By on April 15, 2013

8 years to pay off a car? A report by the Wall Street Journal claims that in Q4 of 2012, the average car loan stretched out to 65 months, or just over 5 years. Loan terms were being stretched out over increasingly longer terms too, with credit firm Experian reporting that nearly 1 in 5 car loans had terms between 73 and 84 months long, with some stretching for as long as 97 months.

So why stretch out loans for such a long period of time? Per the WSJ

“[the] 75-month loan illustrates two important trends rippling through the U.S. auto industry. Rising new-car prices and competition among lenders to attract borrowers is pushing loans to lengthier terms. In part, banks see the longer terms as a way to attract buyers, by keeping monthly payments under $500 a month.”

Among the culprits cited by the WSJ are increased credit, low delinquincy rates on car loans and, according to banks, minimal downside as far as auto lending goes.

Melinda Zabritski, director of automotive credit for Experian, said the greater availability of credit is helping the surge in new car sales. The percentage of subprime loans isn’t far below the record level of 2007, and the length of loans is growing, she said…With increased competition between the banks for business, offering loans longer than 72 months, or subprime loans is one way to compete for new borrowers. “Consumers tend to be monthly payment buyers. One way that lenders compete is to offer longer term loans,” Ms. Zabritski said.

Interestingly, Zabritski claims that buyers qualifying for the longer loans tend to be those with good credit scores buying more expensive vehicles. But what nobody answered is “where is all this credit coming from?” As per our last report on auto lending, the appetite for auto back securities is enormous, and Wall Street cannot get enough of them. Sub-prime loans in particular are a favorite. At this point, nobody, not even Zabritski, is denying that the expansion of credit for automobile buyers is driving new car sales. The question is, what happens when the music stops?

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67 Comments on “97 Months And Running...”


  • avatar
    mkirk

    Holy Negative Equity Batman! But hey, it worked in the housing market.

  • avatar
    noreaster

    I saw this, and was initially shocked. But then I thought about it. Cars are better now, likely to last longer, so eight years in the same car isn’t as big a deal as it used to be; and money is pretty cheap, if you have good credit — about as cheap as you can expect. Eventually inflation / dollar devaluation *has* to occur… don’t it? If so, maybe these long loans make sense for some people…

    Long-term it’s all going tits-up, of course… but that’s going to happen regardless it seems. I can’t quite figure out why it hasn’t happened yet!

    • 0 avatar
      NotFast

      While you are correct, I believe that the people who go long on a loan are not the type of people who buy and hold a car for the long period.

      There is a whole spectrum of US society that is anxious to have the latest and greatest (cars, smartphones, clothes, whatever) and I wouldn’t be surprised if they are driving these loans.

      • 0 avatar
        danio3834

        NotFast is right. Most of the people taking out these long loans are doing so simply to get a cheaper payment on a car they really can’t afford. Many of these folks will get bored of the car before the end of the 8 year loan.

        The car will run out of style before reliability, and they’ll roll the balance onto a new vehicle on longer terms (to keep the same payment) or finance a lesser vehicle for the same reason.

        I know a lady who traded down from a Grand Cherokee subsequently though several vehicles over a 6-7 year period to finally end up driving an Aveo (with the same payment!). All to keep rolling in a new car.

        • 0 avatar
          corntrollio

          That’s insane, danio3834 — paying the same amount, but moving way down in the world like that. There are way too many people who don’t understand personal finance.

          As to the consequences of these subprime loans, it would be helpful to know what the underwriting standards are. If we’re talking about “subprime” as a term of art (i.e. properly underwritten, just the buyer has a lower credit rating), then this isn’t a big deal. However, if we’re using it to mean anything that’s not prime, as most journalists do, then it could be problematic.

    • 0 avatar
      parabellum2000

      I’ve accepted 72 months on new cars mostly because of insanely high resale values on modern cars. I started looking for a used car and was shocked at how high the values had become. I was amazed that in 3 years and 60,000 miles my car had only lost 4,000 in retail value from the day I bought it. Even trade in value is only 6,000 less than when I bought it.

      Looking at newer VW TDI, Prii, Toyota Tacomas and Ford Rangers, they just don’t depreciate. In my area 5 year old Tacomas sell for a few grand less than new ones. VW TDIs sell for even closer to new prices.

