotiating the purchase price. And these folks, these jokers, are
making their money. They don't really care about that. They're
making the money on financing you, and they're getting an
override or kickback or a fee with the lenders to
finance you. And they're making the money when the car
breaks down or you break down and the car comes
back to them. But I'm getting ahead of myself on
(14:21):
the story. So I take this car, and I think
within a day or two they told me that I
needed to bring the car back, and that of course
made a small down payment. That became a negotiation. But
the guy was unsuccessful in getting me to place me
with a lender. So I added, bringing that car back
broke my heart. But now I'm like half pregnant. I
(14:41):
want to buy something. So he then gets me into
my second dream car emotional decision at that time, which
was a two eight z X. I love that car.
It dots him to aight Z and I won't get
into the story what happened to that car before I
lost it, because it's really embarrassing. I drove her from
San Diego to Los Angeles, got into some not so
(15:02):
honorable trouble and it was not good trouble. It was
just trouble. I didn't hurt anybody, didn't hurt myself, but yeah,
it was not my finest moment. I can smile about
it now, but I was really lucky so short version
on that that car got repossessed. And I've got several
of these stories about me and cars in life. Early on,
(15:23):
and you know, I mean I did. It was several
years I didn't pay my taxes. This was later on
in my life. I ended up having to get hit
with a bunch of tax fees and whatever, and I
had to file a bunch of returns, like six years
returns in one year in my early twenties because I
was so busy as I want to be entrepreneur. Now,
this is when I was actually being more honorable, and
I really I didn't pay, not pay because I was
(15:45):
a flake. I didn't pay because I didn't have it,
and that wasn't my priority to use the limited capital
I have I had, I was reinvesting in my business.
I ultimately end up having to file all those tax
returns in arrears and of course paid every dime. Oh
back to this story, this is a different version of me.
This was me that was trying to floss, trying to
(16:06):
impress girls, you know, guys, whatever, you know my friends.
I hung around the guys, the ladies I was trying
to date, none of which, by the way, in hindsight
matters spending money. You don't have to impress people you
don't know about things that don't matter, on things that
when you look back on that are just ridiculous. He's
(16:27):
like trying to be, you know, a six square block celebrity,
like you will to be a celebrity famous in your
six square block area. Later on in your life, you
will realize that was wasting a whole bunch of time
and energy, owing nothing and on nobody. So, yeah, I
lost that car. There was one decision I made that
was smart. I bought a used nineteen sixty seven Ford
(16:51):
Mustang with a hard top, and it actually is a
collector's card type. This particular car was toe up and
the flow up, but it looked nice. And I remember
I put retreads, which means not dependable wheels. I put
re treads on the car, and it was so hot
outside the retreads came off the car. Winning a car
(17:11):
was driving on the freeway. Another story for another time.
So let's get out. Okay, now that you're laughing your
tail off, and you know that I actually understand what
I'm talking about. But I did paper that car in cash,
that's the good news. And I had a cell phone,
a fake cell phone in the car. This story is
getting worse. I wouldn't have wrote to what was in
called radio shack and bought a cell phone kit, which
(17:31):
is the antenna. Remember this, somebody, you guys, remember this
antenna on the car and the hand cradle in the car,
and I put the cord underneath the dashboards. Is really embarrassing,
trying to impress somebody. This is my flossing period. All right.
Here's how a car dealership works. The revenue side of
the car dealership. These are traditional car dealerships. The primary
(17:52):
source of revenue for dealership is selling new and used vehicles.
Dealers purchase vehicles from manufacturers or I had auctions and
sell them to consumers of their markup. Be careful of
dealers that sell you a car at an auction. An
auction vehicle sometimes is really tow up from the flow up,
and they paint over problems and there's a reason the
cars at the auction because it did not make it
(18:15):
in a traditional buy and sell and trade in an environment,
and you buy a car an auction and somebody might
have turned back the odometer, the mileage meter and all
kind of crazy stuff, gotten to an accident, repainted it
might have been. You might have broken the frame or
something and welded it back together. You just never know
what you're getting at an auction. Financing and insurance is
(18:36):
a second way dealerships make money. Dealerships often offer financing
options to customers, allowing them to spread the costs of
the vehicle over time. That's pretty much all the time.
They also sell insurance products like extended warranties and gap insurance,
meaning the difference between what the car is worth if
something happens or you're trying to sell the car, whatever,
(18:57):
and what you owe against the car. That's a gap
that the insurance to cover the gap. I've had that
before on high end vehicles, which provide additional revenue for
the dealership. So they're making money on the gap insurance.
