Yes folks, despite the drastic downturn in new car sales, the so-called credit crisis is now so bad that new car dealers are being forced to not to drown their customers in debt. The Cleveland Plain Dealer (of all things) reports this new, un-American disconnect between what people can afford and what they can buy. "People with decent credit aren't able to get the terms they think they should get," said Michelle Primm, managing partner of the Cascade Auto Group in Cuyahoga Falls and a special director of the National Automobile Dealers Association. Which raises an important question: was Elvis a NADA special director? Did he get a badge? Anyway, some dealers are welcoming this new sense of realism– now. "'When you have dealers that say they can get anybody a loan, they're selling financing,' said Pat O'Brien, owner of Chevrolet dealerships in Medina, Willoughby and Westlake. 'They're not selling the car.' He added that loan terms offered to people with poor credit were often so bad that they would have been better off not buying.'" Who knew?
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See it all the time now. Banks are tightening up on loan terms, declining to refinance huge negative equity balances and demanding more proof of income and identity.
For the past 10-15 years we have been living in a free lunch credit market, and now everyone is neck deep. Maybe people will start shopping smart and start buying cars that they can afford and actually LIKE to drive, so they don’t want out 2 years into a 6 year loan. Oh who am I kidding!!!
I try to tell people who seem to like to car hop to consider leasing, but they rarely listen…
Dealerships may just find out that responsible financing/lending may just make happy customers. I would imagine that many of the customers who find themselves upside down in loans a few years down the road are none too happy.
Cars are just one point that needs reform in our credit happy nation. I suspect that if we all added up all our available unsecured credit it would far surpass our ability to repay it. Basic finance classes need to be tought at the high school level. Many kids just dont have the knowledge they need to handle credit as an adult, then not surprisingly become adults with credit problems.
Yea let’s see how long this lasts. A few months of very bad sales and automakers will have to go back to financing anyone with a pulse.
I especially think Chrysler can’t do this. If they substantially tighten their loan approval policies sales would fall so bad they’ll be bankrupt before you know it.
It just amazes me to know that my granfather’s generation worked on the basis of cash.
How much cash you got saved? What if you couldn’t get any loans, and wanted a car? What could you afford to get? Assuming that “everyone else” is in the same boat, how many $500 cars do you think there are to go around?
The Chinese save 25% of their incomes. This is about what my grandfather’s generation typically did. Loans were for suckers.
Little wonder the top 1% of the population of the United States has gained an extra 20% of the entire wealth of the nation in 20 years.
Maybe, as a nation, it’s time to back away from the credit table and go on a diet.
Menno, it’s a free country, are YOU living exactly like your grandfather lived? (Since you are using the Internet, obviously not).
You mean, I won’t be able to lease a Nissan GT-R Type-S on my 36K/yr Circuit City income even if I move with the wife and her two kids back to her parents double-wide in TX?
Should I be looking for an Escalade Hybrid instead?
Menno, it’s a free country, are YOU living exactly like your grandfather lived? (Since you are using the Internet, obviously not).
probably not, but he has a point. While credit is a great invention, it’s been abused, and we see the results now.
Living within our means may actually prove to be a smart idea, now that the after-party hangover is seriously settling in and that the Fed’s Tylenol doesn’t seem to work too well.
We did reach a point where people couldn’t stop consuming, jeopardizing their own financial situations, and those of their country, since it was possible only while foreign countries were propping up the dollar.
“Shorter terms and bigger down payments are good things,” she said. “You shouldn’t go 72 months on a car [loan] when people only own their cars for three or four years.”
I still see dealerships advertising 84,96 month loans in the newspaper. I’m guessing now only those with gold credit can qualify for that, but those with gold probably wouldn’t touch those terms with a 10 foot pole. Just last night I was up late and caught 5 minutes of an infomercial for a local dealership touting they could get you out of anything no matter how upside down you were even with marginal credit.
I try to tell people who seem to like to car hop to consider leasing, but they rarely listen…
But they want to OWN the car, duh! Because they give you the title as soon as you only owe 3 more years of payments! People are silly.
