By on January 16, 2008

debt.JPGIf you write for WardsAuto, you know the vast majority of the people reading your bon mots are car dealers. So you can't come out and say "you greedy bunch of bastards are responsible for getting people into cars they can't afford, which is about to turn around and bite you in the ass big time." On the other hand, you can't come out and say "consumers are stupid morons who deserve what they get when they get in over their heads on a new car and can't get the Hell out." Consumers are customers, after all. For an example of how to play it straight down the middle, alienating both camps, I recommend you click on Steve Finaly's latest editorial "The Dealer Made Me Do It," riffing on the LA Times article “New Cars That Are Fully Loaded – With Debt” (blogged on TTAC here). "First off, I’m not excusing auto dealers. Or lenders. They have a moral and business responsibility to try to stop their customers from doing something stupid, such as buying a vehicle with a sticker price that will stick them with an oppressive debt… But so many consumers today buy too much vehicle. Then, when the financial squeeze becomes eye-popping, they look for someone to blame. The dealership and lender make nice targets. Seldom do the debt-ridden blame themselves." Well, why would they? 

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44 Comments on “Consumer Car Debt Their Own Damn Fault, or Not...”


  • avatar

    Hyundai is coming to the rescue.

    At the launch of the Genesis, they announced that while other auto companies serve people who “have more,” Hyundai will be serving those who “deserve more.”

    I do, however, feel sorry for those people who want to buy a Genesis, and have the money to do so, but fail what it bound to be a strict test of how much car they really deserve.

  • avatar
    tdoyle

    I am ashamed to admit it, but from 1993 to 2001, before I got married, I was on an idiotic car buying-financing-trading in cycle.

    I went from a 93 Grand Am to a 94 Probe GT to a 96 Nissan K/C SE 4wd pickup to a 97 Passat GLX (old-body style/better looking, imho) to a 98 Blazer to a 00 Wrangler to an 01 300M. All brand new units off the showroom (lot) floor. All with increasing larger MSRP’s… All with only rebates to put down, no out-of-pocket money ever changed hands.

    Then I got married and had a 02 Dodge Caravan and a 90 Ranger.

    Just going from one vehicle to another, without ever carrying a title on any of them, just a complete waste of money. It took me till meeting my wife to figure it out.

    Now, at age 40, and my wife is 34, we have an 07 Focus and and 05 F150 and we plan to keep them.

    Actually my wife says we AREN’T trading in anything until they fall apart. Women really are smart, aren’t they? Wives especially.

  • avatar
    umterp85

    This goes along with the credit issue in the housing sector. We live in the “blame someone else” society for every single damn problem that comes up.

    My Libertarian bent says “go pound sand” to anyone that over-extends themselves against items that are way beyond their means. Take a little personal reponsibility for your actions. Its kind of like the crack addict or alcoholic who blames everybody but themselves for their transgressions.

    As far as the lenders (crack dealers)—they are to blame as well—and should reap some of the consequences.

  • avatar
    jaje

    I worked at a dealer for a short time. Our main strategy was what monthly payment they could afford. This we could use for lease or financing payments and spread it out to 60 months (Honda dealer). At least every other day there was someing looking to trade in a 2-3 year old car and be so upside down in debt (I’m talking $9-10k in equity on Taurus’ with almost usury interest rates b/c the customer was a credit risk – but the only ones who’d buy Taurus retail).

    More than once I’d run into ethical problems I saw as the finance guy and sales management would allow people to buy cars that would put them so far over their head it would take 4-5 years to get back. I did the “bad” thing and advised them to be smart. Do you need a new v6 Accord with leather – could a base Civic do what they needed? Some people would get offended but I didn’t care b/c so many people are so stupid with their money. It was the one person I’d get through and say – thanks for reinforcing my weak conscious. But there are always the prey for the dealers – people weak willed that it is easy to upsell them to something they don’t need. It’s caveat emptor and some people are just too stupid to buy their own car (they need something like a car buying negotiator). In fact I practice my own preaching as I can afford most of the cars I really want but I only buy the cars I really need.

  • avatar
    bfg9k

    I grew up riding around in an old Volvo 240. The car was finally junked at 17 years of age and over 300k miles. The body was a patchwork of bondo and primer, the floor had rusted out behind the driver’s seat (and was covered with plywood), and what was left of the green paint had turned completely black.

    Clearly I learned a lesson from Dad, since I loath my car payment and plan on keeping both are cars until they are no longer serviceable. Why spend life paying debt?

  • avatar
    rodster205

    “The borrower is slave to the lender.”

    That’s from the Bible. More and more people are figuring it out the hard way. And more and more people are choosing to sacrifice for a few years to live debt free for the rest of their life. Just like losing weight, it’s simple and free but it requires some discipline and sacrifice, which most people aren’t willing to make.

    I drive a $400 car, have put $300 into fixing it up myself, and love driving it. Why? Because if it breaks down or I wreck it I can leave it on the side of the road. A paid-for car just drives better! Try it, you’ll see.

  • avatar
    KixStart

    Who would approve a $43,000 loan on a vehicle worth $28,000?

