More Consumers Find Themselves 'Upside Down' On Trade-Ins

This is terrible news.. People just suck at being greedy. You allow people with poor credit to buy cars and they take advantage of that by continuing to trade in and get in more debt for a longer period of time..

Not surprised by this at all, it really is to be expected when creative financing allows people of little income to buy at a level that requires double if not triple what they really can afford.

The dealers and auto companies need to stop offering creative financing to people that do not have the credit or income to support driving an auto that is outside their means.

I don't know why people keep trading cars and getting further and further upside down. Once of my car buying experiences I was sitting next to someone trying to roll 15 grand of negative equity into the next vehicle...

I drive them until they drop.  Usually when I get rid of a vehicle, the battery and floor mats are the only valuable parts left....

While I agree with what Mr. DFELT and  CCAP, I personally will ALWAYS put the onus on the BUYER...

WHY?

Because he/she shoudnt be buying or leasing, especially leasing, new cars regularly if he/she cannot afford them. Leasing is good for some people, for most though, it shoudnt even be a thought let alone an action.

If people PREFER to bite off more than they could chew, let them choke...

Sure, banks and finance people and dealerships want to make money and morally they shoudnt take advantage of these people, but...this still falls under the responsibility of a consumer being responsible of his/her own finances...

Personally, I have some cash saved up in my bank account(s)...I CANNOT wait when interest rates sky rocket again so I could start making money off my hard work and smart consumer choices with my savings...

And no....while I do have some investments going on, I refuse to do heavy "investments" as greed fuels the dudes controlling the investment industry and I dont want any shyster telling me: "yo dude, the market had a hiccup today and poof, your money is gone..."

I remember the crazy '80s all too well...and sure enough, history repeated itself 20 short years later...

If somebody wants to keep up with the Jones-es and they end up hurting...not my problem.....and why do I feel like that?

Because while its great to have low interest rates when I buy big ticket items for myself...at this point in my life, it would be better if high interest rates would be available to me for the money I have earned and saved, high interest rates dont exist because it protects those fools that part with their money easily...

@A Horse With No Name I dont know why the need to change a good working car so often...

Then again I do...

Image and status and shyte...

Vanity is a sin....but then again, who listens to HIM anyway?

20 minutes ago, oldshurst442 said:

Because while its great to have low interest rates when I buy big ticket items for myself...at this point in my life, it would be better if high interest rates would be available to me for the money I have earned and saved, high interest rates dont exist because it protects those fools that part with their money easily...

@A Horse With No Name

“The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”

- Adam Smith

Agree that money fools those who fall into it...

I find this incredibly hard to believe. That number is shocking, and having been in the business for several years and worked for a variety of MFR's in different areas, I struggle to accept this as fact.

Based on what I see, I'd have guessed it much, much higher. At least 50% being conservative.

13 minutes ago, Frisky Dingo said:

I find this incredibly hard to believe. That number is shocking, and having been in the business for several years and worked for a variety of MFR's in different areas, I struggle to accept this as fact.

 

 

Based on what I see, I'd have guessed it much, much higher. At least 50% being conservative.

Why do people trade cars when they cannot afford to?

Hell, my 2003 MINI Cooper S is doing fine, been paid for forever...would love to sit down with you and pump a few beers down, just to understand the auto industry better.

...and as a car guy there are so many other things I would love to spend money on other than cars.  I really really want a nicer band saw for my work shop. I cannot imagine putting every penny into a vehicle.

1 minute ago, A Horse With No Name said:

Why do people trade cars when they cannot afford to?

Hell, my 2003 MINI Cooper S is doing fine, been paid for forever...would love to sit down with you and pump a few beers down, just to understand the auto industry better.

To answer your question, a number of reasons. Chief among them are just poor financial decisions. Some are nothing more than knee jerk impulse buys. Some are the result of being ignorant and getting taken advantage of. Some are due to reasons beyond their control- vehicle needs changed, can't afford the car because of other expenses or lost job, etc, etc. Sometimes it's a result of people trying to be frugal and practical, only to realize they are unhappy with their purchase and turn around to trade right back out of it.

The problem is that with rebates and the way dealers can structure deals, it's very easy for it to seem as if you have little to no negative equity at all. Here's an example-

-You owe 20K on your trade. 

-It's worth only 17K. You have 3 grand negative equity.

-You're looking at a car that has $2,000 of mark up.

-It also has $2,000 Bonus Cash/Trade Assistance/whatever the dealer doesn't have to give you, or doesn't have to disclose what it is.

-The dealer discounts the car you are buying by $1,000.

-They use the other grand of mark up to over allow on your trade. 

-And then use the $2,000 and add that to your trade allowance.

The deal now looks like-

List Price- $32,000

Selling Price- 31,000

Trade Allowance- 20,000

Difference- 11,000

Payoff- 20,000

Total Financed- $31,000

In such a scenario, it can be almost impossible to figure out that you had negative equity. The discount and incentives covered it up. But had you NOT been upside down, the purchase price of the new car would have been 3 grand cheaper. It's all in how you present numbers.

As for your second part, I'd enjoy that. Then again, I'm not sure how much you'd learn, as I sometime struggle to figure it out myself, lol. For better or worse. What I see and think can (and seems to be, usually) very different from what CEO's, focus groups, and bean counters see and think.

1 minute ago, Frisky Dingo said:

 

 

To answer your question, a number of reasons. Chief among them are just poor financial decisions. Some are nothing more than knee jerk impulse buys. Some are the result of being ignorant and getting taken advantage of. Some are due to reasons beyond their control- vehicle needs changed, can't afford the car because of other expenses or lost job, etc, etc. Sometimes it's a result of people trying to be frugal and practical, only to realize they are unhappy with their purchase and turn around to trade right back out of it.

The problem is that with rebates and the way dealers can structure deals, it's very easy for it to seem as if you have little to no negative equity at all. Here's an example-

-You owe 20K on your trade. 

-It's worth only 17K. You have 3 grand negative equity.

-You're looking at a car that has $2,000 of mark up.

-It also has $2,000 Bonus Cash/Trade Assistance/whatever the dealer doesn't have to give you, or doesn't have to disclose what it is.

-The dealer discounts the car you are buying by $1,000.

-They use the other grand of mark up to over allow on your trade. 

-And then use the $2,000 and add that to your trade allowance.

