PDA

View Full Version : How Much of Your Car Should You Finance? Zero percent.



EJ
11-20-06, 11:51 AM
Today we're offered by Yahoo! Finance what passes currently for mainstream financial press advice on matters of personal credit. This Quick Comment is directed mostly to our younger readers.
How Much of Your Car Should You Finance? (http://finance.yahoo.com/loan/auto/basics_of_car_buying/article/101293/how_much_of_your_car_should_you_finance)
November 20, 2006 (Yahoo! Finance)

Kicking a few tires is only half the battle. Before you begin looking for a new car, you should know your limits and what you should be spending. Experts say you shouldn't spend more than 10 percent of your gross income on car expenses, which includes the cost of the car along with insurance, gas and maintenance.

Once you decide on a price range, you'll want to decide how much you can put down as a down payment and then negotiate the price of your car. Too many buyers accept long financing arrangements in order to minimize their down payment. If they decide to trade the car in the first year or so, they often find that they actually owe more on their car than it's worth. A good rule of thumb is never to finance more than 80 percent of the true cost---the dealer's invoice---of the car. At least 20 percent or more should be paid in cash or the equity of your trade.
If "experts" advise a person to spend no more than 10% of gross income on financing and other auto costs annually then "experts" are wrong. The correct answer to the question, "How Much of Your Car Should You Finance?" is: zero percent.

The reason is that a car, unlike a home, is a rapidly depreciating asset. A house is not a depreciating asset, and so is a better–but still not a good–use of credit, long term. As Professor Robert Shiller points out in Irrational Exuberance: Second Edition (http://www.amazon.com/gp/product/0691123357?ie=UTF8&tag=wwwitulipcom-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0691123357)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=0691123357, a house appreciates at a rate more or less equal to the rate of inflation, except during real estate bubbles, the topic of his book. That means you will not realize real gains on your "investment" in a house over the long term. From a depreciation standpoint, a house is a "neutral asset," although there are a lot of costs involved in maintaining the value of property that most real estate sales people don't like to talk about. (No, precious metals don't earn interest, but you don't have to mow and water the lawn or paint them every few years either.) But whereas the price of a house at least more or less keeps up with inflation, a new car depreciates around 20% instantaneously when you drive it off the lot. The only exception to this during a dollar depreciation and you happen to have bought a car exported by a country that has a currency that's appreciating relative to the dollar.

For example, I purchased a Honda Civic in 1975 for $1,800 and sold it in 1978–to help pay for college–for $2,300.


http://www.itulip.com/images/carappreciation.jpg


Nice! I "felt" like I was making money, on a car I bought new, no less, the most notoriously money-losing, rapidly depreciating major purchase a person can make. At the early stage of an inflation, everyone thinks they're getting richer, as nominal incomes rise along with interest rates on CDs and other short term interest bearing securities. The problem is that in nominal, that is, inflation-adjusted terms, the purchasing power of these securities is declining. Once the average person realized that, which they did around the year I sold that Honda, and it looked like the government lacked the political will to tackle the inflation problem, the rush to hard assets and the gold bubble got going.

Currency re-valuation is one of many stupid pet tricks that governments backed into a corner cause economies to do. We are assured, of course, that that can never happen again–a dollar depreciation and inflation to lighten the U.S. foreign debt load, which is why governments re-value currencies. We shall see. But that's an unusual case. Usually, cars depreciate both in nominal and in real terms. Back to our topic: using credit to finance depreciating assets.

There are two kinds of transactions: cash and credit. The amount of cash you have depends on your past actual savings rate relative to your income and expenses. The amount of credit you have depends on your future potential savings rate relative to your future income and expenses. Thus your credit is as mutable as your savings, that is, it goes up and down over time depending on your circumstances, although the "balance" in your "credit account" is not as apparent as the balance–or lack of balance–in your cash account. Your "credit account" balance can also go up and down based on circumstances beyond your control, such as a credit squeeze in the markets, as typically happens after credit cycles top. For now, let's stick to matters you can control.

If you take a hit on your income, your expenses spike, or you take out a big loan, the amount in your "credit account" declines. Most importantly, unlike a cash transaction, a credit transaction results in a debt. A debt is a lien on future labor; and you derive most of your income from your labor. So, you never, ever want to put a lien on your future labor except for the purpose of investing in an asset that is likely to increase in value over the life of the loan, that is, to exceed to total cost of the principle plus interest on the loan.

To do otherwise is to discount the value of your labor. When you use your credit to purchase a product–a depreciating asset by definition because it will always be worth less later–you are taking a portion of your future income and spending it on a product that you could otherwise have purchased in the future with savings–plus the interest paid on your savings–at a lower cost. (The loss in purchasing power of savings due to inflation while you save to buy with cash versus paying today with credit is a wash because the same number of dollars will buy more car in a few years, as has been the case since cars were invented.) So, when you purchase a product like a car on credit you are losing out on both the total price you are paying (principle plus interest) and the loss of interest income on your savings if you had saved up to buy a car with cash in the future instead. I think your future labor is worth a lot, and hope you do, too. You owe it to yourself to not devalue your future labor.

Since a car is a depreciating asset, the correct answer to the question, "How Much of Your Car Should You Finance?" then is zero. You can "afford" the car you can buy with cash. There is one exception, and that's the zero interest rate loan. If you buy a car that qualifies–usually the least desirable cars–and you qualify, that's almost like buying a car with cash. The loan will consume some of your credit, and will be offered by most dealers at a lower price if you buy with cash, but at least you're not also putting an interest lien on your future income, and you are freeing up cash to use for other purposes where you might be tempted to use credit, such as meals and holiday presents. A meal, obviously, depreciates very quickly in your stomach, after which its value is about equal to your average economist's economic forecast.

Yours truly has not always purchased cars this way. I leased a car for a year at very high rates when I was young and had just I experienced a big jump in income. I was feeling flush. So I understand what leads to these decisions, from time to time. And, yes, life is short, so live it up. But in the long run, the continuous practice of using your credit–devaluing your future labor–is the habit of buying into a system that, not happy to take your income only in the form of taxes, has set up government sponsored institutions like the Fannie Mae to separate you from your future income as well.

"But there are tax advantages to holding a mortgage," you say. The government raises a tax on your current income via an income tax, then offers to partially reduce it if you accept a tax on your future income via interest on a government sponsored loan to buy a house that bearly keeps up with the rate of inflation–except during a housing bubble, such as we just experienced. This is what passes for good household finance? How long have North Americans been falling for this nonsense?

"But I can't afford any car I can pay for with with cash–I don't have any cash–and I need a car to get to work," you say. You're not alone. Americans have been falling for the bad idea of purchasing depreciating or neutral assets with credit for so long that they no longer save. The Frankenstein Economy (http://www.itulip.com/frankensteineconomy.htm) encourages them to see their credit not as finite, like their savings, but as a bottomless well: there's always another loan coming, more credit to be extended.

In the recent words of and FOMC vice-chairman Gerald Corrigan (http://www.itulip.com/forums/showthread.php?t=632), "very creative financial services companies" offer financial products to foreign investors, which investment results in a constant expansion of U.S. credit available to U.S. citizens."

In the same breath, he says that his big worry is U.S. savings rates: “The first point I would make is related somewhat to the one Bill just made–its kind of the other side of it. That is that the United States savings rate is virtually zero. The household saving rate is negative. And for the reasons that Bill mentioned and a whole bunch of other reasons as well, this is a potentially very dangerous situation, not only in terms of economic and financial terms, but it brings with it, I think, some potentially very serious problems down the road in terms of the well being of our own citizens."

Somehow Corrigan hasn't put these two ideas together. Idea one, that "very creative financial services companies" offer foreign investors products that have led to the "potentially very dangerous situation" with, idea two, that the "United States savings rate that is virtually zero."

Just because he's confused, doesn't mean you need to be.

The practical answer for anyone who needs a car to get to work but has little cash is to buy the cheapest used car you can tolerate–a shitbox, to be precise–take out as small a loan as possible, and drive it proudly as symbol of your understanding of the principle "don't buy depreciating assets with credit" and of your unwillingness to knuckle under and discount the value of your future labor by putting a lien on it to purchase an overpriced car from a bank.


http://www.itulip.com/images/shitbox.jpg
The shitbox: New symbol of self-worth?


The paradox is that if you do this, you are more likely to wind up in a position to afford a really great car some day from savings, because you will not have squandered your future income by buying depreciating assets with credit.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™

_____

To buy and trade gold easily and inexpensively, see BullionVault (http://www.bullionvault.com/from/itulip)

To receive the iTulip Newsletter or iTulip Alerts, Join our FREE Email Mailing List (http://ui.constantcontact.com/d.jsp?m=1101238839116&p=oi)

Copyright © iTulip, Inc. 1998 - 2006 All Rights Reserved

All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer (http://www.itulip.com/GeneralDisclaimer.htm)

jk
11-20-06, 01:17 PM
people pay for "zero interest" loans. whatever price is paid with the loan, the car can be bought for a still lower price for cash.

Finster
11-20-06, 01:47 PM
How Much of Your Car Should You Finance? Zero percent.

Here here!

Spartacus
11-20-06, 02:51 PM
I agree completely with the sentiment.

I agreed with it when I read it in 1992, in "Your Money or Your Life" (Dominguez) and in "surviving without a salary" by Long. There were also some good dumpster-diving books in Loompanics at the time. No car-living resources, though ; )

I agreed with it when I read in in the 80s from various authors (Andrew Tobias stands out in my mind, maybe because he's the only one out of my memory that I could find online).