    Or a $360,000 loan on a $350,000 home?

    However, banks and other lenders do this all the time. Isn’t that just a bit irresponsible? To my mind, consumers don’t bear all the blame, here.

    There’s another situation which I’ve only narrowly managed to escape myself; the problem of a high-buck repair for a low-buck late-model vehicle. If the car is useable, it’s a moot point whether or not the consumer is upside-down on his loan. However, if the car dies, this all changes. At that point, the consumer doesn’t have any good options – and I’ve got friends who’ve fallen into this situation (oddly enough, a Ford was involved in each case).

    As for Wards’ editorial point-of-view; why, indeed would a secretary need a big-ass pickup or SUV as a second vehicle? Well, it’s not so much what she needs as what Ford, GM or Chrysler needs. Where are their profit margins? Small, affordable, sensible cars? Or big-ass pickups and SUVs? So what do they push?

    Oh, right, leasing is the solution to the problem… Hah!

    Our kids grew up with a 240 that we kept for 18 years. It was still reliable at that time but very ugly (no floor-pan rust-through, though) and I was able to donate it with a clear conscience. Another one went to the crusher at 14 years. Tt would no longer serve reliably; we bought it with 140K miles and put on 60K more but it had endured a difficult youth, which no amount of TLC could correct.

  • avatar
    zenith

    The most economical car I’ve ever owned was my “5-5-5” 1985 Skylark.

    I paid $500 for it, had it 5 years, and put $500
    into repairs.

    I was well on my way to 7-7-7 in my ’87 Pontiac 6000 with the same drivetrain–2.5 liter Iron Duke and TH-125C automatic with lockup torque converter– when an 2 1/2- ton yuppie phone booth (Ford Exhibition) wiped it out.

  • avatar
    gamper

    The only thing I love more than my car (excluding family of course) is a new car. I lease a new car for my wife every three years, I buy my vehicles because of the excessive miles I put on them, but as soon as that last payment is in the mail I have money burning a hole in my pocket and I just need that new car.

    I dont own luxury cars, but both my cars are loaded, both were new and I pay for it. I could save a lot of money buying used, keeping my cars longer, etc. For some people that works, but for me, having a hot new car is worth the money. Cars are never good investments, but I never looked at it that way anyhow. I consume them, and I love it. Nothing wrong with treating yourself, the important thing is being able to pay for it. If you cannot buy it in 3-5 years, you simply cannot afford it.

    People in the situations described, upside down in huge car debt, have nobody to blame but themselves. I dont blame the dealer, it is their livelihood. But it is the lenders that are in the best position to stop this and should know by simple formula that the consumer cannot afford this vehicle. Perhaps more states should lower their usury interest rates to stop such predatory lending. If it wasnt so profitable for the lenders, it wouldnt be such a problem.

  • avatar
    morbo

    The ‘problem’ is that we need cars for transportation. Public transit doesn’t work for most of the country. You HAVE to have relaible transportation to get from home to work to school to retail and back to home. For the mechanically inclined, a $500 beater that requires a tender hand to stay on the road is great. However most people aren’t capable of maintaining a vehicle on the road. They feel they need new or near new for reliability. As soon as they see a check engine light, it’s time to sell, even if it means getting in over their heads on an upside down loan. Granted, the sheeple still buy more than they need, but the need to buy is, on some level, driven by this idea that newer equals reliable.

    Hopefully the coming stagflationary era we are entering will allow people to learn that older doesn’t automatically mean bad or unreliable. People will relearn the arts of keeping a beater on the road. Or take my mechanically uninclined option and simply keep two older used cars availble for use (one for drivin’ and one for fixin’).

  • avatar
    naif

    to much car? to much house? to much to much? it is just GREED on the sellers side and GREED on the consumers side. it ain’t rocket science folks.

  • avatar
    timoted

    I agree with naif. There is certainly a greed factor involved on both sides.

    A very simple rule to apply when purchasing a new vehicle: Never Lease for more than 36 months and never Finance more than 48 months.

    If you lease, never buy it out at the end. If you finance, at least put enough cash down to cover the sales tax. This applies to about 90% of new cars out there. If you can’t handle the payment with either of these options, you can’t afford it!

  • avatar
    lewissalem

    You could always purchase a car with a low interest credit card. If you get into trouble and declare bankruptcy, the debt is unsecured (it gets wiped out).

  • avatar
    KixStart

    lewissalem,

    That’s exactly the sort of thinking that’s getting us all into trouble in the first place.

    Why should banks loan to people with more than a modicum of unsecured debt?

  • avatar
    lth

    …never Finance more than 48 months.

    I partially agree with that, but you might as well go for the 60 month assuming the rate is about the same knowing full well you can pay it off in less time (and should).

    In addition, it always helps to pay down at least 20 – 30% of the car value right off the bat. The less time you are upside down in the car – the better.

  • avatar
    whatdoiknow1

    The reason the USA is in this credit mess is because it was a given that the consumer was going to shoulder the blame from the get go.

