The Core
Why We Are Here => Economics & Investing => Topic started by: rcjordan on October 03, 2019, 01:58:16 AM
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Hoo boy!
https://jalopnik.com/americas-auto-loan-debt-is-truly-out-of-control-1838713860
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Just out of curiosity, I went to the Subaru site and they had tons of financing deals - 0% on 2019 models, 1.9-2.9% on 2020 models.
But then I went to the Ford site - 6.9% financing and they look more and more like the mortgage industry. They offer a loan with low payments for the "first few years." Then what?
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This is one of those bombs waiting to go off. We have $1.1 trillion in car loans. Once the recession is realized by the average American we'll have a food of near-new vehicles hitting the market with people just asking payment take-overs. The problem will be that no one is going to want the bulk of them.
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>mortgage
Pickup trucks cost a fortune.
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Auto Loans Stretch To Eight Years To Accommodate Irresponsible Car Buyers >:( >:( >:(
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The problem will be that no one is going to want the bulk of them.
One of the big issues is that car tech is at an inflection point. Smart cars, safety tech, self-driving, the change to new power trains (EV, PHEV) et cetera. So whereas five years ago a 10 year old car that was in great shape could be a steal. Whereas a car today is qualitatively different than a car five years ago and that's accelerating. So if you buy a car on an eight year loan today and go to sell it in five years, it's going to have to be a huge markdown.
>>Pickup trucks cost a fortune.
Yeah, it's astounding. Lots of those contractor trucks are over $50K
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>contractor trucks are over $50K
Most around here are hitting near $65k, I'd say.
>one of those bombs waiting to go off
And when it does, it's going to wipe out/reset the auto finance sector.
As EG points out, we're at a point in the auto industry where disruption is going to happen. EVs are likely to could be cheaper to produce --perhaps far cheaper.
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> To Accommodate Irresponsible Car Buyers
I know I have a radical opinion on the topic, but if it needs to be financed you probably shouldn't be buying it*.
*unless you absolutely need it for business
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>>radical opinion
Not so radical. Dave Ramsey has been saying this as loud as he can for decades. So has Buckworks :-)
Much of the auto debt is driven by insecurity. And if I'm honest, I would say that I sometimes feel it too when I give someone a ride in one of my ratty old cars and sometimes almost feel a bit apologetic.
Rationally, I know that feeling is wrong, but a massive industry spends a huge amount of money trying to make you feel that your worth as a human is reflected by your clothes, your car and the fancy vacations you take. And with respect to the last part of that, I am culpable I must admit.
In our current society, you have to be strong to avoid debt, because so many people are selling it to you.
We need more nose jobs
We need more hair relaxers
More magazines telling us
There's something wrong with your face
-- Dan Bern, "Rolling Away"
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>> So has Buckworks :-)
Yes, and I'll keep saying it: Organize yourself so you live within your means.
And do everything you know how to avoid encumbrances on future income. Keeping your monthly obligations to a minimum is a major stress reducer.
Note the difference between monthly spending and monthly obligations. You can spend freely but pay for your goodies in full, don't commit to recurring payments if you can possibly avoid it.
>> give someone a ride in one of my ratty old cars
A ratty old car might actually be a financial badge of honor. Remember that trying to look rich is often a major hindrance to becoming rich.
We bought
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I've just returned from a local county fair. A local auto dealer had lined up some new vehicles on display near the entrance. Thinking about this thread, I went over and read the sticker on the big, black pickup truck ....$91k!!!!
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I agree completely Buckworks.
In my early twenties I was living on a street that no one would actually live on if they had a choice. One thing I noticed was that a lot of the people there were driving new cars. I asked my housemate "What's up with these?" and she just replied "Poor people drive nice cars."
It seems like living within your means should be the default, but it certainly isn't. I talk to my kids about the virtues of driving an inexpensive car. It is liberating, if it gets a scratch you could just shrug it off, if it breaks and the repairs cost too much you could just go grab another one off of Craigslist. One car I had a few years ago I drove for two years and sold it for the same price I bought it.
