By on October 14, 2013

Subprime-Auto-Lenders

Months after TTAC started to relentlessly bleat about the glut of money flowing into the auto loan sector, the mainstream media is finally taking notice. Automotive News is finally expressing some worry over the factors that we’ve been discussing for some time: car loan terms are getting longer (to help keep payments low), subprime lending is increasing and an expected rise in interest rates could put an end to the new car market’s exuberant performance.

 

This phenomenon is being primarily driven by low-interest rates, which allow consumers to finance vehicles cheaply, even as transaction prices creep upwards. Meanwhile, financial institutions are happy to provide the loans, particularly to those with poor credit, since they can be securitized and sold off to fixed income clients looking to get decent yields in the same low-interest environment.

The topic of auto financing has been rather divisive, to say the least, and we at TTAC remain bearish on the outcome, though the likelihood of any systemic risk seems to be diminished as OEMs choose to expand existing factories rather than build new ones. But we’re hardly alone anymore.

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155 Comments on “Mainstream Press Finally Worried About Cheap Car Loans...”


  • avatar
    Spartan

    Car sales at an all time high since the recession began and sub-prime loans on the rise. Oh joy, a car buying bubble.

    • 0 avatar
      DeadWeight

      It’s all good.

      “Consumer borrowing hit a record $3.04 trillion in the second quarter of 2013.”

      http://hotnewsinternational.com/2013/10/13/consumer-debt-hits-record-3-04-trillion/

      • 0 avatar
        xflowgolf

        as a counterpoint to Mr. DeadWeight’s statistic, taken as a percentage of personal income, we see the opposite. If you look up Household Debt Service ratio statistics, debt payments as a percentage of disposable income in the U.S. is at historic lows as of 3rd Qtr. 2013 at 10.4% Lower than it was in the ’90′s, lower than it was in the ’80′s, and far lower than it was pre-recession in ’07 (14%). Technically speaking, consumer balance sheets now are in great shape. Add in the average vehicle age, and pent up demand, I don’t see the nose dive being called for here in auto sales.

        • 0 avatar

          Excellent points. I suspect we’ll hear similar info tomorrow from the Federal Reserve. Deleveraging is on. We’ll hear from Experian about the condition of consumer credit scores, another issue. It takes a while to rehabilitate those.

          Residual values on leases are much more conservative than before and are typically much better insured these days.

        • 0 avatar
          darkwing

          That just means that interest rates are low. I think you’re assuming that “debt service” includes more than it actually does.

          • 0 avatar
            DeadWeight

            Indeed.

            And while consumer debt now reaches new records on a monthly basis, the interest rates (i.e. debt service costs) on much of this underlying & growing debt will not remain constant over any time period exceeding the intermediate term, at best (see “revolving consumer debt/credit”).

          • 0 avatar
            darkwing

            You mean that 5/1 ARM I just took out at 90% LTV won’t remain improbably cheap forever? Thanks for nothing, Rethuglicans!!!!1!

          • 0 avatar
            xflowgolf

            In reply to DeadWeight and darkwing, while there certainly are limitations in the “debt service” metric, it’s also worth noting that contrary to what’s stated, the level of “revolving credit” outstanding is lower today (~$850B) than it was in 2008 (~$1T) or 2009 ($917B). Yes overall Total Oustanding debt is higher, but the majority of that is NonRevolving and is a result of Federally backed Student Loan related (an entirely different issue in and of itself). The amount of money outstanding specifically owed on Motor Vehicle Loans in 2008 was $777B. In 2013 it’s $840B. considering 5 years time has passed, that’s an increase of less than 2.5% per year (roughly the rate of inflation).
            http://www.federalreserve.gov/releases/G19/Current/

    • 0 avatar

      The FED is using low interest rates to entice people to buy, while simultaneously taking the focus off savings. $10,000 cash in a bank account collecting 89 cents a month is tempting right?

      The car market’s on fire because it’s easier to qualify a person for a 6-year loan less than $100,000 than a 30-year loan around $300,000. If you default, they just take the car right back and sell it.

      Don’t worry about it… go out and buy a new S550 with a N.I.N.J.A loan!

  • avatar

    There is so much pent up demand in the automotive market an expected bump in interest rates isn’t going to cause much harm, if any. Automakers can absorb a certain amount of a rise in rates by providing subventions paid for out of the increased gross profit their are currently making on their products. Leasing is on fire, a much better way to lower monthly payments while providing better options to consumers, options like shorter term and an easy out if the market goes south on their vehicle. Dealers like the increased consumer loyalty and the opportunity to do business with their customer more often, plus the stream of pedigreed used vehicle inventory.

    Not to worry UNLESS the HOUSE stays incorrigible on the debt ceiling. In that case, all bets are off.

    • 0 avatar
      raph

      Ruggles, you’d make an excellent pitchman for the lease industry.

      • 0 avatar

        Thank you. Its my field of specialty for 40 years. I actually know how it works.

        • 0 avatar
          love2drive

          I thought the whole thing with a lease is that you “can’t” get out of it, there is no “easy out if the market goes south on their vehicle”…? I always thought the penalties for early termination of leases were harsh.

          • 0 avatar

            You can’t just walk away from a lease without ramifications. But the question really is, “Are you better of with a 36 month lease or a 72 month loan?”

            If things go south wouldn’t you prefer to have a walk away option at 36 months rather than having to sell at a loss or wait for a longer period of time to get rid of a vehicle you don’t like or doesn’t fit your needs any more?

          • 0 avatar
            Big Al from Oz

            @ruggles
            Are you correct with your assumption?

            The US economically is not doing the best yet. This pent up demand could be said for countries like Indoneasia, Thailand, etc. They have a very low rate of vehicle ownership.

            Vehicle demand is dependent on the state of the economy. Trying to ‘create’ demand could come back to haunt you, like a bubble which in the end could kill of demand and destroy industry.

            A balanced and considered approach is necessary. I view you a very greedy person, who puts greed in front of common dog f@#k.

            Some of what you state is correct, ie, walking away from debt. But in the end what about equity or ownership of the vehicle.

            Ownership is a much better proposition than leasing. Leasing is good for business and industry and not so good for the private consumer.

            Leasing you never own, until the end and you payout your residual.

            What is the average size of the residual? And what will be the impact on the US economy with a large oversupply of near new vehicles if the $hit does hit the fan in the US economy.

            I think you never see the downside to every upside. Judge before you leap.

            Leasing isn’t the best option. It’s only cheaper. What will occur when interest rates in the US finally increase to more realistic levels?

            There are so many factors you overlook when you debate.

            I do respect you as an advocate for poor financial decision making. But leasing isn’t for everyone, especially the poorer in a society.

            What to they have at the end of a lease?

            Debt? or Nothing.

          • 0 avatar
            billfrombuckhead

            Leasing is just an 84 month loan

          • 0 avatar

            You know what beats a lease or a loan, and gives you a ton of flexibility if you need a different vehicle?

            Paying cash.

          • 0 avatar
            doctor olds

            @love2drive- “I thought the whole thing with a lease is that you “can’t” get out of it, there is no “easy out if the market goes south on their vehicle”…?”

            You generally can’t get out of a lease early, but your only obligation is to continue the payments until the term ends, turn the car in. If you buy with the hope of selling or trading after a few years, you stand the risk of the value declining. Conversely a lessor stands the risk with a leased vehicle.

            Leasing is a great solution for those who like to drive new cars. They do pretty much all eventually wear out and get scrapped!

        • 0 avatar
          DevilsRotary86

          I would mildly disagree with Ruggles’s assertion that leasing is a great panacea for auto purchases. I won’t deny that it makes sense for some purchases but I think if most people sat down and really thought of it, leases would be less popular and not more popular.

          “If things go south wouldn’t you prefer to have a walk away option at 36 months rather than having to sell at a loss or wait for a longer period of time to get rid of a vehicle you don’t like or doesn’t fit your needs any more?”

          That’s all true, and I understand about the bit about having a car always under warranty and having maintenance covered. However, I feel that I would rather take my time to shop and do my homework to find the right car in the first place, and pick one adequately versatile that changes in needs won’t instantly necessitate a trip to the car dealer.

          For me, when I car shopped last year I looked at almost every option I could. I test drove a VW GTI, MINI Cooper S, and FIAT 500. I kicked the tires on a Honda Civic Si, Scion tC, Scion FR-S, and Hyundai Genesis 2.0T. I was an admitted pest at dealers and I commend them all for their patience. I was not hesitant to walk away from cars that just didn’t feel right to me. I took almost half a year to make my final decision. Personally, I just happened to spy an ad one day for an absolute gem of a 2006 Acura RSX Type-S and I wound up with that and I simply could not be happier.

          Now am I perfect? Of course not. In 2009 I had a baby on the way and I felt like I needed a car. I rushed into an absolute stinker of a Chevrolet because the price was great. I was stung when I eventually dumped it in ’11 by the loss I took to get rid of it. But so far, I am running at 3 solid hits, 1 strike, and 1 foul ball in car purchases. So I am doing so-so right now. I think I have figured things out in that field and I am going to take care of the cars that I have right now and keep them for as long as I can.

          I can only hope someone in their early 20′s will read this and not make the same mistakes I did. A car is a serious large purchase and should be undertaken only with great consideration and research. Picking the right car in the beginning easily beats leasing hands-down in the vast majority of cases.

    • 0 avatar
      The Soul of Wit

      Yeah, you’ve absorbed the Kool-aid, friend. It’s Congresses fault. Never mind that Reid and Obama have moved the goal posts by now demanding that Uncle Sugar’s money flow be restored to pre-sequester levels.