    To start to blame the consumer today is to forget all of history. Loans and Credit are all based on RISK! What these institutions did is put EVERYONES wealth in jepordary by running a shell game scam on the American public. The simple rule that used to exist was that you did NOT lend money to folks that most likely were not going to be able to pay it back.

    In today world the rule has been changed by THE FINANCIAL INSTITUTIONS to were they just give out loans and credit to anyone holding their hand out. Think about it, it is not a news story that the avaerage consumer is weak minded and can be induced to make purchases that they can not afford. That is why banks used to do a serious risk assessment before giving out credit.

    Today our economy is being run in a manner that benefits a few key players at the expense of the finacial stabilty of this country. The automakers and lending institutions do not care, they are moving the metal. The Mortgage comapnies do not care because they will simple buy up and resell the foreclosed homes. It is you who is now stuck with a worthless car and a home that is now worth $100,000 less that it was 4 years ago that is being left holding the bag.

  • avatar
    kowsnofskia

    “A very simple rule to apply when purchasing a new vehicle: Never Lease for more than 36 months and never Finance more than 48 months.”

    An even better rule is never to lease a car at all – or buy one brand new, for that matter. Leasing is the biggest rip-off around; it exists essentially to allow people to overextend themselves and drive a far more expensive car than they could ever afford outright. I’ve just never understood the craving some people have for a brand new car…for christ’s sake, put your money into investments that generally appreciate (i.e., real estate) and let someone else bite the depreciation on the car.

  • avatar
    autoacct628

    A few weeks or so ago, TTAC had an excellent article about buying used to avoid the cost of depreciation. I was like the guy a few letters up who copped to buying 5 new cars in 8 years….between 1985 and 1991 I bought 5 new cars and a used vette….I filed bankruptcy in ’92.

    Now, I drive my cars to achieve the goal of 5 cents per mile capital cost, for example, if i pay 5 grand for a car, I plan to drive it 100k miles….my last two whips were a 92 Accord Wagon (wagons are a great value…its a niche market, so more supply than demand on the used car sites) which I paid $7k for and put 140k miles….and a 97 audi a-6 quatro avant which I paid 8 grand for….let the suckers buy new, and live paycheck to paycheck.

    We need to do a better job in our high schools of teaching people how to create, and live with, a budget. As Ben Franklin once said, “The definition of misery is making $1 dollar less than you need to live. The definition of bliss is $1 more than you need.” Any idiot who buys more car than he needs deserves what he gets. And that goes double for those who lease, because they can’t afford to buy the same car new.

  • avatar
    Landcrusher

    We can all blame ourselves.

    Everyone thinks that it will all be okay because if anything goes really haywire then Uncle Sam will bail them out.

    Ole Uncle Sugar, us, needs to stand up at the dinner table and announce that the free ride is over.

    No, I am not voting for Ron Paul, but I sure do hope he gets on the winner’s cabinet. He needs to sit on the shoulder of government and whisper in it’s ear all day, “That is not the government’s job, that is not the government’s job…”

  • avatar
    jkross22

    Consumers need to take responsibility for their actions. We live in a self absorbed, litigious society and the assumption is that our problems are someone else’s fault. As soon as we find out who we can blame, we sue (or bitch and moan until the government bails us out).

    How ’bout this: All the knotheads who sue pay for all the court costs and attorneys fees if they lose? Let’s have these finger pointers get some skin in the game if they waste taxpayer dollars and clog up the legal system.

    And let’s all try to be better parents so that the next generation of adults act like adults instead of spoiled four year olds. I know as a new parent, as soon as my kid is old enough to talk, we’re talking about saving, investing and budgeting. And buying slightly used cars, of course.

  • avatar
    timoted

    kowsnofskia :

    An even better rule is never to lease a car at all – or buy one brand new, for that matter. Leasing is the biggest rip-off around

    There are many reasons one may want to lease. Again the key is keep the term short when it comes to leasing. You need to know what you are doing when it comes to a financing strategy based upon your need. It is possible to come out ahead in a lease although it is rare, it’s possible. (Type of car vs. term)You pay for what you use. Keeping the term short (whether finance or lease) is to keep the depreciation in check versus the trade-in or retail value of the car over the length of the term.
    As for with buying a used car. There are many who want a new car for the reliability factor and a warranty. You don’t get that in most cases with a used car. Don’t always make the assumption that everyone wants to tackle car repairs which comes with buying a used car. Not everyone is a car expert. They want to get to point a to point b and not necessarily worry about it. Buying new is human nature, if you give someone a choice between new & used with a similar monthly payment guess which one will win….

  • avatar
    Autobahnned-FlaTex

    After 5 years of buying a new car every year, hearing how great they were new but finding out how they were worth less than half their window sticker MSRP at trade-in in less than a year, I realized that this was a losing proposition, but my desire for a new car every year was stronger than my financial savvy knowing that I was being “screwed” in each transaction.

    An abrupt job change forced me into early retirement, so at that time, I needed to bail out on a $600+ a month payment for a 2005 Ford Freestyle. I traded that car even though I really enjoyed it when GM offered 72 mo. NO interest loan on specific 2006 models.

