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Discussion Starter · #1 · (Edited)
And this coming from a guy who went through partial differential equations and relativity (General and Special). What I don't understand is this peculiar buying behavior.

What generally happens when a car is introduced is there's an MSRP attached. The general routine is to take out a lease on the car; the monthly payments of which directly correspond to that MSRP. When that lease expires, it gets returned to the dealership where it then turns into a 'certified pre-owned' vehicle ("CPOV").

What I don't understand is what happens after the car turns into a CPOV, and what happens is that the car's price will vary under no certain formula.

I cite the 2004 Ford Focus and the 2004 Honda Civic as evidence.

In 2004, both cars were leased out at 4 years, both at $200 per Month, each having an MSRP of $14,000. The lease expires and both cars are returned to the dealer, where the vehicles then turn into CPOV's. Assume identical mileage and condition at this point.

Next day, however, the Ford Focus is seen advertised for $5,999, and the Honda Civic advertised for $9,999. How can this be?! How can it be that two cars--both equal in every respect at the outset of the lease--end up varying drastically in price as the lease expires?

I just don't understand this!

I can't accept the reliability explination, as both cars--according to owners of each who submitted their forms to Consumer Reports---were very close in this regard (Honda excellent and Ford above average. In other words, statistically insignificant). I can't accept repair parts price, either, as Honda repair parts can't be any less expensive than Ford repair parts.

Since both cars in 2004 sold in apprximately equal numbers, there was equal demand for both cars. Thus, the forces of supply and demand shouldn't be playing any sort of a role.

Why, Mr. Anderson? why, Why WHY?!
 

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Fleet percentage is a big reason for it. Ex-government and rental cars sell cheap. A former Hertz Focus sells cheap, so a privately owned Focus sells cheap as well.
 

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Fleet percentage is a big reason for it. Ex-government and rental cars sell cheap. A former Hertz Focus sells cheap, so a privately owned Focus sells cheap as well.
That's a big part of it. Remember fleet vehicles are essentially dumped onto the market, and they bring down the value of the entire brand.

I'm not sure how it works in the states, but in Canada leased vehicles go to auctions and all dealers (franchise and non franchise) bid on them. Sometimes you have things like Ford dealers only auctions, but the big ones, everyone comes out. So you have this auction which is usually a very efficient way of determining price. And in most cases people are just not willing to spend the same money on both cars so neither are the dealers.

Demand and supply are factors. For example a Nissan Armada that is only two years old can be had for about 13gs. That SUV when new was most likely above 50. You could probably find a 2 year old base civic which retails below 20 for that price.

Why? Huge demand for civic and almost none for the Armada.
 

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simply because they know how much they can get. people will buy a Civic before a Focus because of perceived quality and reliability.

by the way, you are using CR reliability numbers to prove a point now? must be a cold day down below...:confused:
 

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Used vehicles reflect what the market dictates ... there is no mathematical formula involving MSRP and how old the car is.

The difference in price shows that more people find that 4 year old Civic more desirable than the 4 year old Focus. Perhaps they believe the quality is better ... true or not. Perhaps they believe the Civic will last longer than the Focus ... true or not. Perhaps they like the styling better, which is up to ones personal taste.

So who should care? Ford. (You could substitute any car manufacturer in this equation.) They need to figure out how to make their car more desirable than the competition.

From your past posts, I believe you would suggest all GM needs to do to accomplish that task is to blow up the production offices of Consumer Reports, Car and Driver, and many other car magazines. Bad press alone is the reason for GM cars (speaking generally of course) being less desirable than other brands. My suggestion is that GM, although they have made great improvements in their products already, needs to continue to improve their product. (The competition isn't just sitting on their heals either ... their product is improving as well.) Those improvement need to be made at all price levels ... i.e. don't improve the product and then charge significantly more for it because it's so much better. Only after significant improvements leap frog the competition will people break their pre-conceived notions about which car is more desirable.
 

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You would also have to blow up a lot of people too, because Civic has an enormous word of mouth reputation. "Buy a used Honda" is a maxim. (Try this: go down to your local auto shop and ask them to recommend a used car.)

Also consider your typical mid-20s female that isn't into cars. Could she even pick a Focus out of a lineup? The brand/name recognition just isn't there.
 

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Discussion Starter · #7 · (Edited)
simply because they know how much they can get. people will buy a Civic before a Focus because of perceived quality and reliability.

by the way, you are using CR reliability numbers to prove a point now? must be a cold day down below...:confused:
There is no relationship between Consumer Reports (and their ratings) and the Consumer Reports Annual Reliability Survey, ronaldMcRetard. They are two completely and totally different entities. In fact, the only thing they have in common is that one sends out a survey via US mail (Consumer Reports) and the other fills out the survey and sends it back via US mail (the survey participant).

