The Truth About Cars » Financing The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. Tue, 15 Jul 2014 15:25:59 +0000 en-US hourly 1 The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars no The Truth About Cars (The Truth About Cars) 2006-2009 The Truth About Cars The Truth About Cars is dedicated to providing candid, unbiased automobile reviews and the latest in auto industry news. The Truth About Cars » Financing Say Hello To 144 Month Financing Mon, 24 Mar 2014 13:14:55 +0000 SC06_Aston_Martin_Vanquish_green

One year ago, we reported on the alarming trend of 97 month loans for new car sales. It turns out that these have now been supplanted by a substantially longer term. Say hello to the 144 month loan.

TTAC has actually known about the 144 month loan for some time. As we discovered, certain fringe elements in the exotic car financing business have been offering these ultra-long terms, though with fairly stringent conditions (a high credit score and a substantial down payment).

Automotive News recounts the tale of one customer, a “business consultant” who financed a $300,000 Aston Martin on a 12 year loan

“…the Aston Martin buyer is a successful businessperson who made a hefty down payment, says a staffer at the Aston Martin dealership, who wished to remain anonymous. But stretching the amount financed over 144 months offered additional flexibility that the customer appreciated. And the buyer plans to pay the 12-year loan off early.”

Aside from the questionable judgement involved in financing any depreciating asset, let alone a fragile British exotic car, over a 12 year term, the sheer amount of time must be put in context. 12 years ago, the DB9 wasn’t even out yet. The Vanquish had barely been released. That period of time is an eternity in automotive terms – think about the difference between a 2002 Accord and a 2014 Accord – and by the time 2026 rolls around, the Aston in question will be a stale-looking money pit at best.

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Boom, Bust, And The New Car Lust Tue, 25 Feb 2014 13:00:31 +0000

6:30 P.M. and three more cars just pulled up to my place… on a Monday…

Have I just bought a McDonald’s franchise? Not quite. This is the start of what we call “tax season” in the used car business.

A time when tens of millions of Americans who live paycheck to paycheck get a nice four figure lump sum from Uncle Sam and his favorite sub-prime debt dealers.

This money will typically be gone within 72 hours. Cars, electronics, and (cough! cough!) indebted personal obligations will be re-distributed to impersonate economic growth.

None of this matters for me right now because my brand new customers, with tax refunds in hand, are looking at three older cars.

The respective ages of these low money down rides?

17.. a red 1997 Honda Civic EX with 130k miles.

18… a gold 1996 Nissan Sentra with 135k miles.

And 19, a white 1995 Pontiac Bonneville SSE with 160k miles.

Two year notes for three cars that are old enough to have been driven daily when I was young.

Should all this age scare me? No. Not at all. I’ve financed hundreds of teenage and twenty-something cars over the last several years, and with the average age of a vehicle in the United States slowly creeping towards the twelve year mark, I’m not even sweating it anymore.

So long as I find the right owners, these cars don’t break. At least not in a terminal sense.

The ones who should be sweating it are the manufacturers. Why? Because they overproduced at a torrid pace from the early-2000′s to late 08′, and now that many of these defunct brands and models are headed towards their middle-age, they’re getting depreciated to kingdom come.

Yet they still run fine. Even until recent times this longevity had not been the usual case.

Ten years ago the average old jalopy on the road was usually a rolling piece of junk that drank gas, smoked oil, and hung out with the bad boys. I saw these cars all days long at the auctions and sold  tens of thousands of them as a ringman, auctioneer, and remarketing manager for an auto finance company.  The wholesale auctions were full of em’ back then, and I still remember getting headaches from all the carbon monoxide and other deadly substances that permeated the air. When it came to older cars, there were far too few manufacturers of quality vehicles. Older Benzes, Toyotas and Hondas were able to handle the long haul. American trucks and gas guzzling body on frame land yachts were pretty good as well. Those were the sweet spots for those wanting car owners who couldn’t do it themselves. Everything else offered a lot more misses than hits.

Now, the average old car… is the family car. The extra car that rarely gets driven. Or even your own car.

It was more than likely designed at a time when lean manufacturing had already become predominant, OBDII diagnostics had become a universal standard, and fuel injection had become a given. Even the recent defunct brands. The Pontiacs, Oldsmobiles, and Mercurys of today are light years ahead of the malaise era inspired, quantity driven metal of yore that rightfully deserved to be recycled into Chinese washing machines.

Your current daily driver, old it may be,  is still going to last you for a while. And when it does decide to spit out a part, chances are you can find a cheap replacement for it online or at an auto recycling center. The labor to replace it may no longer be cheap, and your older ride may not have the same tolerance for neglect and abuse than it did when new. But if you drive like everyone else on the road, chances are it’s going to last you well past 200,000 miles, or even 15+ years if you live in a non-rust climate.

We can go on about defunct brands and models that are now overpopulating the used car market thanks to the corporate accounting games of not too long ago. We can even venture forth to the less political causes of what will likely become a golden era for cheap transportation if you keep your eyes sharp on good product. This is in large part thanks to the research engineering advances of the last 15 years, and the amazing convergence of suppliers, standards and even platforms within our industry.

But there is one factor that seems to trump all the others in today’s used car market. Money.

In my world that is running a car dealership, the new car is now matching the eight year old used car when it comes to the monthly payment.

How? Here’s how.

It’s the difference between a two year note for an $8500 eight year old used car at 14%, and an eight year note on a $30,000 new car at 5.9%. The financial difference between those two cars, pre-tax, tag, and bogus add-on fees, is $408.11 a month for the used car, and $392.78 for the new car. You read that right. The monthly payment is now often less for the average new car than it is for the average used car. A lot of consumers who are already used to having a car payment don’t mind paying for a longer period if it means getting a newer vehicle.

Now that automakers and major banks are delving deeper into sub-prime loans, even deeper than they did back in late 2007, used cars are becoming increasingly unmarketable.

The millions of  orphaned brands and models with little to no marketing cache are going to help this process advance far faster than you may realize. In fact, many of the largest used car retailers will no longer buy any orphaned brands because they sit at the lot for far longer periods of time than ever before. A lot of declining brands such as Volvo, Mitsubishi and Lincoln are also on that same walking plank of consumer obscurity that leads to an ocean’s worth of cheap inventory.

No overproduced, over-leased or unpopular used car can compete on a level playing field with a new car equivalent that has the better brand name on the front of it. That is unless you’re one one of those customers willing to pay cash one time for an older product.

If that cash customer is you, these next few years will offer a far better bang for the buck when it comes to buying used cars.  Once the bad decisions of 2007 and 2009 are removed from the credit histories of consumers who had bad luck back in the day, you will see many of these customers ditch their old rides and buy whatever new car they can find which offers a lower payment, a nicer ride, and better cash flow. At least for right now.

I predict that a lot of these cars will contain technologies that will be far too expensive to fix and repair in the coming years. However, by then I’m sure that the manufacturers will be offering ultra-high mileage, aluminum bodied works of wonder with advanced CVT transmissions and software that will enable electric motors to become a worthy alternative to the internal combustion engine.

Meanwhile, someone out there will still be driving an old Honda Insight. New car smell be damned.


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New Or Used? : A Young Driver Wants His Milk & Cookies… Right Now! Fri, 10 Jan 2014 13:00:59 +0000 123rf


I just got a job that involves a fair amount of driving and I am looking to spend about 11-13k on a car that is fun to drive but at the same time practical and reliable.

I have a large dog, bicycle, and significant other that I transport on a regular basis (not all at the same time). I’d like to get a manual but the fact of the matter is that I am very likely to get stuck in a traffic jam one way or another so I am still debating on that. My job covers gas and a modest vehicle allowance that will cover wear and tear maintenance with a little pocket change left over. So gas mileage and little things going wrong are not a big deal. However it does need to be reliable in the sense that it will start everyday and get me where I need to go.

Some cars I have been thinking of are Mazda 3, GTI, Focus, E46 3 series(wagon if I can get it), and Mustang(thats a wildcard). I would prefer that any car I get be 2006 or newer so I can finance a modest amount but I do not want to get in the hole of financing a new car thus my budget. Help out a fellow car enthusiast and let me know what you think.

Steve Says:

Your question reminds me of the all too scary fact that my own soon-to-be 11 year old son may someday be in your shoes.

I hope to hear this in, oh, about 15 years from now.

“Hey Dad! Guess what? I just got promoted to hedge fund manager at Milken, Milken & Dacau.”