      Even with a 72 month at 1.9%, most borrowers will be able to keep up with inflation. When my parents bought a 1988 Buick Regal with a 48 month loan at 17% they were upside down until the door literally fell off. Between lower interest rates, higher resale value, and much greater reliability, these loans do make more sense.

      • 0 avatar
        Rental Man

        @parabellum2000
        Please stop using the Kelly Broke Book. Take any used / factory certified car at a decent dealer lot and build it on KBB. Kelly tells you they should sell it for way more. I’m sure any dealer would love to. Same thing works for the trade in value. Realistically you could hope to see the poor value on your nice car. Anything else is manipulation. Dealers pay for and use more local area value books and the average Auction price for your trade.
        KBB is free and should be taken that way.

        And don’t confuse used car asking prices and true sale prices. dealer might need to show more money on the trade and shave it off the front end of their car to keep you – the consumer happy about the value of your traded sled.

        I do agree that these days buying new and taking a 66-72 low-cost loan is still prefered to buying a used car or leasing and buying out residual.

        • 0 avatar
          parabellum2000

          I completely agree, but NADA and even Edmunds value vehicles very highly now days. I was shocked when I started looking. I also noticed the dealers were more willing to negotiate on new cars versus used cars. Its just a crazy time.

        • 0 avatar
          danio3834

          “Please stop using the Kelly Broke Book.”

          I agree with this. It’s amazing how many laypeople think this is the car price Bible. Just do an ad search on craigslist with the keywords “below KBB value” and you’ll come up with all kinda of nonsensical “firm” asking prices for cars. Same thing goes for “appraised value”.

          Conversely, when I try and sell a car, I always get some joker quoting wholesale lowball “book” values. They are for the most part useless in a private deal.

          Compare this cars and all its merits vs. the next best alternative, and you’ll quickly realize what a fair price is.

  • avatar
    Big Al from Oz

    How good is this for the growth of the vehicle manufacturers.

    Longer term loans will reduce sales down the track as people buy more expensive vehicles.

    This will have the same effect as a downturn in the economy and average vehicle age will increase.

    No. I would like to see finance companies have loans go no further than 4 years. If you can’t pay a car off in 4 years then don’t buy it.

    There are a lot of people out there who can’t manage finances this is no good. Live within your means.

    • 0 avatar
      danio3834

      People living outside their means is what helps the manufactureres thrive. Of course there are the eventual unintended consequences of financing anything with a pulse, see the Mitsubishi effect, but this business is ultimately about moving metal any way you can.

      If you don’t have the brand cache to choose your buyers, you’ve gotta make up for the roaches on volume.

    • 0 avatar
      gslippy

      If the finance company is the mfr, then there is no chance they’ll cap loans at 4 years.

  • avatar
    geee

    Um, hullo!? It’s an 8track – the music never stops. Well, at least until the cartridge or player breaks. But that can’t happen. And if it does, the damage will be contained.

  • avatar
    Hummer

    I prefer paying in cash, then repaying MYSELF back, just my thoughts though….

    I’m also of the mind if a car costs more then half of what I make a year, to look for better options, regardless if I can afford it.

  • avatar
    cartunez

    I take long term loans notes at 0% if offered why wouldn’t I?

  • avatar
    Waterview

    “I take long term loans notes at 0% if offered why wouldn’t I?”

    Just because money is offered to you freely (e.g. at 0% interest) doesn’t necessarily make it a good deal. There’s no question it helps lessen the overall cost of debt, but taking on a larger principal balance for a depreciating asset is still a yoke around your neck (the principal balance is approx. 90% of your expense).

    Zero percent financing for a reasonable term for an overall pricepoint that fits appropriately with your debt and income — now that makes sense. Don’t buy more car just because the money is free.

    • 0 avatar
      Robstar

      Very few people have just 1 debt. Even if you have $0 debt, 0% is pretty much free money (probably used to get you to buy more car than you really need…). Stick the Money in the market, a CD or something else. Or simply hold onto it as spare cash & pay as needed.

      I know I won’t pay a DIME extra on my wifes 2.49% USED Sorento as my mortgage is at a higher rate.

      With that being said My DD & motorcycle are both 8 years old & (hopefully) have a lot of life left. Motorcycle was at 7.49% on 5 year, paid in 1. Car was at 1.99 or 2.99 (don’t remember) and paid in 3.5 or so on a 5.