They're making money on selling you insurance. They're making money
on extended warranties. No problem with any of this if
it's honorable, and they're making money on financing. I'm gonna
(19:20):
come back to this because in a traditional car dealership,
well they're making money selling cars, primarily a new car dealership.
But that's not what I'm talking about here, and that's
not what I'm warning you about. Stay tuned here. Hold on.
The third area is service and parts. Dealerships earn money
through servicing vehicles and selling parts. These include routine maintenance, repairs, insulations,
(19:42):
and accessories. Last week I just had actually it wasn't
need a car dealership. It was an entire company. I
do business with installed and after market parts for me
on one of my cars and charge me. They may charge
me two thousand dollars. You know, that was mostly all labor.
I think it was all labor. Actually, so they paid
their people that say, you know, fifteen bucks an hour.
(20:04):
If they charge me the equivalent of forty five dollars
an hour or whatever, then the difference minus the costs
of their cost of your business is their profit. And
I'll tell you about what the cost of doing business
is for a car dealership in a moment trade ins
when the customer trades in their own vehicle for new one.
Dealerships may refurbish and resell their trade in adding to
(20:24):
their revenue fees and add ons check this out. Dealerships
may charge fees for processing, paperwork, delivery, or other services.
They may also offer add ons like rust protection, paint,
sealantor then etching for an additional charge. I have paid
for like you know, rims. You know, if you rub
(20:46):
your rims against the curb. I paid a warranty to
cover that for members of my family and myself for
high end vehicles, and so if something happens to the rim,
you take it back to the dealership. They repair it
or replacement for free. But that's not again, the kind
of I'm not talking about honorable folks and people like
(21:07):
me who can afford to pay these things for high
end cars and a new dealership are quality previously on.
I'm talking about folks who are trying to rob you
in broad daylight and calling it a traditional business. Here's
the traditional cost of running a car dealership. Vehicle acquisition.
So the dealerships have to purchase vehicles from the manufacturer
(21:28):
or auctions or from you to resell it. The costs
these vehicles affect their profit margins. Of course, operating expenses.
This includes expenses like rent, their rent, utilities, their insurance
for those facilities that they are purchased that they're operating from.
Salaries for their employees, and marketing costs and equipment, inventory costs,
(21:49):
holding inventory ties, capital and incurse costs such as depreciation,
financing charges, and storage costs. So a car dealership has
a proper one has a finance vehicle. That finance is there.
That's the floor inventory for the car dealership. Let's say
it's making this up. They have a million dollar line
of credit if you will, to put cars on the
(22:12):
car lot, and then as they sell it to you,
they pay down that line of credit. Hope doesn't make
sense to you. So they can't core afford to hold
cars for a long long time. They're trying to get
them off the lot as soon as possible, which is
the advantage for you to negotiate. If car's been sitting
there for a long time, you typically can get a
better deal. And while service and parts of generating revenue,
(22:34):
they also have a costs associated with labor, parts, inventory,
and equipment. Just covered that with the car tire company
I mentioned that's doing some install for me. Advertising and
marketing dealership spend money on advertising to attract customers and
promote their business. Okay, there's nothing there's nothing you know
crazy about any of that, right, And the profit margin
(22:55):
is the difference between the costs and their revenue. Now,
you might be shocked to hear that the real way
these folks make their money the less than honorable ones,
the ones that hope you have a six hundred or
five hundred credit score right or a seveator credit score.
You're just not that bright and are not that wise,
And somehow you've fallen yourself into a B or C
(23:17):
paper a B or C paper dealer. Are you just
drove by someplace and emotionally you got captivated with some
incredibly sexy car and you walked yourself into a B
or C paper auto dealership didn't know that you were there.
It is real sin if you have a seven hundred
credit score and you end up on these places and
don't know that you're being preyed upon. But certainly they're
(23:38):
searching for somebody who doesn't have optionality, because if you
show up at one of these places with a semilar
credit score. I'd hope that you have enough sense that
the snuff out, even with you being em you're making
a decision emotionally is a bad decision. That's another podcast
episode that I would do at another time. But I'm
hoping that if you have a similar credit score, even
if you just really love this car, you'll go find
(23:59):
that same cars someplace else. This b paper dealership is
going to shop your loan. So first of all, you're
gonna go there and the car's gonna be twenty thousand
dollars on the sticker. You're gonna try and negotiate that down.