What I find really funny today about the dominguez book was the line (paraphrased through a bad memory) "we're entering a new era where frugal is cool". It's made even funnier for me personally because the early 90s recession hit me hard - I had just graduated engineering, 1/2 my class did not have work (90% of the previous year's class had offers upon graduating, and 3/4 of the next year's class had no offers) and what work I could get was not "optimal" . This book was written just for me (not that I had a choice about being frugal).

The ensuing 14 years kind of puts the lie to that prediction about frugality becoming cool, dunnit?

The advice to avoid credit gains urgency when given in the context of vacations ("spend ONE week in Hawaii on credit, pay for it for TWO years").

a little engineering humor for you.


Today we're offered by Yahoo! Finance what passes currently for mainstream financial press advice on matters of personal credit.

Spartacus
11-20-06, 02:55 PM
or buy a '74 Buick Century for $100. (that was the only car I ever owned, bought in 93 in Houston).

Other than that, I've lived in cities with good public transit. Public transit (and the implied lack of car) is not a great chic magnet, but it sure helps build up the savings.


people pay for "zero interest" loans. whatever price is paid with the loan, the car can be bought for a still lower price for cash.

EJ
11-20-06, 04:34 PM
I agree completely with the sentiment.

I agreed with it when I read it in 1992, in "Your Money or Your Life" (Dominguez) and in "surviving without a salary" by Long. There were also some good dumpster-diving books in Loompanics at the time. No car-living resources, though ; )

I agreed with it when I read in in the 80s from various authors (Andrew Tobias stands out in my mind, maybe because he's the only one out of my memory that I could find online).

What I find really funny today about the dominguez book was the line (paraphrased through a bad memory) "we're entering a new era where frugal is cool". It's made even funnier for me personally because the early 90s recession hit me hard - I had just graduated engineering, 1/2 my class did not have work (90% of the previous year's class had offers upon graduating, and 3/4 of the next year's class had no offers) and what work I could get was not "optimal"
. This book was written just for me (not that I had a choice about being frugal).

The ensuing 14 years kind of puts the lie to that prediction about frugality becoming cool, dunnit?

The advice to avoid credit gains urgency when given in the context of vacations ("spend ONE week in Hawaii on credit, pay for it for TWO years").
a little engineering humor for you.
In capitalist societies, it will never be cool to be frugal for long. The last true "poor is cool" anti-capitalist movements in the U.S. were the 60s/70s hippie movement and the early 1980s punk rockers. Then lot of hippies and punker rockers got rich along with the aspiring capitalists during the decades that followed. Both movements started in the UK. I suspect in the next prolonged downturn, there will be a social movement to wrap "cool" around "poor" and the movement will arise from the UK.

Frugality works in any case, but even better when times are good. Saving doesn't preclude making money, but when things are good you can save more money more quickly with less deprivation. The level of deferment of gratification depends on a person's goal. Mine has always been personal liberty, and to me that means not having to work for anyone I don't want to work for, or doing any work I don't like. Not working at all is not an option for me; I like to work. But I really have a hard time understanding anyone who, given a choice, decides to take on a lot of debt to maintain a standard of living that requires them to work for people they don't want to work for and/or doing work they don't like. That's the opposite of liberty. And if and when things get tough, a heavy saver's life goes from many options to fewer, while the indebted person's goes from few to none. Dread of finding myself in the latter position has also been a motivator to defer gratification and save more.

Christoph von Gamm
11-20-06, 04:49 PM
EJ

rock solid advice. Spend only what you have and not more. Better take the commute when you cannot afford a car.

When I see my neighbours here on the lake of Zürich (the Miami Beach of Switzerland) with their 7series BMW or X5es plus the Mini or convertibles for their spouses with lots of financing ontop of their overleveraged condos and houses I know exactly where their salary is being left. Unfortunately for me I paid my car (even though it is a new one) in cash. I was a rare exception at the Saab dealer, who of course advised me immediately to take on a loan to get the better model...

Jeff
11-20-06, 04:54 PM
Words of wisdom and so against every message the media and financial organizations throw at people today, especially the unschooled and unwise.

My first car was a $300 1967 VW Bug, then 13 years old. I had to rebuild the heater boxes and use screen door springs to keep the foot pedals off the floor, but it took me a hard several thousand miles, and living on a remote Vermont mountain top through a long hard winter. Then I sold it for $300.

The 12 years after that were mostly a nightmare of expensive leases (what was I thinking?) low down payments and lifetime terms, and even a repossession. (Repo man’s compassion quotient=0).

I’ve paid cash for every car I’ve bought since 1995. South Florida is full of highly leveraged, overpriced “dream” houses that usually have the “Dade County Duo” out front- a new (leased) Hummer3 and a new (leased) S class Mercedes. I enjoy asking “What are your payments?” while riding past on my bike. An amazing number will proudly throw out numbers over $1,000 and more a month and I just cringe for them.

EJ
11-20-06, 06:00 PM
EJ

rock solid advice. Spend only what you have and not more. Better take the commute when you cannot afford a car.

When I see my neighbours here on the lake of Zürich (the Miami Beach of Switzerland) with their 7series BMW or X5es plus the Mini or convertibles for their spouses with lots of financing ontop of their overleveraged condos and houses I know exactly where their salary is being left. Unfortunately for me I paid my car (even though it is a new one) in cash. I was a rare exception at the Saab dealer, who of course advised me immediately to take on a loan to get the better model...
Except for the instance of leasing an Audi S4 when I took a US director high tech sales job years ago, I always pay cash for cars. But I give in to the temptation to buy a new car versus a used one every ten years or so... purchased a new Infiniti FX 35 with cash in 2003. (Not an especially politically correct car, for sure.) Why a new car every ten years? As near as I can tell because that's how long it takes me to forget how stupid I feel after I've done it, leaving 20% there on the lot as I drive off.

My thought process largely reflects the way I was brought up, and I suspect yours does as well. I recall driving through town with my Dad when I was maybe 12 years old, and pointing out a new Caddilac in the driveway of a run down three family house. I asked, "Why do we live in a nice house but drive around in a five year old car when they live in a crummy house and drive a new car?" "Because," he said, "they are compensating. If they spent the money on education instead of on a car, they'd soon enough be living in a better house, and later driving a better car, but they don't know any better."

lewman
11-20-06, 11:37 PM
Eric,
Agreed 100%. But I'd like to throw something in.
I graduated from college but didn't buy my 2nd car, a new Acura Integra, until 4 years later (my first car was an "inheritance" that cost me nothing and like everything else in life that's free it was an old one that didn't look nor run good). One of the reasons I waited was because I didn't believe in financing its purchase but it took me that long to save enough to pay cash for it.
I remember at a party with old friends, I was having a discussion with one of them (we're all of similar age) who bought a 300Z right after college (with credit of course), then went on to other sports cars every now and then.
I was armed with arguments similar to yours, numbers & figures, depreciation, etc.
He on the other hand, went on and on about how the cars helped him in the girls department.
In the end, I think most of the guys agreed that he'd won the argument. :D

EJ
11-21-06, 12:11 AM
Eric,
Agreed 100%. But I'd like to throw something in.
I graduated from college but didn't buy my 2nd car, a new Acura Integra, until 4 years later (my first car was an "inheritance" that cost me nothing and like everything else in life that's free it was an old one that didn't look nor run good). One of the reasons I waited was because I didn't believe in financing its purchase but it took me that long to save enough to pay cash for it.
I remember at a party with old friends, I was having a discussion with one of them (we're all of similar age) who bought a 300Z right after college (with credit of course), then went on to other sports cars every now and then.
I was armed with arguments similar to yours, numbers & figures, depreciation, etc.
He on the other hand, went on and on about how the cars helped him in the girls department.
In the end, I think most of the guys agreed that he'd won the argument. :D

No, he merely discovered the age-old way to attract women who care about how much money a man is willing to spend carelessly to impress them. Check back with him in 20 years. I bet he's happy neither with his partner in life nor with their financial situation.

Rajiv
11-21-06, 12:24 AM
In Caught In The Housing Bubble, (http://http://www.tompaine.com/articles/2006/11/20/caught_in_the_housing_bubble.php) Jennifer Wheary says


Since 2001, homeowners have been tapping into their home equity at a record pace. Households cashed out $715 billion worth of equity between 2001 and 2005. In the three years between 2003 and 2005, owners extracted $150 billion more in equity from their homes than they did in the previous eight.
.
.
.
Our newly elected Congress can take action to help families out of this mess.

Where can they start?

Eliminate the need to dip heavily into home equity to make ends meet by controlling health care costs and guaranteeing a living wage to anyone willing to work for it.

Create legislation to protect borrowers from the excessive credit card rates and fees and capricious terms which are legal but which end up strong arming honest families trying to make ends meet into financial peril.

Support hard working families in severe economic distress by re-examining and, where appropriate, reversing the sweeping changes to bankruptcy laws passed by Congress in 2005 which removed many protections available to average Americans.

Protect Americans from real estate appraisal fraud by ensuring that brokers are prevented from coercing or intimidating appraisers in order to receive a desired property appraisal value.

Any Thoughts?

Rajiv
11-21-06, 12:40 AM
More at Demos (http://www.demos.org/home.cfm)

House of Cards (http://www.demos.org/pubs/house_cards.pdf)

Debt Research (http://www.demos.org/page37.cfm)

Captain3D
11-21-06, 04:31 AM
Ha I love this thread.

The 'new car on credit' is such a perfect summary of bad financial plans and such a universally accepted practice.

