Record number of car buyers underwater on their trades; loan lengths increasing
 

http://ecomodder.com/forum/attachmen...1&d=1490368135
Flickr img: by State Farm

Things in the new-car purchasing world are getting scary:

Jalopnik: A Record 32 Percent Of Car Buyers Are Underwater On Their Trades: Report

This situation coincides with (1) increasing new vehicle prices, (2) increasing loan lengths, and arguably (3) decreasing financial literacy.

A recent spate of articles on this side of the border point out that the problem is hardly restricted to the U.S.

In Canada, loan lengths have also been going off the deep end too...

Globe and Mail: The rise of longer car loans, a major risk to household finances

Automakers have been pushing longer term loans hard as a way to keep increasing record year-over-year sales. That keeps the buyers' monthly payments down, but the downside is obvious to anyone who thinks about it for more than 2 seconds (before the next shiny new thing distracts their attention).

The result is more and more people being deeper in debt when they can't resist the siren call of their next new car:

The solution? The Globe's writer suggests people try living within their means, and not taking out massive loans on depreciating baubles. Pay cash for used cars. Or if you must borrow, buy a significantly less expensive vehicle and sock away the difference between what you're paying and what you would otherwise be spending each month into your "next vehicle fund".

What a quaint idea. Likely to be heeded? Not if you look at where the stats are going.

And a diamond engagement ring should only cost 3x your monthly haul!

Now THERE is money down the drain.

This is wonderful! It is precisely this stupid "oooooo shiny!!!" instant gratification consumer over reliance on credit BS that creates all sorts of havoc including bubbles and increased prices for those few of us that don't abuse credit.

Is this also why the media is perpetually whining about "how bad the economy is" all when people actually have it good- they're simply spending beyond their means as Standard Operating Procedure?

Go down in flames, idiots. I'll be laughing all the way.

I wonder how many people view "car payment" as a normal part of their monthly expenses and don't think about it beyond that, not realizing it doesn't need to be a life-long hamster wheel.

As long as the number fits the budget, good enough!

I grew up where my parents never had a car payment. Always bought used and in cash. I definitely view a car payment as an extra/unneeded expense. Could it be this sprouted from "keeping up with the joneses"?

I remember my dad once telling me: debt is good because it lets you lead the life you want, as long as you can make the payments. :)

I'm happy to say that was several decades ago, and he fortunately no longer follows his old advice.

Glad I don't live by that old adage. Car should cost no more than I have handy, in cash. Going on 14 years for the current car. Only about 8 for the truck, but it was well-used when I bought it. And just last weekend, I had a guy stop and ask if I wanted to sell it :-)

Ah, but you do -- OTM said "no more than" and you (and I) are just coming in well under that. ;)

That's the thought that came to my mind when reading the article. The "I'll always have a car payment" mentality that shields people from the reality of how much money they're forking out over a lifetime.

I have never had a car payment.
House is paid off too.
People like me are very dangerous to banks, not spending most of my life paying 1/2 to 3/4 of my take home to the banks.

Neither have I, but then again, I've rarely owned a car that didn't qualify as a "jalopy" by Click & Clack's standards:

"When lending your vehicle to someone else, if you have to explain some quirk about how to operate it, it's a jalopy!"

I think a lot of new cars might qualify as jalopies by that criterion. E.g. the ones where you have to push a button to start/stop the engine, instead of using the key in a normal fashion.

outlook...
 

Timely:

Plateau in U.S. auto sales heightens risk for lenders: Moody's | Reuters

http://ecomodder.com/forum/member-fr...13836510-n.jpg

According to the NADA guides mid-book on my make year and model was $6650 two years ago when I totaled it. I was able to preserve the title with $800 additional out of pocket, and it's currently at $7800.

Fragile and valuable is a bad combination for a daily driver.

The real issue is that when you buy on finance, you still have to pay the whole (or a good deal of) the interest even if you sell immediately. That tends to roll payments into the next purchase.

On the other hand think you guys might change your tune when the reliable and relatively simple to repair 90's-2000's cars dry up.

The smallest issues can set you back thousands on the latest cars. Try pricing things like an ABS pump, body computer, diesel fuel pump/injectors.