      “Buy now. Pay later.”

      • 0 avatar
        thomm

        I didn’t realize only one side is allowed to make demands in a negotiation…silly me.

        • 0 avatar
          npaladin2000

          News flash, when both sides stand there insisting on their way or the highway, it’s not a negotiation.

          • 0 avatar
            Pch101

            I find it telling that the GOP believes that increasing the debt ceiling (which merely finances the spending that the Congress itself has previously approved) or continued operation of the government is somehow doing a favor for the president.

            If the GOP doesn’t like the idea of default, then it shouldn’t be attempting to use the threat of default as leverage. Yet it’s the GOP that has unilaterally opted to take this approach.

          • 0 avatar
            npaladin2000

            I find it telling that with all of the supposed “savings” that have supposedly been implemented the Democrats think the world will end unless they get to borrow even more money. Which they will use to pay the interest on the money they borrowed before.

          • 0 avatar
            darkwing

            Ugh. If I wanted to read talking points, I’d turn on closed captioning on MSNBC.

            You people keep voting against Congressional budgets and for an Imperial president. Elections have consequences. Time to own it.

          • 0 avatar
            Pch101

            “I find it telling that with all of the supposed “savings” that have supposedly been implemented the Democrats think the world will end unless they get to borrow even more money.”

            I have no idea what that’s supposed to mean.

            What I do know is that the debt ceiling is a legislative invention that doesn’t eliminate the obligation to make payments for items that were previously incurred.

            It’s pretty simple — if you want to reduce spending, then go have Congress prepare new budgets that reduce future spending.

            But the legislature already created these obligations, and is now throwing a tantrum over those same obligations as if they somehow came from outer space. They decided to incur these bills; if they didn’t want to have those bills, then they shouldn’t have agreed to have them in the first place.

      • 0 avatar
        KixStart

        The GOP can’t get, politically, what it wants, so it takes a page from the terrorist’s playbook: take hostages.

        The most offensive aspect of the situation is that Boner only enjoys the majority he has due to creative districting. When he says, as justification for his intransigence, “People don’t want Obamacare,” that’s an interesting thing to say, as the people seem to have returned Obama to office and maintained a Democrat-led Senate (where districting doesn’t matter as much).

        What Boner’s really trying to head off is a revolt against his leadership; he has to mollify the extreme right in his party to stay in power. He can’t tell them to shut up and get on with the business of governing effectively.

        • 0 avatar
          April

          Exactly. The Teapublicans would rather wreck the government because no matter what the President is for they are against.

          • 0 avatar
            billfrombuckhead

            The Teapublicans just want to wave the Confederate flag in front of a black families house on Pennsylvania Avenue that thought that passing the Republicans own Romnneycare healthcare plan would help the 40% of the American people that had third worldlike healthcare.

            BTW, American manufacturing would be more competitive if we had a more efficient healthcare system and maybe I could get that orange spyder roadster I always wanted with the healthcare savings on both ends.

          • 0 avatar
            28-Cars-Later

            Critical thinking folks, no matter whose got their finger on the button as it were the result is still the same. Riddle me this politicos:

            Why are 43 of 44 US presidents related to King John (Lackland) who ruled England 800 years ago?

            Why do we allow for political dynasties in the first place such as the Kennedy and the Bush families? Wasn’t the whole point of this country to do away with a nobility?

            Why is someone who seriously suggests “we have to pass the bill so you can find out what is in it” still holding office? Ludicrous statements such as this helped bring about the guillotine (incidentally this person is one of the richest members of Congress).

            Why were we essentially given a choice between Romneycare and Obamacare? Why was care to be rationed in the first place?

            Why are so many groups exempt from Obamacare?

            Why is breast cancer in women still holding above the rates established in the 1970s?

            Why has the last major cure for a disease date from 1954? (Jonas Salk/Polio) Hasn’t medical science and computers advanced tenfold since then? Convenient much?

            Red team/blue team it makes no difference anymore folks. They have all sold us down the river.

            http://ww5.komen.org/BreastCancer/Statistics.html#timetrendUS

          • 0 avatar
            BuzzDog

            Um, Salk didn’t cure polio; he perfected an immunization against it.

            Huge difference, as people I know who have had it will tell you.

        • 0 avatar
          Pch101

          While I concur with much of that, using cutesy snarky nicknames for individual politicians who we dislike is unproductive. You can refer to the House speaker by his surname or by his title.

        • 0 avatar
          mkirk

          REALLY?! Because all of the terrorist I have dealt with had a playbook that called for shooting 7.62 at me and detonating explosive devices under my vehicles. But sure, equate people who govern in a manner you don’t agree with with dudes like Bin Laden and his ilk who you know, commit acts of mass murder against civilians. And we wonder why the two sides are so at each other. I will listen all day to people who disagree with my point of view, but if someone calls me a terrorist or something similar, I’m done and that person is free to go $%^& themselves.

          • 0 avatar
            jkross22

            +200

            Unless you’re 6 years old, name calling only makes you look like you have no argument and you’ve resorted to the lowest common denominator.

      • 0 avatar
        nickoo

        We have a very weak executive branch, the media and shitty education system has done a great job in re-inforcing the image of the President as some sort of monarchy, when in reality, the president was purposely made weak to prevent the types of abuses our country had under the Brittish Crown.

        The real power lies in Congress and it’s congress’es fault for the problems we’ve been having over the last several years, specifically the HoR. I can’t blame Ried because his hands are tied until the House sends him a bill. It’s absurd to blame the President when he is powerless to do anything until the house and then congress sends him a bill to sign.

        • 0 avatar
          April

          I’m embarrassed the low-information voters in my state (Oklahoma) elected a Congressman who thinks there are four branches of Government.

          *bangs head against wall*

          • 0 avatar
            old5.0

            As opposed to the MENSA candidates who elected a president who believes there are 57 states?

            Keep banging that head.

    • 0 avatar
      Dr. Kenneth Noisewater

      Leasing makes sense if you stay within your mileage limits and residuals are not wildly out of whack. Or for (ER)EVs that have batteries whose life you’re worried about. In some cases, the lease cost of an EV is actually lower than the gas cost of a vehicle it supplants.

      Me, I choose to buy since I tend to put a lot of miles on my vehicles, and at 1.55% for 0-down 60mo, I prefer to keep my cash in hand for emergencies/rainy days.

      Incidentally, if you believe inflation is due to go up, it would make sense to borrow as much cheap $$ as possible to buy stuff sooner rather than later. If you believe deflation is coming, it would make sense to borrow cheap $$ to buy deflation-resistant assets that offer a return greater than the interest rate of the loan.. If you can find any.

      • 0 avatar

        Leasing makes sense even if the residuals ARE out of whack, as long as the payments fit your budget. If the residual is to high at end of term, its not your problem as a lessee UNLESS you opted for an open end lease.

        • 0 avatar
          Pch101

          Once a car loan is paid off, the borrower owns a car.

          When a lease ends, the lessee owns nothing, and will most likely be under pressure to replace the old lease with a new one.

          Leases are great for dealers, because dealers prey on confused customers and consumers are less likely to understand leases than financing. The industry likes leases because they are good for volume.

          But leases are often bad for the average consumer, who usually ends up renting more car than he can afford to buy. Those who habitually lease end up stuck on a payment treadmill that helps to tie them to regular visits to the dealership…which is, of course, why you like leasing as much as you do.

          • 0 avatar

            RE: “Once a car loan is paid off, the borrower owns a car.

            When a lease ends, the lessee owns nothing, and will most likely be under pressure to replace the old lease with a new one.”

            No shit. With the lease the consumer only paid for the part of the vehicle they used as they used it, which is why the payment was less. If they wanted to make a higher payment, they’d gain equity. But then that wouldn’t be a lease now would it.

            RE: “Leases are great for dealers, because dealers prey on confused customers and consumers are less likely to understand leases than financing. The industry likes leases because they are good for volume.”

            Leases are great for dealers, consumers AND OEMs. Sounds like a win for all to me. Leases are now almost 30% of all new vehicle sales and provide a stream of quality pre-owned inventory. Consumers are driving newer vehicles and have less concern over maintenance and repair issues.

            RE: “But leases are often bad for the average consumer, who usually ends up renting more car than he can afford to buy.”

            Sounds like a good deal to me… driving more car for the same or less money while it is under warranty the whole time.

            RE:”Those who habitually lease end up stuck on a payment treadmill that helps to tie them to regular visits to the dealership…which is, of course, why you like leasing as much as you do.”

            And so do the folks who lease over and over again. Interesting you refer to doing business as the seller “preying.” If you don’t want to lease, DON’T. If you don’t want to buy, DON’T.

          • 0 avatar
            Reino

            “Once the car loan is paid off, the borrower owns the car.”

            This is true, but by the time a $30,000 car is paid off, it is only worth $15,000. So you can either spend that premium in depreciation, or in a lease payment. Either way, it’s still money spent that you can’t get back. You’d really have to crunch a lot of mathematical formulas to figure out which option is more advantageous. From 10,000 feet up they look like a wash to me.

          • 0 avatar
            DeadWeight

            Precisely.

            Leases are LOVED by the auto industry because they allow people to buy more “MSRP” than they could under conventional methods, while keeping them on a regular, mandatory replacement schedule in terms of purchasing the 2nd highest cost item 97% of Americans will ever make.

            Perpetual debt serfdom is great for fractional reserve banking regimes. Paul Krugman literally believes it’s harmful for the economy for people to pay off their car notes or mortgages and retire their debts.

          • 0 avatar
            darkwing

            Here’s the problem: for roughly the same monthly payment, I can buy the car, with 20% down and a 60-month loan; or I can lease the car, with nothing down.