  • avatar
    krhodes1

    Modern cars last as long as you want them to, even in the rust belt. My only qualm would be that I refuse to make payments on a car with no warranty. But I still tend to go for the longest term that has free money rates, I just pay it off early. It’s nice to have the extra flexibility some months.

    With interest rates as low as they are, paying cash is simply insane. Even if you have the cash, take the free money and use the cash for more productive uses.

    • 0 avatar
      DenverMike

      @krhodes1 – If your car is out-of-warranty, what’s the difference if you still owe on it or not? Take the free money and use it for more productive uses.

      Paying cash is a different mindset. It keeps you realistic on the trim level or model that truly fits your pay scale or typical yearly income. And not everyone is on fixed salary. If you were to ride the self employed roller coaster like some of us, you would have a deep appreciation of owning absolutely everything outright. And living well within your means is just the right thing to do, regardless what we’ve been programmed.

      • 0 avatar

        It’s a lot easier to afford significant car repairs if you don’t have a car payment.

        I buy card with 5-year loans, and they have 5 year/100K km warranties on the powertrain (the ones I’ve bought have, at least). I don’t put 20K km on them so my warranty runs out about the day of my last payment. At that point I have a few hundred dollars a month in cash flow to pay for any needed repairs.

      • 0 avatar
        krhodes1

        I don’t want to be paying for repairs while making payments. Just a personal thing, not like I can’t afford it.

        Ultimately, I can afford to pay cash for any car that I would reasonably be interested in owning, so financing the car or not does not even factor into my purchasing decision. I realize that the payment is everything for many people, I don’t really care what the payment is for the most part. This was a little hard to get across to the sales dude when I bought my Abarth last month. All he wanted to talk was payment.

        As for being self-employed, been there, done that, have the t-shirt. I drove fully depreciated cars bought with cash back then. I don’t miss it. The payments on both my financed cars are less than 10% of my annual income combined, and I could pay them off tomorrow if I wanted to. But paying capital gains tax to buy cars makes no sense when the tax is 15x the interest rate. And both are keepers, when they are paid off I won’t have a car payment for a very long time most likely. BMW has been nice enough to remove the temptation of my buying a new wagon from them.

        • 0 avatar
          DenverMike

          Fearing/planning for big expensive repairs right out of warranty must be a BMW or FIAT thing. Part of the reason I buy new trucks is to kiss repairs Good Bye for a good long time.

          You contradict yourself when you say you can easily afford any car repair, but don’t want to have them while making car payments that you can easily afford. You contradict yourself again when you say you can easily afford to pay cash for a new car, But would be slapped with a 15% capital gains tax if you did. You don’t really have access to “cash” in the “free” sense now do you?

          Being self employed hardly means you’re condemned to owning cars that have fully depreciated. Did it for you?

          • 0 avatar
            fvfvsix

            DenverMike:

            I’m not sure how krhodes1 contradicted himself. He clearly stated it’s a personal thing to not WANT to make payments and have repair bills at the same time.

            Cash in a stock portfolio is the same as cash in a checking account as far as I’m concerned. It’s available within a week should he decide to liquidate his positions and pay the capital gains tax.

            I’m in the very same camp. I always finance, but will never buy a car I don’t have the cash (in a savings account earning nothing for the purists…) to purchase, should I decide to.

          • 0 avatar
            krhodes1

            @fvfsix

            Pretty much what I came here to say.

            @DenverMike

            I don’t keep $20-50K in “cash” lying around. I prefer my money to make me money so I can buy cars. :-) I keep enough cash on hand for normal emergencies and invest the rest. As the blueblood trustfunders like to say “you don’t touch capital”. If interest rates were a more historically normal 7-8%, I would certainly NOT finance my cars, as the amount of interest paid would not be worth it. But at .9%, no way am I not going to leave that money in the market. I’ve made ~5% annually over the past 10 years. Realistically I could retire tomorrow if I choose to live a quiet simple life for the next 40-50 years. But I love my career and like my toys so I figure I might as well work for the next 30 years or so. I get bored easily and suck at golf, so sitting around holds no appeal. I already travel for a living so I have pretty much been everywhere I would want to go. So I play with cars.