The paradigm is shifting such that buying new is becoming the better option than taking the risk on used. I'm kind of hoping that I've bought my last new car though...(seven registered at present count)

I just bought a Proton (Mitsu Lancer) it's a 2010 model, but the tech is circa 1994. In many ways that's the way to go a lateish model, so decent paint and interior, but mechanically so simple and cheap, but still with the basic good parts of newer cars like EFI and CAT. I guess I wouldn't mind a single airbag though, and ABS.

It's a shame the powers that be won't let us have such vehicles nowadays. On our market, there was little else so outdated in 2010.

One of my friends barrowed $16,000 at 17% for a new camery a year ago.
After a year of paying $330 a month she has paid off exactly $155 of principal.

I could go to the bank, buy her car get the title and have her pay me back plus 1,000 to 2,000 dollars.
Then in effect becoming the bank.
(Insert maniacal laughter)
I should be a bank, I figure if someone is going to take peoples money it might as well be me.

Maybe it's different down there, but in the US, I believe that's not the norm. I've paid off several loans for used cars early and the only extra charge over the remaining principal is the interest accrued since the last payment.

Let's not forget that buying a new car and financing a car are two separate issues that can compound on each other, but neither is necessarily a terrible decision. With a low enough interest rate and a responsible individual, financing can actually save/make money over paying with cash, provided that cash is invested instead. Some models depreciate so slowly that it can make sense to buy new over a 2 or 3 year old used specimen (I almost did this when I was strongly considering a Honda Fit 5-6 years ago). Of course, most people make choices that put buying new, financing, or both, firmly in the terrible decision box.

I am thankful for those who buy new cars that I'll eventually want, without them I wouldn't have used options that are a fraction of the price of new.:D I just wish more of them would buy cars I'm interested in so I could have a bigger selection.

Also contributing to the problem: Many people buy new who probably should buy used, but automaker financing is easier to get than financing for a 5 year old car. (At least that's what I keep reading.)

Unfortunately, most people don't have the funds available to buy the used car outright with cash.

In completely unrelated news...

http://www.autonews.com/article/2017...t-analysts-say

Seems like there's a lot of chicken & egg going on here. People don't have the cash available since they can't save anything because they're stuck with car payments.

So we had the subprime housing market crash, recovered from that, now we can look forward to the subprime auto loan crash. Really, sometimes I don't know whether to laugh, cry, run down the road screaming, or find an isolated cabin in the wilderness and wait for the bang.

The student loan bubble comes first.

I suggest a semi-submersible houseboat, with a water-power turbine under the keel.

It's like being on a roller coaster climbing gradually up that first big hill until momentum takes over, isn't it? ;)

Canadians suck... and Ford is worried
 

Apparently we're even bigger suckers for long loans than Americans!

https://www.bloomberg.com/news/artic...bt-pile-mounts

Ford is actually starting to worry about increasing term lengths.

Because encouraging customers to buy more car than they can afford may be good for the short term bottom line. But ultimately putting them underwater is probably bad for long-term repeat business, dontcha think?

I wonder if the Dutch have this problem with boats.

Being underwater with them? :)

I had been thinking about this... If you live in Canada, you're totally boned when it comes to car ownership. Let me explain how:

Unless you live in Victoria BC, you've got road salt. You can take it to rust treatment, but odds are you don't. And after like 10 years and idk maybe 150k kilometers, your car is going to be rusted to hell and worthless and end up in a junkyard. How many 15-yr-old or more cars do you see on the road in Ontario? Like, none.

That means people are replacing these old ones as they die with new ones. Except Canada's dollar is worthless and so the new cars cost too much to own, so you end up with 6 year loans and bad cellphone contracts.

Even the G1 Insight all-aluminum body isn't immune to the salt; mine had to have the lower cat replaced, I had to weld a new flange onto the upper cat, and my cousin replaced all of the brake lines and previous owner replaced part of the fuel line and I had to replace the sway bar link arms, AND I patched corrosion holes in where the seat bolts enter the floorpan. Also there's less than 400 of these things up here anyway so like not everyone can get one.

Point is that cars don't last, and it's hard to get a used car that's worth buying because they've all been turned to rust. Canadians are totally screwed.