 

The deal now looks like-

List Price- $32,000

Selling Price- 31,000

Trade Allowance- 20,000

Difference- 11,000

Payoff- 20,000

Total Financed- $31,000

In such a scenario, it can be almost impossible to figure out that you had negative equity. The discount and incentives covered it up. But had you NOT been upside down, the purchase price of the new car would have been 3 grand cheaper. It's all in how you present numbers.

 

 

 

 

 

 

As for your second part, I'd enjoy that. Then again, I'm not sure how much you'd learn, as I sometime struggle to figure it out myself, lol. For better or worse. What I see and think can (and seems to be, usually) very different from what CEO's, focus groups, and bean counters see and think.

 

You are also open to alternate viewpoints, which I genuinely appreciate.

CEO's get really caught in group think, focus groups can go way off track also.

All good points by everyone.  I would say there are 2 huge problems.  First people want to buy cars with no money down when they shouldn't buy a car unless they can put like 10% down on it, if sales tax alone is 7% like in my county, you need 10% down to cover taxes, fees, registration, etc, and hopefully like $500 toward the price of the car.   At least then you aren't upside down on day one.

2nd problem is the 72 month car loan.  That amortizes so slowly, the car is depreciating faster than you can pay down the loan.  If you can't afford the payment of a 48 or 60 month loan, then you probably need to shop for a less expensive car.

A $30,000 car on a 72 month loan is about the same payment at as 60 month loan of $25,000.  If you shop based on 10% down and a 60 month or shorter loan, you probably won't end upside down on the car.

6 minutes ago, smk4565 said:

All good points by everyone.  I would say there are 2 huge problems.  First people want to buy cars with no money down when they shouldn't buy a car unless they can put like 10% down on it, if sales tax alone is 7% like in my county, you need 10% down to cover taxes, fees, registration, etc, and hopefully like $500 toward the price of the car.   At least then you aren't upside down on day one.

2nd problem is the 72 month car loan.  That amortizes so slowly, the car is depreciating faster than you can pay down the loan.  If you can't afford the payment of a 48 or 60 month loan, then you probably need to shop for a less expensive car.

A $30,000 car on a 72 month loan is about the same payment at as 60 month loan of $25,000.  If you shop based on 10% down and a 60 month or shorter loan, you probably won't end upside down on the car.

Agree completely.  There is also the living beneath your means. My sons girlfriends parents live in a house that is pretty spectacular, they have worked hard their whole lives and are very careful with their money. 

They got a fantastic deal on the house and have had a lot of equity from day one.

They drive a four year old Avalon when they could write a check for an S class and not have it hurt them. Another friend of mine is very well off, house is paid for, very secure job in academia, does a ton of very highly profitable consulting work...and drives a Nissan Rouge.

He also could write a check for an S class or a CT6.

A lot of millionaires drive older domestic 4 door cars like Buick and Chrysler 300, et al. 

Personally, i would rather have a hundred grand in the bank and drive a 25K car than have 25K in the bank and drive a 100K car.

Agree with that, but even for people buying a $15,000 car, they can easily end upside down if they get an interest rate that isn't favorable or put no money down.

Just now, smk4565 said:

Agree with that, but even for people buying a $15,000 car, they can easily end upside down if they get an interest rate that isn't favorable or put no money down.

Ohh absolutely....and given the crappy residual values of a lot of modern cars, there will be plenty of pain to go around.

1 hour ago, Frisky Dingo said:

I find this incredibly hard to believe. That number is shocking, and having been in the business for several years and worked for a variety of MFR's in different areas, I struggle to accept this as fact.

 

 

Based on what I see, I'd have guessed it much, much higher. At least 50% being conservative.

Oh sht, & thought you were going to say the number was higher than expected. 

Personally, I only know one person who rolled negative equity to a new vehicle "but" it was downsizing to a focus from a Ram because he was driving a sht ton and 15mpg wasn't cutting it.. he rolled like 8k into the focus loan. Hard to believe it was still a good idea but he's kept the focus for 4 years now and I talked to him the other day about this actually and he'd still be upside down if he tried to trade it in now be he has no intentions of doing anything until it's paid off. 

1 hour ago, Frisky Dingo said:

Some are nothing more than knee jerk impulse buys. 

This has never made sense to me. I understand it's a thing but how in the hell do people make tens of thousands of dollars an impulse buy?!?!

2 minutes ago, ccap41 said:

Oh sht, & thought you were going to say the number was higher than expected. 

 

Personally, I only know one person who rolled negative equity to a new vehicle "but" it was downsizing to a focus from a Ram because he was driving a sht ton and 15mpg wasn't cutting it.. he rolled like 8k into the focus loan. Hard to believe it was still a good idea but he's kept the focus for 4 years now and I talked to him the other day about this actually and he'd still be upside down if he tried to trade it in now be he has no intentions of doing anything until it's paid off. 

At some point maybe I could see doing this...but it is a long five years paying something like that off.

Yup, and all those modern cars entering the used market, yes, used market will have a boon.

Aside from that, the hard times are approaching for the auto makes. Once this last bastion of boomers hit the hay, there's not gonna be many millennials buying cars. And if they are, well, I imagine they'll be underwater from day one. And stay that way unless they are within their means. Many are underwater when it comes to their cell phone. A car in the cards? NOPE.

1 hour ago, Suaviloquent said:

Yup, and all those modern cars entering the used market, yes, used market will have a boon.

 

Aside from that, the hard times are approaching for the auto makes. Once this last bastion of boomers hit the hay, there's not gonna be many millennials buying cars. And if they are, well, I imagine they'll be underwater from day one. And stay that way unless they are within their means. Many are underwater when it comes to their cell phone. A car in the cards? NOPE.

Hard times indeed....

Interesting this comes up after a good buddy of mine just traded in both his cars and got two new ones...

One car owed 12/got 4100 and Second 20k/18k. Somehow, he ended with with some rebates that in all only cost him about 20 bucks more a month. Also kinda a shame because both cars where about 2 years to pay off...

He is lucky that he can afford them as his he and his wife have pretty good jobs....but it is going to make it harder for them to get a house in the future with that debt....

It's why at this stage of my life-while I love cars, I also would love to keep some money in the bank! It's why I'm fixing up the two I have now, and we are looking at just one new car,for the family to share. Even then it's a good chance it will be a base model.....screw the bells and junk with it.... And when her car goes, a 3-5 year old used car will be the replacement-at a cost of less than 40 percent new......