            I don’t expect any “major” repairs ever actually. But you never know, might as well be prepared. It’s my choice that I prefer to pay a bit more some months and get the car paid off by the end of four years. I could have just gotten 4yr loans but why not have the extra flexibility if it doesn’t cost much anything? Nice to be able to not spend an extra couple hundred the month when registration is due for example. I expect to have my BMW for a very, very long time at the <10K a year rate that I drive it. The FIAT is purely a toy, probably won't put 5K a year on that with all the other toys in my toybox. First autocross with it is in two weeks!

            When I was self-employed I was young and relatively poor – I think it taught me some pretty good financial habits actually. But I infinitely prefer a steady paycheck. And health insurance.

            The real secret to having plenty of money to buy whatever toys float your fancy? DON'T HAVE KIDS. My FIAT cost one year's tuition room and board at a middling state university. ONE. My BMW cost one year at a decent private university. Scary, no?

          • 0 avatar
            DenverMike

            @krhodes1 – You’re proving my point. It would be “insane” for YOU, krhodes1 to pull your money out of your annuity when you’re being offered approx 1% APR. Now, paying your car off early contradicts that basic principle especialy if you’re paying capital gains to pay off the car’s balance.

            You obviously cut it pretty close if a car payment, registration AND “minor” repairs (on the same month) is going to make you sweat.

            All this is fine and it works great you and many others in your exact shoes, but calling anyone else “insane” for paying cash for new car purchases is silly on your part. This country would be much better off if they lived by my rules. And obviously your rules too.

            “Paying cash” works for me and always has. I’ve bought residential and commercial property with cash so right or wrong, paying cash for a $30K pickup isn’t such a big deal for some.

            I never recommend being self employed as it’s clearly not the “safe” way to go. I just got tired of wearing a suit and stuck indoors inhaling recycled farts all day and went out on my own. It was on a lark at first, but once you get a taste of success at being your own boss, there’s absolutely no turning back.

          • 0 avatar
            krhodes1

            Who said anything about pulling money out and paying capital gains to pay it off? If I have extra money left at the end of the month, I put it towards paying off the cars. I usually do, quite a bit actually. This is after the amount that I invest, save, pay everything else, etc. But the last thing I would ever do is let a big pile of money sit under my mattress.

            I completely agree that new cars are a waste in one sense, but if you are going to waste, minimize the impact as much as possible. Again, the whole point of my financial planning is to ensure that I don’t HAVE to dip into liquid savings or investments when those slightly tighter months come up. For example, it happens that my three newest cars all come due for registration in March – that was over $1200 this year between the three of them. No problem, but that meant I did not put any extra towards the car payment or towards liquid savings in March. Didn’t need to take anything out of savings either though. Will probably put $5-600 extra this month.

            I don’t wear a suit or sit in a cubicle. I get to travel all over the country, meet and work with interesting people, all expenses paid for a VERY nice salary and decent benefits. In between trips I work out of my home, no commute. Sure beats working for a living!

          • 0 avatar
            DenverMike

            @krhodes1 – I wasn’t implying 100% of your income went into your checking account to live on, but you admit you cut it pretty close some months. If it all balances out at the end of the year, you’re running at peak efficiency.

            But it’s still bizarre to me to have to budget for repairs on newer cars. Or that potential repairs have a big impact on the way you handle your finances. And I don’t consider new cars “a waste” at all. One of the main reasons I consider new cars a good investment is you’re spending zero on repairs, in or out of warranty. At least I’m not.

            I do leave lots of cash laying around in safe deposit boxes for everything from working capital to buying real estate at auction. Paying cash for vehicles is natural for me and I do consider financing a purchase a “waste”. In my case, it would be. Even at 0.9%.

  • avatar

    a couple of months and we’ll finish paying our 60 month plan for our Logan. Sometimes it’s the only way to go. Pretty cheap money too. One of the cheapest you can get here in Brazil.

    I think in this country seven years is the limit. The reality seems to hover around 50 months.

    I wish we had it a good as you guys. For brand new cars the interest is between 1 and 1.5. A month.

    It it was made the market grow from 1.8 to 3.6.

  • avatar
    michal1980

    heres an idea to keep your payment under 500 a month.

    Buy a cheaper car.

    civic vs accord.

    carolla vs camery

    etc etc.