“Great to hear it son. Remind me to retire soon.”

“I’m sure you’ll die first Dad (thanks son!). Oh, the bosses boss wants me to trade in the Camry and get something really nice. Like a Lamborghini Flatulencia.”

“Jeez! That will be quite a bit of bitcoins!. Are you sure you can afford it?”

“Sure! I’ll just get a loan with….”

… the uncomfortable thought of a loan on a car is enough to stop that happy daydream dead in it’s tracks. It may not be a good idea quite yet to arrange for a long-term divestiture of your wealth. Why?

You just got a job.

You haven’t made any money yet at this particular job.

You are now what we called in my native state of New Jersey, “working class”. Your financial security is exactly equal to your “new job” security. There is good news and bad news with that.

The good news is that you have work. The bad news is that if you’re smart, you are going to be in saving mode for the next several years and eventually buy those things that are worth keeping. Which means that when it comes to cars you may want to hold off on the late model throttle a bit.

I would go a little bit deeper down the model year range and consider an 03 to 05 model that has 100,000 miles or so and has been furiously depreciated. A stickshift on a medium sized coupe or sedan (Infiniti G35, Lexus IS300, Acura CL/TL) would be a worthwhile consideration. You can even go more into the affordable arena and wait for what we call the “rare birds” in the car business. A supposedly plain jane Solara that has a nice V6 and a 5-speed. Or the last of the Q45′s that often gets blurred out of the car shopping process.

If it were me, I would start nagging friends and associates for a well-kept older car and then tweak the suspension and upgrade the tires over time so that it rides the way you like it to. However I can hear my son in the 15 year distance revving up his Flatulencia and wondering how his Dad became so debt averse. The truth is I was raised that way. Debt to me is still a four letter word. So I’ll leave it up to the folks here to offer some more recent 11k to 13k alternatives with financing in tow.


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Maroon Velour, Coupes Galore, And An Important Four-Door for 1984 Mon, 30 Dec 2013 12:00:34 +0000 DSC_0405Haven’t you heard the exciting news? There’s a new Corvette out this year! Cadillac is building convertibles again! The VW Vanagon has a water-cooled engine! Oldsmobile is offering some kind of voice warning doohickey and the FIRENZA HAS NEW TRIM OPTIONS!1!!11! All with interest rates hovering just under 13%! It’s 1984, and I just can’t wait to check out the goods at the auto show.



My mother volunteers at a local charity that provides needy families with household items. Her job involves separating and sorting useful donations from not-so-useful ones: broken glass, dead appliances, and in this case, old newspapers. She gifted me a piece of the long-defunct Columbus Citizen-Journal which previewed the upcoming attractions at the city’s 1984 auto show. I eagerly awaited page after page of achingly desirable machines, available for a pittance, indicative of a prosperity and degree of freedom that my Internet-addled generation could never hope to know.


Olds, Pontiac, Chevrolet, Cadillac, Ford, Dodge, and Honda products are all given the puff treatment here, alongside a plethora of ads. Curiously, no Buick, VW, Toyota, Subaru, or any other import marque is included in the paper’s formal writeups. Limited column space, perhaps? On the front page, there’s a marketshare breakdown for 1983: Ford had 17.1 percent, GM had 44.4 Chrysler had 10.3, and AMC 2.5. Imports made up a combined 25.7 percent, with the Japanese holding more than four-fifths of that total. In the whole American market, things have changed dramatically. In the Midwest? Maybe not so much. But hey, check out those conversion vans!


 A four-cylinder, turbocharged Mustang! How oddly familiar. The EXP serves as a reminder that in the 80s, there was still a market for inexpensive 2-seater coupes. Will they ever come back? Considering that two-door coupes not called Camaro or Mustang barely exist anymore, I’m guessing no.


Pontiac’s new “showpiece of engineering” won the sales race in the aforementioned market, but changing tastes ultimately doomed it. Perhaps the Solstice would have sold better under the Fiero nameplate.


  The Civic lineup was all-new in 1984, with seven different models sold under the nameplate. You could get the gas-sipping CRX, the sporty Si hatch, a five-door wagon, and several others. The EPA rating of 67 on the highway for the CRX was undoubtedly optimistic, but real-world mileage still proved stellar. Before the pointless economy-car horsepower wars, you got 60 horsepower out of the 1.3 liter base engine in the Civic. If you were feeling adventurous, you could get the 1.5 liter with its awesome 76 horsepower. Slow? Yes. Tuned for actually saving gas? Absolutely. Tongues will wag and say that safety regs killed light, simple cars like the CRX, but in a world where the Fiat 500 and the Chevy Spark both exist, I’m not buying it. Size creep was already making its presence felt in the mid-80s. As the column points out, the 1984 Civic sedan was 5.2 inches longer than the ’83. Check out the Subaru ad too. In the current era of pseudo-premium everything, would any car company ever dare to describe their product as “inexpensive?”


 The most important new car of the 1984 season was the Plymouth Voyager/Dodge Grand Caravan. Like it or not, this is the vehicle that truly spawned the SUV/CUV revolution. It showed millions of middle-class families that they could have the kind of voluminous, carry-all interior space previously considered the exclusive domain of commercial vehicles. Their relative cheapness and ease of use made consumers unwilling to tolerate the compromises inherent in traditional sedan-based wagons. True truck-based SUVs didn’t take off until the early 90s, but minivans paved the way long before huge fake dinosaurs were eating people out of Ford Explorers.


 A BMW sold on its residual value? Your eyes do not deceive you. Exacting build quality, careful engineering, the latest in technological wizardry (Service warning lights! An MPG computer!) all help you “not only hold onto a significant portion of your wealth- the portion that you keep in the form of a car- but to enjoy yourself tremendously in the process.” Is this even on the same planet as the modern-day lease extravanganza? You needed the retained value if you were going to be paying 12.95% APR on a new car loan, though.


 Here’s another bank ad. It might have been morning in America, but credit was still quite tight in 1984. 11.95% sounds like buy-here pay-here level financing today, but in the mid-eighties one needed to have great credit to get these kinds of rates. Apparently 60 month terms weren’t that uncommon thirty years ago.


  There aren’t a lot of prices in these ads, but the few that are there are revealing. $9999 for a 1984 Marquis Brougham is $22,430 in today’s money, according to the handy Bureau of Labor Statistics inflation calculator. For that, you got a front-drive, midsize sedan powered by a  carbeurated 120 horsepower V6, an automatic transmission, and air conditioning. You also got one power seat (part of a split bench), steel wheels with covers, no cassette player, zero airbags,  and no ABS. Don’t forget the interest rate.


Maybe used is more your style. Then as now, Budget has plenty of no doubt gently-driven rental cars to offer you. How about an ’83 Sentra for $15,227 in today’s dollars? Hey, at least it has a stereo, four wheels, and “air conditioning!” You could get a Citation for a little less. A V6, automatic ’83 Camaro or a Mercury Cougar would set you back $21,284. Deals! There are more than a few cars from 1984 that I wouldn’t mind owning. The G-body Cutlasses and Regals are still among the best designs of the latter half of the twentieth century. I’d love to have a Civic Si and a Prelude, as well as a Fiero and Shelby Charger. I will own another E30 some day. But 1980s new car prices stir no longing for times gone by in my heart.


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Mainstream Press Finally Worried About Cheap Car Loans Mon, 14 Oct 2013 16:00:41 +0000 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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Leasing Accounts For A Quarter Of New Vehicle Sales As Payments, Residuals Stay Low Wed, 25 Sep 2013 16:29:36 +0000 7d4a7430404638720165ab399f429b03

While the engine behind the exceptional growth in new car sales is a hotly debated topic, leasing is proving to be an undeniable catalyst behind this year’s impressive new car sales numbers. Through June of this year, leasing accounted for 25.7 percent of new car sales, versus 22.2 percent in 2012.  A decade ago, that number stood at just 17.5 percent.

Leasing saw a big jump in 2010, up to 21.3 percent of new car transactions, a nearly 5 percent rise compared to the prior year. Since 2010, leasing has been on a steady rise. One possible factor for this was that GM and Chrysler resumed leasing in late 2009, with the full effects of this becoming clear in 2010.

On the manufacturer side, OEMs are beginning to peg residuals at a higher number so that lower lease payments are made available for consumers. One TTAC source told us that a European luxury brand has spent close to ten figures buying down residuals to offer coveted “$299/month” lease payments on a popular model. An article in Automotive News explored this practice in the mainstream segment as well

Toyota is one of the risk-takers. It introduced the redesigned 2014 Corolla with low lease payments and residual values that are higher than those of the previous model. Toyota is betting the 2014 Corolla will be worth 63 percent of the sticker price three years from now compared with 53 percent for the 2013 model.