    Even with a $5,000 down payment, my 2006 Chevy HHR LT at $21,300 fully loaded carried a loan balance of over $28,000, but payments under $400 a month was my objective.

    I’ve kept that car and enjoy a 30+ mpg on trips while it gives me all the functionality that I need of hauling stuff and people. I hope to eliminate the upside-down equity problem by the end of this year even considering the depreciation this car will take in 2008. I was lucky to be able extract myself and correct my irresponsible financial attitude without financially destroying myself. I feel sorry for those who aren’t capable of making the escape from the “new car fever” ~ I’m over it!!

  • avatar
    windswords

    umterp85 and jkross22: I agree. I heard a statistic (I don’t know the source and can’t verify) that 70% of the people who are behind in their mortgages did not tell the truth about their income or job history. Some just lied, some doctored income documents on their computer. Now it’s true that the lenders should have done more due diligence. But assuming this stat is true, should I have to bail these people out with my money? Should they get to be protrayed as the victims of evil lenders?

  • avatar
    Slow_Joe_Crow

    The cost of a loan, and insurance, and being upside down is why I practice bangernomics. Our two cars are decidedly unspecial but cheap. A 95 Escort bought used and paid off years ago, and a 97 Saturn handed down from Grandma. The Escort has been a sore spot with a perennial transmission bug but we finally decided to replace it last year, even though it cost as much as the car was worth because it was a known quantity, and we paid cash.
    We spend about $1500 a year for registration and liability insurance for 2 cars, a few hundred for maintenance, and $40 a week for gas. This leaves money to put into our house, which has doubled in value over 10 years, while our our cars are worth a fraction of what they were new.

  • avatar
    KixStart

    Slow_Joe_Crow: “… bangernomics.”

    ROTFL!

    Autoacct628: “… capital cost of 5 cents/mile.”

    I also aim for a low capital cost (purchase plus unscheduled repair less recovered value on disposal) but I express it in months: $50/month is my goal, which would be a $500 beater that lasts most of a year. Expressing it in miles isn’t as pretty because we aim to avoid driving altogether (I bike a lot) and actually do considerably less than 10K miles/year/car.

    Clearly, frequently buying new cars won’t get you anywhere near $50/month but my wife does not like driving beaters. I’m trying to get there with careful purchases of nicer used cars, especially undervalued ones. $50/month is hard to attain. However, our last new car, a pretty good ’01 with no repairs and good retained value, works out to about $200/month. The used cars were $30/month (a real crapmobile that my wife would never drive), $45/month (a winner!), $61/month, $74/month (kept a looong time), $88/month and $90/month. Except for the crapster, they were all pretty decent cars. However, a poor choice or a bit of bad luck and some big repair bills would make the picture very different.

  • avatar
    akitadog

    I’m in the market for a new/certified used car. I intend on paying 25 – 30% down. Looking for $350/mo or less.

    The reason I’m looking for new or certified used is due to my bad luck with a Cooper S lemon. I want a warranty! Otherwise I’d be in total agreement with buying a car with a few years on it. Well, I also want a manual tranny and I’m nervous about buying someone else’s abused clutch.

    Although some here may deride paying for a new car, I think I’ve done well enough for myself to buy new. I own two residences, one is paid off and brings in passive income. The other will be paid off in 4 years after only 5 years of payments. This is a choice that we’ve made in order to clear ourselves of debt sooner rather than later, so that we can afford to buy a new car or go on a nice vacation, or buy the latest electronics/entertainment, or even be a one-income family if my fiance wants to be a stay-at-home mom when that time comes.

    I get excellent deals from my credit cards. 3.99% for life of balance, etc, and I own three cards that I use only for such offers. So I wouldn’t discount CCs so quickly. Think you can find 3.99% on a new car loan from a dealer or even from a bank?

  • avatar
    GS650G

    Buying new is OK if you keep the car at least 8 years, but that is rare for most of us. Buying Toyota new is not too bad a deal.

    I got 0.9% financing and a decent price to boot of 300 over invoice when I bought a new car. It’s hard to find used car loans that cheap, and then there is little or no warranty.

    I like having a new car once in a while, but then again I bought one I can easily afford, I don’t stay up late at night worrying about the payments, the depreciation, the shame of repossession.

  • avatar
    timoted

    akitadog :

    Make sure you are reading the fine print on your credit card agreement there are different ways that interest is calculated which could end up costing you more. There are usually 3 different types,average daily balance method, versus adjusted balance method and the previous balance method. It may not be the deal you think you’re getting plus you are potentially tying up a financial resource that may be needed in an emergency.

  • avatar
    akitadog

    Timoted, In any of the three interest-calculating scenarios you mentioned, the rates offered to me still beat the dealer, or my bank (currently), and my limits are high enough for me to decide which way to go in such a case. Also, I would never use all my credit cards for one big purchase. I am wary enough to know to use just one offer at a time. I have one credit card I use for purchases, which I pay off every month, and I only ever use maybe one CC special per year, depending on which of my cards has the best rate at the time I want to use it.