I am a proud cheapskate especially where cars are concerned. The last car I had to buy was picked by searching craiglist for the biggest glut of used cars. First by make then by price range. Once I had my search dialed in I spent a week or two looking through the results for a well maintained but ugly example of the 'glut car'. Then I bought it cash...

1997, 80k miles, saturn, full services, nice sound system and safety stuff, One owner from new, not too good at parking, scuffs on all corners and a missing mirror. Price $2200.

Its been perfect now for 20k miles, but there is no way I could convince any of my friends to do the same. The social pressure is just too great for most people. I am often the target of jokes at work about my crap car and matching $100 golf clubs (also craigslist). The joke generally comes in the form of disbelief from people who get paid less than me ;-) It just makes me feel better. Occasionally I see the car from someone elses eyes and a squirm a little ;-)

If asked with any type of seriousness why I have such a cheap car when I have a well paid job. I just explain I am saving/investing until I have $1mill so I can be independent of any jobs I don't like (I love my current job) and because I haven't got there yet and until I do, I consider my self poor. This always seems to add to the confusion. As if trying to save $1mill is nuts compared to buying a $40k car on credit.

At that point I have to decide if I tell them I live in a trailer or not ;-) Yes also bought cash.

http://captain3d.com/dayoff/mobilehome/index.html

My goal is to be $1million dollar, Marin, CA, trailer trash. Its going quite well so far.

phil

spunky
11-21-06, 07:07 AM
Glad too see EJ post a thread we can all agree on :D


Chicks still dig my 99' Buick

EJ
11-21-06, 08:42 AM
Words of wisdom and so against every message the media and financial organizations throw at people today, especially the unschooled and unwise.

My first car was a $300 1967 VW Bug, then 13 years old. I had to rebuild the heater boxes and use screen door springs to keep the foot pedals off the floor, but it took me a hard several thousand miles, and living on a remote Vermont mountain top through a long hard winter. Then I sold it for $300.

The 12 years after that were mostly a nightmare of expensive leases (what was I thinking?) low down payments and lifetime terms, and even a repossession. (Repo man’s compassion quotient=0).

I’ve paid cash for every car I’ve bought since 1995. South Florida is full of highly leveraged, overpriced “dream” houses that usually have the “Dade County Duo” out front- a new (leased) Hummer3 and a new (leased) S class Mercedes. I enjoy asking “What are your payments?” while riding past on my bike. An amazing number will proudly throw out numbers over $1,000 and more a month and I just cringe for them.

Ok, my shitbox story is...

I didn't go to college right out of high school. I worked for a year, bought a new Honda Civic and drove it for the first year I was in college, then had to sell it to pay tuition. Lived without a car for a semester but hated being without a car at UMass, Amherst, as I was living-off campus. Using classified ads (no craigslist in those days), found a 1970-something Datsun 510 sedan with no rust on the body (a rarity for Datsuns) and a seized engine in one town, bought it for $250. Found the same model year as a station wagon with a rusted out body and new engine, bought it for $450. Drove the crap station wagon up to Amherst, following my brother who towed the sedan with his car. Rented an A-frame and put the new engine from the station wagon into the sedan, had a tow truck tow the other to the dump, got $40–the cost of renting the A-frame.

Total cost: $700. Car lasted through college until I lent it to a friend after I left college while in CA. Someone drove into him (not his fault).

Pervilis Spurius
11-21-06, 09:26 AM
EJ,

Aaron Krowne recently had a similar topic on his blog.

I made remarks over there that buying a low dollar (~$3000-4000) used car every 5 years or so gets you a car with greater quality and better creature comforts with each purchase. I was fortunate that the car game was a racket I understood before I made my first purchase. I have had great success with this method. You might be surprised but the cars aren't beaters or "shitboxes" either, although you may have a different opinion:D .

The key of course is to find a single owner vehicle with a maintenance history.
With the internet, the man-hours invested searching is almost nil anymore, but you might have to wait about a month if you're particular.

For many of you this may be moot, if you have a high profile job.

EJ
11-21-06, 11:29 AM
EJ,

Aaron Krowne recently had a similar topic on his blog.

I made remarks over there that buying a low dollar (~$3000-4000) used car every 5 years or so gets you a car with greater quality and better creature comforts with each purchase. I was fortunate that the car game was a racket I understood before I made my first purchase. I have had great success with this method. You might be surprised but the cars aren't beaters or "shitboxes" either, although you may have a different opinion:D .

The key of course is to find a single owner vehicle with a maintenance history.
With the internet, the man-hours invested searching is almost nil anymore, but you might have to wait about a month if you're particular.

For many of you this may be moot, if you have a high profile job.

Indeed, a VP Sales can't get away with driving a beater. For anyone with a job where a show car is justified because it's expected (e.g., a meaningful portion of income depends on appearances), a used luxury car is still the right way to go. For example, a three year old BMW M3 just off lease with 30k miles on it (that is, just broken in) can be had for $35,000 vs $49,000 new. Consistently avoiding the 30% haircut you get for buying new, even with cash, for the first 2 to 3 years of ownership... over time, this really adds up.

If you make enough money, you can drive whatever you want. One of the other things you can buy with financial independence is the right to eccentricity, and owning a car that's less expensive than the car everyone knows you can afford is one of them. Warren Buffett drives a Lincoln Town Car with a license plate that reads: "THRIFTY". The car's cost is a rounding error on the return he earns on his wealth daily.

I'm thinking of adopting the eccentric's car look... a Toyota Corolla or Honda Civic, because I'm concerned about pollution and fossil fuel consumption. Fifty percent of the pollution generated by a car is created in producing a car, so if I'm worried about pollution, I don't buy a new Pruis (rhymes with "Pious"), but buy a used Toyota Corolla or Honda Civic, and drive it slowly. That and an old truck, and replace the FX with the two–the Corolla for getting around, the truck for hauling stuff.

What do you think?

jk
11-21-06, 11:55 AM
a different approach

the first car i ever purchased was in 1970 - a new bmw! cost=$3000 cash for a bmw 1600 - the first model they imported. the 2002 didn't exist yet. $3000 looks cheap, but i could have bought 2 vw bugs for that money. anyway i drove the car for 13 years and sold it after it had broken down a couple of times, and i realized that the lost day's earnings were more than the much depreciated value of the car. in general i've kept every car until it had to be junked or was worth only low 3figures.

i view the cars as a consumption item with some entertainment value along with providing transportation. i'm not interested in prestige, but i care about performance. my current vehicle is a 2005 subaru legacy gt wagon - 4 wheel drive for my beyond-ordinance-steep driveway in new england winters, wagon for cargo duty when necessary as well as for a deliberate lack-of-flash, turbo for fun - the magazines say it goes 0-50 in 5.3sec. the fun is part of my purchase calculation. the mileage isn't great, but it's not bad - about 21mpg driven with a heavy foot.

i have seen too many people who've become ill or disabled for me to postpone gratification completely.

so the piece i'd add to this "advice" thread is that when considering cost v savings, realize that you have to calculate the future value of those savings subject to assumed nominal investment returns but discounted by both inflation and the probability of you not being in a condition to enjoy that future value. there's no day like today.

Jim Nickerson
11-21-06, 02:22 PM
As someone who made a fair amount of money treating torn-up faces on people involved in auto accidents, and having been in a significant accident in a Mercedes 300CD, from which I limped away on a sprained ankle with a bleeding forehead, and having avoided an incredible crash through either sheer luck or because of the safety tracking features of an all-time 4-wheel drive vehicle, my overriding concern in buying a vehicle is its safety features.

When one ventures out on the freeways in the Dallas-Fort Worth area, if inclined to drive the posted speed limit, it is amazing how almost everyone passes by going faster--often much faster. Highways are to my estimate filled with fools. The reason my concerns above all others is the safety features of a vehicle is not due entirely to the experience of working on torn-up faces, but more from the experience of waiting on general surgeons to explore traumatized bellies, neurosurgeons to crack open skulls to evacuate hematomas, or for orthodpedic surgeons to have teams operating on fractured legs and arms at the same time; occasionally all these things before I could get to the facial injuries. The facial fractures were often the least of the patients' problems. The strong impression all this has made upon me does not come close to taking into account those killed in motor vehicular accidents. I never lost sleep from getting up to treat those in the middle of the night who died or had to see them through some period of recovery. Automobiles, interstates, and Americans (throw in fools, drugs and booze) are a highly dangerous combination.

People fret and feel remorse over those lives lost and bodies mangled in the current wars, but those tolls are relatively miniscule compared to the annual carnage that occurs on our highways, and I apolgize for not giving you the most recent numbers, but whenever I have looked them up, they overwhelm me. What is more overwhelming is the tacit acceptance by this country as a whole of those lives lost and injuries sustained.

If I had to commute on interstates daily or be on them frequently for whatever reasons, I would personally borrow money to buy the safest car I could come reasonably close to being able to pay off.

We certainly cannot choose whether or not some fool is going to run over us or run us off the road, but we can choose to buy the safest vehicle we can afford if one must subject oneself to the risks of driving.

On the highways, I can tell you shit happens, serious shit happens. Death certainly is the easiest and least expensive way out of some of the things that can happen. No one wants to die, and I can tell you that no one I ever treated was happy with what all was necessary to try to restore them--excepting all of them were definitely happy not to be dead. Real happiness is succeeding in remaining alive and uninjured when it comes to motor vehicles despite what that might cost in the short run.