There is risk for the auto makers who go with a high residual. If the vehicle turns out to be worth less than the residual used by the automaker, it could cost the OEM money. But by pegging the residual value higher, customers can borrow less money (since they borrow the difference between the vehicle’s cost and its expected value after the lease term), allowing for lower payments. Keeping the monthly payment low has been a crucial element of auto financing in the post recession era.

Average transaction prices for new vehicles have topped $31,000 while the prosperity of Americans has not seen proportionate increases. Census data shows that the average income for a family has fallen 8 percent since 2007, with no growth occurring in 2012. Understandably, many consumers are put in a financially precarious position when it comes to paying for a new vehicle. Used car prices have also risen to the point where buying a second-hand vehicle is no longer as attractive as it once was. In response, vehicle loan terms have gotten longer, so that consumers can keep their monthly payments manageable despite having to finance increasingly expensive vehicles. The average term for a new vehicle loan in Q2 of 2013 was 65 months. On the other hand, subprime delinquencies have remained on a downward trend and commercial banks are looking to get in on the action as securitized loans are one of the few products providing yields in an era of ZIRP.

An expansion in consumer credit has been one of the underlying themes in the growth of new car sales and auto financing in recent years, but the spike in leasing, and the emphasis on keeping payments low is worth keeping an eye on, if only as an indicator of a larger macroeconomic trend. Cars are getting more expensive and increasingly out of reach for many. But as long as there’s a way to keep it “affordable”, even if it means leasing, not buying, or incredibly long loan terms, then new car sales can keep soaring to record heights.

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“All Is Fine In Sub-Prime Land,” Says Someone With A Vested Interest In Its Success Fri, 21 Jun 2013 15:07:27 +0000 283a57810a0d02b70008777c8dfe992a-252x350

The Detroit Free Press paints a pretty clear picture of the automotive lending landscape: auto loan terms are rising, with 1 in 5 loans now lasting longer than 6 years. At the same time, the average credit score for those taking out loans is dropping. Ominous signs for a car market that’s running on the hype of a perpetually increasing SAAR, right? Well, not according to some.

Despite more red flags than a Politburo meeting, the Freep manages to put a positive spin on things, trotting out Melinda Zabritski, Experian’s senior director of automotive credit, and Reid Bigland, head of U.S. sales for Chrysler.

Even though loan terms are up and even the crappiest of the credit worthy are qualifying for car loans (those with sub-700 credit scores accounted for 25 percent of car loans in Q1 2013, up from 17 percent in 2010), Zabritski is sunny in her disposition

I think most people agree it’s very healthy. The growth still seems to be rather well managed…From what I am hearing from the lenders, (there is) a very strong sense of optimism. I don’t think it’s anything to be worried about,” Zabritski said. The thing to watch is consumer behavior in the longer-term loans. I think it’s easy for people to have that reaction of wanting to say ‘the sky is falling, subprime is growing,’ but it is still growing very modestly.”

This kind of guarded optimism could only be trumped by Bigland’s “What, me worry?” attitude towards the whole thing. Cheering the easily available credit for auto loans, Bigland shrugged off any notion of Chrysler being dangerously exposed to downside risk on sub-prime loans

For automakers like Chrysler, which don’t own their own finance companies, the risk is minimal. “I don’t own the paper; it’s the banks that are taking the risk,” Bigland said.


Last time we checked, Chrysler does have a captive financing arm with Santander, one of the largest sub-prime auto lenders in America. Chrysler may not have held the paper prior to the establishment of Chrysler Capital (their financing arm in conjunction with Santander) but sub-prime financing doesn’t look like it’s going to stop any time soon.

That’s because the QE-fueled credit bubble is great for auto financing.

“Credit availability, in my opinion, is the best it has ever been in the history of automotive financing,” Reid Bigland, Chrysler’s head of U.S. sales, said earlier this month. “Banks have money, they have clearly been burned on mortgage loans … and from what I have seen … banks have looked to autos as a segment that has held up extremely well.”

What the Freep doesn’t tell you is that banks are packaging auto loans into securities, just like they did with mortgages, and selling them to investors. The same quantitative easing that makes auto loans so cheap has also wiped out yields on safer investments like bonds. Auto-backed securities, especially risky ones like sub-prime car loans, are the only thing providing decent yields, and investors can’t get enough of them. That means cheap money and car loans for peope who wouldn’t normally qualify for them.

Of course, it’s also good for companies like Chrysler, who drive a lot of their sales from sub-prime buyers. They’re playing a good part in helping to drive the SAAR back to pre-recession levels amid an optimism-and-easy-credit fueled euphoria. What happens when the music stops, QE ends, the economy slows and buyers can’t make payments? The consequences of that (repossession, auctions, a hit to residual values) won’t be great, but they’re not as bad as what could happen if the auto makers buy into the credit-fueled recovery too much. Remember 2008 and the days of overcapacity, excess inventory, sputtering sales and bankrupt dealers? Don’t say I didn’t warn you.


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Auto Loan Delinquencies, Reposessions Up In Q1 2013 Thu, 16 May 2013 12:30:31 +0000 20130515_auto1_0

Bad news on the subprime front, as credit rating agency Experian reports a rise in delinquencies and repossessions for auto loans in Q1 2013.

Melinda Zabritski offered a rather dubious explanation for the nearly 17 percent rise in repos (as well as the 1.3 percent uptick in 30 day delinquencies and 12.4 percent rise in 60-day delinquencies)

“Obviously, we never want to see a rise in delinquencies or repossessions, but when you compare the current findings with previous years, they are still lower than the recession-level rates…However, one thing most lenders will agree upon is that today’s subprime borrower is less delinquent than those in the past.”

Zero Hedge, reporting on the latest data from the Fed, is reporting a nearly 24 percent rise in delinquent balances year-over-year. Experian only expects things to get worse, stating

“As we continue to move forward, we should start to see more increases as some of the subprime loans coming onto the books begin to deteriorate.”

And still, financial institutions are happy to keep pumping out bad loans. The total dollar volume grew to $726 billion, up from $663 billion in Q1 2012. Banks increased their loan portfolios by $20 billion, finance companies by $18 billion, credit unions by $14 billion and captive finance arms by $12 billion, while but average charge-off amounts rose by 9.8% to $7,401 on each defaulted loan. But, as Experian kindly reminded us, “Charge-offs are still well below recession levels, however, as Q1 2009 average charge-offs were $10,126.”

That’s definitely reassuring news!

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97 Months And Running Mon, 15 Apr 2013 11:00:14 +0000

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

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

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

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

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

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

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Car Loans: The Borrow Time Gets Longer And Longer Tue, 09 Apr 2013 10:24:08 +0000

When Lee Iacocca was a Ford regional manager, he helped pioneer auto loans. Consumers could buy a 1956 Ford for 20% down and $56 a month. The loans were paid off in just 36 months. In the final quarter of 2012, the average term of a new car note stretched out to 65 months, says Experian. 17% of all new car loans in the past quarter were between 73 and 84 months. A few were as long as 97 months. This trend bears huge risks for consumers and industry, says the Wall Street Journal.

The average price of a new car is now $31,000, up $3,000 in the past four years. To keep payments under $500 as month, loan terms get longer and longer. Says the Journal:

“Such long term loans can present consumers and lenders with heightened risk. With a six- or seven-year loan, it takes car-buyers longer to reach the point where they owe less on the car than it is worth. Having “negative equity” or being “upside down” in a car makes it harder to trade or sell the vehicle if the owner can’t make payments.

Car makers have mixed feelings about long-term loans. They allow consumers to buy more expensive—and profitable—cars. But long loans may keep some people from replacing their cars, cutting into future sales.”

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Subprime Madness: Shotguns Now Accepted As Car Loan Down Payments Wed, 03 Apr 2013 15:36:07 +0000

Anyone looking for an anecdote illustrating the QE-fueled madness that is subprime auto lending, take a look at this Reuters report on what constitutes a down payment in the subprime world.

And still, though Nelson’s credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara.

All the Nelsons had to do was cover the $1,000 down payment. For most of that amount, Maloy accepted Jeffrey’s 12-gauge Mossberg & Sons shotgun, valued at about $700 online.