    The other good thing about these “life-of-balance” specials is, if I DID run into financial trouble, I can drop what I pay each month to the minimum if need be. As well, the required minimum drops every month when making these payments, so if trouble hits when I’m halfway through paying it off it isn’t the nail-biting worry it could be otherwise. Try doing that with a fixed monthly car payment through a standard lender.

  • avatar
    timoted

    Akitadog, In that scenario a minimum of 3% monthly payment it’ll take a long time to pay that balance off. ($30k 3% monthly = 40+ years)I think the original point being that whatever financing vehicle you use, lengthening the term is where most get into trouble. (72 month car loans and 40 year mortgages etc etc).

    The other risky thing about credit cards is they have the ability to change terms almost at will. Missing a payment (even to another creditor) or even running up a balance can give the credit card co. an excuse to jack your rates up to loan shark proportions.

    Sounds like you got a good handle on financing, I’m just leary of all credit card companies especially in this day and age. I only charge what I can pay for at the end of the month and pay off.

  • avatar
    whatdoiknow1

    umterp85 and jkross22: I agree. I heard a statistic (I don’t know the source and can’t verify) that 70% of the people who are behind in their mortgages did not tell the truth about their income or job history. Some just lied, some doctored income documents on their computer. Now it’s true that the lenders should have done more due diligence. But assuming this stat is true, should I have to bail these people out with my money? Should they get to be protrayed as the victims of evil lenders?

    Think about this statement for a moment. In today’s electronic computerized world that is a bunch of BS! Even if it is true it only amounts to the banks and lending institutions willfully allowing themselves to get robbed and openly negeleting their fiduciary responsiblity to the rest of their “honest” costumers and clients. By your bank giving out loans to folks that were not worthy they have effectively lowered the value of yuor own home and the rest of your assets.

    If any bank was willing to give out HIGH RISK loans to people without doing a proper background, financial and identity verification they did so KNOWINGLY because in the short term they were still generating income and profits from the interest payments on said loans.

    We are begging the issue and denying the obvious when we continue to blame those folks that signed for these loans. Many of them did NOT care or in all honesty were too ignorant to understand what they were getting into. These people today are no different then people from any other period in our history when the banks somehow understood what fiduciary responsibilty was. The catch is that these people that are in default today should have NEVER been giving the false opportunity to fuck up their lives and credit.

    It was not to long ago in this country that people in power understood that homeownership and the wealth created in it was the cornerstone of our middle-class. Folks were provided with mortgages with realistic interest rates that they could manage even during hardship. Today the American Middle-class is being treated like a cheap whore to be abused at will by big business.

    Now as the stiuation stands many of us will be looking a a boarded-up house or two on our streets or the honest ones amoung us will get to see the government run to the rescue of our neighbors that has two Escalades (upside-down loans)in the driveway of the house they are defaulting on.
    I predict that there will be some kind of bail-out. If not far too many folks will be premanently removed from our consumer driven economy. Or maybe I am missing the point in that a new class of middle-class perpetual rents has just been created.

    God bless America!

  • avatar
    Landcrusher

    Actually, it was not too long ago that mortgages were in the double digits, and people signed up for them. That period was a DIRECT result of government intervention into the market place.

    If there is any bail out, it had better come at the expense of the bankers and defaulters. Of course, there is no way to keep this from spilling over into the cost of getting an auto loan or mortgage for everyone else or hurting property values. We can only hope that the cost can somehow come with the benefit that those people at fault will feel enough pain that others will see the value of being responsible. For the bankers, this should mean that many officers are forced out of their positions, and that many of the insiders lose their stakes. For the buyers, they should not get off the hook for the debt, only be allowed more time to deal with it.

    For auto loans, my first thought is to create a situation where loaning money over the value of the capital is considered usurous and punished accordingly.

    As for anyone who thinks that an expensive car is a necessity, I would argue that is untrue for most people. They are kidding themselves, but not me. People always find ways to make excuses.

  • avatar
    umterp85

    WhatdoIknow1: Who signed the loan they could not afford is the primary person at fault….nobody forced them to sign (Did Toyota Credit Hold A Gun To Their Head ?)…nor should I have to pay for their transgressions.

    We have got to get back to a sense of personal reponsibility in this country and stop with the blame game.

    Like you I am also concerned about the quality of life of our middle class—but I think there are other issues at play like the loss of decent manufacturing jobs.

  • avatar
    timoted

    Today’s society is caught up in the sign and forget about it mode. No one really wants to take the time to educate themselves about what they are getting into when they have banks and finance companies dangling “$199.00 a month” in their face. They don’t read the fine print at the bottom of the page in 3pt type that the term is for 120 months. (who has time for that)

    Banks and finance companies are geared up to work in high volumes booking tons of new loans and are willing to gamble (based on some loose criteria) that only 4 to 8% are actually going to go bad. Why are they willing to gamble? because, loan growth and oustanding loan holdings are good for company numbers.