So let me get this straight.
1. Loan companies talk people into sub-prime mortgages they can’t afford.
2. Homes get repossessed and loan companies lose their money.
3. Loan companies tighten up on car loans because of a) the increasing number of defaults; and b) the shrinking of their profit margins.
4. Loan companies recoup their losses by collecting attrocious amounts from their consumers.
well that sucks
Leasing is definitely underrated. The problem is that there are so many parameters that dealers can screw you in so many different ways. If one takes the time to understand leases and seek out good lease deals, it’s a bargain compared to buying and flipping within 6 years.
You pay cash, you own car. You take loan, car owns YOU.
In 27 years of driving, I’ve taken out 2 3-year loans. Two years ago, I paid cash for my $1000 car. I still love the absence of payments.
If you don’t drive more than 10-12K miles per year, and you simply *must* be in a new car every few years, then a lease isn’t a bad idea. But for most people, buying is better.
What about those of us with low/no credit that can afford a nice car?
For the past year I’ve been paying 14% on a 5-year loan for a car that I put $20,000 down on. I have had no trouble making payments, but I think the interest rate is excessive, simply because I didn’t have a long credit history in the United States. Any chance I can get a re-finance with the credit market the way it is now?
What does a free country have to do with taking advantage of the country’s lack of personal financial education? There’s clearly a problem, and it is causing the shit to hit the fan, if you haven’t noticed, and while a hard lesson to learn, it can avoided with some form of education. They teach me how to produce (or avoid producing) children in school, why not teach something about how to build and maintain good credit and personal wealth?
Leasing can work if it is structured correctly. Many people focus only on the payment, not realizing that it was achieved with a very low mileage cap. Take a look at how many miles you drive per month and insist on a lease with at least that miles.
It just amazes me to know that my granfather’s generation worked on the basis of cash.
How much cash you got saved? What if you couldn’t get any loans, and wanted a car? What could you afford to get? Assuming that “everyone else” is in the same boat, how many $500 cars do you think there are to go around?
The Chinese save 25% of their incomes. This is about what my grandfather’s generation typically did. Loans were for suckers.
Little wonder the top 1% of the population of the United States has gained an extra 20% of the entire wealth of the nation in 20 years.
Maybe, as a nation, it’s time to back away from the credit table and go on a diet.
Kinda hard to save up when your paycheck’s getting chopped in half, ya know.
@thetopdog: For the past year I’ve been paying 14% on a 5-year loan for a car that I put $20,000 down on. I have had no trouble making payments, but I think the interest rate is excessive
Save money, buy with cash. No high interest loans. Can’t wait for a few years? Can you hear the violin?
Excellent point Quasimondo. What we have long ago forgotten is what grandpa kept from his check. Can you imagine 2% being taken from you to pay for the war effort? Leaves alot left over to care for grandma, doesnt it? The dollar also had buying power back then. Look at value added taxes(over 100 just on a loaf of bread) gas taxes, tolls, all the permits (taxes) to do anything. Half of what you make disappears. I never put down less than 40% on my work trucks which typically cost $25,000. Irresponsible, the people of today, I tell ya! Are the bankers snakes? Of course, but in the end I sign the paper and agree to the terms. My salesman told me I was the only person in recent memory to read the contract and study the terms. Seems all people ask is “how much a month?”
Unless you use the vehicle in business and want to avoid the pain of tax form depreciation schedules, I can think of no legitmate reason to lease. Leasing just lowers the payment up front by stacking the expense into the tail end of the deal. If you can’t afford to buy the car with a loan term of 48 months or less at an interest rate that you qualify for, then you can’t afford the car.
OK, I’ll offer the random thought for this ‘holier than thou’ sermon called a thread.
If the auto auction business wasn’t my career, and I didn’t need a car to get to work, I probably wouldn’t have one. At least not as a ‘fun’ machine. Compared with seeing the world, going out to eat, eating organic, and learning something that I truly value (sculpturing, square foot gardening, patenting a catapult used exclusively for cats), a car ‘di’vestment would just not be a good use of my resources.