  • avatar
    tikki50

    that is just plain stupid to take a lone on a car for that long, Sure the car might make it 8 years. But buy then you’ve replaced tires, shocks, brakes, muffler, who knows what else. I think the larger picture here is that cars are simply too expensive. For the cost of a Cadillac I can buy more than a square block in Detroit. A car payment should not be more than your mortgage, seriously. In about 5-6 years we’ll get to see another bubble pop when all these subprime loans default. How depressing.

  • avatar
    carrya1911

    Locally a dealership is advertising new Toyota Camry’s for $80.00 per month.

    God only knows how long those loans go on for.

  • avatar
    gslippy

    Tip: Don’t borrow money from a lender who spells ‘hassle’ as ‘hassel’.

  • avatar
    gslippy

    “The question is, what happens when the music stops?”

    Increased taxpayer subsidies of cars, mfr, and/or lenders, especially if CAFE forces them to produce greener, more expensive vehicles people don’t want or can’t afford.

    • 0 avatar
      danio3834

      This is a factor to be considered for sure. With the average estimated costs per car of the new CAFE regulations ranging from approximately $2500 to $5000, affordability of cars is decreasing at all levels. The number one way to get the payment down is to string out the loan.

      • 0 avatar
        krhodes1

        Those numbers are crap. All that has to happen is for cars to get a bit smaller and slower. If we went back to the size and performance norms of he 80′s we would be there now. Nobody NEEDS their family truckster to be as fast as a Ferrari from 25 years ago. It’s fun, but it isn’t necessary. And realistically, cars are cheaper than they have ever been when you consider the content and longevity of them today. Even rust has been mostly conquered.

        As to some sort of subprime auto bubble bursting – seems unlikely. Cars are easily repossessed and resold, unlike houses. And ultimately, you can live in your car but you can’t drive your house to work. If I was in a bind, I would stop paying my mortgage before I stopped paying on a car.

        • 0 avatar
          danio3834

          Those numbers are suppored by the EPA themselves on the low end, and SAE on the high end.

          The average model mix will need to change more than just simple weight reduction to realistically double the average economy. Of course there are wild cards like HEV, EVs, PHEVs, but if we’re honest, we know these won’t sell in enough volume to make up a large enough fleet volume so the rest won’t have to be affected.

          Telling people what they “need” to drive based on some arbitrary conformity just isn’t going to work either. No consumer, besides yourself apparently, is eager to pay the same money or more for half the car over the next 10 years.

  • avatar
    sirwired

    72 months I could get behind; cars are reliable enough these days to sustain that kind of loan term vs. the old “standard” of 48 months. But 97 months is going way too far without a hefty interest rate and/or down payment, and/or gap insurance, to account for all the time that car is going to be horribly upside down.

  • avatar
    OneAlpha

    Where do you suppose the tipping point is?

    10 years to pay off a car loan? 12? 15?

    At what point does reality set in and decisive numbers of potential buyers to finally say, “No. I can’t afford this.”

    Which segues into another question – If the auto industry is habitually going beyond 4 or 5 years on loans, have we reached the point where a new car is simply too expensive?

    • 0 avatar
      fvfvsix

      Amortization charts do have a point of diminishing returns. i.e., you can stretch a loan (at a certain non-zero interest rate) to the point where the payment doesn’t materially decrease with the increase in term.

      Unfortunately, with 0% money, this “tipping point” has been taken out of the equation.

      • 0 avatar
        corntrollio

        8 years isn’t that far off this mark, although obviously, we do have 30-year fixed mortgages for larger amounts. Just to give people an idea of what we’re talking about, I looked up a credit union that gives 8 year auto loans on new cars. They have a minimum 1.74% rate for 5-year loans, and a minimum 3.24% rate for 8-year loans. They require a minimum of $15K financed for a 6-year loan, a minimum of $25K for a 7-year loan, and a minimum of $30K for an 8-year loan.