It's also why leasing is going to get more and more popular-cheap-and you just get a new one when you are done.....

lots of righteousness going on here,

in my 1.5 yr brush with selling cars, i came to realize just how strapped most of the public is most of the time for paying for their transportation.  In my experience, very little was it ever people spending frivolously.  They really were most of the time trying to figure out how to get something to get them to work, for the least amount of money they could piece together.  

A large percentage of people flat out can't get approved for credit.  Being in a high risk pool, that increases their interest cost at the same forces them to go down on the ladder on a vehicle that an auto retailer is still trying to sell for a decent margin over what they paid on trade and for recon for, and after they pay for all the buildings, ads, and front desk receptionists with their boobs hanging out all over.

Isn't it just flat stupid that people might buy a 9 1/2 year old car on a five year loan and drive it off the lot and be instantly thousands upside down?  Well shit, i bought a house with 20% down back in 2003/4 and after all this freaking time my property is probably still worth 25% less than i paid for it.  Why do i mention this?  Because the economy has been shit for several years now, and like with housing, the money faucet was in fair correlation with salaries and the health of the jobs market.

We're in this odd conundrum where people's incomes are down or stagnant for a long time (it never was a recovery).  Auto sales have boomed new the last few years simply because the pent up demand after the market dived after the crash.  Now that we're probably seeing saturation of that pent up demand, it's a bit of a bubble.  And now lease returns are starting to hit the market again.  Transaction prices are through the roof, and that's due in part to the devices needed financing wise to keep the factories running at the higher levels.  They probably need to self induce a cutback now and curb credit some.  Add to this the last oh how many years of strangulation with regards to emissions and fuel economy / cafe mandates....all the prices for this technology has pushed vehicle prices up as well.  

When you start looking at a new vehicle at 30,000 bucks, the sales tax alone in some states can be like 2 grand.  License fees can be 500 bucks a year.  But it goes even further than that.  No one has 5 grand to put down.  And even if they did, it literally is throwing money out the window, because that money, all it does is pay for the tax and a depreciation hit and dealers profit for driving it off the lot.  When something has a depreciation curve like that, i absolutely would not want to pump a lot of cash into at the start......put in enough to try to stay close to above water if you can.  It's great advice to say 'don't buy a car on more than a 48 month loan' or something like that, but even on a 7 year old used car with 100,000 miles that might sell for 15,000-20,000...people won't even be able to come up with a sizable down payment.

The fact that gas is so cheap the last couple years has done a great job hiding the affordability problem with driving a car.  If people can't afford a 400 dollar a month payment for 5 years on say a 3 or 4 year old car (which is a lot of people) i can't imagine what happens when gas goes up to 5 bucks.

What is the answer?  Well, crossovers by nature are more expensive and maybe cars can only become more affordable if people revert back to sedans more.  the source of the problem really is people's wages and the prices are crazy stupid.  We may just end up seeing market adjustments to new or used cars to account for this.

I resigned myself to the fact that i can own a car free and clear and when its 7 years old its worth shit.  I can trade it in and any equity i finally earned by that point might pay for sales tax and plates on a new one the next time around.  I can try to think i am a martyr but thinking, hey i'll save up a nice chunk of change and get a good used car, but none of that chunk of change gets you any equity either.  You literally if you want to be atop your car probably have to put half down and I honestly would estimate that those i worked with that got more than say 4,000 bucks down on any transaction was maybe 10% of buyers.  Probably more like 5% (but what i sold was prob 90% used).  

it's just reality, people piece together what they can for wheels to get to work.  I'm not going to go deep and criticize how they solve that complex financial issue.  And the manufacturers and dealers you can blame if you want but they have factories to keep open and expenses to pay and you get where you have to sell and get what you can to keep the lights on.  If that means fire saling your inventory there comes a point where you may need to do that.

I decided the last two times to lease.  I never thought i would have 2 vehicles on lease at the same time.  My realization was that buying used was even going to be an eye popping amount of money for a wise purchase so in these 2 cases I decided to kick the can down the road (and also to avoid giving my beloved state as little tax dollars as i could for awhile).  When the van lease is up, i will either negotiate a cheap buyout (much cheaper hopefully than the equivalent on the used lot at the same time) or find a good deal on a 2 year old low mile unit and get back on the payment wagon.  When the Malibu lease is up, I may just find a cheaper older rig if again i can't steal my own turn in and bet the farm i wont have to spend a bunch of money each year on repairs.  

Think about this.  Let's say you started today to save for a new vehicle to buy in 3 years.  Let's say you wanted to buy a new Impala and it could cost you 30,000 dollars today.  The car you drive now is 7 years old and paid for.  You're lucky today if a dealer will give you 5 grand on what you own now.  In three years they will offer you 1,000 bucks for that.  that should pay for your tabs in 3 years on the new one.  The 30,000 dollar today impala will be 36,000 dollars in 3 years.  If you want to pay cash for that you will need to save 1,000 bucks a months for those 36 months.  Buy used you say, well, in 3 years a 5 year old Impala might be 21,600 dollars.  So to buy that car in three years that will already by 5 years old when you buy it, you'd have to sack away 600 a month (in addition to the money you'd spend on repair and maintenance to the car you already drive).

I certainly could accuse anyone of spending money foolishly or excessively on cars, including myself, but the hard message so many buyers learn is, new or used, whether you own your vehicle outright, or are making payments, or paying for repairs etc, nobody drives for free.  There is always a cost to what you drive.  And i give credit to as many people that can that just can figure out how to pay for the miles they drive.  It's a very select few individuals who are either car savvy or can do their own repairs or are just flat out lucky that they maybe bought a 9 year old junker with some saved up cash from someone off Cragislist, and managed to keep it on the road 6 more years without paying for a transmission or an A/C compression, or brakes, tires and shocks all around.

I honestly think its time to curb some of the technological development in automobiles for awhile and concentrate on how to get more affordable products out there.  And maybe at same point people's real spending power becomes healthy.  In the meantime, the bulk of the population I am certain merely does what they have to just to have something to drive to their job, if they have one.

It is simple as we have been on this trend for a good while. 

Cars used to be a small part of your income and buying a new one was something a kid in High School could do on their own at one time. I could remember the neighbors, my parents and my buddys dad buying new cars every year. They would sell the used one for nearly what they paid or only come out a little less. When a new car was only $4000 or less it was easy to do. 