EJ
11-21-06, 04:27 PM
As someone who made a fair amount of money treating torn-up faces on people involved in auto accidents, and having been in a significant accident in a Mercedes 300CD, from which I limped away on a sprained ankle with a bleeding forehead, and having avoided an incredible crash through either sheer luck or because of the safety tracking features of an all-time 4-wheel drive vehicle, my overriding concern in buying a vehicle is its safety features.

On the highways, I can tell you shit happens, serious shit happens. Death certainly is the easiest and least expensive way out of some of the things that can happen. No one wants to die, and I can tell you that no one I ever treated was happy with what all was necessary to try to restore them--excepting all of them were definitely happy not to be dead. Real happiness is succeeding in remaining alive and uninjured when it comes to motor vehicles despite what that might cost in the short run.

Adding a bit of levity to the discussion, eh? ;)

That's my one misgiving about buying the little Corolla vs continuing to drive my little Japanese tank–with the 20 in. wheels (Jeff loves those)–wrapped in air bags. New cars of the same model are certainly safer than old ones, and bigger safer than smaller, except for top-heavy SUVs and trucks, of course. So let's qualify the advice to say the cheapest safe car you can tolerate.

spunky
11-21-06, 05:19 PM
EJ:
Do you mow grass ??? Your average lawnmower puts out 8x the emissions of a modern car. I will never buy a new car again , because it is a ripoff. I will always have a truck, but it isnt my primary mode of transport.


Could someone please explain to me america's sick obsession with lawns and mowing grass ???

Jim Nickerson
11-21-06, 05:44 PM
Could someone please explain to me america's sick obsession with lawns and mowing grass ???

Pride, ever more rare among some Americans.

WDCRob
11-21-06, 06:46 PM
Fun thread and a great article. Which I've forwarded to my better half, who doesn't understand my passion to continue in an increasingly quirky 1998 VW Golf when I 'can afford a new car.'

She's right, but thriftiness aside I live in a high density area, enjoy my bike, work steps away from the Metro and put less than 500 miles/month on the car these days.

I'm not sure I'll ever make enough money to go full-on threadbare eccentric, but we all have dreams I guess.

Jeff
11-21-06, 06:54 PM
Okay, I've been worth well into 8 figures in recent memory, but my everyday car is a 2000 Chevy Suburban 2500 4wd beast. I use a manual lawnmower, have solar power and use extensive alternative energy technology, but I've also been put thru the windshield of a taxicab on I-55, put a tiny econobox into a telephone pole at high speed, and been hit by a cop in pursuit.

Until gas hits $600 a gallon or my net worth falls bellow 4 figures, I'm going with self preservation.

Did I mention it's paid for?

Finster
11-21-06, 07:35 PM
As someone who made a fair amount of money treating torn-up faces on people involved in auto accidents, and having been in a significant accident in a Mercedes 300CD, from which I limped away on a sprained ankle with a bleeding forehead, and having avoided an incredible crash through either sheer luck or because of the safety tracking features of an all-time 4-wheel drive vehicle, my overriding concern in buying a vehicle is its safety features.

When one ventures out on the freeways in the Dallas-Fort Worth area, if inclined to drive the posted speed limit, it is amazing how almost everyone passes by going faster--often much faster. Highways are to my estimate filled with fools. The reason my concerns above all others is the safety features of a vehicle is not due entirely to the experience of working on torn-up faces, but more from the experience of waiting on general surgeons to explore traumatized bellies, neurosurgeons to crack open skulls to evacuate hematomas, or for orthodpedic surgeons to have teams operating on fractured legs and arms at the same time; occasionally all these things before I could get to the facial injuries. The facial fractures were often the least of the patients' problems. The strong impression all this has made upon me does not come close to taking into account those killed in motor vehicular accidents. I never lost sleep from getting up to treat those in the middle of the night who died or had to see them through some period of recovery. Automobiles, interstates, and Americans (throw in fools, drugs and booze) are a highly dangerous combination.

People fret and feel remorse over those lives lost and bodies mangled in the current wars, but those tolls are relatively miniscule compared to the annual carnage that occurs on our highways, and I apolgize for not giving you the most recent numbers, but whenever I have looked them up, they overwhelm me. What is more overwhelming is the tacit acceptance by this country as a whole of those lives lost and injuries sustained.

If I had to commute on interstates daily or be on them frequently for whatever reasons, I would personally borrow money to buy the safest car I could come reasonably close to being able to pay off.

We certainly cannot choose whether or not some fool is going to run over us or run us off the road, but we can choose to buy the safest vehicle we can afford if one must subject oneself to the risks of driving.

On the highways, I can tell you shit happens, serious shit happens. Death certainly is the easiest and least expensive way out of some of the things that can happen. No one wants to die, and I can tell you that no one I ever treated was happy with what all was necessary to try to restore them--excepting all of them were definitely happy not to be dead. Real happiness is succeeding in remaining alive and uninjured when it comes to motor vehicles despite what that might cost in the short run.

Perhaps it is time for the US government and the states to sue the automakers. Hit then up for a few hundred billion, you know, to help cover the costs of treating the injured. Whether the tort business picks up a hundred billions bucks in the process, or whether it can be spun to make demagoguing politicos look good of course is beside the point. As part of the settlement, to drive home the altruistic nature of the effort, ban all television advertisements from the airwaves. After all, they just target children and corrupt them, making them believe driving an automobile is "cool". All cartoon characters will be banned from print advertising as well. Come to think of it, ban Ronald MacDonald. He just brainwashes innocent kids into thinking saturated fat and cholesterol are cool. Meanwhile, ban the Internet. After all, people might encounter porn there. Or worse yet, ideas that might make them think the government may not be acting in their best interests, or cause them to think twice about buying stocks. Or a McMansion ... or generally to spend money they don't have ...

Jim Nickerson
11-21-06, 07:56 PM
Perhaps it is time for the US government and the states to sue the automakers. Hit then up for a few hundred billion, you know, to help cover the costs of treating the injured. Whether the tort business picks up a hundred billions bucks in the process, or whether it can be spun to make demagoguing politicos look good of course is beside the point. As part of the settlement, to drive home the altruistic nature of the effort, ban all television advertisements from the airwaves. After all, they just target children and corrupt them, making them believe driving an automobile is "cool". All cartoon characters will be banned from print advertising as well. Come to think of it, ban Ronald MacDonald. He just brainwashes innocent kids into thinking saturated fat and cholesterol are cool. Meanwhile, ban the Internet. After all, people might encounter porn there. Or worse yet, ideas that might make them think the government may not be acting in their best interests, or cause them to think twice about buying stocks. Or a McMansion ... or generally to spend money they don't have ...

Finster, what is your point?

jk
11-21-06, 08:50 PM
Could someone please explain to me america's sick obsession with lawns and mowing grass ???

thorstein veblen's theory of the leisure class dealt with this particular issue explicitly in 1899. the lawn originated as a piece of fertile land deliberately withheld from producing a useful crop, and thus a sign of wealth.

Spartacus
11-22-06, 03:44 AM
So what do you think of aftermarket 5 point harnesses vs the regular seat belts?


As someone who made a fair amount of money treating torn-up faces on people involved in auto accidents, .

DemonD
11-22-06, 04:25 AM
Someone once told me that Sacramento processes 300 accident claims a day.

You know what I find interesting though. I hear about how so many people live through horrible accidents in big, sturdy cars or SUV's. How about you have a small car with great handling so you never get in an accident to begin with? I was recently told a story of a person who smashed up her 1989 mercedes 4 door sedan, and she was told by the inspector that had she been in a less sturdy car, everyone would have been killed. When i asked her what happened, she had told me they were driving on Mulholland Dr. and had lost control of the car.

Duh.

Bigger cars = harder to control

Have yet to hear of an "overturned honda civic" but i've seen more than one ford exploder lying on the side of the road wheels up.

Jim Nickerson
11-22-06, 10:07 AM
So what do you think of aftermarket 5 point harnesses vs the regular seat belts?

I quit practicing in 1991. I have no knowledge of 5 point harnesses. Since my note yesterday I have mulled over what I wrote, and I surmise that the general public is about as dumb about the dangers of automobile accidents and the consequence of bodily injuries from them as we are about the finer workings of economics and how the financial system works. On TV most of what you see is the anxious family waiting until the surgeon comes out and says "everything is going to be okay," and everyone smiles and hugs or "sorry we could not stop the bleeding" and everyone screams. On the programs I watch the offender was usually a gun shot wound. In my real life the story of bodily injuries from MVA's is not over when the surgeon walks out of the OR and tells the family he is done for the moment at least. If one is a trauma surgeon, dealing with the effects of MVA's go a long way toward educating his kids in private schools, funding retirement, and affording safe vehicles.

Jim Nickerson
11-22-06, 10:09 AM
Someone once told me that Sacramento processes 300 accident claims a day.

You know what I find interesting though. I hear about how so many people live through horrible accidents in big, sturdy cars or SUV's. How about you have a small car with great handling so you never get in an accident to begin with? I was recently told a story of a person who smashed up her 1989 mercedes 4 door sedan, and she was told by the inspector that had she been in a less sturdy car, everyone would have been killed. When i asked her what happened, she had told me they were driving on Mulholland Dr. and had lost control of the car.

Duh.

Bigger cars = harder to control

Have yet to hear of an "overturned honda civic" but i've seen more than one ford exploder lying on the side of the road wheels up.

If one thinks small cars are the way to go, then that is what rational thinking is all about, and one should go with small cars. Something that you might possibly be missing is the circumstance where someone hits your car when you do not see it coming. I think that happens in real life.