            If you can afford to do either, then hey, crunch the numbers and have fun. But if you can’t, should you really be entering into the transaction at all?

          • 0 avatar
            DeadWeight

            What!??

            You paid off your car note, own your vehicle outright, plan to maintain it well and drive it as long as it meets your needs and expectations, whether that’s for the next 5, 10 or 15 years, and you won’t be borrowing fiat to lease or buy a new one during that time?

            Are you a communist!??

          • 0 avatar
            Pch101

            “With the lease the consumer only paid for the part of the vehicle they used as they used it, which is why the payment was less.”

            Thanks. I understand the concept of leasing.

            But as you should know, depreciation is generally steepest during the early life of a vehicle. Perpetual leasing puts the consumer on the hook for maximum amounts of depreciation, i.e. higher losses.

            “Consumers are driving newer vehicles and have less concern over maintenance and repair issues.”

            With modern vehicles being as reliable as they are, you are grossly overvaluing and overselling the benefits of leasing. But surely you must already know that.

            “Interesting you refer to doing business as the seller ‘preying’.”

            It’s not particularly interesting, just accurate.

            The retail car business wants consumers to be ignorant of the financial side of the transaction. It’s easier to get customers to overpay if they focus on the monthly obligation, instead of the underlying cost of the vehicle and whatever additional charges are being tacked on to the deal.

            Being a payment buyer on a depreciating asset is a serious mistake. That only serves to drive up prices. Again, that’s just great for you, but not so great for the consumer who is paying more than necessary.

          • 0 avatar
            Dr. Kenneth Noisewater

            I think we can all agree that if you’re going to have a modern German car, it’s better to lease it. Because WTF wants to be stuck with such a beast after the warranty expires?

          • 0 avatar
            segfault

            “Paul Krugman literally believes it’s harmful for the economy for people to pay off their car notes or mortgages and retire their debts.”

            I do see his point, it’s harmful to the economy for ‘people’ in general to pay off their debts, as much of our economic growth is financed on credit. On the other hand, while it may be harmful for the economy in general, it is beneficial for the specific person in question who pays off his or her debts and is left with more disposable income which isn’t earmarked for debt service.

          • 0 avatar
            DeadWeight

            segfault, it’s only “harmful” to the economy when working off of a warped MMT economic growth foundation, where ‘debt service’ (with its layers of leverage) is weighed as equally a productive/desired economic “good” as the actual crafting of some high added value tangible item, such as specialty optics.

            Our current economic system literally depends on greater batches of consumer, business & government debt being issued than in prior periods, perpetually, otherwise it will all collapse in on itself.

            But when we hit an economic pothole, some animals are “more equal than others,” and they get subsidies, bailouts and all forms of life rafts compliments of the taxpayers, who really are the collective indentured servant to the Plutocrats/KronyKapitalists.

          • 0 avatar
            KixStart

            “Paul Krugman literally believes it’s harmful for the economy for people to pay off their car notes or mortgages and retire their debts.”

            I think we need some context here. I expect Krugman was referring to a contraction that the economy would undergo if there was a sudden change in consumer spending habits as a result of striving to pay off debt.

            I’m quite sure a colleague had taped up an article by Krugman some years ago concerning debt. Something like:

            We’re building ourselves ever bigger houses, financed by the Chinese. This ends badly.

          • 0 avatar
            Pch101

            “it’s only ‘harmful’ to the economy when working off of a warped MMT economic growth foundation”

            1. That particular view is not exclusive to MMT.

            2. MMT is heterodox theory that has few adherents. Krugman is not one of them.

            You’re confusing a lot of things.

            “Our current economic system literally depends on greater batches of consumer, business & government debt being issued than in prior periods, perpetually, otherwise it will all collapse in on itself.”

            That’s a wee bit melodramatic. But your preferred alternative would create permanent deflation, i.e. a never-ending depression. If you think that is preferable to this current system, then you are seriously fooling yourself.

          • 0 avatar
            DeadWeight

            It’s true that Krugman has morphed into the leader of the neo-Keynesian dogma, and not MMT (I believe Roche is MMT, which can sometimes be confused with Modern Money Mechanics, which IS close to Krugman’s stance).

            As far as perpetual deflation, that is clearly not something I’d advocate for (although periodic bouts of strong deflation, if they act to correct artificially stimulated excesses, can be highly beneficial ala taking of the medicine) – I’m advocating for equilibrium based on something as close as possible to normal supply & demand curves, while guarding against and allowing for market intervention in only the most potentially harmful cases of market failure (e.g. pollution, monopoly creation, etc.).

          • 0 avatar
            Pch101

            “As far as perpetual deflation, that is clearly not something I’d advocate for”

            The end result of what you desire would produce deflation. You are, in effect, arguing for deflation, but you don’t know enough about the economic system to appreciate the implications of your arguments. “I’m advocating for equilibrium based on something as close as possible to normal supply & demand curves” is just hollow jargon that means nothing.

          • 0 avatar
            Jimal

            This wacky commenting system…

            I just started leasing a new car a little over a week ago. In my case the math was pretty simple. I owned the car I traded in outright, but it needed more work than what the most optimistic sales price I could find for it. at just over 100k miles, it definitely needed a pair of tires, struts all around and some other suspension work, and the transmission was starting to act up.

            Add up the cost of the needed (and soon-to-be needed) maintenance for a car that was continuing to depreciate, and a 36-month lease at less than $200/mo. looks pretty good. I got a car I have no intention of keeping that will do what I need it to do and at the end I will turn it in and either purchase my next car or lease another.

          • 0 avatar
            DeadWeight

            Since you’re in one of your “know everything moments,” Pch, please explain how/where I am advocating for “perpetual deflation.”

          • 0 avatar
            Pch101

            “please explain how/where I am advocating for ‘perpetual deflation.’”

            You have cause and effect completely confused (as is typical of Austrians), and therefore miss the prescription.

            Economic cycles are caused by human behavior. They occur whether or not there are central banks. These cycles are evident even in cases wheh there have been no central banks. Blaming the Fed for the economy having ups and downs makes as much sense as blaming the FAA for gravity.

            If the central bank and/or government doesn’t intervene in fixing a failure, then the problems are only going to deepen. A modern economy is essentially just a spending feedback loop, and any prolonged disruption of that spending and investment cycle in inherently deflationary.

            The Fed didn’t cause the last crisis. There was really nothing that it could have done to prevent it. The driver of the bubble was the fact that there were investors who were trying to profit from it, many of whom failed to realize that they were participating in a bubble and were not riding a sustainable trend.

            Well, guess what? That’s what investors always do. The only way to curtail cycles is to curtail investment, but that itself comes with its own risks and ultimately requires a regulatory framework to manage it.

          • 0 avatar
            DeadWeight

            Wow, I don’t have the time required to address all that’s so severely flawed in your response right now, but will address it greater detail at my first opportunity.

            For now, suffice it to say that if you are claiming that the central bank, through many mechanisms, including effectuating an artificial money borrowing cost structure (and a tiered one, at that), hasn’t contributed in a significant way to inflating bubbles in particular asset classes as well as the last financial and economic crisis, as well as EVERY one that has occurred at least during Greenspan & Bernanke’s tenure, you are hopelessly naive.

            I see and hear defenders of the Fed decry the “lack of regulation” as the cause of such crises, as if such lack of regulation is somehow mutually exclusive to horrible monetary policy by the Fed in terms of inflating bubbles & encouraging massive misallocation of capital, investment & speculation in the economy, when in fact, these two factors are not only NOT mutually exclusive, but they typically exist simultaneously.

            You are AT LEAST implicitly stating that the Fed either doesn’t have the ability to manipulate the interest rate complex (when that function lay at the core of its alleged “dual mandate”) and/or that carrying out such manipulation doesn’t significantly lead to the misallocation of capital, investment & speculation in the economy that leads to bubbles & inevitable busts.

          • 0 avatar
            Pch101

            “if you are claiming that the central bank, through many mechanisms, including effectuating an artificial money borrowing cost structure (and a tiered one, at that), hasn’t contributed in a significant way to inflating bubbles in particular asset classes as well as the last financial and economic crisis, as well as EVERY one that has occurred at least during Greenspan & Bernanke’s tenure, you are hopelessly naive.”

            You’re really married to the Austrian blame-the-guvmint mumbo jumbo.

            The US had numerous crashes during the 19th century when there was no central bank. The central bank has created stability, more than anything else.

            The Fed doesn’t control the long end of the curve. When the Fed began to raise rates as the economy recovered from the first-term Bush 43 recession, the mortgage markets did not respond in kind to rate increases.

            Securitization, deregulation and global capital markets have had the effect of reducing the power of the central bank. In a rising rate environment, lenders respond by accepting lower spreads when they believe that they can make profits via volume.

            In essence, your analysis is fundamentally flawed, and your understanding of the banking system is about thirty years out of date. We no longer have a closed, localized, tightly regulated banking system that allows the Fed to manage mortgage volumes by moving short-term rates. Those days are long gone.

          • 0 avatar
            danio3834

            “The US had numerous crashes during the 19th century when there was no central bank. The central bank has created stability, more than anything else.”

            This isn’t correct. There were central banks in the United States in the 19th century which oversaw (had a part in) many of the nation’s early financial crises.

            The First and Second Banks of the United States were in operation during the 19th century and were chartered by Congress to perform many of the same functions as the Federal Reserve. Several of the founding fathers opposed the creation of these banks for many of the same reasons those crazy Austrians are concerned about such a system. Those banks didn’t create much stability at all, and eventually their charters were not renewed.