Today a car is at least a years pay of more for most people in the middle class. 

Then you have the poor decision factor as many people today handle money poorly. So many fail to have much in savings. Some it may be bad luck like health issues but most just spend it all and never stop till it is gone. We all have done it but maybe not to the same extreme. New I phone every year. Projection screen TV's and housed so large many can not afford to fill all the rooms with furniture. 

Today to make cars work well for most budgets you need to keep the car for about 8-10 years and just pay it off. Cars today easily last 12 years before rust of electronic failures are in play. You can go well over 100K miles with no sweat anymore with out any major failures or repairs.  Yet we have people often trading 2-3 years and getting over their heads. 

I have several friends who have nearly gone bankrupt with good jobs just because they trade so often. One I kid because I told him he should get dealer plates as he had gone to the point he has traded up to 3 new cars in a year recently. 

Actually it was about 3 years ago he bought a Truck new, He found he did not want to pay the gas since he drives on a sales route. He went to a Cruze and his wife refused to ride in it because it was too small. Then he got a new Impala. That went away for a Honda with no explanation. That then vanished and not he has a Toyota truck. Oh Right before the Truck at the start was a Juke that he kept 3 months. 

Now he has not made a dime and took a bath on all these vehicles. He is not dumb and has a good job but he is to the point he had to sell his Corvette because he was so far under. Also while this went on they bought the wife a Ford SUV that vanished in months for a new Toyota SUV. 

Now I would like to say this is an isolated thing But I see similar things happen with others. They may not be to this extreme but enough to put them under. I have a guy at work who buys a car fixes it all up then trades it. So he takes a bath on the vehicle and all the parts. Recently it was a jeep with new wheels, a lift, fenders and other add ons. Now he is leasing a truck and bought a hard bed cover for it and he will not have this in 2 years as he never keeps anything that long. 

Some folks get bored with a vehicle and trade after only 2 years is what normally happens. 

But accidents and then a panic trade, Quality issues and then a trade to get rid of it. Buying too expensive then having to trade down because they can't afford etc. 

To be honest I would make a horrible salesman because I would try to talk people out of making mistakes that are plain as day. 

Cars are where poor decision are made daily that stick out. At work I see people daily spending money on cards they can not pay off. They will limit 3 cards to get what they want and have 3 screaming kid in the background. Note these are not things to fix anything these are play things they could easily live with out. Some times I will google where they live and it is sad. 

God knows there is a lot of things I would love to do and I at times may spend a little more than I should but the wife and I try to live with in our means and be happy with what we have. We keep our vehicles about 10 years - 100K miles and i keep them in top shape. We also buy the models that tend to be popular or hard to find and we often get good resale. Hell I have had people come from Florida to buy one of my cars in Ohio because it was in the best shape they could find one in. I have been lucky. 

As cars get more expensive people are just not going to be able to afford and that is why so many companies are buying into ride sharing companies. The addition of many of the new technologies coming are going to be obscene high and this will be the only way some will be able to afford them as pay will not increase along with the prices. 

Electric self driving cars are just not going to get much cheaper if anything they will continue to increase in price. 

Today the price of a new car stands at $35K when I bought my first new car back in 1985 the average price was what I paid $12,500. What is the next 30 years going to bring?

The first thing we do need to teach is how to handle money to the young. Two teach them do not look to the government to pay for it all. If you want to get ahead in life you need to do it yourself not with hand outs. But as we progress I see people becoming more dependent as time goes on. 

FYI just find out what people owe on Credit cards and you will see how poorly many manage money. Much of this is due tot he instant gratifications of buying things. When I point the finger the thumb is pointing back at me too as I have it like most others.

we all spoke at work once about how much people owed and it was amazing many could sleep as bankruptcy was not a possibility it was a future reality.

Our Encore was holding its value quite well when we first bought it out of lease.  We went into that transaction buying a car for $2k less than its apparent trade in value.   We *should* have bought it and then immediately traded it in, but we kept it.  Since then, the value of it has decreased to the point where we were owing as much as it was worth.  I didn't like that, so I started increasing our car payment.  The payment according to the loan is $348 a month, but I'm sending them $600 a month instead to keep well ahead of the depreciation. 

I love that I have no auto payment. Yes I do love my rides, but 2008 is my newest, 1994 is my oldest, will probably die before I get rid  of my 94 GMC Suburban SLE. That is a tank that just keeps going.

When i got the Bug and Camry we HAD to have them.  The Silverado in particular needed a ton of work and with both of our drives being roughly 100 miles a day we were going through roughly a grand in fuel every month.  I made my mistakes and my credit has suffered so my financing rate sucks, but this is helping me rebuild it as well as the fact we will be keeping these or a very long time.  Bought used too which does help. 

15 hours ago, dfelt said:

Not surprised by this at all, it really is to be expected when creative financing allows people of little income to buy at a level that requires double if not triple what they really can afford.

The dealers and auto companies need to stop offering creative financing to people that do not have the credit or income to support driving an auto that is outside their means.

16 hours ago, ccap41 said:

This is terrible news.. People just suck at being greedy. You allow people with poor credit to buy cars and they take advantage of that by continuing to trade in and get in more debt for a longer period of time..

Simply put it would seem that U blame the sales organization more than U do the Buyer. This is simply not right. We are organizations with a job to do.. our job is to be profitable.. your job is to protect yourself by simply reading the LEGAL paper work before U sign on the dotted line.

Are we now sayin that the sales organization has to hold your hand thru the process??? Why yes.. we do. The debacle of 2006-2009 made this a must because people are simply to stupid to realize that making $3000 per month is not enough to afford a $2500 a month mortgage.. and a $500 a month car note. This actually happens. Even crazier is that anyone would finance a vehicle for up to 84 months... or 7 years just to show up at the family reunion or club with a ride for people to praise them for. That's ego mixed in with dumb. The debacle of 2006 was created by a combo of things.. gas prices reaching $4 made it worse . U wanna get mad.. check out the many fools who bought $1 Million McMansions in 2006 only to find that a decade later they are only worth $600K. Now that is upside down on a 30 year mortgage. Cars??? Come on. People are buying waaaaaaay outta their league these days and the trade in is the wake-up call. If U are gonna buy a $50k, 75k.. $100K car.. U should have the cash in the bank to pay it off if U need to. 