Because of this, the annual reliability survey is misleadingly labeled. It should be called, "The Consumer's Annual Reliability Survey" because it's the consumer--not Consumer Reports--that's doing the survey.
 

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Discussion Starter · #8 ·
The difference in price shows that more people find that 4 year old Civic more desirable than the 4 year old Focus.
Then why did these same people say that the Civic is no more and no less desirable than the Focus when both cars were new? What happened in those four years that made the Civic not just more desireable but far more desireable than the Focus?
Again, when both cars were brand new, shoppers didn't find the Civic any more desirous than the Focus.
 

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Discussion Starter · #9 ·
"Buy a used Honda" is a maxim.
Why is "Buy a used Civic" more of a maxim than "Buy a used Focus"? After all, when both cars were new, the maxim was, "Buy either a new Civic or a new Focus." If this weren't true, then there wouldn't have been as many new Focuss sold as there were new Civics sold.

"Buy a used Civic" can't be a maxim because the Civic is more reliable than the Focus either, because it isn't more reliable. Not statistically moreso, anyway.
 

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Then why did these same people say that the Civic is no more and no less desirable than the Focus when both cars were new? What happened in those four years that made the Civic not just more desireable but far more desireable than the Focus?
Again, when both cars were brand new, shoppers didn't find the Civic any more desirous than the Focus.
They are different people, the one buying the 4 year old car and the new car. As for reliability I've heard some true Focus horror stories, while I can't remember anyone saying anything bad of a Civic (aside from rust)...



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Discussion Starter · #13 ·
Can't forget those fleets. I think Focuses had at least 30% fleet sales. The civic no more than 5.
Sorry I didn't respond to you earlier, BGH.
Anyway, wouldn't the used-car industry have evolved in such a way that the fleet sale car would be heavily distinguished from the non-fleet sale car?
In other words, shouldn't it be such that the used Civic would be offered at $9,999 and the Focus at $9,999, with the fleet sale offered at $4,999?
 

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Sorry I didn't respond to you earlier, BGH.
Anyway, wouldn't the used-car industry have evolved in such a way that the fleet sale car would be heavily distinguished from the non-fleet sale car?
In other words, shouldn't it be such that the used Civic would be offered at $9,999 and the Focus at $9,999, with the fleet sale offered at $4,999?
Well no because... what is the difference?

Especially because most of the fleet sales became leased... like rental cars, leased. So they would come back to a dealer and sold as a used car next to the others.

Also who would pay an extra FIVE THOUSAND DOLLARS for what is essentially an identical car in similar condition?



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Discussion Starter · #15 ·
Well no because... what is the difference?

Especially because most of the fleet sales became leased... like rental cars, leased. So they would come back to a dealer and sold as a used car next to the others.

Also who would pay an extra FIVE THOUSAND DOLLARS for what is essentially an identical car in similar condition?
Good questions. BGH?
 

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Look at it this way.

100k of each car is sold.

For the Focus we'll assume 30% Fleet.

Meaning 70k went to people who keep their cars for a while, and 30k went to fleets and those are short term leases sometimes as low as a few months.

Now we'll assume 15k people want to buy a used focus at the current market price. But there are 30k units that will be coming to the used car market just from the fleets. There will also be some individuals who put their cars on the market. So the price of all Focuses must drop.

Fleet cars do sell for cheaper at the auctions, however they bring down all the units prices. And since ford dumped so many onto the market people must bring their prices to the point where supply will equal demand.

Why do you think Hondas often win value awards? It's because of their excellent residuals. Similiar story with the Mazda3 very popular car so it has excellent residuals, people are just willing to pay more for them. Mazda6 on the other hand has terrible residuals and very high fleet numbers.

Basicly if individuals were not buying them new and the company had to sell them to fleets, chances are it wasn't a desirable car as compared to others and the company simply produced more cars then the market wanted so it had to sell them to fleets.
 

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That's a big part of it. Remember fleet vehicles are essentially dumped onto the market, and they bring down the value of the entire brand.

I'm not sure how it works in the states, but in Canada leased vehicles go to auctions and all dealers (franchise and non franchise) bid on them. Sometimes you have things like Ford dealers only auctions, but the big ones, everyone comes out. So you have this auction which is usually a very efficient way of determining price. And in most cases people are just not willing to spend the same money on both cars so neither are the dealers.