Sub-prime auto loans were up 18 percent in 2012, thanks to a bubble created by the Fed’s quantitative-easing program. As QE has driven up inflation and kept interest rates low, global investors are looking at riskier investment vehicles that offer better potential returns. Bonds backed by subprime car loans are one of those vehicles that everyone from hedge funds to institutional investors have gravitated towards. In 2012, $18.5 billion in subprime backed securities were sold, up from $11.75 billion in 2011.

With subprime lenders expecting 1 in 4 creditors to default on their loans, interest rates can easily top 20 percent, and dealers can easily repossess and sell the same car over and over again while reaping enormous profits. Meanwhile, the process appears to be fueling yet another credit-driven asset bubble similar to the mortgage crisis that torpedoed everything in the previous decade.

Despite a focus on used cars in the Reuters report, many of the players in the used car field, such as Santander, GM Financial and Ally Financial are tied in with the new car side as well. Santander is Chrysler’s financing unit of choice, while GM has GM Financial as a separate subprime financing arm, in addition to Ally. Delinquencies are slowly creeping upwards as well. GM alone claims that 8.5 percent of its auto contracts are delinquent  higher than Ford, Toyota and Honda combined.

News of yet another month with a SAAR of over 15 million is an encouraging sign for the auto industry, but in light of reports such as this one, one can’t help but wonder how much of the market is being driven by subprime lending, and whether this level of auto sales will be sustainable. Adding additional capacity to meet demand that is fueled by a lending bubble could be disastrous if we witness a 2008-style deflation in auto sales thanks to a subprime contraction.

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Sub-Prime Auto Financing, Loan Terms On The Rise Wed, 06 Mar 2013 21:05:24 +0000

Long-term auto loans, leasing and sub-prime financing all saw increases year-over-year from 2011 to 2012, according to a report by Experian, a consumer credit rating agency. While typically a dry and detail-oriented subject, the area of auto financing gives us some insight into the nature of the new car market and even the economy itself.

The average term for a new vehicle loan rose to 65 months in Q4 2012, up from 62 months in Q4 2011. Longer terms and lower interest rates allow for smaller monthly payments for consumers, enabling them to pick a more expensively vehicle than they may have been able to afford with a shorter loan.

The lower interest rates and monthly payments meant that the average loan amount increased slightly, up $272 to $29,691. While used car loan terms stayed flat at 60 months, interest rates did decline slightly (from 8.67 percent to 8.48 percent) as did the average monthly payment. Sub-prime financing accounted for just under a quarter of all new vehicle loans in Q4 2012, up from 22.59 percent in Q4 2011. 55.4 percent of used car loans were sub-prime, up from 53.8 in Q4 2011.

The report comes on the heels of another study claiming that most middle-class Americans have trouble affording a new car – a notion that is at odds with the 15 million + SAAR expected this year, along with strong 2012 sales. The longer loans and increase in sub-prime financing give us a clue as to the way things are going. By approving more people for loans and making their monthly payments more manageable  consumers are able to afford a car more easily, while the finance company can collect interest for a longer period of time. TTAC commenters with experiencing in this area, feel free to chime in with your take. Steve Lang has already sounded the alarm in recent columns with respect to the used car market. But I am wondering what the implications are for new car sales, and how the SAAR is being affected by overzealous auto financing.

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Auction Monday: All! Hail! Mary! Mon, 04 Mar 2013 12:00:56 +0000

When you have 120 dealers looking at the same exact car on a Monday morning, you have three options if you plan on buying a car.

1) Bid

2) Watch

3) Leave

After I saw a 2003 Infiniti FX35 with 220,558 miles sell for $9100 plus the auction fee, I left for good.

Right now we are in the midst of tax season. A time when millions of consumers get their tax refunds from Uncle Sam and, on average, spend it all within a 72 hour period. A few pay off their debts. A few more buy top of the line televisions, cell phones, and electronics. The rest put a thick down payment on an older used car that is now being financed for anywhere between three to six years.

A luxury SUV like the Infiniti can be sold for stupid money at the moment. We’re talking a $1500 down payment and about $85 a week for 36 months. On the miracle that the buyer makes a full payoff on the loan, you’re looking at about $15 grand in total once you calculate all the tax, tag, title, finance charges and assorted other bogus fees that are usually levied onto that number.

Is it a terrible buy for the consumer? Of course! But in the end, an affordable monthly payment in exchange for the impersonation of wealth is the only thing that will truly matter to them.

You may think this is a suckers bet par excellence, and you would be right.

But there are plenty of other suckers that were down the line last week. Consider these prices…

1999 Lincoln Town Car, Cartier Edition: $3200, 206,789 miles.

2002 Lexus ES300, scraped on one side: $3300, 274,166 miles.

2007 Chevy Tahoe LT, Rough interior: $11,000, 248,804 miles.

Who would finance any vehicle that is already well north of 200k?

A lot of companies will if the potential level of return is attractive enough. Dealerships will keep the riskier deals on their books for a few months, and then sell many of the potential dogs for a pre-determined price to a finance company. That company will, in turn, sell it to a Wall Street firm that will package it into a conglomeration of ‘asset backed securities’, where it will be given a credit rating. Then it will be marketed to a variety of buyers in the finance world far and wide.

Overheating? Why yes it does get hot here in Atlanta! How does $7995 sound?

Does this sound familiar to you? It should. Yes, these are the type of seeds that sprouted the sub-prime mortgage crisis and the near ruin of our economy. But the same mechanism of buying and selling these automotive assets also serves a vital purpose for every automaker that finances or leases their vehicles. 

Every automotive manufacturer has one thing in common. They want to sell their ‘paper’ so that they have the financial resources needed to keep building their business. Toyota, GM, Honda, VW, Nissan… even the smaller automakers such as BMW and Mazda require plenty of liquid cash to survive.

They can’t pay their people in IOU’s any more than the consumers who are currently financing their vehicles. So they will sell the paper to those buyers who are willing to accept the risks.

2013 Jeep Wrangler Unlimited Sahara – Built In The USA / Now Financed In China

There is no shortage of takers. This article offers plenty of the basics of the ‘prime’ world of automotive remarketing which historically involves selling far lower risk deals at reasonable returns.

But if you are to get one thing out of an obscure part of the automotive industry, read and dwell on this quote…

“For the most part we have seen a reversion back to the kinds of underwriting standards we saw five years ago, before the crisis, and for that we are not unduly concerned,” says Glenn Costello, senior managing director at Kroll.”

Mr. Costello may know a lot about the fundamentals of this business from a pure numbers perspective. But if I were a buyer of those securities, I would be real careful of buying anything that carries the same type of risk as the vehicles I saw go through the block.

The number of sub-prime deals for automotive asset backed securities has more than doubled in little over a year. The quality of those vehicles has not followed the same path. From what I see at the auctions, they are getting far worse in condition and mileage.

Are you underwater in your car? How about your trunk? $6995! Buy now!

I am not one to recommend shorting specific companies. But if I were to short anything in this business, it wouldn’t be an automaker. Not by a longshot.

I would be looking squarely at those companies that either retail to sub-prime customers, or finance companies that specialize in the higher risk areas of this market. When it comes to late 2014 and all the delinquencies begin to be removed from the credit reports of those who got hit during the last financial storm, you are likely going to see a swarm of new car buyers abandoning the crappy old sleds for new metal that may even cost less on a monthly basis.

Of course the loans will likely run in the six to eight year range by then. But hey! New wheels! And the cycle will begin anew.

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Monday Mileage Champion: Saturnalia Mon, 18 Feb 2013 14:00:43 +0000

I told you that I would report back to the TTAC faithful when something new came up.

Well, for quite a few weeks there has been the usual distribution of dominance when it comes to high mileage cars that are curbed by their owners. 70% to 80% of the vehicles in the Top 25 of trade-ins mileage wise (out of 6000+ a week) were either Ford and Chevy trucks, Honda cars, or Toyota anything.

This week the streak is broken. Thanks to two Saturns which managed to cross the 400k mark.

Both of them are second generation SL models which carried the one car torch for Saturn throughout the 1990′s.

Imagine one cheap car having to hold up an entire mainstream car line and an extensive dealer network. What thought process on the 14th floor justified these types of hare brained decisions is beyond me. But thankfully these Saturns are the perfect beater bait for those folks who are willing to get religion off an asset that has cheap written all over it.

The androgynous rear end of this 2000 Saturn managed to occupy the road side scenery of North Carolina for 432,984 miles. It had zero announcements on the block. That’s the good news.