10 hours ago, Suaviloquent said:

Yup, and all those modern cars entering the used market, yes, used market will have a boon.

 

Aside from that, the hard times are approaching for the auto makes. Once this last bastion of boomers hit the hay, there's not gonna be many millennials buying cars. And if they are, well, I imagine they'll be underwater from day one. And stay that way unless they are within their means. Many are underwater when it comes to their cell phone. A car in the cards? NOPE.

This is a good point. This is really is the last hurrah for auto sales. It's a downward spiral from here. As autonomous cars come online, the variety will shrink and leave niche offerings out in the cold. People will carpool more. That will in turn free up road room and space elsewhere. Which will increase the public transit options. It will be a domino effect.

1 hour ago, Cmicasa the Great said:

Simply put it would seem that U blame the sales organization more than U do the Buyer. This is simply not right. We are organizations with a job to do.. our job is to be profitable.. your job is to protect yourself by simply reading the LEGAL paper work before U sign on the dotted line.

Are we now sayin that the sales organization has to hold your hand thru the process??? Why yes.. we do. The debacle of 2006-2009 made this a must because people are simply to stupid to realize that making $3000 per month is not enough to afford a $2500 a month mortgage.. and a $500 a month car note. This actually happens. Even crazier is that anyone would finance a vehicle for up to 84 months... or 7 years just to show up at the family reunion or club with a ride for people to praise them for. That's ego mixed in with dumb. The debacle of 2006 was created by a combo of things.. gas prices reaching $4 made it worse . U wanna get mad.. check out the many fools who bought $1 Million McMansions in 2006 only to find that a decade later they are only worth $600K. Now that is upside down on a 30 year mortgage. Cars??? Come on. People are buying waaaaaaay outta their league these days and the trade in is the wake-up call. If U are gonna buy a $50k, 75k.. $100K car.. U should have the cash in the bank to pay it off if U need to. 

Greed is Good according to Gordon Gecko, yet that same greed happens still today with creative financing. I agree that the buyer is also to blame for making stupid dumb decisions. Yet when a sales person at a dealership plays with the numbers through creative financing to sell an auto, the whole nation ends up paying when the individual defaults on the loan.

We have had this with creative financing on house loans, I see it on auto loans and with student loans. 

Yes people are at fault for going over their ability to live within reason, yet just as much blame also falls on the marketing by companies that prey on peoples addiction to the jones jones race of having the best and being stupid.

All I am saying is that we could greatly reduce the hit to tax payers and companies bottom lines from defaults if creative financing was not allowed.

It should be straight forward that you run a credit check, debt to income assessment and if they can truly afford the monthly payment then make a sale. If they are upside down, outside of reasonable living expenses, etc. the sale does not happen.

One day businesses will realize that they have to stop with the stupid creative financing to just make a sale now rather than repeat customers who can afford an auto over time.

6 hours ago, regfootball said:

 The car you drive now is 7 years old and paid for.  You're lucky today if a dealer will give you 5 grand on what you own now.  In three years they will offer you 1,000 bucks for that.  that should pay for your tabs in 3 years on the new one.  The 30,000 dollar today impala will be 36,000 dollars in 3 years.  If you want to pay cash for that you will need to save 1,000 bucks a months for those 36 months.  Buy used you say, well, in 3 years a 5 year old Impala might be 21,600 dollars.  So to buy that car in three years that will already by 5 years old when you buy it, you'd have to sack away 600 a month (in addition to the money you'd spend on repair and maintenance to the car you already drive).

These are some wicked exaggerations you have here.. An older 5k car will not depreciate to 1k unless you wreck it. It will likely be worth 3000 at minimum as long as it runs. And inflation has been insane with cars but base prices have not jumped 17% in 3 years time. Usually year to year there is a few hundred bucks inflation for cars in that price category. Not $2,000 a year.

My 12 year old Honda CR-V is worth at least $5k in a private sale.  It's paid off too.

57 minutes ago, Drew Dowdell said:

The payment according to the loan is $348 a month, but I'm sending them $600 a month instead to keep well ahead of the depreciation.

I've always made payments over the minimum for this reason as well. Not always to the extent you are but I don't like the idea of ever being upside down in my car.

Speaking of all of this.. I sent off another car payment today(250 minimum - 300 paid) and I owe after this payment about $9200 and I looked up the trade-in and private party value of the ole Escape and they range from about 13000-17000 depending if I'm trading it in on the low end or selling it outright on the high side.

20 minutes ago, Cmicasa the Great said:

Are we now sayin that the sales organization has to hold your hand thru the process???

Yeah... Isn't that what a credit and debt to income ratio check are for?

56 minutes ago, Stew said:

When i got the Bug and Camry we HAD to have them.  The Silverado in particular needed a ton of work and with both of our drives being roughly 100 miles a day we were going through roughly a grand in fuel every month.  I made my mistakes and my credit has suffered so my financing rate sucks, but this is helping me rebuild it as well as the fact we will be keeping these or a very long time.  Bought used too which does help. 

Used Volkswagen... keep your fingers crossed.. lol

2 minutes ago, ccap41 said:

Used Volkswagen... keep your fingers crossed.. lol

I know hahaha.  I am bad sometimes for making decisions on emotion rather than common sense haha.  At least it was only 10900 lol.  9900 for the 11 Camry which probably won't lose a lot of value at all for a few years.  09 Camrys with double the mileage are oing for more than that around here and have a friend that just bought an 07 Camry, identical to my 11 down to cover and even the miles and still paid 7500 and it is 4 years older.  Still have 3 rucks too and 2 are paid off and the one has less than 2k owed on a loan we took o take care of some outstanding bills haha. 

Just added up what I paid for att 5 vehicles and it is still 4 grand less that the average price of a new car haha. 

51 minutes ago, ccap41 said:

These are some wicked exaggerations you have here.. An older 5k car will not depreciate to 1k unless you wreck it. It will likely be worth 3000 at minimum as long as it runs. And inflation has been insane with cars but base prices have not jumped 17% in 3 years time. Usually year to year there is a few hundred bucks inflation for cars in that price category. Not $2,000 a year.

Yeah, no. I see cars that run and drive fine all the time that are only worth $1,000. You can probably private party it for 3K or close to, but trade-in? Absolutely it is not not uncommon to see cars worth that little.