        If you qualify for the best rate for 8 years for $30K, then you get the following:
        3.24% –> 355.17/mo, $4096 in interest paid
        Principal left each year:
        1 26,661
        2 23,212
        3 19,649
        4 15,969
        5 12,169
        6 8,243
        7 4,188

        If you have worse credit and don’t qualify for the best interest rate, then this could be a possibility:
        5.24% –> 383.23, $6791 in interest paid
        1 26,899
        2 23,632
        3 20,190
        4 16,563
        5 12,741
        6 8,714
        7 4,471

        And if you’re really sub-sub-sub-prime, this could be the consequence:

        12.00% –> 487.59, $16,808 in interest paid
        1 27,621
        2 24,940
        3 21,919
        4 18,516
        5 14,680
        6 10,356
        7 5,488

  • avatar
    28-Cars-Later

    72 months… 97 months… 120 months… ultimately the length of time is irrelevant, its the fact you as John Q Public can no longer afford buy a depreciating asset AND afford to run it. I realize automobiles were always pricy in other parts of the world, but in the US cars were one of the last few true freedoms Americans had (relatively speaking), and the powers that be have successfully taken this away and replace it with the shackles of further debt-slavery.

    • 0 avatar
      OneAlpha

      Hell, I love cars, but damn, are they a bad way to spend money.

      Personally, I believe that if I can’t pay it off in three years, then I can’t afford it.

      And in the modern world, that makes me the crazy one.

      It got me thinking – Pennsylvania condescendingly calls auto insurance “financial responsibility,” but I figure, if they want proof of “financial responsibility,” I’ll just keep a photocopy of my title handy.

      “See, officer – it’s bought and paid for. Doesn’t get more financially responsible than that.”

      • 0 avatar
        28-Cars-Later

        Drives me crazy as well, I’d call it a loose conspiracy to further transfer wealth out of the middle to both up and down society’s class system… lower class now being approved for new cars they won’t/can’t pay off as opposed to beaters, higher class/corporate class getting more money per unit from people who can afford them (with stagnant wages of course, thus a larger share of the budget), and those “middle” people having little recourse due to an artificially shrunk used car supply and normal used car demand. Forward Soviet!

        ““See, officer – it’s bought and paid for. Doesn’t get more financially responsible than that.””

        I feel the same way, and I think that would earn points my brother the cop (although he usually doesn’t give a flip on traffic stops to begin with).

  • avatar
    carguy

    This is a logical out come of the low interest rate policy of the fed. If a car loan has a lower APR than you can make margins of equities and even bonds then why not borrow for as long as you can?

  • avatar
    CapVandal

    Sounds reasonable to me.

    If you have a job — which is actually a REQUIREMENT for subprime — and need a car, what are the choices? This is not a good time to buy used cars.

    Why not make an 8 year payment on a brand new vehicle rather than the same monthly payment on a used car?

    These customers are not trying to optimize anything other than their chances of driving safely to work and back.

    • 0 avatar
      30-mile fetch

      “Why not make an 8 year payment on a brand new vehicle rather than the same monthly payment on a used car?”

      Chances are you will be upside down in the loan for a good portion of that 8 years. If something happens and you have to sell the car, or it gets totaled and the insurance company values the car for far less than you owe, you’re in trouble.

      • 0 avatar
        krhodes1

        This is why gap insurance is sold. A very small added cost to protect yourself. Or you can always just put enough money down to never be upside down, which is what I do.

    • 0 avatar
      fvfvsix

      Having apparently grown up around nearly an entire town full of financially irresponsible people, I can promise you that the cars most of these people would finance will bankrupt them before the note is extinguished.

      An 8 year note seems like a good idea, and if you use it to buy a Honda Fit, it is… However, Fits aren’t “cool” to the subprime auto crowd – They’ll take an 8 year loan out on a salvaged Lexus instead.

  • avatar
    CapVandal

    So — it isn’t an investment. It is pure consumption of something that is a necessity for most working Americans.

    As far as the other arguments …. “what is the world coming to, etc” I would suggest reading the prospectus (available on sec.gov — for some of these things. They are pretty vanilla, especially in the higher rated tranches.

    Widows and orphans aren’t going to be put into the bottom of these deals. And they actually seem to be popular with the ‘smart money’.

    If one NEEDS to worry about this unwinding in some negative way, it seems to me that if/when interest rates rise, this particular option (extended financing) will become too expensive to work as it seems to be working now.

  • avatar
    KixStart

    “Interestingly, Zabritski claims that buyers qualifying for the longer loans tend to be those with good credit scores buying more expensive vehicles.”

    This makes the situation seem somewhat less dire than otherwise, especially with the economic recovery, such as it is, favoring people with good jobs and money. It also explains last months’ car sales – the market seemed to skew towards higher-priced vehicles.