I'm making this up to you know, you're gonna say
eighteen thousand, they're gonna say nineteen thousand and five. Twenty
(24:20):
thousand dollars car. You're gonna say eighteen thousand and five.
They're gonna say nineteen thousand, two hundred, and you guys
are gonna ultimately, let's say agree on nineteen thousand, one
hundred whatever. You know, you said, Oh, I've got these
folks down almost a thousand dollars. Fantastic, you know. But
in this example of five eighty credit score, and you're saying,
what's the payment. This is not gonna correlate, but I'm
(24:42):
gonna just say the payment's, you know, six hundred dollars
a month that they tell you that your payment's going
to be, or you say that's what your payment cannot exceed.
They walk into the financing department. Now this is where
they really make their money. They then talk to Joe's
finance company and they have a relation ship with Joe's
finance company, and they say they got a sucker, I mean,
(25:03):
a client in front of them, and the purchase price
is nineteen thousand, one hundred and your credit for courus
five to eighty, and you want to pay men six
hundred dollars a month. The lender comes back and tells
the dealership Schmuckville, USA, will finance this guy. We want,
(25:24):
you know, fifteen percent interests. And the Schmuck Auto dealership
company wants a brokerage fee. They want to points, they
call it. They want points against this nineteen dollars purchase.
So you think you're just paying a commission whatever is
in the documentation to sell the car, they're actually making money,
(25:49):
a lot of it on a brokerage fee with the lender.
You have a right to know what that is. You
should ask are you making a fee from the lender?
If so, what is it? You might fall out your
chair to find out how much you're being paid. So,
even though you've got to discount on that purchase price
and they've made a profit another profit on the financing,
(26:11):
it's points and interest, so points meaning they're getting let's
say it's a you know, maybe five points so out
of fifteen percent interest in this example, maybe they're getting
five percent of the ten percent as a buyback or
a kickback. Really, so it's really the lender maybe saying,
you know, they want a net a ten percent per
(26:31):
interest from you per year from you, and the lender
is getting five percent per interest as an override. So
even if you leave that lot for the length of
that car, you're paying you don't know this, you're paying
as much as you know, in this example, five percent
commission every month to this secondary lender. This sorry, this
(26:52):
schmuck auto dealership that's acting like a lender. I'm getting
real complicated, but you get the gist. And then when
the car breaks down or you can't afford to pay
it or both, uh, the car comes back to them,
and you and you, and they give you a lecture,
and then they've shown they've sold you some bum insurance,
by the way, which they're also getting a kickback on properly.
(27:13):
And then they're going to repair that car in their
own shop and threaten you if you don't pay them X, Y,
and Z bring that car back that they're going to
damage your credit. So you may be paying an inflated
amount for the repair of the car just to release
yourself from liability. But in any case, they're going to
repair their costs at their shop and resell that car
to somebody else under similar terms and conditions. And this
(27:35):
is capitalism. Don't don't get angry with these folks. When
somebody's sitting across the table from you doing business. Remember this.
Their job is to get as much money from you
with the least value as possible transferred to you. Your
job is to get the most value transferred to you
for the least amount as possible. Did you hear that
or repeat it? Capitalism is a gladiator sport. It's not personal,
(27:57):
it's just business. Your job in that negotiating table is
to pay the least it's possible for the most value.
Their job is to extract the most from you in
costs for the least amount of value. They're not trying
to Most people are not just trying to jam you
up and rob you. They're just trying to make a profit,
and you're trying to get a good deal. Most great deals,
(28:20):
or when most the buyer and the seller both don't
feel great about it, you feel okay about it. That
means you probably got a pretty good deal. The third
dealership example, it is really crummy and that's where they
own the car and the financing. That means your credit
is toe up. Your credit so bad. It's not credit,
(28:42):
it's credit. My dad used to call it credit. He said,
using my credit is bad. And you know, I don't
know for one hundred and five ten, five point fifty,
just bad, right, Like nobody wants to leave you money
and you're so poor you can't afford the are you
just pop peel And that's when they got you. Because
(29:05):
you want this car and it's and when you buy
that car and eighteen percent twenty percent interest, it's a
mobile bomb. It's not a Mercedes. You bought is mercy?
These payments and they got you. You know that car
is going to explode. That car is bought at an auction.
They past it together with bondo glue, they painted over,
they put rims on it. They made it smell good.