I’d prefer to share one with a group of ‘conservative drivers’ who would wisely use it strictly for commuting. It would run on political correctness and bullshit (had you guys going there didn’t I). If I wanted to abuse it I would put on a talk radio station.
Then again, when it comes to ‘owning’, I feel the very same ennui about virtually all the higher cost luxuries out there.
A big house??? No thanks. My gas and heating bills are perfectly fine with the unpretentious middle class dwelling I bought 12 years ago. Just like some folks consider a Toyota Corolla or a Hyundai a ‘starter’ car for the young and frugal, my family considered ours a starter as well back in the day. It just so happens that it will probably last us for the rest of our lives so long as the termites don’t eat it first. The same goes for the 1977 Mercedes that’s on the driveway.
A boat??? Naahh… I like looking at them, but owning one really doesn’t do it for me.
Motorcycle??? Had a few, sold a few, used to work the largest motorcycle auction in the country. The only thing I have left is a Yamaha 125cc scooter. Though I can pretty much borrow a real bike, like a Royal Enfield (stop laughing!), whenever the opportunity meets desire. I just haven’t had that yearning for years.
Clothes??? They fit me in most cases. Flannels in the winter time, Collar shirts in the summer, Kahakis whenever I have to, Shorts when it’s above 55, the perfect recipe for the 21st century “Who Cares? American life. By the way, quality in the South can miraculously be found at a thrift store if you look. I only buy when I have a real need which is strictly synchronized with my wife’s opinion.
This would make me the seemingly perfect frugal zealot. A kinda/sorta 21st century wantless Americans. But, there’s one small catch that I’m missing. Investments. Cheap cars are still selling well and as of now I have about 15 to 20 cars that I try to buy low and sell whenever the opportunity presents itself. It’s a fun little hobby. But 2008 has been a helluva lot less fun than 2007.
We need a new President.
Credit classes should be required in school by a third party because some of the worst credit I have ever seen belongs to school teachers. We use
Credit Union Direct Loans (CUDL) and thank god
most of them belong to credit unions because they would never get bought anywhere else and the credit unions are the biggest pushers of 84 to 96
heroin.We tried leasing but most people wont do it
even though they trade every 3 to 4 years.From a
business standpoint we would rather have a shorter trade cycle its better for us and the customer
OK… I know that this is NOT going to be a popular thing to say. But I predict a car buying spree by those who can least afford it.
There is a method to that madness. And this method is going to piss off those who believe in and practice financial responsibility.
If an American citizen was up to their eyeballs in debt, and about to go under and declare bankruptcy, then buying or leasing a new car is a prudent thing to do.
The reason for this is simple. If you are going bankrupt, then you don’t want any equity in your car. If you have equity, then you can be forced to sell your car to tap that equity.
If you don’t have any, then there is no reason to sell your car. In this case, a lease is even better. It is not a loan. There is no equity. As long as you continue to make the payments on the car, then you should be able to keep it.
The bottom line is, when you exit bankruptcy, you are going to have either (a) a paid for car that is worth almost nothing, (b) a financed car that has little to no equity.
The reason this is a prudent move is because after the BK, they will find it very expensive to finance a car. So you are going to have to stick with the car you have. In the US, owning a reliable car is critical for earning money. Therefore, one is far better off owning a newer, more reliable car that will get them to and from work for 5-7 years after BK.
If you go into BK with an old worthless beater, then the chances are that it won’t be running any more a few years after BK. Then you are screwed again because you won’t be able to afford to buy reliable transportation.
As crazy as it sounds, I can’t help but recommend to those who know they are going under to lease a car, and insure it sufficiently.