The bad news is that these cars are historically rather strong on the rattles and vibrations. Not to mention a plasticized interior that helped give rise to the $9995 Saturn deals of which, this Saturn likely qualified for back in the day. Although I would never argue with a new car purchase that yielded just over two cents a mile, it’s hard to understand why GM would let the powertrains on these models amortize for 13 model years.

The R&D rotting of Saturn was a shame because the non-rusting polymer panels on these models coupled with the MC Hammer era engines yielded a low ownership cost equation that was highly competitive for the time. If you looked at a car as a refrigerator like appliance and lived in the rust belt, these models were worthy of consideration. Speaking of which, this 1997 SL2 model from Illinois has managed to rack up 405,766 miles.

It does have a transmission needs service announcement and the gaps in a few places are nearly fist deep. Yep, the panels were resistant to rust. But give them a nice side kick or a 10 mph bump and you could be sure to have the polymer shatter design remain with the car until the very moment it became crusher fodder.

Trying to find an intact replacement fender at a pull-a-part on these vehicles is quite a task. It once took me four months to find one for a 96′ model coupe that I called the Purple People Eater. There is also more than a fair share of powertrain weirdness. The trannies on these models shift hard when they’re older. So hard in fact that any Saturn that isn’t a manual will almost always automatically get the ‘transmission needs service’ or ‘as/is’ announcement.

Such negativity has helped me get a few stellar deals over the years. There was a Saturn sedan, automatic, with only 37k that I managed to buy for only $1500 a few years back. It was only about 10 years old. Then there was another automatic model with 69k that went for only $1800. Both of them had transmission announcements and turned out to be perfectly fine. For a long time you could buy a decade old Saturn with less than 100k miles for only around $2000 wholesale.

When gas shot up over $3.00 a gallon for the first time these vehicles enjoyed a brief resurgence in popularity. Then the sub-prime mortgage crisis made these cheap cars even more coveted. Now that gas is closing in at $4.00, and it’s only February, I can no longer buy them on the cheap. Yesterday’s $2000 wholesale car is now a $3500 plus auction fee purchase that may not even be worth a flip.

These Saturns were never that bad. Nowadays though they’re not really that good for the price at the auctions. Yesterday’s $3000 retail car has become today’s $5500 piece of finance fodder. So if you want boring transportation and find one for a song, do it. Otherwise, if you do very little driving, buy a V8 domestic instead. Those cars are damn cheap these days at the auctions and jaw dropping affordable at the retail lots.





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Hammer Time: Repo Pro, Repo No! Thu, 24 Jan 2013 16:38:42 +0000

“Aaahh Steve? My rig caught on fire.”

At first I thought about oil rigs in the Gulf of Mexico engulfed in an endless torch of black smoke and molten metal.

Then I realized that the repo driver was talking about his own truck. In all my years of dealing with repo companies, I had never known an auto recovery company, big or small, that was neglectful enough to turn their money maker into an ashen shell.

Before noon I would be awakened by another surprise.

Morning phone rings…

“Steve, I just went up to the guys door and knocked on it. He didn’t answer.”


“The guy on Richmond Road.”

My face faded into a whiter shade of pale. “Are you still there?”


“Look Frank, this guy’s name may be Mr. Rogers. But he sure as hell ain’t gonna open the door and welcome you to a $30,000 Cadillac. You know those signs that say trespassers will be shot on sight? This guy could have a gun, a dog.”

“He did have a dog in the garage, I guess the car is there too.”

Sigh… I had been suckered into a good presentation at the lot a few weeks back and gave the guy a chance… now the opportunity was all too regrettable. The putz could have been maimed!

“Frank, please do yourself a favor. If a dealer asks you to get a vehicle, it’s usually because they are either too busy or too chickenshit to get it themselves. Don’t worry about getting this one. Let me call you back in a bit.”

A minute later I called up the Godfather. Otherwise known as Dave Monico at Godfather’s Asset Recovery.

“Hey Steve! Whacha got!”

“A big pain in my ass.”

“Still eating at Waffle House?”

“Hell no. I’ve got an 01 Cadillac Deville in a garage. GPS is good.”

“Let’s locate it then.”

I put a GPS in all our more expensive vehicles. You have to these days because if your customer falls in love with the car and loses their job, you may just never get a chance to get it out of that garage unless you can zap it.

“I’m gonna ping the thing every half an hour until I see the guy move. I’ve got two guys in the area so we may be able to get it today.”

A half hour later I got a call back from Dave…

“Do you know anything about S-Class Benzes?”

It just so happened that I did, thanks to the Barnacle Bitch (good click)  I wrote about not too long ago.

“We can’t get this thing opened. You wanna come by?”


I walk into his new office. It’s in North Georgia so the eatery next door is a BBQ joint instead of a delicatessen, and the cussin’ ain’t as strong since this is the Bible Belt. Everybody there is in front of a computer directing the repo drivers at the cars that are out and about, and running their skips during some of the slower moments.

“Steve, the battery in that Benz repo is dead and all the airbags are down. The little title pawn in Lithia Springs gave $5000 for it.”

“Then they will be lucky to get two.” I spotted the 2002 Mercedes S430 at the impound lot next door. Peeling paint all over. Flat tires. Airbag suspension on the floor.

“You know what, Steve?. I think we’re in the wrong business. I need to repo seven to eight vehicles just to net out that $1250 monthly payment the title pawn company got for this one vehicle. All they needed was someone stupid and desperate to walk in the door.”

“Did they get paid?”

“No. But they may get that Benz… and my beautiful repo and storage fees.”

“Then you’re in the right business. You get the check. They get the junk. The grass is always greener on the other side of the fence until you have to start mowing all that shit down.”

“Am I gonna have to replace all those airbags? I’m thinking about keeping it for myself.”

“Maybe… got the key?”

“No, I just have the fob.”

“Give me the fob.”

Every Mercedes S-class key fob from 10 years ago has a laser key tucked away inside of it. Just push a small button and out it pops.

“Now you have a key. I see you have a new guy out here. Does he like crappy old Benzes?”

“That’s Jeff.”

Handshakes… “Let’s get a jump box Jeff and have ourselves some fun.”

We walk to the impound lot and I thank God that Dave doesn’t keep a dog there. I hate the smell of dog shit and every single impound lot that keeps a canine is riddled with that scent along some unique tinge of mutt musk. Dogs don’t sweat. But they pant, shit and mark their territory quite well.

Yes, I have a dog. An indoor dog. It doesn’t shed.

“Jeff, you know where the battery is?”

“No. Shouldn’t it be under the hood?”

“These Benzes and first generation Priuses have only one thing in common. They keep their batteries in the trunk. Now take that key and see that indent in the center of the trunk where the handle appears to be? Feel the center and you’ll find the perfect place to take that laser key and turn it 90 degrees counter-clockwise. Then push the button up. ”

Jeff tries, fails. Tries again, fails. “Nothing.”

“Let me see.”

I try to do the same thing. Nothing. I check the trunk to see it’s fully closed and immediately realize that the trunk is an aftermarket unit. The paint is all flaked out. The gaps between the panels feel coarse, and the key is struggling to go in all the way.

“Looks like Dave will be visiting the locksmith. There is nothing else to do until then. I’ll check on the fluids since we’re here.”

This Benz has good fluids if nothing else. The coolant is from the dealer. The oil is dirty, but not gritty or tar black. The transmission fluid has a slight burnt smell. But not bad given that this thing came from a title pawn.

I scratch my head, “The title pawn paid out five grand for this thing?”

“That’s what Dave told me.”

“Is Dave charging them for storage?”

“$15 a day.”

“Tell Dave to find out when the Benz is going to be charged off. When it gets close to that day, he should call  them and offer $2000 with no storage or repo fees. Let them know that the trunk can’t be opened and the car won’t start without it because the battery is tucked in there. Also have them know that all the airbags on the suspension are down and all four tires need to be replaced. They will counter at $2500 to $3000 at most.”

Most title pawns know as much about cars as my young friend Jeff knows about Sandy Koufax. Title pawns are far more interested in how well their customers pay on a $500 loan at 25% monthly interest than they ever will be about the mechanical quality of the vehicle that gets the title lien.

The $10 an hour service rep will almost always go outside. Listen to the vehicle. Make sure it doesn’t sound like a bucket of bolts, and then try to figure out the customer.