(29:26):
Somebody threw up in the car. Somebody died the car,
somebody did weed in the car. Who knows. They sprayed
it with you know, deodorant, whoever. But the car is
a bomb. The o'domino has been turned back. Whatever bad
you think about it, that's what's happening with this car.
They have wrint their own paper, meaning they've really not
a car dealership. They're a lender masquerading as a all dealership.
(29:46):
They've written their own paper, asked you what the payment was,
don't care what it is because they know they're going
to get the car back. They're giving you twenty five
percent fifteen twenty five percent interest, some crazy thing, which
means for every dollar you give them yearly getting seventy
five cents of value. You'll never get out of this.
It's just modern day slavery, financial slavery. You're going to
(30:07):
get robbed. It's just a matter of time. You're renting
the car essentially to drive it around, so they're gonna
cover all their their costs in their front end. They're
gonna so that cars worth ten thousand, they're gonna sell
it to you for eighteen thousand and either going to
pay it in the upfront purchase price, or if you're
smarty pants and you know what the car really goes
for because you check comps, then they're going to ramp
(30:28):
it up in the financing costs and bury it in
the agreement over time. But one way or another, they're gonna
get their pound of flesh from you because your credit
is toe up, and you're financially illiterate, and you're emotionally
tied to this car. Are you getting this? It's really
important because a lot of us are hooked up in
these really bad auto loans, and today I'm hearing you know,
(30:49):
the average auto loan payment, even on good credit, is
seven hundred eight hundred dollars nine dollars. This is approaching
what you pay for rent. That's not sustainable, and why
should you be Why should you be doing that? Is
another question. I have high end vehicles now, but I
don't think about the payment. If you had to think
about the payment, you don't need the car. I actually
made money on the car recently. But you know, you
(31:12):
need to understand that ninety nine percent of cars are
depreciating assets, not appreciating assets. It's good debt and bad debt.
Good debt is tied to something that may or does
go up in value, and bad debt is tied to
something that is or is or is likely to depreciate
or go down in value. And an auto loan typically
(31:37):
ninety nine percent of time it's a depreciating asset. So
it's actually bad debt unless it's good debt. What you meaning.
It's either bad debt or it has a good purpose.
You're buying the car to get yourself to work. You're
buying the car to transport your family. You're buying the
car because it is your work. You're an uber driver,
a lyft driver, you're a man. You know you're drive,
(32:00):
we're living some way. Yeah, it's essential transportation. If you're
flossing the car, I'm not quite sure in what industry
that would work. I guess maybe the entertainment industry. But
I can tell you a whole bunch of folks who
went broke because it had a bunch of loans on
expensive cars that they didn't actually own. Couldn't afford, they
(32:21):
lease it, they buy at it. You know, they're not
paying attention to details, and literally the cars are building
their wealth. Getting back to the story, now, this third
type of car dealership is really a vulture, and i'd
encourage you to do your research before you figure out
what discide why you're going to do business with one
of these companies. If the story's just going to end badly.
(32:44):
They make their money on the financing that they have
in house, and then the car breaks down and they
jack you up on the repair fees, and then they
may even finance the repair fees, meaning they may you
don't have the money to pay for the repairs and
you need transportation, and you owe them money for the car,
and so they they then pour the financing into the
(33:06):
refinance of the car and then jacket up some more.
This becomes basically a payday loan situation you cannot get
out of, and they own you, lock stock and barrel
at some point, and then the car breaks down after
a year, fifteen months, whatever you've you know you can't
afford any more. There's drama nor the payment, so you
give them the car back with the security deposits you
(33:29):
put up or whatever. So they take that and you
know they're threatening to destroy your credit and chase you
for life. You don't want that. Some local dealerships, so
they know where you live, they know who you are,
you know, blah blah blah, and then they take that car,
go in the back, bondo it together again, fix it,
resell it to the next sucker. I call you a sucker,
(33:53):
but I'm saying that's how they see That's how they
see you. That comes along with a five fifty credit score,
which means you don't pay your bills. And by the way,
I've been there, I was the sucker. I was the
guy with a five fifty credit score who didn't pay
his bills. So I know the target market and know
what it looks like. So I just gave you an
example of how the car dealership industry works. This is
(34:15):
not the honorable dealerships in the first tier, per se.
This was second and third tier dealerships that I want
you to stay away from if you can. If you can't,
then I want you to do your research. Do not
ask what the payment is when there's an interest rate attached.