And please, let me add, I don’t need to hear the moral indignation. I’ve heard it all before. I’m just pointing out this strange quirk to those who would never been in this situation.
hwyhobo :
I’m young and impatient, waiting was not an option
One of the problem lies with the lenders, when they’re flush with money they set the lending criteria too loose. No job, no credit can get a 110% loan. And we all know a lot of us will be affected by the job cycle, some will sit out much longer than others and some will be off for short time.
When u owe more than the car/ house worth then u wont do nothing anyways. Too bad USA is in the middle of a severe economic down turn. The two Wars were gravely miscalculated, now have to pay the piper who plays the tune.
People will have to hang onto their older cars for longer. That made the big 2.5s’ car look even baad. Own them beyond 3-4 yrs u need repair from bumper to bumper, thus driving more folks to buy Toyondas, Camcords.
Many yrs ago I was told u meet the same folks going and coming down the ladder, now the big 2.5 is tasting their own mwdicine.
My life has now completed a full circle; I was born in Medina…
like others that have posted before:
Fiscal responsibility is a rather nice thing to have… though, in our want it yesterday society, people will pay a huge price for their image…
Don’t forget the Dave Ramsey method of buying cars… – though that requires a steady income and self sacrifice…
“While credit is a great invention, it’s been abused, and we see the results now.
Living within our means may actually prove to be a smart idea, now that the after-party hangover is seriously settling in and that the Fed’s Tylenol doesn’t seem to work too well.
We did reach a point where people couldn’t stop consuming, jeopardizing their own financial situations, and those of their country, since it was possible only while foreign countries were propping up the dollar.”
Well said, AKM
My point about how my grandfather lived (and probably, your grandfather too) was not to say “oh, the good old days… let’s all go back” – that’d be impossible.
I don’t particularly want to have kerosene lamps and streets filled with horse manure, nor 16 hour days 6 days a week in the threshin’ season.
My point was kind of as a lot of you surmised; the United States and western sillyvization are very, very broken and collectively, we need to figure out ways to smarten up or we’re going to be extinct.
Privation and starvation have a sneaky way of creeping up on nations which can’t pay their bills, can’t pay for fuel to feed themselves and have a worthless currency nobody wants due to it not being backed by anything other than lies and empty promises.
But we’ve kind of had our chance to elect a Ron Paul and it doesn’t look like he’s getting anywhere. So I guess since collectively refuse to listen to reason and steadfastly refuse to put a competent Captain behind the wheel, the US “Titanic” is headed straight for the iceburgs and has already hit, in case you hadn’t noticed. So, collectively, we’re going to get just what we deserve.
Ironically, this may well mean that the survivors end up living – just as our grandfathers did.
Ahh… Dave Ramsey, channel 165 in the afternoon. You hear what he tells the idiots who are upside down with a car they cant afford. His radio program, or his book should be a high school study in itself.
“If you go into BK with an old worthless beater, then the chances are that it won’t be running any more a few years after BK. Then you are screwed again because you won’t be able to afford to buy reliable transportation.”
Bankruptcy does not mean that the person can hold onto their current ride at all. I liquidated vehicles for one of the largest auto finance companies in the country and when it came to vehicles repo’d to folks who would invariably file a BK, we did not have to give the vehicle back unless it was ordered by a judge… and that was very rare. In virtually all the cases I can recall, it involved a much older vehicle that mattered little to our finances.
The best vehicle to buy and own is a well depreciated one that has been…
1) Conservatively driven
2) Well maintained
3) Represents a ‘good value’ to you and your wallet
On the way home today I took note of two 1980’s T-Birds that were still in great shape. In fact one almost looked factory brand new. I also saw a Volvo 940, a 1980’s Chrysler minivan, a late 1980’s Escort, and a mid-1980’s Dodge Aries that were all in perfectly fine shape.
The ‘what to buy’ part of the equation is ENORMOUSLY overrated in this car market compared with the importance of simply finding a car that had the right owner(s). I always use the example of the importance of a pitcher in a baseball. The pitcher will dictates over 80% of the outcome of a game he almost exclusively dictates the level of runs that are scored on the team. Likewise a good prior owner will usually have a far greater impact on your happiness and financial well-being than a given brand.