    It’s both the consumer and the lender that is to blame. Let’s be honest, buying a home or that new car is and can be a very emotional experience for many. The “marketing” of financial products use that emotional experience to their advantage. (Of course few will actually admit to it) You see that new car sitting out on the lot and you compare that to the car you have been driving while the salesperson pours you another cup of coffee and doesn’t have any intention of letting you out that door until you sign. We’ve all been there. There’s the traditional game of going back and forth with the manager on price (trade-in vs new car price) and that ultimate number that you will be shelling out each month. Your adrelenine runs high and then they bring out the manager to meet you face-to-face, all of this is designed to build up anxiety which is to the seller’s advantage.

    Toyota wasn’t holding guns to anyone’s head but, they train their sales staff to sell and use everything they can to their advantage. The sad part is that it’s always the monthly payment that gets most into trouble. It overides any other issue whether it be the $10k negative equity in your current car or the fact that your term in 72 months. That’s how cars are sold and we bite, hook, line & sinker. Mortgage are no different because your chasing that American dream, more house and more car and look at me. Yes, it’s greed yes, it’s playing on emotions and a big gamble.

  • avatar
    whatdoiknow1

    Umterp85:

    I am with you 100% but I just happened to be a but more pissed off at those bankers that decided it was OK to play fast and lose with my(our) money. Remember the banker who was giving out loans to folks that were actually well beyond high risk did not do so with their own personal money they actually did it with yours and the rest of the account holders in your banking institution.

    What these fools did in my opinion was allow the banker robbers to behave as costumers. Being a member of a minorty group I know just how hard it should be for someone to get a loan if their credit is not up to par. See, for us the it was always a matter of if your “T”s aint crossed and your “I” s aint dotted you did not get a loan, period. If you forgot to pay a parking ticket 20 years ago you did not get a loan. This was the situation for my grandparents, parents, siblings, and myself.

    What happened is NOT that people with bad credit and not enough income somehow became slick and savvy and were able to take advantage of our financial system. What happened is that the banks and lending institutions PRO-ACTIVELY went after these people and push marketed loans and mortgages to folks that a few short year ago would have never even attempted to buy a home or new car.

    DO NOT give the bankers a free pass here. This is a problem they had all the control over to have pervented it from happening. The truth of the matter is they forstered this situation out of greed of short term porfits. Where do you think that $50,000,000,000 (that right FIFTY BILLION DOLLARS) in bonuses shared amoung basically a few hundred individuals on wall st came from this year?

    These criminals are “banking” on honest people like yourself to place all or the majority of the blame on ignorant consumers while they make-off with all of the ill gotten gains.

    P.S. there have always been folks too ignorant to understand the terms of a mortgage contract, when did it become OK to just give them a Mortgage?

  • avatar
    umterp85

    @Timoted & WhatdoIknow1: Great posts—thanks for the thoughtful response. I may not agree with you point-for-point–but I respect you opinions. And yes the lenders (drug dealers) must pay as well.

  • avatar
    autoacct628

    Not for nothing, but I wonder how much sites like this one actually contribute to the problem. Just listen, before you start dissin’…

    There is such a thing as the law of diminishing returns, to wit, that at some point, the incremental result of any investment does not translate dollar-for-dollar in the desired output….or in other words, it costs more to design and manufacture improvements to a car than the actual increase in the value of the car. The Car Makers all pour many millions of $$$ into R&D to make incremental improvements in their car to win the hearts and minds of reviewers and bloggers on sites such as these. Most of these improvements do not result in an improvement of the base function of the vehicle (i.e.,moving a family sized group of people and their goods from point a to point b in a generally safe and cost-effective manner.) The “improvements” generally result in subjective improvements in comfort, “gee-whiz” but unnecessary gim-cracks like satellite navigation, and performance enhancements which make the vehicle accelerate to 60 mph a few nano-seconds faster. Car makers that can engineer these miracle receive plaudits, kudos, awards and the good ink translates into sales. Car makers that don’t are derided, insulted, and there intelligence is questioned, because they don’t put in their product all the big-deal gizmo’s that the automotive “elites” have decided that we all MUST HAVE for the good of the country.

    What ever happened to good enough? What if a car company decided to make a less-expensive model car, which didn’t have leather, power windows, adjustable pedals, XM radio, satellite navigation, all-wheel drive, 6-speed transmission, 6-way power seats, dual-zone climate control, etc., etc., etc. What if a company created a simple design, for a fuel-efficient, low-cost, safe, easy-to-maintain car for 4 to 6 passengers?

    In the 50’s we called it the BelAir. In the 60’s, the Impala or the Fairlane. In the 70’s, the Dart, Valiant or Nova. These were the heirs of Henry’s brainchild: The Model T.

    In the 80’s, when we forgot how to do this in America, our friends from Japan called it the Accord and the Camry.

    Somewhere, since that time, the Marketers have convinced us that we need MORE, FASTER, NEWER, BIGGER. The engineers shrugged their shoulders and said, OK, we can build that. (Look at the Accord, for example. In the mid-eighties, Honda’s motto was WE MAKE IT SIMPLE. Park and 08 Accord next to an 86. No one would argue that the O8 is not a superior machine in every respect….but do we NEED it to be?)