Title pawns are in the paper business, not the car business. As a consequence the smart ones will either bring their vehicles to a large auto auction with plenty of low end buyers, or partner with an outfit that retails vehicles.

The dumb ones rely on the dealer down the street and the recovery agents.

“Jeff if you ever want to own a Mercedes, a Land Rover and a Lexus, become very good friends with a nearby title pawn.”

That was not a tall tale. One recovery agent I knew who recently devolved into the world of meth had at one time owned an LS400, a Discovery, and a late-90′s S-Class. All were less than 10 years old and all of them cost him less than $5000 altogether. The only thing he had to do was become the new best friend of an ex-military lady whose main job was to lend money.

Cars were only a 3% footnote in her store’s quarterly figures. She could really have cared less about those cars…. which is what Dave is now hoping for with this Merc.

“Hey Steve. Wanna watch some Pac-Man? Looks like your guy is on the move. What do you think of the Merc?”

“Jeff will tell you. I gotta take off. Just give me a call if you pick it up and I’ll meet your driver at the auto repair shop with the check.”

“Sounds like a plan…”

It was a plan. But not the only one.

(to be continued)






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QOTD: How Can You Minimize The Cost Of Keeping A Car? Tue, 28 Aug 2012 14:20:16 +0000

Whether you drive a $30,000 or a $1,500 a car, one variable in life stays constant.

You want to minimize your costs.

The average owner in North America now spends well over $8,000 a year covering all the costs of their car. Gas, insurance, maintenance, repair, depreciation, taxes, financing… and even the occasional upgrade.

When they can afford it.

That’s one issue that I see as the crux of autos ownership for most folks. The means of ownership. Can they afford what they drive.

The struggling family that goes to a dealership and zeros in on the nearest Cadillac or Mercedes these days is just as culpable for their behavior as the fellow who considers cigarettes to be vegetables, and vegetables to be weeds.

They have an unhealthy destructive habit that is a reflection of a marketplace where the bad choices are just as easily available as the good ones.

Forget about big brother. This is overwhelmingly a matter of personal decisions. We can make it out to be as fair or unjust as we like. But in the end, there is a bluntness to all of it that can’t be denied.

On one side of the fence, we realize the Darwinian aspects of it all. People who make bad decisions face consequences. This is an outcome that is healthy for an economy because it extinguishes the unhealthy activities, and encourages the good ones… in due time.

But sometimes you also see the elements of a rigged game. The manipulative capitalize on the weaker elements of human nature. While the ones victimized often don’t know any better and continue to do worse.

After decades of looking at this learned victimization, you can’t help but wonder whether millions of people have been brought up to not live beyond a certain level of struggle and mediocrity. Even if they tried to get ahead, the scourges of debt and dependency would lead them to poverty because they simply don’t know what they need to know.

That’s the issue I have at this point. A lot of folks believe that ignorance and an arrogant attitude go hand in hand. In extreme cases they do. But when it comes to cars, ignorance is born more out of fear and apathy than anything else.

So how do you minimize the cost of owning a car? $8,000+ represents an awful lot of waste and opportunity. A lot of incremental improvements in the ownership experience could yield a better standard of living for an awful lot of folks.

Where should be the focus?

Should education and hands on experience be the primary drivers? Or should engineering and design be the driving forces that minimize cost?

I believe that the common person is simply taught to be ignorant when it comes to automobiles. They have other things to do with their lives. That’s not a big deal when you think about it, because the same level of apathy is true with most other tools and appliances.

A school teacher may get a better financial boost from learning how to repair cars, dishwashers, cell phones, and roofs. But society gets a far greater benefit from letting them teach instead of changing a timing belt.

We need teachers. Not timing belts.

So how can the market forces highlighted in that drawing above better serve the financial needs of an overwhelmingly apathetic public?

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Have You Ever Said Goodbye To… A Money Pit? Sat, 11 Aug 2012 12:40:56 +0000  Courtesy of  Photograph taken  by hinterland-1


A 1995 Volvo 960. Supple leather that made long trips easy. Great safety and visibility. It represented what I thought would be the perfect family car.

I financed it quick enough. But then the troubles began.

First the engine coughed up a burnt valve. Took care of that.

Then the strut mounts started to groan a bit.  A quick Ebay purchase and a little labor solved that one.

As soon as that was cleared up, the rear hatch door handle stopped working.

Two weeks later the electrical issues began. Erratic turn signals. The rear lights vanished due to a worn out wiring harness. The front lights began to do their own dancing in the dark. That was likely either an ignition switch or a multi-function assembly.

I started to think this car would someday soon be worth far more dead than alive.

At this point I told my customer, “Take this!” which was a Subaru Forester that didn’t give them one lick of trouble. I shucked the Volvo to a nearby dealer auction and chalked the experience to the laws of averages.

You can’t polish a rolling turd and expect to come out ahead. Sometimes cheap isn’t. Which brings me to a question that can only induce shudders and flashbacks to the long-time enthusiast.

Have you ever finally said goodbye to… a money pit? A rolling Beelzebub that swallowed dollars, Euros and parts like Kobyashi swallows hot dogs?

Extra credit will be given if you ended up using a flamethrower, a cliff, or in my next door neighbor’s case,  a sledgehammer.

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Hammer Time: The Tough Choice Thu, 02 Aug 2012 12:35:53 +0000


First the guy called. Then his wife. Then the repo driver.

The truck had been out in front of their house for nearly a half hour. Lights flashing. Neighbors peeved, and humiliation aplenty.

“Steve, I can get both cars. What do you want me to do?”

I want everyone to have a happy ending. But sometimes that’s just not possible.

In my business, three things will always result in me taking back my property.

1) Don’t pay.

2) Don’t tell me the truth.

3) Don’t return my calls.

In the case of this family #1 was well established. They had made good for well over a year, and then one of them more than likely lost their job or got their hours cut.

It’s not easy making lifestyle adjustments… if you’re a product of our debt driven culture.

I see this with everything in my business. Delayed maintenance on $30,000+ cars. Ungodly amounts of fast food and gas station convenience items in countless number of repos. Fast food wrappers strewn about with drinks bigger than my head. Those beverages are hopelessly laden with body deforming poisons and often times, you see the impact of those substances on flattened seat padding with small pillows on top of them that form yet another layer of a slow sad terminal decline for car and driver.

Not all the vehicles are like this. But the overwhelming majority of repos seem to show the battle scars of a culture that embodies the ‘gotta have it now’ mentality. It kills people over the long run.

“Let me talk to the guy. Is he with you? Yeah, good.”

“Hey Steve! I think you misunderstood me. I meant that I would make the payment next week, not this week.”

“Jeff. We talked on Thursday and the word you used in that conversation was ‘tomorrow’.  I also left you and Lisa several messages over the weekend and never heard back.”

This is the part that gets me. If something happens… please… let me know beforehand.

I’m a human being too and for the love of God, I’ll work with you. A guy who tells you that he’s willing to put the actual cost of the repair at the back of the loan at no interest wants you to succeed. Hell, I’ve even put oil changes on the back of loans when folks are truly strapped.

Lose your job? Got cancer? I will always verify but once I know, you’re golden. I’ve even deferred payments for as long as a year in a couple of extreme cases.

I want my community to be like Bedford Falls instead of Potterville. But I can only do that if you level with me.

This guy wasn’t leveling with me. I know he has reasons. Guess what? They are all shitty ones.

“Look Steve. I’m sorry. If you can hold off for a couple of days, I can get you $120.”

“Jeff, here’s our situation. You have two cars that we both know you can’t afford. I looked at what’s happened the last several months and I can help, but I can only do so much for you. The rest you have to do yourself. Look Jeff, the truth is you can only one afford one car. Just one. If I take both you won’t be able to handle the repo fee for either one.”

“Can you take the Hyundai then?”

This is where life becomes complicated. Between the two vehicles, the couple had paid close to $8000 already. I haven’t yet made my usual profit. But at least it’s been a decent one.

Then there is the issue of goodness. If you are good to folks, most will reciprocate… some won’t. The guy that I dealt with this evening was not a bad guy at all. He’s just struggling and that’s probably pushed him behind the usual standards he tries to live up to. For over a year he never gave me a problem.

In my experiences, these are the guys you try to help out of the gray area if you can.  The ones that will bite you in the end are fewer in number. You remember those and all too often forget about the ones where your flexibility and goodwill made the difference. Experience breeds skepticism and this often has a greater impact on the rules you set up for the business.

Every rule has exceptions once in a blue moon, and I was about to make a big one.