Also, the best things in life really are free or cheap.
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>$91k
::head shake::
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>"Poor people drive nice cars."
I just relocated to Austin. Directly behind the house are ~60 new "affordable program" (income qualified) town homes. EVERY SINGLE VEHICLE in that section is nicer than mine.
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A ratty old car might actually be a financial badge of honor.
Actually, Theresa once said it was one of the things that attracted her to me. She took it as a sign that our basic values were in sync. Buckworks has been shopping with her in Vegas and knows this well. Given my wife, my family, my friends, my in-laws, I'm reasonably inoculated against affluenza.
But the forces arrayed against you are powerful and sophisticated. Many people are not inoculated. Maybe they grew up poor and were always made to feel like less of a person, so they dreamed of being able to drive a nice car.
Then you take this massive, sophisticated sales and marketing machine and point it at them with both barrels. The car salesman doesn't ask "How much can you afford?" He almost always asks, "What kind of monthly payment are you looking for?" He's thrilled to set you up with eight years of financing. He's going to try every trick to hide the true cost. He's going to play to your fears, your insecurities, your vanity.
I understand why they are not able to resist. They lack the mental, financial and emotional tools. They lack a friend like Buckworks whispering in their ear. They are outgunned. And voilà! 1.1 trillion dollars in auto debt. Sad, but not hard for me to understand and empathize with.
At his old company, my brother used to run a workshop where he started by having people go through a magazine and estimate the percentage of space devoted to ads. Then he asked people to answer one question: "What is the kind of person these ads are telling you to be?"
They would discuss that for a while, and then he would ask a second question: "Is that the kind of person you WANT to be?" Just that one exercise was a powerful, life-changing tool for some people.
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>>if it gets a scratch you could just shrug it off... liberating
So true!
My car was recently hit in the parking lot and a good Samaritan left a note with the license plate of the perpetrator. I looked around and realized I couldn't possibly pick out any new scratches from the old dents and scratches and threw the paper away. I had another car I bought for $750. It was hit in a hit and run, a neighbor got the license plate and called it into the police and I got $1500 to repair it. I went to the junk yard, spent $25 on tail light, hammered out the dent with a 2x4 and a sledge hammer. Actually doubled my money on that car and gave it to a friend in need when I moved to Switzerland.
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3yrs ago, my 2010 Dodge van was hit pretty hard in the right rear quarter panel. I let the appraiser take pix, then I took it to the house, parked it in the summer sun, then popped the plastic shroud back into place with a couple of crowbars. It's barely noticeable and I pocketed $1600.
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>>EVERY SINGLE VEHICLE in that section is nicer than mine
My 2003 Honda Odyssey and 76 Ford pickup agree with this. I wouldn't care at all if one of those got a ding in it. No reason to get a nice car when it will just be filled with goldfish crumbs and spilled apple juice from the kids.
I live in a pretty standard suburban neighborhood that seems to have a fairly high number of older people and retirees. Most of their vehicles are pretty sensible (5-10 year old hyundais, 15 year old pickups, etc.). But drive 5 minutes to a newer neighborhood with younger families and you see a bunch of $50K+ trucks, SUVs, crossovers, etc.
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Seems a lot of us think the same on this issue. 8)
Our household car inventory:
2008 Scion XD -- only car we ever bought new, but paid cash
2002 Honda Civic, bought it for $2k
1974 260z with a 350 small block Chevy
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>1974 260z with a 350 small block Chevy
Well, hello there.
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>talk to my kids
Send your older ones to lurk on this /r/ but advise them that they should be looking for common issues posted by younger redditors. It can be an eye-opener.
https://www.reddit.com/r/Frugal/new/
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>Well, hello there
Little cars with big engines are fun.
That sub is pretty good RC.