Something to keep in mind…
A lot of calls for better education in personal finance, but I don’t buy it. People already know plenty, and it doesn’t influence their behavior. What they lack is wil power.
The obese don’t need to be educated to know that eating a third slice of cake isn’t helpful. They need to stop eating cake.
“Ironically, this may well mean that the survivors end up living – just as our grandfathers did.”
“My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel.”
— Saudi saying
Steven Lang,
Perhaps I didn’t make it clear that the owner has to maintain payments on their car. The cars you have are because:
(1) Delinquencies… they didn’t pay on them. Not because they are bankrupt. They often payed the mortgage first.
(2) There was enough equity in the car for the court trustee to liquidate the asset.
So to make it clear, they have to keep up with payments on a car that has no equity. Some (many? most?) people in dire financial straights don’t have the discipline to do this.
If you can’t pay cash, don’t buy the car.
Last year I helped a young guy find a used Taurus in excellent, though high mileage, condition for $1k. The 3.0 l engine in his is a workhorse and the transmission had already had it’s “scheduled” rebuild. A year on and it is still a great car for him. Takes him where he wants to go in comfort and safety and has needed only minimal maintenance (one tire because it failed early and several oil changes).
Over the long haul we would all be much happier if we as a nation were not carrying so much debt for frills.
I buy new cars when I need one these days, but I always write a check. If I can’t write the check, I don’t need the car. Many people cannot distinguish between what the want and what they need. The problem with grabbing what you want is that there is always the next thing to want after that.
Grandpa had it right, and so did Grandma. Back in the day schools used to send all the boys through shop classes and all the girls through home economics. Boys learned how to build and fix things while girls learned how to manage the family income and expenses closely. Then that was all deemed sexist, so now nobody learns how to do anything.
Okay, I understand what you’re saying now… but it still wouldn’t work financially.
This fellow will have to make some high payments for a very long time to keep the vehicle. Assuming he files bankruptcy, in most BK cases the person will usually have heavily damaged credit for the prior 12 months which means high interest rates and high payments.
In the long run, paying cash for a car with a minimal level of depreciation and a conservative prior owner is the best recipe for a frugal long-term period of ownership.
If there is one thing Americans embrace, it is that anything worth doing must eventually be done to excess.
It’s the Joan Rivers’ approach to plastic surgery applied to virtually every aspect of life.
Thus, it’s not enough that we can afford bigger cars…we have to commute to work solo in the big honkin’ Escalade or Hummer.
A new car is wonderful…so let’s get one every year, even if the old one isn’t paid for yet.
At the opposite (ideological) end, reducing the amount of miles we drive isn’t enough – we should ditch the car completely, and walk or bike everywhere.
As with the collapse of the housing bubble, the trend outlined in the article is a welcome development. Credit terms have been far too loose over the past decade. Just as not everyone needs a house – let alone a five-bedroom, four-car garage McMansion – not everyone needs a brand-new car. For some people, apartments are the answer, just as a used car – or keeping the current ride – is the often best answer when buying a vehicle.
The housing bubble fed on itself by pushing prices up to unrealistic levels, which increased the demand for exotic financing options that made houses appear more affordable, which maintained demand, which kept up prices, which…
The car-credit bubble propped up demand for new cars, particularly SUVs and entry-level luxury cars, which meant that auto makers focused their efforts on those market segments. The domestics, in particular, ignored the need for attractive, solid passengers CARS that were affordable and reliable. Now, as the market contracts, this focus is coming back to bite them on the butt. But they aren’t the only ones. Hyundai, for example, has been pitching for sales among the credit-challenged, and focused on SUVs, too (its passenger cars sales are propped by fleet sales to rental companies).
I like new cars. I like buying new cars. I like the smell of a brand-new car; I love the shiny, perfect paint; I love the excitement of getting a new one.
But I can also do basic math, and know that buying a new one every year or so is a bad deal, especially if the old one isn’t paid for yet. I also know that one must consider insurance, maintenance and gasoline costs when buying the vehicle.