BK
11-22-06, 10:58 AM
EJ,

Check out a 2003 Infiniti I35 - 30-31 MPG highway - even with the AC running full tilt-
looks more expensive than it is.....(or at least I think so...)
Good size - Can fit four adults and a Child -
Lots of Air bags - and theat good-ole Japanese realiability.

Not as dramatic as a Corolla - but, a nice ride.

Happy Thanksgiving

Spartacus
11-22-06, 06:51 PM
they're not new - they've been the standard for car racing (real racing, not illegal street racers) for a long time.

they're basically extra seat belts - an extra strap that prevents you from going out the side, and another extra strap that comes up between the legs, in front of the jewels, that prevents you from going under, (the standard belts allow this - it's worse when worn incorrectly, but even when worn correctly, going under can be a problem).

They're available as after-market additions.

You probably never heard of them because they're expensive and so rare - used only by ultra-nutty safety freaks and race car drivers.


I quit practicing in 1991. I have no knowledge of 5 point harnesses.

Finster
11-22-06, 07:34 PM
Finster, what is your point?

Good grief Jim ... a little playful satire on the governments' tactics vis-à-vis tobacco ... the advancement of democratic totalitarianism ... ?

Jim Nickerson
11-22-06, 11:43 PM
Good grief Jim ... a little playful satire on the governments' tactics vis-à-vis tobacco ... the advancement of democratic totalitarianism ... ?

Good grief, Finster, I see nothing satirical about choices individuals may make as it relates to their own or family's safety, nor do I see any governmental tactic in individuals arriving at such choices, nor do I see anything advancing democratic totalitarianism (whatever that is) in individuals' chosing whether they wish more safety or more money. Perhaps you had that spiel written already just waiting to paste it into some thread in order to espouse something libertarian (whatever that is). It seems you got it pasted into the wrong thread.

akrowne
11-26-06, 11:42 AM
A small recent commentary of mine on "<a href="http://www.autodogmatic.com/index.php/sst/2006/11/11/the_hidden_costs_of_financing">the hidden costs of financing</a>" makes an excellent complement to this EJ article.

DemonD
11-27-06, 10:37 PM
I own a 2001 corolla. It's got 108k miles. My mechanic said "Oh, you're just breaking it in." :) I probably won't ever sell it, and I'm certainly not going to get another car until my student loan debt is payed off and I own some sort of real estate (real estate I can actually afford).

My main point in this post was I wanted to ask about this:


Nice! I "felt" like I was making money, on a car bought new, no less, the most notoriously money-losing purchase a person can make. At that stage of an inflation, everyone thinks they're getting richer, as nominal incomes are rising along with rates on CDs and other interest bearing securities, and hard assets. The problem is that in nominal (inflation-adjusted) terms (emphasis added), the purchasing power of these assets and securities is declining. Once the average person realized that, which they did around the year I sold that Honda, the rush to hard asset and the gold bubble began.

Shouldn't that say "The problem is that in real (inflation-adjusted) terms..."

Stretch002
02-07-07, 06:14 PM
Sorry to dig up an older thread. But I would like to solicit some advice and discussion on my personal scenario. I have indeed purchased a new car this past year...an expensive one at that. In my case I can pay for the car in cash or try and out perform the market rate of the car loan.

See if my math holds up:

Purchase Price: $50,000
Interest Rate: 6%
Total Cost after 60 months: $65,000

Liquid assets: $50,000 in a CD
Investment returns at 5.25% (annual): $2,625
Taxes on Investment returns (30% bracket): $787
Net from Investing funds: $1,838
Net funds after 60 months investing: $9,190
Asset Cost minus Investment gain: $55,810

So in my case the question becomes: is it better to spend the extra $5800 over five years to stay liquid and hope the FED raises rates to the point that my CD’s will outperform the loan I have taken out on the car? How high does that rate need to go in order for me to break even with the 30% in taxes I am forced to pay on the gains? What would you do here?

Thus far I am thinking that paying off the car is the correct choice.

Jim Nickerson
02-07-07, 07:09 PM
Sorry to dig up an older thread. But I would like to solicit some advice and discussion on my personal scenario. I have indeed purchased a new car this past year...an expensive one at that. In my case I can pay for the car in cash or try and out perform the market rate of the car loan.

See if my math holds up:

Purchase Price: $50,000
Interest Rate: 6%
Total Cost after 60 months: $65,000

Liquid assets: $50,000 in a CD
Investment returns at 5.25% (annual): $2,625
Taxes on Investment returns (30% bracket): $787
Net from Investing funds: $1,838
Net funds after 60 months investing: $9,190
Asset Cost minus Investment gain: $55,810

So in my case the question becomes: is it better to spend the extra $5800 over five years to stay liquid and hope the FED raises rates to the point that my CD’s will outperform the loan I have taken out on the car? How high does that rate need to go in order for me to break even with the 30% in taxes I am forced to pay on the gains? What would you do here?

Thus far I am thinking that paying off the car is the correct choice.

It seems to me that possibly you screwed yourself in the first place by buying a car costing $50K if 50K is all you have in liquid assets, and I am not positive that is what you inferred.

I think people ought to retain some cash (cd's, etc.) in case of calamity.

Heavens forbid, I should be in your place, but I guess if I were, and $50K is all I had, I would try to figure out what 6 month's living expenses would be, retain that in savings and pay the rest early to cut down on interest because it isn't deductible of course. If you have a rock-solid job, which I certainly hope you do, then add something more to each month's payments and pay that bugger off as soon as you can.

Or get a second mortgage if you can at a decent rate and closing costs, and then at least you can deduct the interest.

Or win the Lotto, and pay off the car note.

I personally think we are going to see lower rates before we see much higher ones, which is just opinion. If you owed $50K over 15 years, then perhaps after a drop in rates, there will be much higher rates and over the long run (15yrs.) you might come out repaying the bank with inflated dollars, remembering, however, that most of the interest is paid early on.

Personally, I think you made a bad choice. Good judgement comes with experience and experience comes from bad judgement.

Good luck.

jk
02-07-07, 07:41 PM
prior to last year i'd never bought a car for more than about $28k. last year i bought one for about $32k [a subaru legacy gt turbo wagon - i love it! high safety ratings/features and very, very fast, 4wd, i'm digressing...] i'm a physician, own a house, make good money, have a reasonable amount of savings/investments and am almost done paying for all my kids' tuitions. so anyway, it's hard for me to imagine someone who would buy a $50k car needing to ask this kind of question. on the other hand, i met someone once who really, really loved cars and said how his ideal was to own a car that was worth more than his [current] house. so i guess you really really love cars, and made a value judgement. the only thing that would make such a judgement a "mistake" is if you made the decision thoughtlessly. otherwise, it's just a value judgement.

don't forget cd rates might drop instead of rise, so your cost of remaining liquid could be higher than you calculate. beyond that, it's really impossible to answer your question without knowing whether you have other assets or sources of credit. in general, car loans are not great loans, and you get penalized for paying them off early via the way they calculate the pay off. [they are not computed like mortgages.] i think that you are early enough in the life of the loan that paying it off doesn't get you as screwed as you would be if you paid if off in the middle, though. [the lender should be able to provide you with payoff amounts for different points in the life of the loan, and you could compare it with the amounts derived from a mortgage calculator.] i'd pay off as much as i could, keeping some liquid reserve, as suggested by jim in the last post.

Stretch002
02-08-07, 01:09 PM
Looks like I need to clarify a bit. Please forgive me if this is too much information.

We have a household income between $200k - $300k per year. We have close to $400,000 in various liquid investments not related to retirement. We fully fund our 401k's for the full 15k per year.


I'd like to point out that I did extensive research and much thinking before I bought my childhood dream car. This was not a thoughtless and spur of the moment decision. This is a car I will be keeping forever. My wife I have the money to pay it off now or later. I am trying to figure out if it is better to keep the money invested or to simply pay off the car loan. We are in our mid 30's if that makes any difference...

Thanks in advance for your help!

Jim Nickerson
02-08-07, 01:14 PM
Looks like I need to clarify a bit. Please forgive me if this is too much information.

We have a household income between $200k - $300k per year. We have close to $400,000 in various liquid investments not related to retirement. We fully fund our 401k's for the full 15k per year.


I'd like to point out that I did extensive research and much thinking before I bought my childhood dream car. This was not a thoughtless and spur of the moment decision. This is a car I will be keeping forever. My wife I have the money to pay it off now or later. I am trying to figure out if it is better to keep the money invested or to simply pay off the car loan. We are in our mid 30's if that makes any difference...

Thanks in advance for your help!

Well, that "bit" of information does change what I think. Personally if I were making that much money, I would pay the mother off and not have to worry about it. Why pay any interest if you cannot deduct it.

jk
02-08-07, 01:17 PM
Well, that "bit" of information does change what I think. Personally if I were making that much money, I would pay the mother off and not have to worry about it. Why pay any interest if you cannot deduct it.
pay it off. think of it as a sure-thing investment with a rate of return equal to the rate of the loan, after taxes.

Jim Nickerson
02-08-07, 01:36 PM
Looks like I need to clarify a bit. Please forgive me if this is too much information.

We have a household income between $200k - $300k per year. We have close to $400,000 in various liquid investments not related to retirement. We fully fund our 401k's for the full 15k per year.


I'd like to point out that I did extensive research and much thinking before I bought my childhood dream car. This was not a thoughtless and spur of the moment decision. This is a car I will be keeping forever. My wife I have the money to pay it off now or later. I am trying to figure out if it is better to keep the money invested or to simply pay off the car loan. We are in our mid 30's if that makes any difference...