And then the new cars they're making, they keep you know improving standards and ****, so the cheapest new car is $10K these days, and like you know lots of people don't want to drive a Nissan Micra (even though they probably should, or a Mitsubishi Mirage, because then they'd save on Canada's terribly high gas prices) so they're just paying money out their asses meanwhile they're probably broke because it's Canada and the economy sucks.

Oh and I'm writing this post from Canada, I'm visiting this weekend.

Where I am from in Maine is kind of the came way.
After 10 to 12 years a car becomes a rusted out crap box.
And they have state inspections and they will fail you for having a rusted out crap box.

In new Mexico I see a Chevy love still on the road and some really old fords too. With a typical day having 15% to 50% humidity it's like all the vehicles here are the ones rust forgot.
If I ever move back to Maine I will be looking in west texas, new Mexico or Arizona for an old used car.
I would rather pay $1,000 to $2,000 to ship a 20 or 30 year old car that cost $2,000 to $4,000 than buy a $10,000 car.

That would make them 'submarines' (wink,wink).

Don't forget the enormous commercial property bubble. With all the big department/anchor stores going under, it should be popping soon.

Local governments ought to have a contingency plan to deal with tax delinquent and/or foreclosed commercial property. Vacant stores don't generate sales tax.

record auto debt
 

Just another datum for the pile...

Outstanding auto loans hit record $1.1 trillion


Streeeeeetch it out!

Source: http://www.autonews.com/article/20170907/FINANCE_AND_INSURANCE/170909823/outstanding-auto-loans-hit-record-$1.1-trillion

Via: Jalopnik

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None of which is owed by me :-) It's been over 30 years since I paid off my first and only auto loan.

So, most auto loans last longer than I have owned any car. Neither part of that sounds good, but if I spend $2,700 every three years, that is $900 annually, or $75 monthly, plus I save on insurance.

One of my Facebook friends traded in her car that was only a couple of years old when her wife bought a new car.

I stared at her as she dismissed rolling her old car loan into the new one and saying "It is fine."

Apparently she also has a habit of purchasing jewelry on credit.

I had my Dasher up on the rack before it's road trip; and the mechanic, Jerry, said "You should buy yourself a good car".

Knowing him I took to one of two ways; either the closest he could bring himself to 'sweet ride', else he still can't believe I traded a set of mag wheels for it.

One of the young guys where I worked suggested I buy a "good" car. I asked why, and he said, "well, your old one could give up the ghost at any time". I asked him what he was paying for his new Ford and he told me £300/month. I told him my car cost me £300 and if it died tomorrow I'd go out and buy another £300 car - and still be better off than him!

The only bank that still issued mortgage on house boats has announced it will stop doing so. Houseboats are on the decline, and this won't help.

But there is a shift in the population of house boats; new owners are typically wealthy, using the house boat as a 'pied a terre'.
All house boat owners go to lengths to prevent their house from going 'under water'. It is second nature to them :)

Ninety Six Months! Eight Years!! For a car loan!!! *Boggle* I mean, I know cars are getting more complex and expensive, but that's nuts. People need ECON 101.

I had two 5-year car loans in my life. Paid them both off early. Effective APR was about 1.5% on the first and under 1% on the second.

The only car loan I ever got was in 1978, for £1000, from my mum. I would just about have it paid off now - if she hadn't died in 1990!

Inconceivable!

$1.1 trillion in loans, the 1 in 5 of which are subprime, 2 in 5 of which are underwater. This is a recipe for disaster, the only question is when does this collapse?

One good thing... the trend here at EcoModder seems to be that of avoiding auto loans entirely. Like many here, I had one auto loan, hated it so much that I've paid cash for every other vehicle I've purchased (and that's a long list...). I hate making payments on a depreciating asset.

Every time we try to boost the economy by financing products, we inflate the cost, and place more burden on the consumers trying to acquire those products. Whether it's housing, autos, or college, the solution is to make it more difficult to get loans, rather than easier to get loans.

I am not a big fan of creating new laws, but maybe they should not be able to finance for longer than the warranty lasts. Can you imagine still owing money on a car that does not run?