Yes, a used car is a better deal, but we’re only here for a short time, and, for me, a new car every 5-6 years is one of life’s pleasures. As long as I can afford that, I’ll buy one, just as I’ll continue to enjoy an occasional Coke float (with regular ice cream – no non-fat stuff – and the Coke with all of the caffeine and sugar), or a really good hamburger with all of the fixins’ (not fast food).
Balance and moderation are the keys, and there is nothing wrong with buying a brand-new car every 5-6 years if you can afford it, and enjoy it. Just as there is nothing wrong with people who want to spend money traveling instead of buying a new vehicle, or prefer to collect wine or art instead of spending money on other things.
I save money, but I also have no intention of being buried with it.
Perhaps, once again, buying a new vehicle will be a special event, and people will APPRECIATE a new vehicle, and take care of it. And maybe GM and Ford will start realizing that they need to put some EFFORT into their affordable passenger cars, as they did back in the 1950s and 1960s, when people didn’t have to be ashamed to be seen in an Impala, Galaxie or even a Fairlane or Chevelle.
If the slowing economy and tightened credit cause this to happen, it would not necessarily be a bad thing.
Well spoken, geeber.
I’ve read that Saudi saying before, too, Praxis. (Did you notice that the Saudis have NOT drilled in the latest oil find, explaining that they want to leave some oil for their children?) Note; not “our” children. As is their right.
I think it’s a bit extreme to say you should always pay cash for a car. Having a job usually requires that you have an education, a place to live, and a way of getting to work. All that takes money which you won’t have until you’ve worked for a while. So you sorta have to go into debt to get started in life.
But, if you live within your means, your job will allow you to pay down your debt over time. The problems begin when debt is used to prop up an unsustainable lifestyle. Either get a better job or learn to live with less. Be creative about it if you have to.
SloStang,
other than your house payment, there is no NEED for anybody to be in debt. Period. It’s a choice people make. I listen to Dave Ramsey every day, but without the personal will power to follow the basic (and common sense advice…nothing new in what he’s saying) tenets he discusses, all the education in the world wouldn’t mean a thing.
Nobody…nobody, NEEDS a new car. They WANT a new car. I watched my folks (just one generation back, I don’t even need to go back to my grandparent’s time) save to buy each car they bought. The first new car was in 1981 when I sat at the kitchen table and counted the $8000 they spent on a new Corolla. Could my dad have used that as a downpayment on something much nicer? Sure…but he didn’t! The car was paid for in cash and driven for ten solid years. When they moved around (first the military, then civil service), if they needed a second car, they first shared the one car they had until he had $2000 or so saved, then he bought a used car and drove it until the wheels fell off. My mom’s last new car is a 2003 Corolla. When she went to the dealership to look at it, she ordered it fully loaded. When the dealer asked how she wanted to finance it, she politely told him she didn’t. Stroked a check right then and there for the full amount. The dealer almost passed out! Now, had she not had the $19,000, she would have bought whatever she did have the cash for. I deeply desire a new(er) Jeep Wrangler, but refuse to be a sucker to the banks and finance companies. So, no Wrangler for me later this year but more than likely a $3000 run around car. Saying one needs to go into debt to start is a cop-out. There are numerous ways to avoid that, but 9 out of 10 people here in America would rather make the choice to go into debt now because they want something immediately, as opposed to following a (here comes the dreaded word) PLAN and working up towards buying in cash. Living under one’s means is a foreign concept here…
Am I wrong here? What’s America and capitalism all about if not consumption.
USA is also is deep debt, one day all the lenders could start no more money to lend too.
To borrow is not a bad thing if u borrow what u needed, but when u make 100 tries to borrow many times then u in deep trouble, any sign of cash flow slowing down u get nothing but aggravations.
America = conspicuous consumption.
Is fine when we have fine times, when the music stops everybody tries to find a place to park their as*** but not everybody so looky though.