Demand and supply are factors. For example a Nissan Armada that is only two years old can be had for about 13gs. That SUV when new was most likely above 50. You could probably find a 2 year old base civic which retails below 20 for that price.

Why? Huge demand for civic and almost none for the Armada.
Well you're talking about something I know a lot about. The 2-year old Armadas that are selling $13k are 2WD cloth SE models that must have almost 100k miles. I'd sure like to see a 2006 Nissan Armada that is selling for $13k. If one could be had for that cheap....I promise you it wasn't even close to $50k when new. So your example is fine (Armada, but all full-sizers have taken a bath), but the numbers are way off IMHO. Ebay is a good indicator or real world prices, Armadas like mine (orignal 2006 MSRP of $49k) are selling for $24k-$28k.

Back on topic though, I agree rental/fleet sales play a factor, but so does public perception of the Honda products. I know a guy with a 2004 Focus, and it had a lot of problems, and he wasn't shy about telling people about it.
 

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Discussion Starter · #19 ·
Look at it this way.

100k of each car is sold.

For the Focus we'll assume 30% Fleet.

Meaning 70k went to people who keep their cars for a while, and 30k went to fleets and those are short term leases sometimes as low as a few months.

Now we'll assume 15k people want to buy a used focus at the current market price. But there are 30k units that will be coming to the used car market just from the fleets. There will also be some individuals who put their cars on the market. So the price of all Focuses must drop.

Fleet cars do sell for cheaper at the auctions, however they bring down all the units prices. And since ford dumped so many onto the market people must bring their prices to the point where supply will equal demand.

Why do you think Hondas often win value awards? It's because of their excellent residuals. Similiar story with the Mazda3 very popular car so it has excellent residuals, people are just willing to pay more for them. Mazda6 on the other hand has terrible residuals and very high fleet numbers.

Basicly if individuals were not buying them new and the company had to sell them to fleets, chances are it wasn't a desirable car as compared to others and the company simply produced more cars then the market wanted so it had to sell them to fleets.
Thanks for the good, analytical answer, BGH.
Correct me if I'm wrong, but it goes like this:

30% of the new Focus's goes to fleet sales; the fleet quickly disposes of the car, unlike the retail buyer, who hangs on for the 4-yr lease.
The used-car market then gets flooded (30%) immediately with Focus's from extremely short-lived fleet leases. Meanwhile, supply of Civics on the used-car market remains low because the sold Civic's are tied up in the long-term, four-year lease agreements.

Thus, we have the supply and demand inequality between the two cars at the outset. And since supply is greater for the Focus, it must necessarily sell for less than the Civic, because of Civic's lower supply level.

After the 4 years, it can be shown that the Civic is selling as a four year-old used car coming off its lease as a pre-owned vehicle; meanwhile, the Focus is either in the same situation (with 70% of all Focus's coming off their four-year lease), or in the hands of a second owner, where it cannot be advertised as 'certified, pre-owned' (30% of the fleet sales that sold on the used-car market nearly four years' previous).

Since we now have the situation four years later where 100% of the Civics are being advertised as 'certified, pre-owned' and only 70% of the Focus's are advertised as 'certified and pre-owned', then the Civic, by virtue of it's 'certified' nature, will sell for more on the used-car market. Is this presumption correct?
 

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Well you're talking about something I know a lot about. The 2-year old Armadas that are selling $13k are 2WD cloth SE models that must have almost 100k miles. I'd sure like to see a 2006 Nissan Armada that is selling for $13k. If one could be had for that cheap....I promise you it wasn't even close to $50k when new. So your example is fine (Armada, but all full-sizers have taken a bath), but the numbers are way off IMHO. Ebay is a good indicator or real world prices, Armadas like mine (orignal 2006 MSRP of $49k) are selling for $24k-$28k.

Back on topic though, I agree rental/fleet sales play a factor, but so does public perception of the Honda products. I know a guy with a 2004 Focus, and it had a lot of problems, and he wasn't shy about telling people about it.
Well i'm talking about Canada. My bro in law was at the auction and he's seeing them go cheap, 13k was a really good deal. But they really hit the tank, not hard to get one below 20.




Certified pre own doensn't have alot to do it. You can charge more for those but they're not any different from non certified units. An accident repair car can be sold as certified pre owned, I don't see why an ex-rental couldn't. At the auction they would both go under a yellow light I believe.

It's also not purely about numbers. Remember that "Preference and Tastes" is a determinent of demand. So 10 years down the road the Cvic can still get 5gs while the focus might get half that or less.
 
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