Thanks in advance for your help!

Let me also offer my personal anecdote. At the market top in 2000, I leased a Lexus SUV, the small one, thinking shit, with the money I have been making in the stock market, why liquidate anything, rather keep it invested while I ride to the moon.

BIG MISTAKE!

I could have paid cash then for 25 Lexuses, stored them, and sold them off over the next 2 years and come out ahead. It may be a mistake to think what you have invested now is going to be worth more later.

I will say this about the Lexus, which by the way I bought at the end of the three year lease--don't anyone tell me how bad this was as far as abright financial move--but, that car was undoubtedly the best car I have yet owned. In 5.5 years, it has NOTHING go wrong with it, except a plastic plug that held an interior panel in place popped out and was lost--cost to replace it $1.50.

Thinking back on my thinking at the time, it was pure greed in me that kept me from liquidating some holdings and paying cash for the car. It turned out, that I was more than sufficiently punished for my greed.

Jim Nickerson
02-08-07, 01:50 PM
From the purely for-what-it-is-worth department, I just noted that this tread has had over 22,000 views, assuming the view-counter has not been gimpy.

What does that say? A whole lot of people are buying cars?

Stretch002
02-08-07, 02:24 PM
Looks like a popular thread! It certainly offers very good advice. Thanks to everyone for indulging me.

I have decided to pay the car off. Thinking of it as an investment that pays 6% AFTER taxes is what did it for me. A rock-solid investment yielding that figure after taxes is hard to come by. Also, after having typed everything out I do not think I need the additional liquidity at this time. Thanks everyone!

Jim Nickerson
02-08-07, 03:44 PM
Looks like a popular thread! It certainly offers very good advice. Thanks to everyone for indulging me.

I have decided to pay the car off. Thinking of it as an investment that pays 6% AFTER taxes is what did it for me. A rock-solid investment yielding that figure after taxes is hard to come by. Also, after having typed everything out I do not think I need the additional liquidity at this time. Thanks everyone!

By the way, Stretch, what kind of car is it?

Stretch002
02-08-07, 03:51 PM
It is a Lotus Elise! Being a huge F1 racing fan growing up I have always LOVED racing inspired cars. This car is a ton of fun and everything I hoped it would be. Incredibly good performance, low running costs, exotic looks and handling. And most importantly, lots of FUN! :)

http://img159.imageshack.us/img159/6902/1000525editedyd2.jpg

jk
02-08-07, 04:05 PM
it's fun just to look at. must be a hoot to drive.

Jim Nickerson
02-08-07, 04:48 PM
Stretch you are truly a great American in that you seem to fully grasp what America is all about--having FUN, you can't beat it! :)

Stretch002
02-08-07, 05:33 PM
Thanks for the positive feedback. I was waiting for a tongue lashing once the "evil sports car" was shown! :D Did I mention it gets about 30mpg?

The car really is amazingly fun. Obviously I'd never want to wreck my finances for one but as they say "Ya gotta live!". I think it is healthy to balance long term monetary goals with short term happiness. After all, we are all dead in the long run! :p

Now to discuss where we think interest rates are headed...

Jim Nickerson
02-09-07, 12:14 AM
Thanks for the positive feedback. I was waiting for a tongue lashing once the "evil sports car" was shown! :D Did I mention it gets about 30mpg?

The car really is amazingly fun. Obviously I'd never want to wreck my finances for one but as they say "Ya gotta live!". I think it is healthy to balance long term monetary goals with short term happiness. After all, we are all dead in the long run! :p

Now to discuss where we think interest rates are headed...

Thanks for your equanimity, Stretch.

Interesting is that your last comment is something that has been on my mind, and I am sure many others' too.

Last night I ran across an article by Paul Kasriel who is someone who strikes me as generally rational in his interpretation of data. He wrote an article: The Fed Probably Thinks It Is On Hold for All of 2007, February 7, 2007 http://www.financialsense.com/editorials/kasriel/2007/0207.html (http://www.financialsense.com/editorials/kasriel/2007/0207.html) in which he posits that the next move by the Fed will be later this year "perhaps on August 7" and will be a rate cut.

His article is devoted to contradicting the title of it. To me his arguments seem solid. He thinks the bottom in the housing market decline of real residential investment expenditures could go a bit further from about the -13% so far from their Q3:2005 peak, and notes that the average peak to trough since WWII is about 25% unless this time it is milder.

For those who pay attention to EJ's Ka-Poom theory, he proposes there will be a period of disinflation. Kariel notes that core consumer inflation was decelerating in past two quarters of 2006. So my little mind's impression from this is that a period of disinflation is perhaps upon us or is still to be more manifested in the next 6-7 months.



From MoneyNews
Wednesday, Feb. 7, 2007

NEW YORK –- Merrill Lynch is sounding the alarm on a global liquidity crunch as central banks in Europe and Asia tighten monetary policy and advise clients to avoid risk and switch to safer assets over the coming months.

The bank said 2007 would be the "year of the dividend", with concern returning as the VIX and VDAX volatility indexes that are widely used in option trading rise from record lows.

Merrill Lynch's chief European strategist Khuram Chaudhry said the bank thinks "global interest rates are going to rise a lot more than investors are discounting, and this is a worrisome outlook for profits.

"We've seen liquidity everywhere, in equities, property, bonds. It's been a one-way bet for investors, and they've taken on a lot of risk. But they're not looking beyond the news to the slow drip-drip effect of interest rates. It matters when central banks tighten monetary policy," he continued.

Although the Federal Reserve left interest rates unchanged at 5.25 percent at its last meeting for the fifth consecutive time, it's raised rates 17 times already since June 2004. But the bank pointed out that Europe has been slower and the Bank of Japan is still holding rates steady.

Russell Comment -- Interesting and certainly not in tune with the PIMCO crowd. Bill Gross continues to think that rates in the US will be coming down during the second half of this year.



So on one hand a bigwig at Merrill Lynch is suggesting international rates are going to tighten, which I presume will result in some cooling off of equity markets around the world. If Kasriel and Gross think rates will be coming down later this year, then it suggests to me that there is going to be something happening that will stop the runups that have occurred rather much worldwide in the equity markets.

So back to you, Stretch (and I thought you would tell us your car was a long limo), rates may go down, and equities may go down, so ridding yourself of $50K now might turn out to be brilliant, unless I am missing something--which odds are, I am.

FRED
11-13-07, 11:33 PM
This just in:

5 Reasons You Should Buy A New Car (http://www.gatherlittlebylittle.com/2007/11/13/5-reasons-you-should-buy-a-new-car/)

1. You don’t think car dealerships make enough money and you want to help them out

2. You enjoy throwing money out out the window as you drive down the road in your new car

3. That great new car smell really is worth 5-10k

4. You enjoy parking in the back of the lot sideways with orange cones surrounding your new vehicle

5. You work hard and deserve a new car

Spartacus
11-13-07, 11:59 PM
6. You want to be safer than the pedestrians and cyclists

7. you want to be more vulnerable than the SUV/truck drivers and train/bus passengers

8. he who dies with the most toys, WINS !!!!


This just in:

5 Reasons You Should Buy A New Car (http://www.gatherlittlebylittle.com/2007/11/13/5-reasons-you-should-buy-a-new-car/)

1. You don’t think car dealerships make enough money and you want to help them out

2. You enjoy throwing money out out the window as you drive down the road in your new car

3. That great new car smell really is worth 5-10k

4. You enjoy parking in the back of the lot sideways with orange cones surrounding your new vehicle

5. You work hard and deserve a new car

exactly WHAT he wins is left as an exercise for the reader

brucec42
12-02-07, 01:12 AM
It's certainly sound advice to not go into debt buying a car if you can avoid it. I own 3 vehicles and not a penny is borrowed on any of them. But like everything, a little moderation may be useful.

Yes, strictly FINANCIALLY there is a great argument to be made for buying the cheap rustbucket and saving up for your next new car. However, there are a couple of other things in life besides money, and sometimes you have to spend a little to make more.

1. Your Life: Your extra $300/mo in the bank earning you 6% isn't worth a whole lot if you are dead or maimed. Newer cars are much safer than anything you're likely to find for super cheap. In the last couple of years, stability control has been proven to make a significant dent in death rates, for example.

Also, the cheapest car may not crash test well, may be lacking sufficient mass (which matters a lot in car/car crashes), etc. Also, performance is a factor in "active safety". The ability to handle and brake well, as well as accelerate adequately to avoid trouble, helps you stay safer and usually isn't found on $600 beaters.

Google Volvo, BMW, etc and you can find websites dedicated to harrowing tales of how drivers walked away from terrible accidents. Thankfully cheaper cars are now catching up in safety, but you are going to have to spend a significant amount to maximize safety. I want my wife to have the best chance possible out there, so safety matters more than saving a little on the car expenses.

2. Sanity and Peace of Mind: Newer is usually more reliable. And reliable brands often cost more than comparable cars of less reliable brands. If you live 6 blocks from work, drive 4,000 miles a year, and have ways to get to work via friends or family members if your clunker won't start or is in the shop for a week, fine. But some of us have 80 mile round trip commutes and jobs where being late regularly isn't a good idea. Some may also be commuting along deserted roads after dark and don't want our wives at the mercy of whomever stops to help. Losing a $120,000/year job to save $3,000/year in auto costs probably isn't a good trade-off. Anyone who has broken down in the middle of I-285 in Atlanta where the "slow lane" is going 65mph and you have to cross 7 lanes to get to the roadside will testify that the $250/mo car payment to help avoid that situation would be worth it.