          • 0 avatar
            Pch101

            Between the ratification of the Constitution and the formation of the Fed, there were nine US depressions:

            Panic of 1792*
            Panic of 1796*
            Panic of 1819**
            Panic of 1837
            Panic of 1857
            Panic of 1873
            Panic of 1884
            Panic of 1893
            Panic of 1907

            Six of the nine occurred when there was no central bank. That’s one depression every thirteen years.

            The US exited the gold standard in 1933, eighty years ago. Number of depressions since then: zero.

            If you research these pre-Fed crashes, you’ll find that they were fueled by some sort of speculative frenzy, followed by a credit crunch and bank runs. The common theme for those crashes was bank tightening that followed a run up of asset values. Sound familiar?

          • 0 avatar
            pragmatist

            “Paul Krugman literally believes it’s harmful for the economy for people to pay off their car notes or mortgages and retire their debts.”

            This is part of the problem. “good for the economy is NOT good for individuals in the economy” The best thing for people is to rein in their spending, cut their debt and shop wisely. That is, however not good for the reckless spend the future model of our government.

            It’s sort of like being in a neighborhood with bad schools. The best thing for the schools is for you to send your children there, work hard for the schools and hope that after a number of years the schools will be better (your children will have left by then). Better for your children is to get them OUT of that system into the best private or alternative school you can.

            I know what I’d chose.

        • 0 avatar
          nickoo

          I disagree. Leasing only makes sense when comparing to buying a new car of the same value. I would buy a 6-10 year old corolla and drive the wheels off it (barf) before I would ever consider a lease.

        • 0 avatar
          chris724

          My budget is $0/month. I haven’t had a car loan or lease payment since 2002. I bet those are highly profitable for the finance types. I’m not interested in contributing, though.

          • 0 avatar
            pragmatist

            I haven’t made a car payment in 30 years.

            I find leasing especially bizarre because it sets you up for continuous payments. At least with a car loan you can take a breather at the end of the term.

          • 0 avatar
            doctor olds

            It is a fallacy to think there is no cost of owning and operating a vehicle just because you don’t have a car payment. The costs are just in other form. No doubt, you can get by on the cheap, especially if you can do your own work, but paying cash for a vehicle simply means you are deferring the opportunity to invest that money and get a return on it. Instead of a payment, you also have maintenance expense with inevitable wearout of components, on top of the lost investment income.

            Everyone has to decide what makes sense to them, but remember, someone has to buy new vehicles for there to be any used ones on the market!

            btw- with a real budget of $0/month, you won’t be driving long.

    • 0 avatar
      Lorenzo

      Wait – WHO expects a bump in interest rates? The Fed just blinked and kept QE going, afraid of what happens to the economy/housing when it turns the screws. An economy this fragile, run by people in Washington who have to take off their shoes to count past ten, is going to need low interest rates for quite awhile longer.

      • 0 avatar
        nickoo

        QE will never end for the foreseeable future. It’s a pandora’s box they opened when they decided to implement that terrible policy. It artificially props up asset prices, especially housing and stocks, as well as obviously keeping bond face values high and yields low.

        It’s not a matter of if the bond market is going to crash, it’s a matter of when. I’m patiently sitting on the sideline in cash, I can wait longer than the fed can keep pumping.

    • 0 avatar
      3Deuce27

      You mean I don’t have to pay cash for a new BRZ/FRS… I can quit searching the road sides for returnable cans and bottles?

      Boy, I’m so excited I can’t wait for morning to come so I can run down to the dealer and get my new car. Now… BRZ or FRS ..choices, too many choices.

  • avatar
    raph

    Whelp I don’t see any way out of this as it would take a major realignment to set things straight.

    I just don’t see America being satisfied as a nation of decontented corolla drivers paying double digit interest on four years loans.

  • avatar
    Mikein08

    Cheap car loans? How about cheap mortgage rates? Or cheap loans on
    boats, RVs, and suchlike? Cheap loans are not a problem for the
    consumer (assuming the loan does not have an adjustable rate clause),
    they are a problem for manufacturers of goods which typically are
    financed when purchased, because when the cheap loans go away so does
    demand for the product. We should note that governments (and private industry) tend to borrow more when loans are cheap. In fact, car
    loans are so cheap right now that I’d be a fool to pay cash for a
    car – it’s cheaper to finance.

    • 0 avatar
      Dr. Kenneth Noisewater

      Even at a low interest rate (vs 0.0%) it may be worth it to keep more cash on hand in case rates go up (which would mean you should be able to get a ‘safe’ liquid security like a CD or bond that takes advantage of that). I could actually pay off my loan’d car or about 1/3 of my mortgage in cash today, but the rates I got on both are fixed and quite low, and I’d rather be able to make 2+ years worth of payments on both out of savings if I had to.

      • 0 avatar
        highdesertcat

        ” more cash on hand ”

        Many people (who can) are already doing that.

        Also, many people (who can) are buying their new cars outright, without financing.

        What I have brought up repeatedly as being out of kilter is that many OLD people are having difficulty getting a new car loan at advantageous rates, like those of younger people, already deeply in debt.

        Many old folks just want to conserve their capital and assets for redistribution to their heirs so the government can’t keep track of it.

    • 0 avatar
      nickoo

      Cheap loans are an enormous problem for the consumer, they artifically prop up the prices of goods and services bought on financing because those are mostly bought on payment.

      Cheap interest rates are not for you as a consumer. They are for the seller.

  • avatar
    The Soul of Wit

    When the so-called ‘taper’ kicks in, and Yellen is forced to wean the country off the surrealistic pil- low interest rates and stop printing money, the chickens will come home to roost again for the auto industry. The issue will be which companies can scale their operations back and hunker down at break-even to ride the next after-shock out?

    Especially with no more bail-out money available from a completely tapped out Uncle Sugar….

    Ford’s proven they can play small-ball. I think GM will be at risk.

    AT least auto-loans are not ADJUSTABLE interest rate….like mortgages were. So, as long as people can stay employed, they might keep their cars. People who are leasing will be vershcrewed when their leases end…sticker shock will kick in for certain.

    I drive paid-for. It’s the only way to roll.

    • 0 avatar
      28-Cars-Later

      I hear that, just put $1100 into my winter beater. Sucks, but it runs and I don’t care much about it… as opposed to the $199 lease I’m going to get reamed on when it gets turned in for all of the scratches and bumper damage.

    • 0 avatar
      jkross22

      Why do you think Yellen will turn off the printing presses? No bailout money??? Surely you jest.

  • avatar
    sunridge place

    Pay no attention to the quotes in the ‘mainstream’ article that talk about record low default rates and the fact that leasing is being done with much more caution this time around.

    The increase in leasing is a nice balance to the increase in loan terms.

  • avatar

    Who exactly is the “Mainstream Press?” I write regular columns for Auto Finance News. Is that “Mainstream Press?” This is issue has been floated regularly over the last 18 months. Is the term used as a pejorative? I get the impression you are attempting to say that you are better on top of things than the industry iteself. Do I have this right?

    The Auto Finance Summit is going on right now. I’ll be able to report if anyone here is concerned about this. We have economists present from the Federal Reserve and from numerous lenders. The house is full of Wall Street analysts. After all, for the financing money to flow securitization has to be possible.

    Regarding sub prime – sub prime money dried up for a while. People need cars to go to work. In some cases, they need a vehicle to live out of for a while. Lenders price for the risk and have precise underwriting guidelines to follow to make sure each subprime deal fits their parameters.

    The average age of a car on the road these days is almost 11.5 years old. This is an all time high. There were MILLIONS of vehicle sales lost during the economic dark days. Many consumers have maimed credit scores which will take time to rebuild. Many will get rebuilt with the help of a subprime auto loan.

    • 0 avatar
      DeadWeight

      Hey Ruggsies, do you mean “experts” will be there such as our next Chairwoman of the Federal Reserve Bank?

      “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”

      http://fcic-static.law.stanford.edu/cdn_media/fcic-audio/2010-11-15%20FCIC%20staff%20audiotape%20of%20interview%20with%20Janet%20Yellen,%20Federal%20Reserve%20Board.mp3

      But should any be surprised that those whom you hold out as “experts” not only miss, but miss BY 180 DEGREES, the biggest economic and financial risks that they are allegedly obligated to detect and prevent or mitigate?

      Here’s Ben Bernanke’s tragic forecast circa 2005-2007:

      http://www.youtube.com/watch?v=9QpD64GUoXw

    • 0 avatar
      shelvis

      Of course it’s a pejorative. It goes hand in hand with the dog whistle message underlying the faux concern for subprime loans: that these loans are going to those that can’t afford (or don’t deserve)them and that there’s some maker/taker dynamic going on here. It all feeds a narrative that gets the commentariat frothing at the mouth about how they noticed that some guy of questionable economic standing is driving a new BMW but they have beat the system by driving a 10 year old Acura.
      And TTAC is the only venue with the guts to tell you all about it.

      • 0 avatar
        darkwing

        I saw this somewhere else today, and it’s apt: “Racism is like first base with these people. It’s where they always run to.”

        It’s a faux concern, of course, because there’s absolutely no historical precedent for subprime loans shocking the global financial system. And no government complicity in writing and remarking those loans. Nope, none at all. Only raaaacism.

        • 0 avatar
          shelvis

          I mentioned nothing about race although it is ironic that it’s “these people” you say run to racism.
          These loans only become a shock to the system if they aren’t paid. Like, y’know, when the banks yank back credit so your business can no longer borrow or your public officials start laying folks off under the auspices of fake austerity.