“How about if we bring the Hyundai back to the lot. You follow my driver in our Explorer. I’ll meet you at the lot and we’ll handle everything from there.”

After a brief thankful exchange, I headed to the lot, wondering what the hell I was doing.

Will I create a successful opportunity for this guy? Or am I just breaking the rules and bullshitting myself about the true nature of a manipulator who lets you give an inch, and then takes whatever assets and goodwill he can get out of you?

My rules make me lose money over the guy down the road who is willing to repo the same car five or six times. When I repo, it’s over. But I don’t repo much at all. In a business that typically has a 65% to 70% success rate, mine is right around 90%. I say no to the borderline deals and only sell cars that can make the note and beyond, if they aren’t abused or neglected.

I can live with doing this because I’m not greedy. I love cars. I love auctions. I enjoy the act of applying my efforts towards ideas and experiences that can have an enduring impact. Dad, husband, brother, son, friend… this is where most of us make that difference.

Money only provides us with the time and freedom we need to pursue those very things that are truly worth doing.

Saying no to money is a hard thing to do. When most guys see a river of financial success flowing, they want to build a dam and get every single drop of monetary gain out of it.

Dams in most any business take up an enormous amount of time to build. I know guys with enlarged hearts, divorces, cancers and pointlessly fatal levels of stress in their daily lives. All for the pursuit of the paper and ink.

As the son of an artistic mom and a frugalist dad, I was brought up to save well and trade that money still flowing in that river of opportunity, for more free time to enjoy life. I have never regretted that decision.

Every once in a while I need to make judgment calls. Tonight that middle aged grasshopper may not have chosen wisely. But he can live with it.

After all, the free market is only free when you have the freedom to make the most of it. Life is short. Go find something worth doing.

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Long-Term Car Loans Rising In Popularity North Of The Border Mon, 23 Jul 2012 18:18:29 +0000

Canadians have some of the highest household debt levels in the world, thanks to cheap mortgages and home equity credit lines. And car loans are next.

Canadian household debt levels are estimated at 152 percent of  income, and long-term loans with cheap interest rates (or 0 percent interest) are cropping up all over the place. A look to Canadian manufacturer websites shows that most of the big players are offering some kind of 0 percent. A  J.D Power survey cited by The Globe and Mail claims that more than half of Canadians financing a new car are taking out loans with terms longer than 6 years. That figure was around 14 percent just five years ago.

Typically, a 7 year term can be had interest-free, which makes it attractive for families or individuals burdened with exorbitant housing costs. While consumers are stuck with a long loan term (often well past a car’s warranty period) the lower monthly payments are an attractive proposition. The collapse of leasing, which accounted for 40 percent of purchases before the recession (compared to just 17 percent over the past year), is also cited as a cause for the increase in financing.

Of course, this is all normal, and real estate in major cities will continue on its unstoppable rise upward and there will never be a shortage of foreign investors looking to park their money in Canada. Ever. Which means interest rates will always stay low and nobody will ever have to worry about living beyond our means.

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Treasury Won’t Sell GM Until Stock Improves. GM To The Rescue? Wed, 08 Jun 2011 17:43:24 +0000

Bloomberg reports that a “person familiar with the matter” says the US Treasury won’t sell its remaining stake in GM as long as the automaker trades below its $33/share IPO price. Previously the government’s auto team had said it would not try to “time the market” and our analysis showed that the Treasury was likely to sell sometime late this Summer. But it’s been months since GM spent more than a few days above its IPO price, indicating that Treasury may be waiting considerably longer if the IPO-price floor is set in stone. And with $36.5b in cash equivalents on hand and only $5b in debt, GM’s $45b market cap is hardly encouraging… especially with investors waiting for The General to match Ford’s profitability levels. Heavier discounts mean a lower operating profit for GM in the US market, and the first quarter shows a $1b swing in pricing between the two firms (with Ford improving $700m and GM dropping $300m) according to Bloomberg. Lower finance earnings are also holding The General back relative to Ford. So, what’s GM’s response?

CEO Dan Akerson used a strange inversion of the old “what’s good for General Motors is good for America” formulation to explain his firms struggles to shareholders, telling the Detroit Free Press

More than any other company that I’ve been a part of … we are tied to the economy. I worry about a jobless recovery, because people who have jobs buy cars.

And despite GM’s giant cash pile, or rather, because of it, Akerson seems more worried about the credit market than anything else. The WSJ [sub] reports that much of GM’s cash could go towards building up in-house finance operations, as well as funding pensions, restructuring Opel, dropping $5b on its Korean GM-Daewoo operations,  investing in product and upgrading facilities. And because of his emphasis on the finance side, the Freep reports

GM is still working to restructure, Akerson said. But he worries about GM’s prospects if Congress doesn’t raise the debt ceiling this year, causing the U.S. to default on loans. “I think it would shake the credit markets tremendously,” Akerson said. “I think we shouldn’t underemphasize that and play chicken with our national credit rating, our national honor.”

Akerson isn’t the only CEO to worry about credit markets, but wasn’t one point of the bailout to help make GM less sensitive to credit market shocks? In any case, Akerson’s warning to the feds wasn’t just idle chatter, as even he seems to believe that the government could be forced to either take a loss on its equity stake in the short term or hold on for the long term.

Before the meeting, Akerson told reporters he wasn’t happy with GM’s stock performance, but he felt stockholders should view GM as a longer-term investment. “You invest for the two-, the five-, the 10-year periods,” he said.

Yet the White House isn’t going to want to still own GM equity by the time the 2012 election campaign hits high gear… but then it won’t want to incur larger losses than the $14b-$16n it’s been forecasting. Which leaves the bailout boosters in something of a damned-if-you-do, damned-if-you-don’t position. Which, in turn, puts the pressure back on GM to buy out the government stake on its own terms. And sure enough, a number of reports suggest that GM (or its “executives”) could buy back the government’s stake… but the government doesn’t want it to look like The General is benefitting from from its politically-motivated impatience, and that option seems to be off the table now. Instead, GM could buy up outstanding public shares, artificially inflating the price and allowing the Government to exit with (relatively) minimal losses.  In short, a variation on a pump-and-dump (and, because the money ultimately comes from taxpayers, yet another shell game). The stuff of inspirational campaign fodder it ain’t, but it may just be the only option left on the table.

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New or Used: A Prius Seller’s Market? Fri, 27 May 2011 17:51:09 +0000

TTAC Commentator gman37 writes:

Steve and Sajeev: I was hoping to pick your brain for a second regarding the used Prius market right now.  Help a Hammer Time follower out! I own a 2010 base Prius (Model II), and I have been seeing listings at local dealerships for base model Prius’s (????) selling for 3-4K above new MSRP prices.  For instance there is one with 15K on the clock selling for 27K, when new the MSRP was around 24K.

Is this actually occurring right now or are these people out of their minds?  My wife and I were debating on selling it and buying a cheaper car with a smaller payment if we could actually make a decent profit on it.  On the other hand, 50 MPG in the era of $5 a gallon gas is pretty great.  Its a gas!  Thanks for your time.
And Sajeev, I always wanted a Mercury Marauder!
Sajeev answers:
So get a Marauder! Life’s too short to compromise, even if said Panther wished Ford took that very same advice. And your wife is totally cool with it, I already asked.
Of course the Marauder isn’t exactly cheap in terms of fuel economy, and clean examples might actually be at the bottom of their depreciation curve,  like the (LT-1 powered) Impala SS it was supposed to surpass. If said Panther Love puts your marriage on the rocks, buy any (reasonably dapper) used compact sedan (Civic, Corolla, Sentra, Focus, etc) and enjoy a better driving experience than your Prius with minimal impact to your monthly fuel bill. Remember, motoring fun is important!
Steve Answers:
Sajeev, I don’t think he wants a Panther. But who knows? Keep it. What the hell are you going to replace it with?
The $27k price is for the unfortunate soul who ruined his credit and can’t be financed through Toyota Financial Services. The dealership will have a partnership with a secondary finance company that is willing to take the risk. What that buyer will be looking for is not the price… but the monthly payment. The dealer makes thousands. The finance company hopefully has a customer that makes the note, and the buyer probably ends up screwing themselves twice.

Once by buying the overpriced car with hysterically bad finance terms. Then they probably end up selling it after the ‘big’ 60k service because they’re bored, bad at math (surprise?), and/or totally ignorant about the future maintenance costs. Usually a combination of all three.