Others of us rely on vehicles in our businesses to earn a living. A breakdown might cost me $400/day till it's back in service and I'm back servicing customers. But worse than that, my reputation for reliability suffers, which is hard to even calculate in dollars. And the hassle factor of a breakdown for me alone outweighs anything else. It doesn't just ruin my day, it ruins my week.

Finally, if you DO make that hour plus commute, it sure goes by better in a BMW than in a '83 Chevy Citation. It just may make it tolerable and saves you from having to move to a more expensive home closer in or find a new job that may pay less. It's a cost of doing business. Just like buying suits and drycleaning bills.

3. Image: I personally don't care what I drive, but my customers do. So an '07 pickup may pay for itself in new business and customer confidence vs the '82 rustbucket my competition shows up with. My brother saw his income rise dramatically as an electrician when he moved from buying old utility company used vans dirt cheap to new pickup trucks. People just perceived he was better due to the smart looking vehicles. He worked for great remodlers who showed up in old vans and though they were cheap and did good work, they often didn't get the job. I'm not saying it's right, it's just the way the world is.

4. Hobbies. For some their car is also a source of recreation and so instead of being seen solely as a capital investment part of the cost can be written off as a regular monthly expenditure on entertainment. If you drive a beater but drink $3 coffees and eat out 5 times a week, you're still spending the same amount of money. It's all about choices.

Cars are definitely silly sometimes, and no doubt Americans spend way too much on them, but in some cases I think it makes sense to borrow a reasonable amount. I haven't had a car payment in years, but did in the past. never large, always a big down payment, and always on a modest vehicle, but I wouldn't say "NEVER" is always the right answer to this question.

I would say there is a happy medium between the $40,000 SUV bought with nothing down and the $600 beater.

jk
12-02-07, 12:21 PM
i bought my first car, new, in 1970. it was a bmw 1600 and cost $3000, equal to the cost of 2 vw bugs at the time. i drove it for 13 years, and finally decided to sell when it broke down going to work one morning, and i realized that the car was worth less than what i'd earn in a day at work.

DemonD
12-05-07, 03:07 AM
1. Your Life: Your extra $300/mo in the bank earning you 6% isn't worth a whole lot if you are dead or maimed. Newer cars are much safer than anything you're likely to find for super cheap. In the last couple of years, stability control has been proven to make a significant dent in death rates, for example.

EJ never said to buy a car for "super cheap." He said to buy the best car for you without resorting to financing. If you can't save 3-5k for a decent used car, it's likely you aren't going to be able to be responsible for a car anyway. Stability control is great, but if you are driving a smaller more economic car you have a lot more control than any boat anyway.


Also, the cheapest car may not crash test well, may be lacking sufficient mass (which matters a lot in car/car crashes), etc. Also, performance is a factor in "active safety". The ability to handle and brake well, as well as accelerate adequately to avoid trouble, helps you stay safer and usually isn't found on $600 beaters.

Dude, they invented this thing like in the 70's, where the car crumbles around you and spares the cabin. For example, a 1991 Honda Accord received 4 and 5 stars for driver and passenger frontal crash tests. Smaller cars in general handle better, and smaller cars are generally cheaper than larger cars. When was the last time you heard of a honda civic rolling over? Probably never, which is about 5 times less than I have seen SUVs on their roofs. Bigger mass also means less fuel economy, and also likely more moving parts and more expensive repair bills.


Google Volvo, BMW, etc and you can find websites dedicated to harrowing tales of how drivers walked away from terrible accidents. Thankfully cheaper cars are now catching up in safety, but you are going to have to spend a significant amount to maximize safety. I want my wife to have the best chance possible out there, so safety matters more than saving a little on the car expenses.

I'm going to relate a story here:

A patient of mine had a bad accident on Mulholland drive. She was driving a 1980s Mercedes sedan, and it flipped off the road. The fact that it was a Mercedes saved her life v. other cars. She had some neck problems but other than that was fine, just some bumps and bruises. I asked her, if she had been driving a lighter, smaller car, might she not have lost control of the car? Yes, BMW's and Volvos have great safety records. But many people buy SUV's because it's "safe" - you feel like you are in a tank. But when you can't corner as well, or you think you can corner better than your vehicle can, you psychologically are in more danger of actually having an accident. Further, smaller (cheaper) sedans from Japan have excellent safety records going back many years.

I can't argue with the safety of German cars, as you are right - you can't go wrong if you are buying for safety in buying a Volvo. But do you need to pay 30k for a car when you can get the same amount of safety for less than 10k? This is all about LBYM (live below your means). Just because you can afford something more expensive doesn't mean it's best for you to get it, and the majority of people buying these vehicles can't afford them anyway.


2. Sanity and Peace of Mind: Newer is usually more reliable. And reliable brands often cost more than comparable cars of less reliable brands.

My 2001 Corolla has 120k miles and hasn't had any major problems at all. I expect to get at least another 130k out of it, and I know plenty of people who have Corollas from the early 1990s that are well into the 200-300k range in terms of mileage. Compare that to BMW and Mercedes where your maintenence bills after 5 years start going through the roof. So I call BS on the "newer is more reliable" (how about all those mercedes a few years ago that had all those electrical problems) and cost - Toyotas and Hondas historically have been way more reliable than more expensive luxury vehicles from the US and Germany.


If you live 6 blocks from work, drive 4,000 miles a year, and have ways to get to work via friends or family members if your clunker won't start or is in the shop for a week, fine. But some of us have 80 mile round trip commutes and jobs where being late regularly isn't a good idea. Some may also be commuting along deserted roads after dark and don't want our wives at the mercy of whomever stops to help. Losing a $120,000/year job to save $3,000/year in auto costs probably isn't a good trade-off. Anyone who has broken down in the middle of I-285 in Atlanta where the "slow lane" is going 65mph and you have to cross 7 lanes to get to the roadside will testify that the $250/mo car payment to help avoid that situation would be worth it.

As I stated above, a good economic Japanese car from the late (or even early) 1990s will get the job done, without a 250/month car payment. And maybe without that 250/month car payment you could put that towards a house a little closer to your work maybe?


Finally, if you DO make that hour plus commute, it sure goes by better in a BMW than in a '83 Chevy Citation.
But the difference between a BMW and Honda/Mazda/Toyota is minimal, definitely not 5 digits worth more.


3. Image: I personally don't care what I drive, but my customers do. So an '07 pickup may pay for itself in new business and customer confidence vs the '82 rustbucket my competition shows up with. My brother saw his income rise dramatically as an electrician when he moved from buying old utility company used vans dirt cheap to new pickup trucks. People just perceived he was better due to the smart looking vehicles. He worked for great remodlers who showed up in old vans and though they were cheap and did good work, they often didn't get the job. I'm not saying it's right, it's just the way the world is.

A vehicle for a business can be written off as part of a business expense. I do not believe that a fleet vehicle needs to be brand spanking new to have a good image. Your vehicle should be relatively clean, organized, not TOO old, but also not beat up; if you have a logo on your van or truck your vehicle should be seen as a moving advertisement and as such it is not good business to have a trashy looking vehicle. But think of it this way, do trucks from 1997 look that much different from trucks in 2007? Doubtful. Now if your 97 truck is rusted, trashed, spews exhaust, yeah, that's not good, but if it runs perfect, has a good paint job, is well maintained, I don't see where an older model like that would be seen as "dumb" or "not smart."


4. Hobbies. For some their car is also a source of recreation and so instead of being seen solely as a capital investment part of the cost can be written off as a regular monthly expenditure on entertainment. If you drive a beater but drink $3 coffees and eat out 5 times a week, you're still spending the same amount of money. It's all about choices.

True, but the issue is that most people who are driving are not car afficionados. After you drive a car a few times, a car becomes a car - a means of transportation. Whether you are in a 2 ton SUV or a 1000 pound hatchback, when you are sitting on a highway stuck in traffic it's all the same. Most people are buying cars, and buying more car than they can afford, simply to keep up with the joneses, and for status symbols. The original article likely is targeted more to the semi-moronic typical US joe or jane who sees all their friends driving dope cars and they just HAVE to have that new BMW 3 series, and it's "affordable" because it starts at "only" 25k!


Cars are definitely silly sometimes, and no doubt Americans spend way too much on them, but in some cases I think it makes sense to borrow a reasonable amount. I haven't had a car payment in years, but did in the past. never large, always a big down payment, and always on a modest vehicle, but I wouldn't say "NEVER" is always the right answer to this question.

EJ also didn't say never, he stated that if you needed to borrow, you borrow as little as possible and pay it off. A car is a depreciating asset, unless you are putting a lot of labor capital into an old restoration.



I would say there is a happy medium between the $40,000 SUV bought with nothing down and the $600 beater.

I don't think EJ was advocating a $600 beater. Spending a saved amount of 2-7k you should be able to get a safe, reliable, fuel efficient used car like a honda civic or toyota corolla

Andreuccio
12-05-07, 01:28 PM
Good post. A few random thoughts:




I'm going to relate a story here:

A patient of mine had a bad accident on Mulholland drive.



I love that drive, especially at night. There are spots where you can see the lights of both the city on one side and the valley on the other. Definitely a better view right-side-up from the road, though, than upside-down from the hillside.



I can't argue with the safety of German cars, as you are right - you can't go wrong if you are buying for safety in buying a Volvo.


Not to pick nits, but Volvos are Swedish.



