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