6 hours ago, regfootball said:

lots of righteousness going on here,

in my 1.5 yr brush with selling cars, #1) i came to realize just how strapped most of the public is most of the time for paying for their transportation.  In my experience, very little was it ever people spending frivolously.  They really were most of the time trying to figure out how to get something to get them to work, for the least amount of money they could piece together.  

#2) A large percentage of people flat out can't get approved for credit.  Being in a high risk pool, that increases their interest cost at the same forces them to go down on the ladder on a vehicle that an auto retailer is still trying to sell for a decent margin over what they paid on trade and for recon for, and after they pay for all the buildings, ads, and front desk receptionists with their boobs hanging out all over.

Isn't it just flat stupid that people might buy a 9 1/2 year old car on a five year loan and drive it off the lot and be instantly thousands upside down?  Well shit, i bought a house with 20% down back in 2003/4 and after all this freaking time my property is probably still worth 25% less than i paid for it.  Why do i mention this?  Because the economy has been shit for several years now, and like with housing, the money faucet was in fair correlation with salaries and the health of the jobs market.

#3) We're in this odd conundrum where people's incomes are down or stagnant for a long time (it never was a recovery).  Auto sales have boomed new the last few years simply because the pent up demand after the market dived after the crash.  Now that we're probably seeing saturation of that pent up demand, it's a bit of a bubble.  And now lease returns are starting to hit the market again.  Transaction prices are through the roof, and that's due in part to the devices needed financing wise to keep the factories running at the higher levels.  They probably need to self induce a cutback now and curb credit some.  Add to this the last oh how many years of strangulation with regards to emissions and fuel economy / cafe mandates....all the prices for this technology has pushed vehicle prices up as well.  

#4) When you start looking at a new vehicle at 30,000 bucks, the sales tax alone in some states can be like 2 grand.  License fees can be 500 bucks a year.  But it goes even further than that.  No one has 5 grand to put down.  And even if they did, it literally is throwing money out the window, because that money, all it does is pay for the tax and a depreciation hit and dealers profit for driving it off the lot.  When something has a depreciation curve like that, i absolutely would not want to pump a lot of cash into at the start......put in enough to try to stay close to above water if you can.  It's great advice to say 'don't buy a car on more than a 48 month loan' or something like that, but even on a 7 year old used car with 100,000 miles that might sell for 15,000-20,000...people won't even be able to come up with a sizable down payment.

The fact that gas is so cheap the last couple years has done a great job hiding the affordability problem with driving a car.  If people can't afford a 400 dollar a month payment for 5 years on say a 3 or 4 year old car (which is a lot of people) #5) i can't imagine what happens when gas goes up to 5 bucks.

What is the answer?  Well, crossovers by nature are more expensive and maybe cars can only become more affordable if people revert back to sedans more.  More #3) the source of the problem really is people's wages and the prices are crazy stupid.  We may just end up seeing market adjustments to new or used cars to account for this.

I resigned myself to the fact that i can own a car free and clear and when its 7 years old its worth shit.  I can trade it in and any equity i finally earned by that point might pay for sales tax and plates on a new one the next time around.  I can try to think i am a martyr but thinking, hey i'll save up a nice chunk of change and get a good used car, but none of that chunk of change gets you any equity either.  You literally if you want to be atop your car probably have to put half down and I honestly would estimate that those i worked with that got more than say 4,000 bucks down on any transaction was maybe 10% of buyers.  Probably more like 5% (but what i sold was prob 90% used).  

More #1) it's just reality, people piece together what they can for wheels to get to work.  I'm not going to go deep and criticize how they solve that complex financial issue.  And the manufacturers and dealers you can blame if you want but they have factories to keep open and expenses to pay and you get where you have to sell and get what you can to keep the lights on.  If that means fire saling your inventory there comes a point where you may need to do that.

#6) I decided the last two times to lease.  I never thought i would have 2 vehicles on lease at the same time.  My realization was that buying used was even going to be an eye popping amount of money for a wise purchase so in these 2 cases I decided to kick the can down the road (and also to avoid giving my beloved state as little tax dollars as i could for awhile).  When the van lease is up, i will either negotiate a cheap buyout (much cheaper hopefully than the equivalent on the used lot at the same time) or find a good deal on a 2 year old low mile unit and get back on the payment wagon.  When the Malibu lease is up, I may just find a cheaper older rig if again i can't steal my own turn in and bet the farm i wont have to spend a bunch of money each year on repairs.  

#7) Think about this.  Let's say you started today to save for a new vehicle to buy in 3 years.  Let's say you wanted to buy a new Impala and it could cost you 30,000 dollars today.  The car you drive now is 7 years old and paid for.  You're lucky today if a dealer will give you 5 grand on what you own now.  In three years they will offer you 1,000 bucks for that.  that should pay for your tabs in 3 years on the new one.  The 30,000 dollar today impala will be 36,000 dollars in 3 years.  If you want to pay cash for that you will need to save 1,000 bucks a months for those 36 months.  Buy used you say, well, in 3 years a 5 year old Impala might be 21,600 dollars.  So to buy that car in three years that will already by 5 years old when you buy it, you'd have to sack away 600 a month (in addition to the money you'd spend on repair and maintenance to the car you already drive).

I certainly could accuse anyone of spending money foolishly or excessively on cars, including myself, but the hard message so many buyers learn is, new or used, whether you own your vehicle outright, or are making payments, or paying for repairs etc, nobody drives for free.  There is always a cost to what you drive.  And i give credit to as many people that can that just can figure out how to pay for the miles they drive.  It's a very select few individuals who are either car savvy or can do their own repairs or are just flat out lucky that they maybe bought a 9 year old junker with some saved up cash from someone off Cragislist, and managed to keep it on the road 6 more years without paying for a transmission or an A/C compression, or brakes, tires and shocks all around.

#8) I honestly think its time to curb some of the technological development in automobiles for awhile and concentrate on how to get more affordable products out there.  And maybe at same point people's real spending power becomes healthy.  In the meantime, the bulk of the population I am certain merely does what they have to just to have something to drive to their job, if they have one.

#1) Yes and no. The problem is that often times even when someone is being mindful of cost, they only look at the immediate savings rather than down the road at total cost of ownership, residual value, etc. People will buy a Dodge or Nissan over a Honda or Subaru to save a few grand up front to get a car with statistically far inferior reliability and resale value. Then, when it's time to trade it in, the car is worth a fraction of what some of their other options would have been. It's poor logic, and many buyers outright refuse to accept it.