          • 0 avatar
            darkwing

            Unless this has suddenly become The Truth About Canines, “dog whistle” is an explicitly racist term. And the quote in question referred to defenders of ObamaCare in general, and of some high-profile folks of pallor in particular. Which you’d know, if you asked for context — but of course you didn’t, because it’s easier and more fun to just yell about racism. So thanks for proving my point.

            Meanwhile, perhaps you can tell me about this interesting economic principle you’ve discovered. Bad loans are only bad once they default, eh? LOL!

          • 0 avatar
            darkwing

            Unless this has suddenly become The Truth About Canines, “dog whistle” is an explicitly racist term. And the quote referred to defenders of the ACA in general, and several high-profile ones of pallor in particular. You’d have known that, if you asked for context — which of course you didn’t, because it easier and more fun to just play the race card. So thanks for confirming my opinion of you.

            The point of your tautology eludes me.

          • 0 avatar
            shelvis

            Dog whistle means coded speech. You’re the one implying a racial component.

      • 0 avatar
        28-Cars-Later

        I concur with Darkwing there is no precedent for subprime loans crashing the global economy. Whether its a question of color, I’d argue the only color that matters here is green… the problem is there’s so little going around. The better question is why have wages fallen so behind costs since 1980? Why is a $15/hour job considered “good” by most of the people I know? (for the record I consider it poverty line for a single person let aloe a family). Why do the overlords continue to create billions of computerized dollars knowing full well NONE of it will filter down into the real economy? Why does every decent car cost roughly $30,000 dollars (without a V6 no less) when I’d say 80% of the population would struggle to produce a $2K downpayment? Last one… why is just over one in three new car buyers in sub-prime territory in this great “recovery”?

        Smoke and mirrors, folks. Hang onto the bar the rides going to get bumpy.

        “U.S. banks made 36 percent of their car loans to subprime borrowers in the second quarter, up from 34 percent a year earlier”

        http://www.reuters.com/article/2013/09/03/us-auto-loans-idUSBRE9820KB20130903

      • 0 avatar
        Jimal

        “It all feeds a narrative that gets the commentariat frothing at the mouth about how they noticed that some guy of questionable economic standing is driving a new BMW but they have beat the system by driving a 10 year old Acura.”

        And if they could only figure out how to build cars and give them to people for nothing or next to nothing, we could all give a middle finger to The Man.

    • 0 avatar

      So Mr. Deadweight – When can we expect you to show up at an industry conference to enlighten us amateurs and be challenged on your assertions? Do you have credentials? Statistics? Models? We’re open to be persuaded? Are you an actual market participant? Or just someone with 20/20 hindsight? Economists are great at explaining what happened. If you want to get in front of a group of professionals in the field, let me know.

    • 0 avatar
      tresmonos

      Ruggles, here’s a good example for those of you that don’t mingle with the non 1%’ers:

      There are 500 people at my plant. We make auto parts. The majority of manufacturing in my Southern neck of the woods are dependent on the automotive industry. They all make less than 12 bucks an hour. Most work for 10 with no benefits. They all drive cars, some drive new cars. When interest rates jack up, you effectively push these people from the brink into an area where they will not be able to afford even a 90 month loan. Demand drops, manufacturing further sinks and you will not have anyone to sell overpriced goods to anymore.

      Walmart is the nation’s largest employer. We’re at a time when the gap between the upper class and the poor is at an all time high. There is not much of a middle class left. Anyone that walks the walk of life can clearly see this scenario playing out if you pay attention. If you can’t, I envy you and your economic bubble.

      • 0 avatar
        darkwing

        Don’t let the grievance merchants fool you; the middle class is doing fine. It’s just that, thanks to some outdated metrics, they’re now mostly considered to be the “upper class”.

        • 0 avatar
          tresmonos

          ‘Grievance merchants.’ Hah. After my NAFTA mercenary / whoring out and my short stint in various manufacturing operations, I am just part of a machine that enslaves the less fortunate. Now my main concern is how to convince my upper management to employ people without GED’s or up the wage so that we retain people rather than have them game the unemployment insurance. But if we do that, our Japanese parents will be more likely to move our sh*t to a Mexican facility we just absorbed and included as part of our operational business unit.

          The gap exists and it continues to widen. And there’s not a god damned thing I can do but count down the days/weeks/years until I’ll be in another 2nd world country (again). Walk a mile in my shoes and you won’t like how the bottoms of your feet smell like sh*t afterwards. Cubicle walls, low monthly payments, net meetings with foreign manufacturing divisions and your HOA’s and other false bullshit will keep everyone fat and happy.

          • 0 avatar
            nickoo

            The middle class is dead and the government, starting with Reagonomics, Clinton’s NAFTA, through Bush IIs unfunded wars and housing bubble, killed it. Refuse to play the game, it’s the only way we can win, all of us need to do it. Don’t get married, don’t have kids, don’t go out/don’t spend money, drive the cheapest car you can, or even better if you don’t need to, don’t drive at all, and live in a mobile home. If you want a better life, leave for greener pastures than the joke that the USA has become.

      • 0 avatar

        Isn’t that the problem right there. If you make minimum wage you are poor. You can’t afford a new car and you sure as hell shouldn’t be borrowing money to buy a depreciating asset. When I was a poor student I drove cars that were 15-20 years old and paid (not a lot) cash for them.

        The problem is reorienting people’s attitudes and expectations surely?

  • avatar

    There is a lot more to Yellen than an anecdotal statement. Some context might be required.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/09/nine-amazing-facts-about-janet-yellen-our-next-fed-chair/

    We dodged a bullet when Larry Summers bowed out. He’s not a good guy. He was part of the group that blocked regulation of credit default swaps in the 1990s. Who knew that issuers of CDSs should reserve capital to pay potential claims. I’d have been happy if Brooksley Born had been appointed Fed Chairman, but I’m quite happy with Yellen. Too bad Volcker is too old to serve again.

    • 0 avatar
      DeadWeight

      “Anecdotal statement?”

      Anecdotal?

      Do you even know the definition of “anecdotal?”

      Those statementS of Yellen’s that I took the trouble of quoting and linking to a mp3 recording (during and interview that she gave) amounted to nothing less than an absolute admission by her that she failed to see, spot or identify, in any way, 3 of the biggest risks that turned into economic bombs and led to the 2008-2009 financial & economic collapse, which we still have not recovered from (and which cause us potential permanent structural damage).

      Did you watch that Bernanke video I linked, where he gave his forecasts/predictions for the economy, from 2005 through 2007, for shits & giggles?

      If you believe a quarter of what you spew on these forums, you are clueless, dude.

      • 0 avatar
        The Soul of Wit

        DW: +1.

        For people like Mr. Ruggles, the worlds always gonna be a great place. His spreadsheets and models tell him so.

        • 0 avatar
          tresmonos

          It’s rare when I agree with DW, but he’s spot on. *slow clap*

          • 0 avatar
            DeadWeight

            We agree more than you probably realize.

            The U.S. Has always been a corpocracy, first & foremost (ask General Smedley Butler) with an illusion of choice at the ballot box to help and keep the debt serfs from taking out the KronyKapitalist Plutocrats, but the level of corruption & the largely resultant skewed level of wealth imbalance between the elite connected-to-D.C.-and/or-the-FRBNY and rest of the popilation is now larger than it’s been since the Roaring 20′s, just prior to the last Great Depression.

            Those who rig the game are global in their outlook, global in their aspirations, global in their social circles, and they have no notions of sovereign loyalty whether to the sovereign itself (whose very institutions they have literally purchased, be it the legislative or judicial branch of government), or to their fellow “citizens.”

            They profit from pitting social, racial, ethnic and national classes against each other, especially during this new era where capitalism highly mobile, governments are corrupted so thoroughly, and labor is the cheapest commodity of all.

            And the whole system rests on the ability to persuade (or force) owners of real wealth to trade that real wealth for fractional reserve paper fiat, which is akin to casino chips to be used in a closed loop economic system (for the holder of those chips).

          • 0 avatar
            28-Cars-Later

            Also agreed.

    • 0 avatar
      DeadWeight

      “Anecdotal statement?”

      Anecdotal?

      Do you even know the definition of “anecdotal?”

      Those statementS of Yellen’s that I took the trouble of quoting and linking to a mp3 recording (during and interview that she gave) amounted to nothing less than an absolute admission by her that she failed to see, spot or identify, in any way, 3 of the biggest risks that turned into economic bombs and led to the 2008-2009 financial & economic collapse, which we still have not recovered from (and which cause us potential permanent structural damage).

      Did you watch that Bernanke video I linked, where he gave his forecasts/predictions for the economy, from 2005 through 2007, for shits & giggles?

      If you believe a quarter of what you spew on these forums, you are clueless, dude.

  • avatar
    Halftruth

    Here we go.. Talk of bubbles and “after-shocks”.. Love it. Let’s no longer have double dip recessions and up the ante. Let’s default now and get it over with.
    This new normal is anything but. If we are to be with threatened with constant economic catastrophe (like we have been for the last 80 or so years), let’s just get to it already.

  • avatar

    RE: “They all make less than 12 bucks an hour. Most work for 10 with no benefits. They all drive cars, some drive a lot of new cars. When interest rates jack up, you effectively push these people from the brink into an area where they will not be able to afford even a 90 month loan. Demand drops, manufacturing further sinks and you will not have anyone to sell overpriced good to anymore.”

    There is an ebb and flow to all of this. If interest rates go up some people will have to make do with a smaller new car OR a preowned vehicle. There is a lot more to this than income.

