There seems to be a bizarre disconnect in that the dealer is taking on more risk whilst getting paid less for the same item. I can't understand the business model but then I never was the smartest guy in the room.
I don't understand it either, but a good first-order approximation is that the cars are coincidental, and the dealer is in the finance package business. (See also: higher-end consumer electronics and whitegoods.)
Seems to me that wherever Actual Stuff gets sidelined by financial shenanigans, it's a recipe for doom at some point.
It's this. Vehicle financing is far more profitable than the vehicle. A financial product costs nothing to manufacture, cars are effectively an expensive, low margin commodity. Dealers are now incentivized to sell finance packages. Credit is cheap (at the moment) and risk is ostensibly mitigated through securitization.
Which works until it doesn't and people lose the ability to make their repayments, for instance, if interest rates rise. In theory, the higher risk loans with be securitized in their own products, and thus the risk recognized by the buyer (more risk, more return obvs), but recent history should remind us that it doesn't happen, repayment risk isn't recognised at the level of person who sells you the car, mortgage etc. and as such it gets blended, so if there's a large default, it hits all the securitized products in the sector, and people panic to cover their position (more complex, there's a second tier of products that effectively insure – or bet on default, depending on your level of cynicism). That's the last financial crisis in a nutshell. Bigger money, certainly, but the same structural problem (it can be applied to all consumer debt – debt is effectively the most traded 'commodity' in the world, not product).
So, if a significant number of people lose the ability to make payments on their shiny new SUV and can't pony up £35k, then they default and lose the cars, the manufacturers lose because they were never actually paid, and a lot of over-priced second-hand cars hit a market that doesn't want and can't afford them.