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> sub
I check it 3 or 4 times a week. The big topics are what you'd expect; rents, food, transportation, utilities, appliances, furnishings. As a parent, the best part it is that your kid can't accuse you of making stuff up to scare them about finances.
> Z
I was going to buy a 240 Z but they were selling at a premium --just too many being sold for my liking. I bought a Saab Sonett instead.
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The Sonett is an interesting car. I don't think I know of any other car that is front wheel drive, has a V4 and looks like a sports car.
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>Sonett
All fiberglass body, too. *Very* peppy, but top end was only 110 mph (which cost me a ticket that took my license because I couldn' t outrun the highway patrol in it. But that's another story.)
It was one of my favorite cars. Somewhat trouble-free (for the era, especially compared to English sports cars). Alternators & starters were expensive, though --about 4 x the price of domestic (Bosch).
The Sonett saved my bacon during the OPEC gas shortage. IIRC, it had a 15 gallon tank and got over 30 mpg ...unheard of mileage for the 70s.
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Feds: Americans increased their borrowing for the 21st straight quarter as more households took out loans to buy homes or refinance existing mortgages
https://www.newbernsj.com/news/20191113/us-household-debt-rises-for-21st-quarter-lifted-by-mortgages
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Americans are taking on more automotive debt for longer terms than ever before.
https://theoutline.com/post/8031/car-loans-longer-economy-recession-bad-idea?zd=1&zi=ptr2yxit
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This is old news (Feb 2019), but I just listened to a Planet Money on car loans and they cited this
Record 7 Million Americans are Behind on Car Loans
https://www.washingtonpost.com/business/2019/02/12/record-million-americans-are-months-behind-their-car-payments-red-flag-economy/
This is not necessarily a sign of recession, so much as the fact that interest rates are low and the subprime car loan industry has exploded, as subprime car loans are typically at high teens to low 20s (a person on the Planet Money episode had a 23% car loan).
https://www.npr.org/2019/11/20/781364732/episode-953-three-sides-of-a-car-loan
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Louise and I were just talking about this. Add to the above that the insane prices for new vehicles have also ramped up the prices for used vehicles and the used car dealers are really socking it to them on the loans.
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<warp>
Flash forward to the pandemic and something like 60%(?) are behind in rent or mortgage. I wonder how the auto loan mortgage industry is holding up?
also upstream:
>EVs are likely to could be cheaper to produce --perhaps far cheaper.
Tesla CEO Elon Musk says company is planning on launching a $25,000 car – its cheapest yet – in about three years.
https://www.aljazeera.com/economy/2020/9/23/bb-asian-battery-makers-zapped-by-teslas-plans-to-slash-costs
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What happened to the projections a while back that the bottom was about to fall out of the used car market? Something to do with huge numbers of cars coming off lease and the lease market declining.
Wouldn't that put even more people underwater on their car loans?
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IIRC, used car prices shot up this past 6 months because new car production was so reduced due to pandemic shutdowns, which -in turn- killed the supply of used trade-ins.
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Of course...
The wealthy are buying houses instead of new cars and the not-so-wealthy are buying used cars instead of new cars
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related
Father, Son Used-Car Sellers Get $5 Billion Richer in a Day - Bloomberg
https://www.bloomberg.com/news/articles/2020-09-22/father-and-son-used-car-sellers-get-5-billion-richer-in-one-day
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> used cars
This jives with a sales letter I got from my dealer. I'd just had my 2016 car in for service so they know it's low mileage. They said that they were having trouble getting new cars due to the pandemic supply chain but used cars were selling and they needed more. So they wanted to know if I would trade up. When I was in for service the car lot was looking kinda empty and frankly all the dealers lots are looking thin on the new car side. That's my field report.
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RC: Classic SAAB Sonett III - $5,300 (https://sfbay.craigslist.org/pen/cto/d/mountain-view-classic-saab-sonett-iii/7204550882.html)
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Thanks! Luckily, it is 3000 miles away.
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Short hop from me. :)
If there was no pandemic I'd offer to drive it to NC for you.