Look at your documentation, Read your documentation. Be smart, about
money and finance. Come to my Operation Hope team for
(34:38):
coaching and counseling. Read my book Financial Literacy for All.
Every week at the kitchen table, have a family meeting
and break down what's going on in the family for
that week, and really build a budget for yourself. I
have a budget every month. I check it every month
and I'm doing I guess you can say I'm rich,
(34:59):
but I have a budget. Everybody is a budget. People
who are wealthy, you know, it's not about what you make,
it's about what you keep right. So I want you
to be smart about your money. I want you to
monitor your credit score. My team can help you with
that at Operation Hope, with have offices across the country.
It's scholarship for you, meaning that I have sponsors that
have paid to fund financial coaching and counseling. And Hope
(35:22):
Light is available to the public. And Hope you know
Classic and Hope Platinum or services that are part tied
to our partners, and that's worth thousands of dollars every
year for those lucky enough to be tied tied to
one of our partners. But you can call Operation Hope
today and get Hope Light for free. There's no cost.
(35:43):
Don't let somebody charge you money for credit counseling that
don't do that. Come to me and we will give
you the services for free and help you get your
credit score up, your debt down, your savings up. Read
the book, and of course keep listening to this weekly podcast.
It's my ministry of hope. This is my ministry of
finance every week. This is my pull pit every Thursday.
(36:04):
Tell your friends and I hope this was enlightening and
maybe even a little entertaining. This is John O'Bryant. This
is money and wealth. Every week I break down how
stuff works, love and light. I'm out. So We've got
(36:31):
fan questions always, and I'm always honored to honor them
to respond to them. I'm gonna tell you this one
fan question here came from somebody that I love, and
it's not so much a question, but it was a
question to me. But I'm saying it to you without
(36:54):
giving them attribution because I don't want to embarrass him.
But I'm telling you there is no shame in the
game of asking questions. Is the only shame in not
asking questions. And Andrew Young would say that men and
women fail for three reasons, arrogance, pride, and greed. Right,
my dad was prideful. He was not greedy, he wasn't arrogant.
He was full of pride. Pride kills. So this young
(37:16):
lady who I know, twenty four years old, twenty five
years old, beautiful, smart, young lady went to college and
through her friend, she came to me and she said, look,
I need to ask you a question. Sure, what's a stock?
What's equity? And I'm proud of her because at least
she asked and we had a good conversation about it.
(37:37):
I'd answered her question right, and she's better for it.
And now she's hopefully invested in the stock market and
understands that she's building equity. So if you're buying, in
this example, a car, and you've bought it for twenty thousand,
and over time you paid it down to ten thousand dollars,
So now you have a loan of ten thousand dollars
(37:59):
on your month statement. He purchased it for twenty thousand dollars. Right,
Your payment every month and making this up is five
hundred dollars a month. You have insurance of one hundred
dollars a month. When you're buying a car, you have
to factor in that cost of insurance or in the
cost of maintenance and upkeep, or you'll have a bad
you'll have a bad outcome. Okay, So the cost for
(38:20):
her every month is six hundred dollars for this car.
What is her equity when she sells this car, if
she trades it in. If she can sell this car
were she bought for twenty thousand dollars, and she's able
to then sell it to the dealer when she trades
it in, or sell it to you the buyer on
the open market, and she's willing to sell it for
(38:40):
making this up fourteen thousand dollars. She owes an example
ten thousand dollars. Her monthly payment is five hundred dollars
a month and one hundred dollars in insurance, and she's
able to sell that car before the next payment comes
due five hundred plus one hundred, six hundred dollars. She's
able to sell that car and receive the proceeds in
(39:02):
that same thirty day period to pay off that ten
thousand dollars balance on the statement from her lender, what
does she have equity in this example? She sold us
for fourteen thousand dollars. She has four thousand dollars of equity.
That is her equity. If you have stock that you
(39:23):
own and you've paid one hundred dollars for that stock,
and it has gone up to one hundred and forty dollars,
and you pay for that stock in cash, you have
one hundred and forty dollars of equity. So your equity
is your value minus what you owe against that value.
All right, love and light, John O'Briant, let's go change
(39:47):
the world together. Go to Operation Hope and take your
life back. This is the Black Effect Network podcast called
John O'Brien on Money and Wealth. See you next week.
(40:12):
Money and Wealth with John O'Brien is a production of
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