    The beancounters (I am proudly one of those) reluctantly agreed, as long as profit and stock price stayed up. (Perhaps we beaners and our brethren the economists should have fought harder. Stock prices can’t go up forever, and bigger, faster, newer is not sustainable.) Middle America buys the behemoths because they are all that’s available. But I bet if we had a choice, and really thought it over, a lot of us would choose a safe, simple, in-expensive car over todays overpriced, over-engineered, overdressed, oversized, over-powered luxo-behemoths CSUVRSX Deluxes.

    Now, the piper is to be paid. Experts can’t agree if we have reached Peak Oil yet, but if the question is being discussed, the case for the larger 08 Accord, Camry…whatever…is weakened. We are poised on the brink of a new era, the post-oil, post-internal combustion era. Yet the OEM’s fiddle on with SUV’s, CUV’s and larger so-called mid-size compact cars which are truly behemoths compared to their antecents from decades past. Who are we kidding?

    I think it’s time for a company to show a major set of cojones by building a new car. Call it “The America.” Make it safe. Give it all the air bag and safety technology for our kid’s sake. Give it a modest v-6, or a turbo diesel 4. Take out all the toys to save weight. Who needs to have a DVD player in our cars, for gosh sake? Re-introduce our kids to the art of family conversation. Price it fair. Remember when that stockholder stood up at the GM shareholder’s meeting and said what we need is a good, American made $7,000 car, and I think it was Roger Smith told him to buy a two-year old Buick Skyhawk, or something similar. Bosh. We need an new American Model T….a new American 86 Accord. A new American 67 Fairlane 500 or Impala. And we need a generation of parents who will teach to their children the American values which we all seem to have forgotten over the last few decades…thrift, humility, self-reliance-don’t buy more than you can afford just because someone tells you you need to. And we need auto execs who recognize that what is good for GM (and Ford and Honda and Chrysler and Toyota) is good for them all only if it is good for the typical American, and only if it will be good for them in 20 years, and 100 years. More and bigger ain’t always better. More modest ain’t worse. If we are going to have to throw any more workers in the auto industry out of work, let’s start with the marketing people who think it is their bound duty to convince us that we aren’t fully realized human beings unless we are all driving the latest, greatest automotive hardware, complete with more gizmos than they had in all the Apollo spacecraft combined. And we need pundits and techno-geeks and reviewers who maybe will temper their wrath for simple, reliable basic transportation in the name of what is good for us all: a healthy industry based on a simple basic idea: efficient, safe transportation.

    I think it’s time for a company to have the cojones to build another basic car. Look at the Tata…those folks may be on to something. It is time for those of us who work in this industry, because we love it and are passionate about it, to look backward to the roots of what we do, and find what has been lost…the beauty of simplicity, the wonderful appeal that occurs in automobiles when function meets form, and waste is eliminated. I would bet that such a car, designed, built and sold with a sense of humility and responsibility, would sell enough to be profitable. We just need the leadership, and the will.

  • avatar
    Steven Lang

    I have never financed vehicles due to what can be loosely described as ‘philosophical issues’. At least for me, personally, there is something inherently evil about consumer debt and I have no desire to ever become a direct part of that ‘system’.

    Now having said that, I shall put away my stones of self-righteousness and tell you I actually contributed to this ‘debt’ culture for quite a while. In fact I worked in that world for two very long years.

    I used to be a remarketing rep for a very large auto finance firm. My job was to inspect, appraise and liquidate all of the repos that the company needed to discharge at the various auctions around the country. This would amount to visiting three to four cities a week where these ‘retail’ vehicles would be sold at ‘wholesale’ dealer determined prices.

    You would get varying quality at these sales of course. From the voluntary repossessions where the owners told them to pick up the vehicle since they couldn’t afford it. To the ones that showered the vehicle with either nice round bullet holes (regular pistol to rifle) or dozens of small little holes (BB gun).

    Then of course you had the vehicles filled with old food and diapers, stains that were unfortunately human in nature, pregnancy test results, ‘whose your daddy’ test results, and untold pieces of paper that provided testimony to the person’s current predicament. These repos would invariably have various panels dented in unusual ways. There came a time in my travels where I started to wonder whether the roof of a Kia naturally fell in over the course of time. It seemed like every one had a big old dent in the middle of the roof.

    Typically the company would only get back between 35% to 45% of the remaining balance by liquidating the vehicles at the auctions. But between systematically contacting the debtor, establishing garnishments, and even selling the unpaid balance to a collection agency, they could inevitably get back a very substantial amount. Unless they applied the equivalent of a mirror test to their prospective debtholders (if they fog it you finance them), they almost always came out well ahead.

    If you look at the way most folks live these days, you would begin to question whether the subservient/predatory nature of humanity has ever really changed. Vassals lived off the bounty of their serfs. Plantation owners lived off the labor of their slaves. Land owners lived off the work of the sharecroppers. Today, most folks voluntarily enter into a lienholder/debtholder arrangement that requires many of them to live in what I would call, ‘opulent squalor’.

