Comment by lemcoe9 | Hacker News Reader

Comment by lemcoe9 | Hacker News Reader

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I can absolutely confirm this. I have done work (not on this particular type of system, however) for many small-to-medium car dealerships, and they will spend roughly $400 to equip many of the vehicles in their inventory with ignition interlocks that can be disabled remotely.

Here is their business cycle:

1. Purchase a used car from a customer for 80% of "fair market value."

2. Sell the car on a $0-down, 7-year note for 110% of "fair market value."

3. Undoubtedly the loan goes into arrears, and the dealer will disable the ignition system after a certain amount of time. The "owner" will be billed for the tow as well as multiple "recovery fees."

4. Sell the car again for 110% of "fair market value."

5. Repeat.

Multiple times I have been told "we don't want them to pay off the car; we make less money that way."

I remember one particular dealer bragging to me about the fact that he had sold a 2009 Honda Civic 11 times in 4 years. That is, 11 sales and 10 repossessions over the course of 4 years. The saddest part was hearing that over 70% of their car notes would go into arrears within 4 months.

If you are interested in great (and humorous) investigative journalism on this, see this piece: https://www.youtube.com/watch?v=4U2eDJnwz_s

Is it possible to disable these systems, or is something baked into the car where if you disable it the car won't run? This seems very suspicious unless the auto dealer/contractor is expecting most people to not even bother with the gps system.

That doesn't prevent the car from being repossessed though, just makes it a bit harder. Automated license plate scanners are increasingly becoming a thing too (and they're feeding into collaborative sightings databases), so it's easier and easier to locate and thus repossess a vehicle.

I know that for my most recent vehicle purchase (paid cash, no loan) the dealer left their own anti-theft device installed. From what I could gather online, they use them for anti-theft on the lot and then can try to upsell you on a service that uses the same hardware during the sale.

It's wired directly into the ignition system. Despite having a computer engineering degree and enough experience to be reasonably confident in my ability to analyze unknown electronic systems, I spent a lot of time very carefully going through all of the connections to convince myself I wasn't going to brick my vehicle by removing the device. In the end it was pretty easy to yank the device. The hardest part was patching the ignition wire, which had been cut to install the device.

Conclusion from the previous paragraph? It's not that hard if you know what you're doing, but I'd bet that something like 99% of people wouldn't have a clue how to remove it even if they noticed it was there at all.

If you're smart and capable enough to reverse engineer the device, there's a 95% chance you're smart and capable enough to have a job that pays enough to not need ultra high-interest car loans.

I don't think that's true. There are a lot of smart people in not very good jobs who can't break through, or people who have self learned skills in some fields but not enough to get a job that's paying to do that. I could do this easily, but I'm stuck in a $52k/year IT job in Seattle trying to move up.

It doesn’t take many people to know this to serve an entire community. The problem is likely that the terms of the loan are such that the car still gets repo’d, just at a lower frequency and higher cost.

This is exactly what was on my wife’s Honda. Tried to up sell us on some theft deterrent system. Upon declining, we’re told it’s in there.

I recall buying a Honda back in the late 90s. Dealer tried to up sell me on having the VIN etched into all the windows. I declined. Drive the car home and realize it has the VIN etched in all the glass.

I don’t understand your use of the term “fair market value” in quotes, implying that it’s not the actual market value. If the seller and buyer are not under duress while selling and buying, why is the dealer not buying and selling at the market value?

Because the vast majority of the customers that walk through these buy-here pay-here places' doors already have loans on their vehicle and are looking to upgrade. "Kelly Blue Book" is not a phrase used very often by their salespeople; the customer base seems to be much more interested in the appearance of the cars than the financial utility of them.

You weren't touting KBB and that's good. Kelly Blue Book is a great trademark and marketing tool but the preferred industry reference is The Black Book https://www.blackbook.com/

KBB is still in use. NADA Guides is often referred to before BB, in my experience, but is pretty close to KBB values.

If the dealer is buying at 80% and selling at 110% of some number then surely that means that number is not actually fair market value?

That’s the spread and it exists in all dealer transactions. Also called “markup”.

I am disputing the existence of that number. If two parties enter into an agreement to exchange X for Y, and no one has a gun to their head, then the market value of X is Y at that time for that party, and the market value of Y is X at that time for that party.

If there isn’t really such a number then surely the scare quotes are completely appropriate?

Many guns are not physical or tangible.

"I could literally survive the next 10 minutes without buying this" is not the same thing as "if I don't buy this soon, my life will not be significantly worse off."

Poverty's not known for opening up options for people.

Even the stock-market has a bid-ask spread.

A perfectly efficient market will push the bids higher and the asks lower. Stocks for example only have a spread of a couple of pennies.

As the markets get less and less efficient, you become more reliant on middle-men to perform transactions. In the dark ages, people would pay 1-pound of gold for 1-pound of salt. In the case of modern society: bonds (and other derivatives) are less efficient to trade and therefore have higher bid/ask spreads than stocks.

Go away from financial instruments, and a 30% spread on bid/ask is actually reasonable. Play Magic: The Gathering? Buying/selling used video games? You're going to pay a pretty large spread.

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"Fair Market Value" is an estimation of the bid/ask spread. There really are two fair prices: the value the buyer is willing to pay, and the value the seller is willing to sell at. These two numbers are all that matters.

By definition, these two prices are fair. Because if they weren't fair, then the buyer (and seller) would reject the deal and the trade will fail.

So, by definition, 110% of “fair market value” is fair if someone buys at that price? Doesn’t that mean the scare-quoted “fair market value” isn’t?

In my eyes, "fair market value" is roughly (bid_price + ask_price) / 2. In effect, "fair market value" is a survey-result, based on how much buyers are bidding and how much sellers are asking.

80% to 110% isn't a perfect split between the buyer and seller, but its "within expectations".

80% isn't enough margin to pay for the dealership and the repoing and all the other stuff

You're doing fairly well if you can get a car dealer to buy your car for 80% of what they sell it for

Typically because there is an education and need asymmetry between the buyer and seller in a lot of these cases. If the car is maybe worth $3K cash, but a dealer can lease it to someone for $4K by requiring no money down but high interest rates on the loan/monthly payments, where does one say the "market value" is?

The dealer is getting $4K (or more in the cases where they repossess the car and re-lease it) because the buyer often has few options on how to get transportation so they're implicitly forced to take worse terms (say, they need a car immediately to get to their low-wage job otherwise they are fired and forced into worse poverty). Of course, you can still say the car doesn’t have a value until a transaction takes place.

These socio-economics dynamics mean cars have much more of a spectrum of "value" than just one-off car purchases. Framed another way with the parent comment, buyers are often under implicit economic duress, it's just not duress forced by the seller.

I'm not strictly opposed to markets like subprime auto/personal loans, as often these markets would look worse without these options. But a lot of times people see supply-and-demand situations in very limited scope and miss external factors that influence choices.

Yes, but that's covered by the 110%-80% sale spread and the onerous interest, fees, and repossession costs, not the car's market value.

In that case the market value is 3k and the dealer is selling the finance for 1k

Tell that to the state when they collect their sales tax.

This is true (John Oliver covered in depth at https://www.youtube.com/watch?v=4U2eDJnwz_s), but has nothing to do with the $35K 6+-year loans on new cars.

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