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Thread: weekend commentary - the actual cost of new cars ...

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    Banned Melonie's Avatar
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    Default weekend commentary - the actual cost of new cars ...



    (snip)"A downward trend in inflation and a strong dollar helped cars get a lot more affordable starting in 1995, Johnson says, but since 2002, even though incomes have risen, the amount spent on cars has gone up and loan rates have increased. "It's sort of like the cost of acquiring a car has gone up in parallel with incomes in the last five years," he says.

    You would never know any of this from the aggressive marketing tactics of car companies, who use creative financing methods to make cars feel more affordable, says Philip Reed, consumer advice editor with Edmunds.com.

    "People waste all kinds of money when purchasing and owning cars. It's a depreciating asset. There's no way to get around that," Reed says. "So right from the get-go you will lose money, but the question is: How much? You want to control the bleeding."

    Reed is fairly strict about how much money people should spend on a car. He says a good rule of thumb is 20 percent of income. This means someone who buys a $20,000 car should be making $100,000.

    However, Bryan Lee, a financial planner in Plano, Texas, rejects such a hard and fast rule. He says it's more important to look at your overall financial picture, as well as your priorities."(snip)


    At any rate, this is an eloquent testament to the fact that Americans no longer seem to bother finding out how much something actually costs, they only worry if they can afford next month's payment. However, the rising de-facto cost of owning a car combined with longer term loans and higher interest rates is creating a situation where tons of car loan borrowers are now 'underwater' - in other words they still owe more money on their car loan than than their car is currently worth in terms of resale value. To make matters worse, the car that they do own is now likely to be 4-5 years old, is likely to have fairly high mileage on it, and is likely to be experiencing rapidly escalating repair costs, but their 5-6 year loan still has lots of monthly payments left !!!

    This is going to result in a huge cash 'squeeze' on these car owners as banks have tightened lending standards such that the car owner will no longer be allowed to 'roll over' their negative equity from their previous loan into a new loan for the purchase of a new vehicle. These 'underwater' car owners are either going to have to keep throwing increasing amounts of cash to keep their 4-5 year old car in running condition while continuing to make existing car payments, or they're going to have to pay off their existing car loan early plus save up down payment money for a new loan (since the future resale value of their present car won't cover a 20% down payment requirement on a new car purchase).

    In a larger view, this situation is yet one more 'nail' in the coffin of an affordable suburban 'middle class' lifestyle, as well as one more 'nail' in the coffin of (what's left of) the North American auto industry. It's also a pretty good indicator that the future sales of Kia's, Hyundai's and next year's Chery's (first imported cars from China) with a Dodge nameplate are likely to be the only sales that will be rising.

    Ironically, Detroit's fastest growing market for exporting larger / luxury cars is ..... China !

    ~
    Last edited by Melonie; 11-10-2007 at 05:16 AM.

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    Featured Member minnow's Avatar
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    Default Re: weekend commentary - the actual cost of new cars ...

    20% of income sounds like a good guideline, but doesn't say how often 1 should buy a car. Is it better to spend 20% of income on a car every 3 yrs, or get 1 that's 30% of income, but keep it for 10 yrs? ANSWER- The more cash you can pay, the better.

    On the subject of eroding middle class: Some truth to that, but realize, too that cars have been upsizing over the yrs. A recent USA Today article commented on how popular sedans like Accord, & Camry have grown larger, like over 1 foot longer, and 500 lbs heavier. 2007 versions of these cars practically different animal than those of 1987-97, even early millenium. Latest Camry has more HP than 1991 Corvette Coupe had. So, while more expensive, also more heavilly equipped.

    Overall point well taken. If buying depreciating asset, buy it just after its had largest annual depreciation , and or keep it a long time.

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    Featured Member OJenni!'s Avatar
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    Default Re: weekend commentary - the actual cost of new cars ...

    ^^And not only that there is the growing size of our waist lines (hopefully not including me!) that car manufactures have to make more space for.



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    Banned Melonie's Avatar
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    Default Re: weekend commentary - the actual cost of new cars ...

    ^^^ well, according to the stats, future buyers of new cars in America are going to have a choice of spending 25% of their annual earnings on a tiny foreign car they must squeeze into, or spending 35-40%+ of their annual earnings for a car big enough to plant their fat asses in comfortably ... and which also hogs gasoline hauling around the car's own bulk along with the driver's !

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