  • avatar
    olddavid

    I am the last of three generations to make a living in the car business. When terms went from 24 to 36 to 48, the same alarming arguments were made. The contradiction is fundamental. To pay interest on a declining value asset is not sensible. Yet, here we are, with an annual selling rate of what, 15 million? Automobiles are a combination of emotion and need, a high priced aspirational purchase. Each individual makes a personal decision based on their perceived wants and needs. How they rationalize the difference between an Aveo and a CTS-V is a very personal decision. Until GMAC decided in the last 30 seconds of the mortgage bubble to enter that market, they drove GM’s profitability. Proper management should be able to return to that business model if they stay within their expertise. All the variables are examples of changing markets and demographics. When the Xers are my age and they introduce new 144 month terms on the new 400 h.p. 75 m.p.g. Malibu, the same resistance to change will make itself evident. We’re only human.

    • 0 avatar
      fvfvsix

      Just a point of correction. When we built our first house in 2001, GMAC had a trailer out on the builder’s property advertising their mortgage origination/services. I understand that the policies that made the bubble possible were in place back in the ’80′s, but GMAC was certainly in the market for long enough to be culpable.

      The way I see it, is the fact that as Americans we simply feel so “entitled” to a new car that we’ll pay on it forever to get it. If there were no demand for cars that couldn’t be bought on a 60 month loan (or in cash), the average car wouldn’t be approaching $30000 right now.

      The same can be said with housing / college tuition / every other true wealth redistribution scam the country gets signed up for.

      • 0 avatar
        olddavid

        I left GMAC in 1980 to work for their competitors for the next 20. I was under the impression that their mortgage exposure was very limited by many state laws until the late 90′s when they applied for full bank status to get access to the Fed. But, they were always the mysterious monolith to us small-timers at Chrysler Credit and later, Ford, so my views were shaped by envy at their huge and profitable portfolio. I am probably guilty of repeating unfounded rumor. I do know that the large salary and bonus and cars for the spouse are now distant memories. Many local zone offices are now in the basement of the area rep.

  • avatar
    Lorenzo

    “The question is, what happens when the music stops?”

    Repo Man II begins filming.

  • avatar
    CJinSD

    I saw a TV commercial last night advertising a new Mercedes-Benz C250 for $232! Fortunately, the same commercial ran twice during the commercial break, so I read some of the terms. The payment is biweekly rather than monthly and the down payment is $10,000 for a car with a retail price of $49K and change. I didn’t see the length of the payments, but assuming it is a sale the duration must be at least 7 years.

    • 0 avatar
      corntrollio

      Wow, $49K for a not-real Mercedes. Incredible. For reference, the base price of a C250 saloon is $35,350 for RWD and $38,950. For a C250 coupé, the base price is $37,800 for RWD and an eye-popping $45,200 for 4Matic. All for a not-real Mercedes. No wonder they had to slot that CLA in there.

      Those are crazy payment terms too. They must be doing some chicanery there, because a 5-year prime loan at 1.49% gives you a $675/mo payment on $39K. To get it as low as the ad, you’re going farther out at a higher interest rate.

      I also wonder if it’s bait — someone goes in and says, “how the f am I going to put $10,000 down,” so they do some trickery, raise the interest rate higher and the loan to 8 years, tell them to put $5K down, and say, look, it’s only $100/mo more.

      • 0 avatar
        glwillia

        How is the W204 a not-real Mercedes?

        • 0 avatar
          corntrollio

          I’ve mentioned before that I (and many others) don’t consider the C-class to be a real Mercedes (CLA, what?). It’s often driven by people who like the badge only, much more so than the 3-Series or the A4. The newer ones seem a lot better than the ones a few years ago, FWIW.

          People felt the same about the 190 back in the day.

      • 0 avatar
        CJinSD

        I’ll keep an eye out for the commercial. The biweekly and $10K parts I’m 100% on, but maybe the MSRP was $39,xxx, or maybe the $49K and change was the total cost with the crazy payment plan. My local dealer has a C250 Sport RWD 4-door with an MSRP of $48,135. I don’t see why they’d use one equipped like that to advertise a finance deal though.

    • 0 avatar

      It’s amazing how many folks are willing to pay $40k+ for 1.8L 4 pots these days.


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