    It saddens me to the nth degree that we just let this happen for no intelligent reason. It’s amazing that we can continue to educate a population that is so supposedly ‘smart’ and yet is absolutely dependent on a privileged few because they were never taught (or bothered to teach themselves) how to be self-reliant. It reflects a lack of self-discipline within not only the person but the culture. Over the course of time it forces people who have certain gifts, dreams and aspirations to give them up for the sole purpose of maintaining a superficial lifestyle. A way of living that can only deteriorate as the debtload becomes ever greater.

    I’m glad most folks here have left that parasitic little world. I just wish I met more people in my travels that had the mindset, curiosity and discipline needed to do this.

    Now you know why I only sell vehicles for cash.

  • avatar
    NICKNICK

    autoacct628 : “What ever happened to good enough? What if a car company decided to make a less-expensive model car, which didn’t have leather, power windows, adjustable pedals, XM radio, satellite navigation, all-wheel drive, 6-speed transmission, 6-way power seats, dual-zone climate control, etc., etc., etc. What if a company created a simple design, for a fuel-efficient, low-cost, safe, easy-to-maintain car for 4 to 6 passengers? I bet if we had a choice, and really thought it over, a lot of us would choose a safe, simple, in-expensive car over todays overpriced, over-engineered, overdressed, oversized, over-powered luxo-behemoths CSUVRSX Deluxes.”

    Ummmm…where the heck you do live?!
    Last time I checked, you’ve got *plenty* of choices: Hondas Fit and Civic, Toyotas Corolla and Matrix, Sentra, Versa, Cobalt…I will not recommend Focus after seeing one eat its alternator and die at 31000 miles. Just because expensive cars exist doesn’t mean you have no choice but to buy them.

    i know people like to throw the word “communist” around a little too much, but that’s all i can think of when i envision a world of flat black or gray economy cars with no alternative.

    take a look around you, comrade!

  • avatar
    NICKNICK

    I’ve got a method that feels almost as good as paying cash but works even better:

    Save up enough money to pay cash for your car, but finance anyway and put your cash in a separate account. Then continue saving money in your regular account at your usual saving rate. With today’s low low low interest rates (down to 0% can ya dig it?!), you can make more money in interest even in a CD or high-yield savings account than you will spend on financing. Your $20,000 car will effectively cost you, say, $19,000 when the car is paid off and you still have a grand in your special account. That $1,000 will come in handy when your transmission craps out because they always do right after the last payment is made.

    Even better: If hard financial times befall you and you’ve paid all your cash for a car, good luck getting an unsecured loan…you’ll likely be paying 12% interest. If you’ve got cash on hand, you’ll effectively be using the car loan at 0% or 2.9% or whatever to help you weather the storm.

    The hard part is discipline. You CAN’T touch the money you hid away except for making car payments. Also, there is still the nagging feeling of debt. But if you crunch the numbers and realize that you’re doing the right thing, and you also remind yourself that you’re paying with tomorrow’s future devalued dollars, and you can make it through to the end of the payments and see your $1,000 bonus sitting there waiting for you…well, you’ll be glad you met NICKNICK on TTAC.

  • avatar
    50merc

    Some complaints about banks being too quick to loan money remind me of a guy who ran a pizza shop. The shop was in a college town, so many of his customers were college kids whose financial management skills were, um, not fully developed. A lot of checks bounced, and he took that as a personal affront. He’d call the bank and angrily ask “Why do you let these people write bad checks?”

    Do you recall when the rap against banks was “red lining” and their unwillingness to lend to people of modest means? Seems we fixed one problem just to create another. Now we need to appoint guardians so borrowers can’t do foolish things!

  • avatar
    KixStart

    Red-lining was not banks’ unwillingness to lend to people of modest means.

    Red-lining was the banks’ practice of denying loans, indiscriminately, to minorities or to entire neighborhoods whether or not the people applying for the loans had the means to pay.

  • avatar
    Landcrusher

    NickNick,

    Your scheme works great on paper, but financial experts have found that it doesn’t work in real life. Ninety percent of people will fail to have the discipline you admit it takes to play the game.

    Also, you will likely lose money from the start because you bought a new car to get the low rate. If you do the math, you will find that a used car would have saved more money than the interest spread will make you over the term.

    I am not saying no one should buy a new car. I am saying that a new car is a luxury. You should not borrow on a luxury. If you can’t pay cash, don’t buy the car.

  • avatar
    NICKNICK

    Landcrusher–
    you’re right about the used car saving more money than the interest game on a new car. sometimes finding the right used car is tough, though. i like good cars that are very reliable, and unless i personally know the seller, i have a hard time saying yes to a used car more than a few years old. in my area a two-year-old civic will run you about 12,000 vs 15,000 for a comparable new one. by the time i get new tires and fluids in the used one, i’m at 12,500 or so. after i play the interest game, the new one will cost me 14,500. if i pay cash for the used one, i have an opportunity cost of maybe $500 in lost interest. if the real costs are 14,500 vs 13,000, i’ll pick new every time.

    however, i have come across some great used cars from people i know, and those have been far more than 2 years old. in those cases, when they’ve depreciated down to $4,000 or so, cash it is.

    but $4,000 cars from strangers? nope. my car/mechanical skills aren’t good enough for me to trust that i’ll find everything that needs fixing. i will take a gamble for $500, though.

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