Keep the car. The next time you should go to the dealer (if ever) is when electric cars are the norm and the Prius is no longer an economical proposition. This should be some time between 2025 and Armageddon. By the way, the Toyota dealer couldn’t give a flip about you once you walked out their door with one less check in your pocket. Sorry but it’s the truth.
Need help with a car buying conundrum? Email your particulars to , and let TTAC’s collective wisdom make the decision easier… or possibly much, much harder.
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Car Buying, China Style: No Credit, No Problem Wed, 01 Sep 2010 11:11:03 +0000

As China’s car market no longer delivers the obscene growth rates it used to deliver (pretty hard when you compare with prior-year months where car sales jumped nearly 100 percent), carmakers are looking for clever ideas to light a fire under their Chinese sales. They all come up with the same solution: Attractive loans.

But nobody wants them.

An attractive loan, China style, is laid out by Gasgoo: You buy a Honda City for some $16,000. A 30 percent cash down payment is required, and all taxes have to be paid. $6,800 cash on the barrel-head. The remainder is to be settled in 18 monthly payments of $590. For a Honda City.

No wonder that only 8 percent of the Chinese are buying a car on credit. That number is actually trending down. It’s not just that the terms are less than fascinating. Buying anything else than a house on credit just isn’t the Chinese way. You either have the cash, or you have a bicycle.

China’s carmakers look longingly westward, where captive financing arms bring 30 to 50 percent of the profits to their mothership’s bottom line. Not in China. Which doesn’t stop them from trying. Chery started the Chery-HuiShang Bank Auto Financing Co. Other manufacturers are doing the same.

“From 2000 to 2009, the automobile industry has maintained a high speed of growth. However, only 8 percent of consumers choose to buy their cars by loan,” said Xu Xiaohua, General Manager of CITIC Bank Headquarters’ Auto Finance Center. “The car loan market definitely has an attractive prospect of development.”

Or none at all.

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Automakers Push Financing As China Market Growth Slows Thu, 19 Aug 2010 17:58:55 +0000

Some of the world’s biggest automakers are relying on continued strong growth in the Chinese market in the face of sluggish US and European sales, but those plans are facing a challenge as Chinese sales have slowed this summer. Total vehicle sales grew 14.4 percent over July 2009 levels last month (sales grew 70 percent year-over-year in July 2009), the lowest rate of growth the Chinese car market has seen since March of last year. China’s government is doing its part, instituting a $443 subsidy for cars with 1.6 liters displacement or less in the beginning of July. But that doesn’t seem to be helping much, as the percentage of cars with 1.6 liter engines or smaller actually declined last month. What’s a growth-addicted automaker to do (besides slash prices)? The same thing they do in every other market: extend credit in hopes of boosting sales and upselling customers on more expensive cars.

Reuters reports that the timing for an increased emphasis on credit in the car industry is good. As Sheng Ye, associate research director at Ipsos’ Greater China region explains, the traditional Chinese antipathy to credit purchases is eroding. And it’s the upwardly-mobile youth of the one-child policy era who are signing up for credit purchases of more upscale cars.

These people are very different from their parents’ generation. They work hard, play hard and have no qualms about snatching up the latest iPhones or other fancy gadgets on credit. As more and more youngsters get behind the wheel, the size of retail financing could easily double in as soon as five years.

An estimated 90 percent of Chinese car buyers pay cash for their vehicles, often borrowing money for the purchase from family rather than banks. Pushing through the “cash culture” may be getting easier, but there’s more to the anti-credit atmosphere than just cultural prejudices. China lacks comprehensive credit-rating tools, which not only makes loans harder to get, but also hurts the secondary market for loans as banks have few ways of distinguishing between good and bad loans. And it places a huge emphasis on loan terms rather than loan size. For example

The interest charge for buyers of selected Buick models in China is zero for a one-year loan, but rises to 7.69 percent for three years and 8.33 percent for four, according to GMAC-SAIC. That compares with the country benchmark lending rate of 5.31 percent for loans with duration of one to three years.

And the risks are real. An earlier attempt to goose Chinese sales by injecting credit into the market in the early 2000s ended badly, with record defaults and a number of banks exiting the auto lending business. And even now, JD Powers’ John Bonnell argues that the risk hasn’t gone away, saying

The system for finding those who decided not to pay and for reposessing the vehicles to get any kind of residual value is still premature.

Like any other form of leverage, auto financing offers the auto industry an opportunity for huge growth (one analyst projects “exponential growth… when auto financing take[s] off”) at the price of some major risk. The real question now is whether things are bad enough now to justify the risk involved in a credit-led sales boost, and the fact that the Chinese market is still enjoying double-digit growth indicates that it’s too early to start panicking. China’s crazy growth has led to a gold-rush mentality, and the expectation of perpetual growth at levels that seem unsustainable. If the Chinese car market needs to correct, so be it. Better to deal with a slowdown in growth now than be blindsided by a wave of defaults caused by China’s insufficient credit-market safeguards, let alone a burst demand bubble caused by redlined growth. China, perhaps more than any other market, requires smart investors to take the long view. As such, a slow transition to the inevitable acceptance of credit for auto purchases seems to be the smart choice.

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Desperately Seeking Subprime: White House Admits GM’s IPO Dash Hurting Ally’s TARP Payback Thu, 24 Jun 2010 18:24:19 +0000
The WSJ [sub] reports that GM is officially looking outside of its former captive finance arm Ally Financial (formerly GMAC) as it seeks more subprime loan deals to drive sales volume ahead of its IPO. GM execs tell the WSJ that The General could do even better with an in-house finance arm, but that these deals will help. And, according to Experian Automotive’s Melinda Zabritski, GM needs the help because

By not financing [subprime] consumers, they are locking out about 40% of the U.S. population

GM’s restructuring consultants AlixPartners add that loyalty improves for customers who buy using a captive lender. The downsides? Higher default risks, the temptation to overload on incentives, and then there’s one more biggy…

Ally is one of the few banks who were rescued by the TARP program to not yet pay back government loans. The WaPo points out that by looking elsewhere for risky loan deals, GM is starving Ally of cash, and is hurting the bank’s chances of repaying its TARP loans. And this conflict between bailed-out firms is clearly grating on the White House, which anonymously tells the Post

Everyone tries to draw you into it. . . . For us, it’s like choosing between your children… We have to keep an eye on what’s going on, for the sake of the taxpayer. But this is exactly why the government shouldn’t be in private-sector business

If the Obama White House is acknowledging the fact, long harped upon here at TTAC, that the auto bailout creates irreconcilable political conflicts, that represents a major shift in tone. It’s just too bad reality can only be acknowledged anonymously.

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Chinese Lease Special: Only $1,860 Per Month! Wed, 19 May 2010 07:33:28 +0000
Whenever the insane growth rates of Chinese car sales come up, there is one inevitable comment: ”Wait until credit tightens. Those sales will come crashing down.” My (in the meantime canned) answer: “China isn’t America. In China, people usually buy their car with cash. Financing is rare. Leasing highly uncommon.” Apart from being smart not to pay interest on a depreciating asset, the Chinese have all reason not to lease. Case in point: An email I received today.

It comes from BetterLife Leasing, that dubs itself “The best corporate leasing solutions in Beijing.” I don’t want to see the lesser solutions. BetterLife sent me today’s lease specials. An Audi A6L from 12,700 RMB a month. A Mercedes E-Class from 15,500 RMB a month. In case you don’t know the rate of the Chinese currency off the top of your head: That Made in China Audi A6L would set you back $1,860 a month would you lease it. The Benz would cost you a cool $2,270 monthly. For the base model, 3 year lease. No wonder people prefer cash. The base Audi A6L carries an MSRP of around $47,000, call it $42,000 with the customary Chinese haggling. At $1,860 a month, the car would be paid down in less than two years. You’d have to keep it, pay $25,000 for another year and change, and then give the car back.  The Chinese would call you a “250” if you’d do that. In ancient Chinese numerology, it means that you are stupid.

Why are leases so 250 in China? There are no systems for keeping track of residual value. The used car market is a jungle. There is always a stupid laowei who’s slow on the uptake. When I came here six years ago, with my head full of American thinking, I enquired about a lease. My definitely not 250 Chinese assistant said: “Are you nuts? If you don’t want to buy, it’s cheaper to rent by the day with a driver.” Six years later, she’s still right.

In the U.S., more than 85 percent of the cars are bought on credit. In China, less than 10 percent. Credit or no credit: It doesn’t affect the Chinese auto market.

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