    The artificially low interest rates have been killing people who need to live off of interest from their savings. It has pushed money into the stock market that wouldn’t otherwise have gone there, resulting in a restoration of around $25 TRILLION in mostly American wealth, much of it for American’s 401K and IRA plans.

    There is a point of equilibrium, and today’s cheap interest rates are an imbalance designed to maintain the economy while waiting for pent up demand and other fundamentals to take over to drive real recovery. The world wide economy was maimed. It takes a while to heal. We have a ways to go even if nothing else happens.

    An aggressive infrastructure jobs program would be a really good thing.

    • 0 avatar
      DeadWeight

      Let me translate what Ruggles stated above in a much shorter string of words:

      The central bank, via the use of monetary policy (i.e. Price fixer of interest rates), is a perpetual bubble blowing machine, and since a central bank can’t print real economic output or productivity, it can and does print (if even slightly indirectly) fiat money, which is used to fuel nominal wealth bubbles, and we’re now merely experiencing another massive equity market bubble the likes of which we last experienced in 1999 or 2007 – where this artificial “wealth” on balance sheets looks great until the masses panic and said “wealth” on balance sheets disappears more quickly than a fart in the wind.

      • 0 avatar

        So why not move to a country where there is no central bank. That should be a paradise, right? There are some small government havens out there somewhere.

        • 0 avatar
          darkwing

          Oh, please. I don’t accept the “if you won’t pay for my condoms, you want to live in Somalia” argument from a defecating Trustafarian; I certainly won’t accept it from someone who clearly knows better.

          Quick counter-example: the Bank of North Dakota. They’ve carved out a pretty interesting niche for themselves and managed to do a decent job keeping the state stable until the oilmen started showing up.

        • 0 avatar
          DeadWeight

          Ruggles-speak translation (and new talking point):

          “Love it or leave it.”

          • 0 avatar
            tresmonos

            LMFAO.

            Ruggles, there is no recovery from the imbalance we currently have until you and your generation die off and globalization reaches an equilibrium and our federal institution is reformed.

            If it weren’t for the imminent dangers, corruption, pollution associated with it, I would move back to Mexico and be king.

          • 0 avatar

            RE: “Ruggles-speak translation (and new talking point): “Love it or leave it.”

            Let me put it another way. Give us an example of a “free market small government economy with no central bank as a success story to “prove” your assertions. That should be easy, right?

        • 0 avatar
          28-Cars-Later

          “So why not move to a country where there is no central bank.”

          Funny thing is those countries keep getting obliterated by the West.

    • 0 avatar
      parabellum2000

      First, Your contribution to this thread has been very interesting. I hope you continue commenting in future.

      Second, I grew up in the eighties. My parents paid over 10% for their car loan, and paid it off within 4 years. My dad drove only 2 vehicles during my childhood, one a 1987 toyota truck last in the 2000s with over 350,000 miles. I purchased my first car in 2001 for $5000 cash. It was a 1995 Mercury Cougar XR-7 with 65,000 miles. I didn’t have worry about a loan because I could buy a good serviceable car for a fair price. Now I don’t think I could find used car of any make with less than 65,000 miles for $5000 or even $8000. Used cars have dramatically increased in value. I think expensive used cars, and cheap interest rates on new cars, has led many people to buy new cars.

      If interest rates go up even a few percentage points, I think it will really hurt new car sales. More people will keep their cars even longer.

      Third, I think your point about the stock market is missed by a lot of people, unfortunately not everyone is invested in the stock market. my parents had to stop thier 401K contributions after the 2008 depression, and haven’t recouped the losses they sustained. Unless wages raise relative to prices, most American’s won’t be able to afford to invest. I fear that increasing interest rates will remove many more people from the investor class.

      • 0 avatar
        tresmonos

        “American’s won’t be able to afford to invest”

        Or pay off their massive student loans.

        New car sales could possibly be propped up by the used car export industry if the USD continues to devalue.

        These comments in this article are depressing the hell out of me. We are running out of pockets to rob for wealth transfers.

        • 0 avatar
          parabellum2000

          I think the student loan crisis will make any problems with loan sub prime auto loans look like an a economic dip in the road.

          I think one way of another the government will write down most of that debt. The people incurring the debt, children of the middle class, won’t have the income potential to pay it off an live as well as their parents.

          My parents had a better quality of life as a construction worker and waitress than most modern couples with college degrees.

          I’d really like to the see the mainstream press pickup on the “education” bubble. Student’s investing very poorly in their education with government backed funds, that will never be repaid.

          • 0 avatar
            segfault

            I’ve read a few articles in what I would consider the mainstream press about the spiraling costs of college (both for-profit and nonprofit) combined with degrees that are often worthless, and a poor job market for graduates. I’m not sure they’ve called it a bubble outright.

            The idea that student loans are a special type of loan and are not dischargeable in bankruptcy is ridiculous. We have the best democracy money can buy…

        • 0 avatar
          el scotto

          A friend of mine is a teacher in her late 20′s. She went to a state university and has 60K in student loan debt. Buy a new car, even a cheapie? Hell, she’d just like to be able to buy better pantyhose that what the grocery store sells.

      • 0 avatar
        28-Cars-Later

        I would argue the price of a used car has simply been inflated due to a combination of [previously] tight credit, low production auto numbers 2008-2011, and currency depreciation. The cars themselves for the most part have not increased in value.

      • 0 avatar

        So True. My parents lived “better” with lower end jobs when they started out, than we did. We had better education, and got some traction because of it (think yuppies) but folks like my parents were when young were already slipping backwards. Now, I am as a parent making sure my kids get the best education and start as we now have a world of the top 10 % and everyone else, and I want them to avoid being an over qualified Barista. I know enough folks just starting out and the slope is much steeper and the traction is much less than my parents, or I, had it. Bright kids, hard workers, but nowhere to put that crampon to begin the pull up the side of the wall.

        I am a hardcore car geek, but prefer my two paid off motors in the driveway to new metal, even when my neighbor goes by in his new S550. They will be replaced when they die. They replaced other cars that were EOL, not “out of style”. I will again try to beat the market by selecting something that will last out of warranty and has a thriving aftermarket for parts.

  • avatar
    cackalacka

    I, for one, appreciate your insights, ruggles.

    One side advocates for an infrastructure/jobs policy, coupled with other sound fiscal measures, the other, ad hominems peppered with die-offs.

    I’m almost embarrassed for the folks that are disagreeing with you. Almost.

  • avatar

    RE: “But as you should know, depreciation is generally steepest during the early life of a vehicle. Perpetual leasing puts the consumer on the hook for maximum amounts of depreciation, i.e. higher losses.”

    That’s a consumer decision to make. If a consumer doesn’t want to lease, they don’t have to. A 36 month lease DOES include the maximum depreciation of a vehicle which one pays for whether or not one leases or buys. My personal favorite is a late model pre-owned lease, where the bulk of the depreciation has already been taken. That kind of perpetual leasing is optimum by my personal standards.

    RE: “Consumers are driving newer vehicles and have less concern over maintenance and repair issues.”

    With modern vehicles being as reliable as they are, you are grossly overvaluing and overselling the benefits of leasing. But surely you must already know that.”

    Again, a consumer decision, not yours or mine. If consumers understood leasing, there would be even more of it, especially leasing of the pre-owned variety.

    RE: “Interesting you refer to doing business as the seller ‘preying’.”

    It’s not particularly interesting, just accurate.”

    And YOUR business is not based on a profit motive? You must not be a “capitalist.”

    RE “The retail car business wants consumers to be ignorant of the financial side of the transaction. It’s easier to get customers to overpay if they focus on the monthly obligation, instead of the underlying cost of the vehicle and whatever additional charges are being tacked on to the deal.”

    It isn’t the job of the retail auto business to educate consumers. Consumers have never had more educational resources than they do today.

    RE: “Being a payment buyer on a depreciating asset is a serious mistake. That only serves to drive up prices. Again, that’s just great for you, but not so great for the consumer who is paying more than necessary.”

    Define “what is necessary.” Perhaps you should lobby the FTC to allow us to fix prices. Would that make you happy? How about in YOUR business?

    • 0 avatar
      Pch101

      “If a consumer doesn’t want to lease, they don’t have to.”

      Thanks for the strawman argument. Nobody was claiming that leases were illegal, just pointing out that they are often not prudent.

      “If consumers understodd leasing, there would be even more of it”

      Have you considered a career on the comedy circuit?

      “And YOUR business is not based on a profit motive?”

      Again, thanks for the strawman argument. I support free enterprise and the profit motive.

      But the fact remains is that the car dealership model is driven by securing higher levels of profit from consumers who don’t understand the transaction. In my industry, all of the parties understand the deals — not all of the decisions turn out to be optimal, but at least they aren’t driven by a dependency on bait-and-switch tactics and asymetric information.

      “It isn’t the job of the retail auto business to educate consumers.”

      The fact that it’s driven by bad faith and dishonesty is ultimately what annoys people.

      • 0 avatar
        Big Al from Oz

        @Pch101
        Did I state that much of what you wrote? Distortion and deflection of a debate seems to be your forte, just like Ruggles.

        Pch101, the ‘West’ not just the US is in a bind, stagnated. The ‘West’ not just the US used to have the capacity of controlling more of the supply and demand side of the global economy. We don’t anymore.

        Building walls to protect our markets will only kill them. Look at agriculture, motor industry, etc. They are overly protected, to what ends. To borrow more to continue protecting them?

        Lax financial regualtion, fiscal policy etc assisted in pushing use in to the GFC. But the biggest shift is the rise of ’3rd’ world economies.

        We, the ‘West’ have to made changes to allow for the global shift in the use of all resources. Our control is diminishing, we are more easily affected by what others do.