#2) Yes, and this is almost always their own doing. Pay your bills. It's simple. Pay your bills, and you will have at least decent credit. Enough to buy a good car with a reasonable (6-7%) rate. People just flat out refuse to pay payments- many times small ones like $30-40- and then wonder why they have crappy credit. It's astounding.

#3) This one you did nail, and it is a massive problem in it's own right. Wages have been stagnant for a very long time. The cost of goods and living is increasing at an exponentially faster rate that peoples' income. Something will have to give eventually. 

#4) This is a good point that hasn't been brought up yet. More and more people are not only not putting money down, but rolling their sales tax into the loan. This should really be avoided. For one, you're going to pay interest on it, making the amount more. The bigger reason is you are already starting yourself out in an even bigger hole in terms of value relative to what you owe.

#5) This isn't quite impossible, but it's very, very, very unlikely. It's easily the least significant factor here.

#6) Leasing is really an option that should be looked at by more buyers. So many of them are digging themselves an ever-deeper hole by buying, and trading 2-4 years later. Leasing would eliminate so many issues brought up in this thread. Unfortunately, after so many article telling buyers how terrible leases are, and how much advice they've gotten from family and friends about how bad it is, many aren't even open-minded to it. Their loss.

#7) This is such a phenomenally good point, and one that people who have high income or old-school thought and buy cars with cash. IT IS JUST NOT FEASIBLE, OR EVEN SMART IN MANY CASES, FOR THE AVERAGE PERSON. Let's just say you're being reasonable and plan to buy a $12,000 car with cash. Rather than going and financing it for $235 a month, you save $300 a month and put back towards it. In the mean time, you have to have transportation somehow. So what?? You pay to ride a bus? You give someone gas money? You continue to drive and maintain that old hooptie? All of those things are taking money away from you, the only difference is- YOU DON'T HAVE A NEW(ER) CAR. It floors me how many people fail to understand this.

#8) This is also a very, very good point, and it;s one I've talked about for some time now. Things cannot continue on their current trajectory. That is fact. Something will have to change. If wages don't increase, which is extremely unlikely; and if car prices don't come down, which is just as unlikely; another solution must happen. I think a special class of vehicles that weren't as regulated and had less equipment and far cheaper costs would be a great idea. It would help car sales continue to be strong, and it would place transportation in the hands of many who currently don't have it, or have poor forms of it.

3 minutes ago, Stew said:

I know hahaha.  I am bad sometimes for making decisions on emotion rather than common sense haha.  At least it was only 10900 lol.  9900 for the 11 Camry which probably won't lose a lot of value at all for a few years.  09 Camrys with double the mileage are oing for more than that around here and have a friend that just bought an 07 Camry, identical to my 11 down to cover and even the miles and still paid 7500 and it is 4 years older.  Still have 3 rucks too and 2 are paid off and the one has less than 2k owed on a loan we took o take care of some outstanding bills haha. 

Just added up what I paid for att 5 vehicles and it is still 4 grand less that the average price of a new car haha. 

Reliability is one thing for me that is suuuuper difficult to judge a purchase on.. like.. I still love the Golf in multiple outfits( regular, GTI, R, TDI) and I don't think their reputation would sway me but at the same time once something does go wrong(out of the ordinary) I will be kicking myself for it.

2 minutes ago, Frisky Dingo said:

 

Yeah, no. I see cars that run and drive fine all the time that are only worth $1,000. You can probably private party it for 3K or close to, but trade-in? Absolutely it is not not uncommon to see cars worth that little.

Then it is likely not worth 5k today then.. right? I can't imagine a car worth so little can depreciate 80% in 3 years time unless it gets trashed in those three years.

5 minutes ago, ccap41 said:

Reliability is one thing for me that is suuuuper difficult to judge a purchase on.. like.. I still love the Golf in multiple outfits( regular, GTI, R, TDI) and I don't think their reputation would sway me but at the same time once something does go wrong(out of the ordinary) I will be kicking myself for it.

Then it is likely not worth 5k today then.. right? I can't imagine a car worth so little can depreciate 80% in 3 years time unless it gets trashed in those three years.

A 5 grand retail car can very easily depreciate to a $1,000 car in less than 3 years. 

45 minutes ago, ccap41 said:

Reliability is one thing for me that is suuuuper difficult to judge a purchase on.. like.. I still love the Golf in multiple outfits( regular, GTI, R, TDI) and I don't think their reputation would sway me but at the same time once something does go wrong(out of the ordinary) I will be kicking myself for it.

Honestly I wish I had something else to pile miles on and keep the bug as a toy/weekend driver haha.  Already put 5k miles on it in just 2 months. 

That's just difficult to believe (as long as it wasn't wrecked or any major work done to it to repair something).

Just now, Stew said:

Honestly I wish I had something else to pile miles on and keep the bug as a toy/weekend driver haha.  Already put 5k miles on it in just 2 months. 

Dang, you do quite a bit of driving, don't you?? I only average 1,000 miles a month, lol.

4 minutes ago, ccap41 said:

That's just difficult to believe (as long as it wasn't wrecked or any major work done to it to repair something).

Dang, you do quite a bit of driving, don't you?? I only average 1,000 miles a month, lol.

Roughly 100 miles every work day plus weekend trips to visit the parents, etc.  I put roughly 55k on the 4x4 Dakota in less that 2 years at least it gets to be a weekend hunting truck/offroader now.  . 

1 hour ago, Stew said:

Roughly 100 miles every work day plus weekend trips to visit the parents, etc.  I put roughly 55k on the 4x4 Dakota in less that 2 years at least it gets to be a weekend hunting truck/offroader now.  . 

Damn, you should have found a TDI Bug and gotten 50mpg.

10 minutes ago, ccap41 said:

Damn, you should have found a TDI Bug and gotten 50mpg.

I think they are buying them all back haha.  Going from 16 to 30 has made a really nice difference though

5 minutes ago, Stew said:

I think they are buying them all back haha.  Going from 16 to 30 has made a really nice difference though

There have to be some on the used market, right? Or is everybody hoarding them to sell them back?

Haha yeah doubling your mileage will help out A TON! Is your Bug 2.0? or 1.8?

