Credit Where It Isn't Due

Edward Niedermeyer
by Edward Niedermeyer

Credit is at the heart of the current auto crisis, a fact agreed to by all sides of the debate. But while the pro-bailout crowd wails about needing a 700 FICO score to get a car loan, the fact of the matter is that cheap credit allowed Detroit to create this problem in the first place. Mother Jones correctly points out that Detroit has been redlining the American auto market for years, by finding the easiest profits possible. And no, they’re not talking about SUVs. The thesis is that with car pricing easily available online, dealerships relied on financing offers to lure consumers into the store. Loans were loaded with extras, interest rates would be bumped for kickbacks, and upside-down trade-ins were rolled into the new loan which often stretched to six or seven year terms. These tactics, which MJ calls “endemic,” have left a US market where 85 percent of Americans with a car loan have negative equity. On average upside-down Americans owe $4,400 more than their car is worth. And all the while congress has played right along, from including a provision in the 2005 bankruptcy “reform” which forces filers to repay the entirety of a car loan, even if they owed substantially more than their car was worth, to engaging in fraud themselves. Now, as Rosemary Shahan of Consumers for Auto Reliability and Safety puts it “no matter how much money Congress throws at the automakers, it’s car buyers who will rescue them or not.” With 85 percent of American car owners looking at an average of $4,400 negative equity on their vehicles, Mother Jones is absolutely correct in assuming that the $17.4b bailout band-aid won’t bring back the business Detroit needs. Which proves that even when their main product was financing, the Detroit Three still just couldn’t get it right.

Edward Niedermeyer
Edward Niedermeyer

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  • Bunkie Bunkie on Dec 23, 2008

    Engineering is about tradeoffs. Any given project can be optimized for a set of desired results at the expense of those parameters that are less important. When the optimizations chosen serve the business purpose, good things can happen. Since Apple has been mentioned, let's talk about the Apple II, the first PC that was really successful with business users. This was largely due to a combination of Visicalc and a cheap floppy disk drive. Visicalc was available for the TRS-80 and Commodore Pet as well, but Apple had a major advantage in that their floppy disk drive was half the price. This was a result of Wozniak's brilliant design. Everyone else used off-the-shelf disk-interface chips from Western Digital. Woz designed his own peripheral interfaces using the Apple II's CPU (a 6502) as the controller. This allowed Apple to radically undercut their competitors on pricing. The best word to describe the Apple II's design was elegant. Of course, Apple also serves up a lesson (one of many) in how to go wrong. The Apple 3 (Woz had almost nothing to do with this turkey) was an expensive, over-engineered disaster. Being designed to serve both the intended audience of business users and the legions of Apple II customer base as well, it failed at both. It almost killed the company. The point is that to reinforce what others have said about success being a combination of talents and skills. When all are working toward definable and reachable goals, most often set by leaders with vision, good things happen.

  • Geotpf Geotpf on Dec 23, 2008

    If you own a one month old car, especially a vehicle made by anybody but Honda or Toyota, you probably have several thousand dollars in negative equity unless you made a large down payment (that is, the car loses thousands of dollars the moment you drove it off the lot). Saying that the average person with a car loan has negative equity is a "duh" statement, IMHO.

  • HotRod Not me personally, but yes - lower prices will dramatically increase the EV's appeal.
  • Slavuta "the price isn’t terrible by current EV standards, starting at $47,200"Not terrible for a new Toyota model. But for a Vietnamese no-name, this is terrible.
  • Slavuta This is catch22 for me. I would take RAV4 for the powertrain alone. And I wouldn't take it for the same thing. Engines have history of issues and transmission shifts like glass. So, the advantage over hard-working 1.5 is lost.My answer is simple - CX5. This is Japan built, excellent car which has only one shortage - the trunk space.
  • Slavuta "Toyota engineers have told us that they intentionally build their powertrains with longevity in mind"Engine is exactly the area where Toyota 4cyl engines had big issues even recently. There was no longevity of any kind. They didn't break, they just consumed so much oil that it was like fueling gasoline and feeding oil every time
  • Wjtinfwb Very fortunate so far; the fleet ranges from 2002 to 2023, the most expensive car to maintain we have is our 2020 Acura MDX. One significant issue was taken care of under warranty, otherwise, 6 oil changes at the Acura dealer at $89.95 for full-synthetic and a new set of Michelin Defenders and 4-wheel alignment for 1300. No complaints. a '16 Subaru Crosstrek and '16 Focus ST have each required a new battery, the Ford's was covered under warranty, Subaru's was just under $200. 2 sets of tires on the Focus, 1 set on the Subie. That's it. The Focus has 80k on it and gets synthetic ever 5k at about $90, the Crosstrek is almost identical except I'll run it to 7500 since it's not turbocharged. My '02 V10 Excursion gets one oil change a year, I do it myself for about $30 bucks with Synthetic oil and Motorcraft filter from Wal-Mart for less than $40 bucks. Otherwise it asks for nothing and never has. My new Bronco is still under warranty and has no issues. The local Ford dealer sucks so I do it myself. 6 qts. of full syn, a Motorcraft cartridge filter from Amazon. Total cost about $55 bucks. Takes me 45 minutes. All in I spend about $400/yr. maintaining cars not including tires. The Excursion will likely need some front end work this year, I've set aside a thousand bucks for that. A lot less expensive than when our fleet was smaller but all German.
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