        This is where your Amercian Exceptionalism takes hold and you disregard everything that goes on around you. America isn’t the end all and be all of the global economy, it is very significant, but this significance is reducing everyday.

        Making longer term loans is another sign the US isn’t doing as well as one would like to think. If loan repayments reduce in time I would be much happier.

        Just extending debt over longer periods don’t make you wealthier, it makes you poorer.

        The short term gain will soon be displaced by longer term harm.

        Like a credit card, go out and blow the credit limit, then get another card do the same. Take out a loan over a longer term to pay off your excesses. Wise?

        That’s what is occurring. The ‘West’ is broke, the sooner we realise this and we have to knuckle down and compete the better we will be down the track.

        He who controls trade controls the world. The ‘West’ and in particular the US must come to terms with this new concept or you will be left behind.

        • 0 avatar
          Big Al from Oz

          Sorry, Pch101.

          The way Ruggles uses this site it is hard to post a blog in the correct spot.

          @RUGGLES!!!!!!!!!!!!!!!!!!!
          Try and conform to what other do.

          You aren’t exceptional and you don’t deserve to operate on this site any differently than anyone else.

          Do you think you are special?

          Then use this site as it was intended.

          If you can’t, invest in a device that will be able to use this site as designed.

        • 0 avatar
          billfrombuckhead

          More “inverted totalitarian” crap from down under, safely said from a government job in a welfare state.

          “While the versions of totalitarianism represented by Nazism and Fascism consolidated power by suppressing liberal political practices that had sunk only shallow cultural roots, Superpower represents a drive towards totality that draws from the setting where liberalism and democracy have been established for more than two centuries. It is Nazism turned upside-down, “inverted totalitarianism.” While it is a system that aspires to totality, it is driven by an ideology of the cost-effective rather than of a “master race” (Herrenvolk), by the material rather than the “ideal.”[5]

          http://en.wikipedia.org/wiki/Inverted_totalitarianism

          • 0 avatar
            Big Al from Oz

            @billfrombuckhead
            Do you know what totalitarism is?

            Free market, is a little different from what you describe.

            You believe in a controlled and subsidised market.

            You know, the typical unionist line. “Why can’t I have what he has”. But I don’t want to work hard or take any risk to achieve that goal.

            Ruggles believes in a free market and so do I, but he believes in unregulated market, I don’t.

            http://en.wikipedia.org/wiki/Totalitarian

      • 0 avatar

        RE: “The fact that it’s driven by bad faith and dishonesty is ultimately what annoys people.”

        Then they will have to continue to be annoyed because the market auto dealers exist in is what it is. My remedy is price fixing. What’s yours? Your scenario seems to be a market where the seller can lose or tie, but not win. If you can figure out a way for car dealers to make a 10% gross profit per transaction return without price fixing or the win/lose scenario you don’t like, let’s hear about it.

        • 0 avatar
          Pch101

          “Then they will have to continue to be annoyed because the market auto dealers exist in is what it is.”

          I agree. That’s exactly why buyers should assume that car purchases are win-lose transactions, and should focus on price rather than on creating what is a worthless relationship. Dealerships are necessary for obtaining new cars, but they are not to be trusted.

          “My remedy is price fixing.”

          My remedy would be the required use of clear, simple disclosures with standardized plain-language contracts and paperwork that clearly indentifies the price and terms, accompanied by consumer-friendly explanations.

          “If you can figure out a way for car dealers to make a 10% gross profit per transaction”

          It’s not my job to worry about your margins. That’s your problem — I care about the consumer.

  • avatar

    RE: “If a consumer doesn’t want to lease, they don’t have to.”

    Thanks for the strawman argument. Nobody was claiming that leases were illegal, just pointing out that they are often not prudent.”

    And I never said that you said leases are illegal. The point is, consumers get to choose and millions are choosing lease.

    RE: “If consumers understood leasing, there would be even more of it”

    Have you considered a career on the comedy circuit?”

    A large number of consumers never receive a lease option. What’s funny about that?

    RE: “”And YOUR business is not based on a profit motive?”

    Again, thanks for the strawman argument. I support free enterprise and the profit motive.”

    It was a simple question. You don’t seem to support it for the retail auto industry.

    RE: “But the fact remains is that the car dealership model is driven by securing higher levels of profit from consumers who don’t understand the transaction.”

    FLASH! The car dealership model is based on the profit motive.

    RE: “In my industry, all of the parties understand the deals — not all of the decisions turn out to be optimal, but at least they aren’t driven by a dependency on bait-and-switch tactics and asymetric information.”

    So who is responsible for making sure buyers and sellers have equal information and the ability to interpret that information? Maybe we should give a test to buyers to ascertain their understanding of business before allowing them into the showroom? Then, what do we do with the ones who flunk the test?

    RE: “It isn’t the job of the retail auto business to educate consumers.”

    The fact that it’s driven by bad faith and dishonesty is ultimately what annoys people.”

    Its driven by the profit motive, PERIOD. Making a profit is bad faith? Having a selling strategy is “bad faith?” IN this day and age, consumers have as much information as they choose to take advantage of. You have never provided your opinion and/or definition of what a fair profit on a transaction is. Yet, you throw around words like dishonest and “bad faith.”

    • 0 avatar
      Pch101

      “The car dealership model is based on the profit motive.”

      That remark reveals more about you than you realize.

      The dealership model isn’t merely based upon the profit motive. It is also motivated by a desire to use disinformation to increase profits.

      Apparently, you believe that any behavior is justified by the profit motive. The consumer’s lack of knowledge of finance is regarded in the industry as a weakness that is to be exploited and that should be exploited, because the dealer deserves it.

      You’re not only a dishonest bunch, but you feel entitled to be dishonest. That sounds a lot more like sociopathy than a conventional business model.

    • 0 avatar
      el scotto

      Ruggles, a large number of consumers are never offered a lease option. What? I think that’s the 2nd thing they teach there salesmen to do after putting there cigarettes out. Ford used to push their Red Carpet lease hard. Never mind I was there to buy a work truck. It was smarter buy outright and depreciate. Oh, and gas stations also sell beer.

  • avatar
    DeadWeight

    Ruggles & Pch101 are now locked in a quid-pro-quo debate, and while I clearly will lay my money down on Pch for a variety of reasons (despite sometimes disagreeing with him), this thread is gonna’ get long.

    Ruggles best chance for any claim to a winning argument is the fact he has more lung capacity than any other known mammal on earth, and that he might be able to “talk” Pch101 to death.

  • avatar
    TomHend

    Getting any news from the mainstream press is like getting your car information from Car & Driver.

  • avatar
    DC Bruce

    I’m not sure how we got stuck on talking about leasing. Certainly the cost of leasing a car for 36 months, then leasing another for 36 months and then leasing another for 36 months is more than the cost of buying the same car and owning it for 9 years.

    But with leasing you’re getting at least two benefits: (1) you’re not assuming a repair risk because your car is always under the comprehensive warranty and (2) you’re driving a newer car after the first 3 years.

    Some people are willing to pay for that.

    In terms of budgeting, lessees just work the lease payment into their monthly budget and they’re done, except for the variable cost of fuel and the somewhat variable cost of insurance. Predictability is nice for budgeting.

    The purchaser (whether he finances the car or not), bears the risk of repair costs after the warranty expires. Some people’s budgets cannot absorb a $1,000 or $2,000 unexpected hit in a single month.

    The “leasing is a con” argument simply reflects the difficulty — if not impossibility — of comparing the two methods of acquiring a car in a way that fully values all of the risks assumed (or avoided), in particular, not only the ownership risk of the cost of repairs after the warranty expires but also, the risk that the car depreciates more than expected (ask owners of 3-year old Saabs about that!).

    And, I should say, that I have never leased a car in my life; but I recognize the benefits of doing so.

    • 0 avatar
      Morea

      Put aside a set sum each month for anticipated future car repairs. There, problem solved.

      • 0 avatar
        Carlson Fan

        Sometimes it isn’t just spending the money but being without a car. Having to drop a car off for even a day tp be worked on is a PITA for most. Some just don’t want to be nothered with tire shopping, new batteries, transmission fluid changes ect. This is time and money not spent on leased vehicles.

        I have never leased, I pay cash and drive them for a long time. But I can completely understand the reasons why someone would. It might cost more, but then it is not without benefits either. I have known people that have gotten such great lease terms that the advantages of buying become pretty thin. And if you have an unplanned engine or transmissin failure in a vehicle out of warranty that you have to pay someome to fix, you probably would have been money ahead leasing.

  • avatar
    28-Cars-Later

    Derek kudos for following this developing story. After it all comes crashing down again, I hope they award you the Pulitzer.

    • 0 avatar
      sunridge place

      28

      What, in the car business, is going to come crashing down? Who will go under?

      You seem so convinced that a massive crash is coming…please tell us how it’s going to happen. What will we award you when it doesn’t happen?

      Derek hedges his bets nicely as he should….OEMs aren’t going crazy here…they can scale back. Most production growth is shift expansion. Subprime automotive is not remotely in the same ballpark as the crap that went on with mortgages.

      Leasing is getting back to where it was with far better fundamentals than before.

      The world is going to come crashing down because some OEMs are cashing in a bit? Bob Smith with a 600 credit score and 70k household income got a $400 car note for a new Cruze and it’s all over….I should start buying MRE’s?

      Bobs brother is leasing a Camry for 299 a month with ZERO DOWN!!!

      Time to dig a hole and take cover?

  • avatar
    Big Al from Oz

    Since there is a lot of talk on how the US is currently managed here is an interesting link.