I thought all the TDI's were to be bought back and crushed. Reading the agreement with the EPA imply they will not be fixed but crushed and removed from the road. Course it would not be the first time I have totally misunderstood the crazy writings of our gov agencies.

I didn't think the owners were required to sell them back unless you lived in a place that does emissions testing in which you pretty well have to.

38 minutes ago, dfelt said:

I thought all the TDI's were to be bought back and crushed. Reading the agreement with the EPA imply they will not be fixed but crushed and removed from the road. Course it would not be the first time I have totally misunderstood the crazy writings of our gov agencies.

 

No, you have the choice of having Volkswagen buying back the vehicle (and then being crushed, which makes no sense to me because isn't that bring more environmental issues?) or you keep the vehicle and wait for Volkswagen to come up with a fix, whenever that may be.

5 hours ago, Drew Dowdell said:

Our Encore was holding its value quite well when we first bought it out of lease.  We went into that transaction buying a car for $2k less than its apparent trade in value.   We *should* have bought it and then immediately traded it in, but we kept it.  Since then, the value of it has decreased to the point where we were owing as much as it was worth.  I didn't like that, so I started increasing our car payment.  The payment according to the loan is $348 a month, but I'm sending them $600 a month instead to keep well ahead of the depreciation. 

This is smart, i always overpay on my car loans, have never taken one anywhere near term.

Just now, William Maley said:

No, you have the choice of having Volkswagen buying back the vehicle (and then being crushed, which makes no sense to me because isn't that bring more environmental issues?) or you keep the vehicle and wait for Volkswagen to come up with a fix, whenever that may be.

Not quite...no approved fix for any of the 2.0 L 4 cylinder cars exist.  there are three generations of car, Gen 1 is the most difficult to fix, does not sue Urea, is most of the affected cars. 2009 to 2014 Jetta, Golf, Beetle, Jetta Sport Wagon.

Gen two is a single stage catalyst with a Urea system.  2012 to 2014 Passat only.

Gen three is the EA 288 which is the 2015 everything....Urea with 2 stage catalyst....this system has been out in Europe for awhile and is fairly reliable. My car is gen 3.

Supposedly the gen three cars would be the easiest to fix, but VW has flunked every repair when submitted to CARB and the EPA.  They must repair the cars before they export them.  according to someone I trust at my local VW dealership, VW is planning on exporting 95 percent of what they can fix.

Gen one cars also have issues with HPFP (high pressure fuel pump) DPF (diesel particulate filter) and a bunch of other issues.  If VW was smart they would crush every last one of these vehicles IMHO because they have huge reliability issues and VW is required by the court to provide a longer emissions warranty on these vehicles.

People here may disagree with me, but I see a ton of issues with cars out of Chattanooga, which would be all of the Passats. Since the majority of these cars will be 4-5 years old with at least 60-75,000 miles on most of them when and if a fix is approved, I think VW will be very selective in what they repair.

33 minutes ago, ccap41 said:

I didn't think the owners were required to sell them back unless you lived in a place that does emissions testing in which you pretty well have to.

States that accept money from VW as part of a compensation fund for environmental damage cannot flunk your car in a future emissions test if you do not have it repaired, that was part of the court settlement.

That being said, these are complicated vehicles from an emissions standpoint, and one would be smart to get out from underneath one given the buy back $.

A 2009 base Jetta with 350,000 miles is worth something like 9 grand, according to the buy back.

4 hours ago, Drew Dowdell said:

My 12 year old Honda CR-V is worth at least $5k in a private sale.  It's paid off too.

It like my 14 year old MINI are the exception. Most cars tank like crazy, especially luxury cars.  Looking at 2009-2013 Miatas, since I would like to start autocrossing again.  Many of the Miatas are selling for more than 3 series and jags.

1 hour ago, ccap41 said:

There have to be some on the used market, right? Or is everybody hoarding them to sell them back?

Haha yeah doubling your mileage will help out A TON! Is your Bug 2.0? or 1.8?

There are almost zero for sale on the used amrket.

38 minutes ago, ccap41 said:

I didn't think the owners were required to sell them back unless you lived in a place that does emissions testing in which you pretty well have to.

What they said haha.  I have the 2.0T paired with the 6 speed manual.  Love it. 

25 minutes ago, A Horse With No Name said:

Not quite...no approved fix for any of the 2.0 L 4 cylinder cars exist.  there are three generations of car, Gen 1 is the most difficult to fix, does not sue Urea, is most of the affected cars. 2009 to 2014 Jetta, Golf, Beetle, Jetta Sport Wagon.

Gen two is a single stage catalyst with a Urea system.  2012 to 2014 Passat only.

Gen three is the EA 288 which is the 2015 everything....Urea with 2 stage catalyst....this system has been out in Europe for awhile and is fairly reliable. My car is gen 3.

Supposedly the gen three cars would be the easiest to fix, but VW has flunked every repair when submitted to CARB and the EPA.  They must repair the cars before they export them.  according to someone I trust at my local VW dealership, VW is planning on exporting 95 percent of what they can fix.

Gen one cars also have issues with HPFP (high pressure fuel pump) DPF (diesel particulate filter) and a bunch of other issues.  If VW was smart they would crush every last one of these vehicles IMHO because they have huge reliability issues and VW is required by the court to provide a longer emissions warranty on these vehicles.

People here may disagree with me, but I see a ton of issues with cars out of Chattanooga, which would be all of the Passats. Since the majority of these cars will be 4-5 years old with at least 60-75,000 miles on most of them when and if a fix is approved, I think VW will be very selective in what they repair.

States that accept money from VW as part of a compensation fund for environmental damage cannot flunk your car in a future emissions test if you do not have it repaired, that was part of the court settlement.

That being said, these are complicated vehicles from an emissions standpoint, and one would be smart to get out from underneath one given the buy back $.

A 2009 base Jetta with 350,000 miles is worth something like 9 grand, according to the buy back.

It like my 14 year old MINI are the exception. Most cars tank like crazy, especially luxury cars.  Looking at 2009-2013 Miatas, since I would like to start autocrossing again.  Many of the Miatas are selling for more than 3 series and jags.

 

I should have a bit clearer on my comment. If a fix ever gets approved, it will likely be for the newer models.

There is a third option, let us not forget. You skip taking the settlement and keep driving the vehicle. I'm not sure many are taking this option.