10-09-10 - The right way to sell a used car

I've always thought the right way to buy a used car is from a mechanic, with a lifetime service warranty. That is, the mechanic finds the car, inspects it, and sets a price. There's a purchase price and a per year service subscription which covers all maintenance and any possible repair needed. That way he can't trick you and sell you a lemon, because he would have to cover the repairs. It lets the buyer just pick a car without agonizing over research. If you believe in capitalist markets, it would be much better for the system because it removes the problems of unequal information and increases fluidity, eg. if I want a Datsun 240Z I just go buy one and don't have to sweat researching it forever.

It's not that I don't want them to make a profit - they should price the car and the service plan at a level where they expect to make a profit obviously. But by having at least the option to buy the lifetime coverage it means they have to show you the real expected cost, and then you can make a decision.

Unless they're unified, it doesn't make sense. eg. a mechanic can't easily offer a lifetime service plan, because they don't know the state of the car that you want covered, they would have to do an extensive checkup on the car before and it would be hard to price against expected cost. Separately, it makes no sense to buy a 3rd party extended warranty when it's not the mechanic offering it, because the warranty company is only interested in you not getting reimbursed, and the mechanic hates to deal with the warranty company.

Of course this doesn't exist. The reason is that it removes *three* different ways for them to fuck you over and make not just a fair profit, but an exploitative profit. 1. used car sellers of course do want to sell you lemons at inflated prices, and this stops them, 2. mechanics of course want to overcharge you and do unnecessary work, and this stops them, and 3. warranty companies want to charge you a lot and then not actually pay out claims due to some technicality or exclusion.

But amazingly it looks like Hartech in the UK actually offers the comprehensive sale-to-service plan.


Paxton Mason said...

I believe CarMax in the US offers this.

cbloom said...

All I see from CarMax is the "certified pre owned" thing which is very standard and also not very helpful, because it is short term and also absolutely full of exclusions.

BTW on that note I'm told that most car makers have a warranty exclusion list that they don't show to the customer. That seems like it should be illegal, but I suppose the warranty document that you do get probably says something like "we reserve the right to exclude additional coverages not listed explicitly herein".

cbloom said...

Oh.. I see it, the "MaxCare extended warranty".

That appears to be a standard 3rd party extended warranty which is not underwritten by CarMax. As a result the advantageous market pressures that I described do not apply.

eg. when you take in a car for warranty service, the 3rd party warranty rep has to approve it, and as usual they do everything they can to not pay out.

See for example :



cbloom said...

In particular CarMax is not motivated to sell good cars since they don't take the financial hit if the car is a lemon (the warranty provider does). Also their service department is not motivated to do good quality, cheap, cost-effective repairs or prevenative maintenance, since they are getting paid by the warranty company to do work, they are motivated to want the car to need more work.

BTW of course when I wrote this post I was thinking of the analogy to health care, which is obvious but maybe I should spell out.

The problem is that doctors are motivated only to do as much expensive work as possible, and not actually fix you. They are dis-insentivized to do cheap preventive work.

Health insurers are motivated only to not pay out, they don't care how sick you get.

I believe there's a large market advantage to forcing health care providers and insurers to be a single financial unit.

Of course for both cars and humans the only way this can work is if there's government regulation which says what repairs must be covered and what doesn't need to be. eg. you don't want customers going in with little dings in the bodywork demanding repair, or twenty year old cars that should just be sent to the junkyard.

old rants