    The US is polarised politcally. One one side you have the people who think borrowing out of debt is the best option and the other borrowing to try and maintain the unmaintainable.

    The reality is the US will have a drop in the standard of living. This will affect everything you own and do. Like this article about what vehicles you will buy and long it will take to pay them off.

    Ruggles is an advocate of enjoying now at the expense of the future.

    If car loan repayments are stretching out over a greater period of time one must ask how good is the US economy. Yes the interest rates might be less and all of the other crap I’ve read, but the reality is people can’t afford what they had in the past, hence the blow out in repayment times.

    People should be buying vehicles that are affordable, financial institutions will lend to whatever regulations allow.

    Guys like Ruggles are getting their hands on this poorly managed money and will stop at nothing to bolster his own pockets at the expense of others.

    The problem is there is no next time for the US to fix up the mess it finds itself in. Subsidisation, tariffs, protectionism poor finacial regulation etc has made the US uncompetitive.

    The US really needs to look at how much tax money and borrowed money is being spent.

    But like every other democracy everyone votes for whom they think is giving them a free ride.

    A free ride at what and whoms expense? You get nothing for nothing in this world and if you get it easy it’s probably illegal or immoral.

    http://www.smh.com.au/comment/god-cant-fix-uss-pearshaped-politics-20131013-2vgl5.html

  • avatar
    Zykotec

    This may come off as a bit cynical and generalized, but
    Cheap car loans and leasing deals provide ‘posers’ with great new cars to show off, and especially with leasing it’s in everyones interest to keep the car in good shape until the lease is over, which makes buying a 3 year old car a better deal than if it was a 3 year old car bought for cash (which is no longer of any real ‘value’ to a poser once he feels the need to show off another new car)
    So in effect cheap car loans and leases is a win-win thing, right?
    It keeps the manufacturers happy, it keeps the new car buyers happy,it keeps the bank happy and it makes the used car buyers happy. It also provides dealers, mechanics and auto-parts dealers with jobs. And it keeps the banks rich, so that we can sell luxury items to bankers, which creates jobs for artists designers and engineers and third world children who assemble electronics…

  • avatar
    Cabriolet

    The best deal today is buying a 3 year old car with low mileage and a warranty still in effect which is usually a total of 5 years. Buy an extended “manufacturers” warranty for an additional 5 years for approx $1,000 and call it a day after 10 years. Have been doing this for years and even get a good price for the car when i sell it. What also helps me is that i know the cars i buy and can do my own repairs. The only thing i will not touch is an automatic which is why i like a warranty.

    • 0 avatar
      mikey

      @Cabriolet…Your right. Even in Canada,where our pricing structure is different. I wanted a long box 4X4 GM truck. I use it as a winter vehicle,and for yard work. All I wanted was air, and a radio. I had a good look at a 2013. With all the discounts,including GM retiree, it sounded pretty good. Then I found a 2011, with a bed cover,full trailer package,side bars,and winter tires. 20,000 klms {12000 miles}

      The 2011 was by far the better buy.

  • avatar
    April

    Right now I’m driving a 1997 Honda Accord with 202,000 miles on it. With the elevated prices used cars are selling for it is doubtful I can afford to replace it.

    Back to my bicycle.

    :(

    • 0 avatar
      Lorenzo

      You CAN replace that Honda with a later model vehicle at a reasonable price. The market is loaded with the automotive equivalent of ugly stepchildren nobody wants. If your Honda blows up, you’ll be able to find a vehicle that gets you where you need to go, without paying a high price. You just have to separate ‘wants’ from ‘needs’.

  • avatar

    RE: “Ruggles believes in a free market and so do I, but he believes in unregulated market, I don’t.”

    I do NOT believe in free for all marketing. Capitalism requires a little socialism to save it from itself.

    As far as “profit motive” is concerned and what it says about me. I make no apologies for making profit on what I sell. NONE. Car dealers don’t create the market they operate in. And no one forces consumers to buy at any price.

  • avatar

    RE: “Author: Pch101
    Comment:
    “The car dealership model is based on the profit motive.”

    That remark reveals more about you than you realize.”

    Reveals? As if I’m trying to hide the fact that dealers make an investment to make ROI.

    RE: “The dealership model isn’t merely based upon the profit motive. It is also motivated by a desire to use disinformation to increase profits.”

    There are plenty of regulations governing the auto business. Unfortunately, those regs cover dealers, not consumers. Dealers have compliance and regulatory people all over them. Some of them prevent dealers from fixing price so consumers can feel good about themselves and their deal. I think your complaint should be with the FTC. Or maybe you think the government should own the dealerships so consumers can get what they want?

    RE: “Apparently, you believe that any behavior is justified by the profit motive. The consumer’s lack of knowledge of finance is regarded in the industry as a weakness that is to be exploited and that should be exploited, because the dealer deserves it.”

    I believe any LEGAL behaviour is justified. I believe the seller has EVERY right to have a selling strategy just as consumers have the right to have a buying straegy. The sellers have much more stringent regulations focused on them. Consumers? Virtually none.

    RE: “You’re not only a dishonest bunch, but you feel entitled to be dishonest. That sounds a lot more like sociopathy than a conventional business model.”

    You get to shop until you find a dealer that satisfies you. Sorry if that’s not good enough for you. 60 million vehicles will be sold this year. The VAST majority of these will involve selling strategy AND buying strategy. Call it what you want. Find me any other industry where consumers feel they have the right to the sellers cost information. Dealers didn’t create the model. They exist in a market that is what it is. Complain to the FTC if you don’t like it. Dealers really don’t care if you disapprove of them making gross profit to pay their bills to survive and make ROI. But then, you’ve probably figured that out by now. But you’re free to buy your own dealership and show us all how to run it. Go for it. You’re so convinced you have a better idea you could make a fortune. Right? Think of all those happy customers.

    http://wardsauto.com/blog/people-love-their-dealer-hate-yours

    • 0 avatar
      Pch101

      “Or maybe you think the government should own the dealerships so consumers can get what they want?”

      Your propensity for making strawmen arguments only makes you and your position look weak. I’ve told you my suggested remedy — go back and read it.

      “The sellers have much more stringent regulations focused on them.”

      They aren’t stringent enough, given the obvious success that dealers have in duping customers.

      “You get to shop until you find a dealer that satisfies you.”

      I doubt that there is a dealership in the country that would provide me with much satisfaction.

      In any case, I’m not calling for satisfaction, but for fair disclosures. I would prefer that buyers be less ignorant. Of course, that suggestion frightens you because dealers rely on customer ignorance to increase their margins.

      • 0 avatar

        RE: “Author: Pch101
        Comment:
        “Or maybe you think the government should own the dealerships so consumers can get what they want?”

        Your propensity for making strawmen arguments only makes you and your position look weak. I’ve told you my suggested remedy — go back and read it.”

        Refresh our memory. Was that the “Need a Nanny” card?

        RE “The sellers have much more stringent regulations focused on them.”

        They aren’t stringent enough, given the obvious success that dealers have in duping customers.”

        Then try to pass legislation if you can make your case. MAke sure it applies to YOUR business too.

        RE: “You get to shop until you find a dealer that satisfies you.”

        I doubt that there is a dealership in the country that would provide me with much satisfaction.”

        Then I guess YOU are screwed. Over 30 million people each year find a dealer to satisfy them. Funny how the stats say consumers hate dealer although the like they one they just did business with.

        RE: “In any case, I’m not calling for satisfaction, but for fair disclosures.”

        Define “fair.” We already have Truth in Lending, Reg Z, Reg M, the FTC, state AG regs, etc etc etc. Consumers already have more information available to them than are any of their business. And yet there are still whiners like you.

        RE: “I would prefer that buyers be less ignorant.”

        Sounds like a business model for you. Buyers are free to educate themselves AND they have information that is none of their business. and still there are those……

        RE: “Of course, that suggestion frightens you because dealers rely on customer ignorance to increase their margins.”

        Frightened? PLZ come in and take advantage of us.

  • avatar

    I am through with TTAC. It seems in their zeal to sell advertising I am subjected to the most annoying pop up strategy ever. Some will tolerate. I won’t. It may be a function of Google. Who knows.

    • 0 avatar

      Mr. Ruggles,

      Can you please elaborate on which ads are frustrating you? If you can identify them and let me know which ones caused you to give up on TTAC, I take this up with the people who are in charge of advertising displays. Feel free to email me derek at ttac dot com

  • avatar

    RE: “Author: Pch101
    Comment:
    “Then they will have to continue to be annoyed because the market auto dealers exist in is what it is.”

    I agree. That’s exactly why buyers should assume that car purchases are win-lose transactions, and should focus on price rather than on creating what is a worthless relationship. Dealerships are necessary for obtaining new cars, but they are not to be trusted.”

    They get to shop until they are satisfied. What more do they want?

    RE: “My remedy is price fixing.”

    Clear, simple disclosures with standardized contracts and paperwork that clearly indentifies the price and terms, accompanied by consumer-friendly explanations.”

    Apple and Tesla can fix prices so no one has to worry about anyone getting a better deal than others. We can arrange that if you get it by the FTC.

    RE: “If you can figure out a way for car dealers to make a 10% gross profit per transaction”

    It’s not my job to worry about your margins. That’s your problem — I care about the consumer.”

    I never said it was your job to worry about. You already have more information than you deserve. We’ll get what we need. Don’t worry about that.

    BTW, in a chat with Scott Painter yesterday, it turns out he was forced to change his business model. His model now includes helping his client dealers make money. Imagine that. He figured that out all on his own after hundreds, if not thousands, of dealers cancelled their TrueCar relationship.


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