My 2001 Corolla has 120k miles and hasn't had any major problems at all. I expect to get at least another 130k out of it, and I know plenty of people who have Corollas from the early 1990s that are well into the 200-300k range in terms of mileage. Compare that to BMW and Mercedes where your maintenence bills after 5 years start going through the roof. So I call BS on the "newer is more reliable" (how about all those mercedes a few years ago that had all those electrical problems) and cost - Toyotas and Hondas historically have been way more reliable than more expensive luxury vehicles from the US and Germany.


I used to have a Corolla. Outstanding car. As you say, I got close to 250,000 miles before I started to have any major problems. And I think those were due in part to some maintanance I deferred when I hit a rough spot personally.



As I stated above, a good economic Japanese car from the late (or even early) 1990s will get the job done, without a 250/month car payment. And maybe without that 250/month car payment you could put that towards a house a little closer to your work maybe?


But the difference between a BMW and Honda/Mazda/Toyota is minimal, definitely not 5 digits worth more.


To me, the difference isn't so much between German and Japanese cars as between luxury and practical cars. I haven't checked pricing, but I imagine prices are comparable for German and Japanese luxury cars. I'm all about buying practical cars for myself, but I think the difference in quality of ride between the two is substantial, and if I had the cash and drove a lot I would definitely opt for luxury.

DemonD
12-05-07, 11:40 PM
To me, the difference isn't so much between German and Japanese cars as between luxury and practical cars. I haven't checked pricing, but I imagine prices are comparable for German and Japanese luxury cars. I'm all about buying practical cars for myself, but I think the difference in quality of ride between the two is substantial, and if I had the cash and drove a lot I would definitely opt for luxury.

What I'm saying is that the difference is minimal, and not worth the price difference unless that difference makes no difference to you.

For example, I've driven my corolla about 3 times to vegas and back. One time I drove a Porsche there (friend's Porsche). Same model year of car - 2001.

When you have your cruise control on at 80 mph on the I-15, there is virtually no difference. When you are stuck in traffic on the Strip - virtually no difference. Yes for the 1 or 2 stops you make you can accelerate onto the freeway a little better. But my corolla handles that just fine thanks, so like I said, in terms of safety and performance and reliability, the cost is not worth it.

What does a Porsche buy you then? Let's call it social capital - my buddy with the Porsche got a lot more attention socially (both boys and girls) compared to before he got his Porsche. This says nothing about his level of success. Warren Buffett famously drives a Lincoln Towncar. I'm also told that Kirk kerkorian drives an older model Jeep Cherokee - an 80+ year old multibillionaire driving a true beater! Just goes to show you you can be a successful businessman and not have an ostentatious vehicle.

c1ue
12-06-07, 03:16 AM
To me, the difference isn't so much between German and Japanese cars as between luxury and practical cars. I haven't checked pricing, but I imagine prices are comparable for German and Japanese luxury cars.

You might think so, but you'd be VERY wrong.

2008 S600 - note not even the AMG version: $147K

http://www.kbb.com/KBB/NewCars/PricingReport.aspx?VehicleId=196773&PCFVehicles=&ManufacturerId=31&VehicleClass=NewCar&ModelId=215&YearId=2008

2008 LS 460 L - the top end Lexus: $71.9K

http://www.kbb.com/KBB/NewCars/PricingReport.aspx?VehicleId=197924&PCFVehicles=&ManufacturerId=27&VehicleClass=NewCar&ModelId=11495&YearId=2008

Power of the Euro...

The LS600h is 112K, but that is also a hybrid.

Andreuccio
12-06-07, 10:57 AM
You might think so, but you'd be VERY wrong.

2008 S600 - note not even the AMG version: $147K

http://www.kbb.com/KBB/NewCars/PricingReport.aspx?VehicleId=196773&PCFVehicles=&ManufacturerId=31&VehicleClass=NewCar&ModelId=215&YearId=2008

2008 LS 460 L - the top end Lexus: $71.9K

http://www.kbb.com/KBB/NewCars/PricingReport.aspx?VehicleId=197924&PCFVehicles=&ManufacturerId=27&VehicleClass=NewCar&ModelId=11495&YearId=2008

Power of the Euro...

The LS600h is 112K, but that is also a hybrid.

Ahh, what's a factor of 2 between friends?

Andreuccio
12-06-07, 11:11 AM
What I'm saying is that the difference is minimal, and not worth the price difference unless that difference makes no difference to you.

For example, I've driven my corolla about 3 times to vegas and back. One time I drove a Porsche there (friend's Porsche). Same model year of car - 2001.

When you have your cruise control on at 80 mph on the I-15, there is virtually no difference. When you are stuck in traffic on the Strip - virtually no difference. Yes for the 1 or 2 stops you make you can accelerate onto the freeway a little better. But my corolla handles that just fine thanks, so like I said, in terms of safety and performance and reliability, the cost is not worth it.

What does a Porsche buy you then? Let's call it social capital - my buddy with the Porsche got a lot more attention socially (both boys and girls) compared to before he got his Porsche. This says nothing about his level of success. Warren Buffett famously drives a Lincoln Towncar. I'm also told that Kirk kerkorian drives an older model Jeep Cherokee - an 80+ year old multibillionaire driving a true beater! Just goes to show you you can be a successful businessman and not have an ostentatious vehicle.

It's been a while since I've (been) driven in a Porsche, so I can't comment on that with authority. But I have been in Mercedes, and I can say, for me at least, the Mercedes at 80 felt like my old Toyota at 40, or better.

Still, I agree with you. In the book "The Millionaire Next Door", they surveyed people across the country with a net worth of at least $1 million. One thing they almost all had in common was a willingness to live well below their means. They specifically mention driving an older model car as a common characteristic.

c1ue
12-07-07, 12:29 AM
Ahh, what's a factor of 2 between friends?

I'll overlook it, if you can lend a buddy that spare change ;)

metalman
12-07-07, 12:39 AM
It's been a while since I've (been) driven in a Porsche, so I can't comment on that with authority. But I have been in Mercedes, and I can say, for me at least, the Mercedes at 80 felt like my old Toyota at 40, or better.

Still, I agree with you. In the book "The Millionaire Next Door", they surveyed people across the country with a net worth of at least $1 million. One thing they almost all had in common was a willingness to live well below their means. They specifically mention driving an older model car as a common characteristic.

that's the point of this piece, i think. not rocket science to the old farts here but look at the view count... 37,000 views! that ain't just us chickens. do a google search on "how much car should you finance?" hope the msg sunk into more than a couple tv-addled borrow-and-buy skulls. this msg isn't said enough.

GRG55
12-07-07, 05:53 AM
You might think so, but you'd be VERY wrong.

2008 S600 - note not even the AMG version: $147K

http://www.kbb.com/KBB/NewCars/PricingReport.aspx?VehicleId=196773&PCFVehicles=&ManufacturerId=31&VehicleClass=NewCar&ModelId=215&YearId=2008

2008 LS 460 L - the top end Lexus: $71.9K

http://www.kbb.com/KBB/NewCars/PricingReport.aspx?VehicleId=197924&PCFVehicles=&ManufacturerId=27&VehicleClass=NewCar&ModelId=11495&YearId=2008

Power of the Euro...

The LS600h is 112K, but that is also a hybrid.

C1ue: Your normally meticulous research seems to have slipped just a wee bit here.

The S600 is a twin-turbo V-12. The Lexus is a 4.6 litre V-8.

The most comparable Mercedes that appears to be for sale in the USA is the S550 a 5.5 litre V-8 RWD at $88,000 - so the difference in price isn't VERY great.

Here in the Gulf the most popular Benz is the S320, a smaller displacement V-8 (but still a screamer) that's almost exactly the same price (here) as the Lexus 460 since the dealers compete hard for the same customer demographic. Doesn't look like the S320 is EPA certified for the USA though...

Andreuccio
12-07-07, 10:49 AM
C1ue: Your normally meticulous research seems to have slipped just a wee bit here.

The S600 is a twin-turbo V-12. The Lexus is a 4.6 litre V-8.

The most comparable Mercedes that appears to be for sale in the USA is the S550 a 5.5 litre V-8 RWD at $88,000 - so the difference in price isn't VERY great.



Sweet vindication. Well, I guess I'm off to the Mercedes dealership to check into financing for my new S550. The only thing left for me to figure out is what to do with the 59k I'll save by not buying from C1ue.

c1ue
12-09-07, 09:50 AM
GRG, Andreucchio,

So true - my apologies.

Comparing apples and oranges - yikes!

On the other hand, the implication is that the Japanese have officially closed the price gap that used to exist in the luxury market.

Given that the yen is also much weaker than the Euro in dollar terms, this bodes ill for VW and Mercedes.

As for buying - here's what I like. Waiting the requisite 3 years so I can get one off someone else's lease like my '03.

http://fp.images.autos.msn.com/merismus/as/autoshow2006/photos%5Cp_Audi_S8_01.jpg

GRG55
12-09-07, 10:02 AM
GRG, Andreucchio,

So true - my apologies.

Comparing apples and oranges - yikes!

On the other hand, the implication is that the Japanese have officially closed the price gap that used to exist in the luxury market.

Given that the yen is also much weaker than the Euro in dollar terms, this bodes ill for VW and Mercedes.

As for buying - here's what I like. Waiting the requisite 3 years so I can get one off someone else's lease like my '03.



Nice. Aluminum body? Is that a unidirectional tread pattern on the tires also?

I would expect that VW, Mercedes and BMW are being helped by their overseas (outside Europe) assembly plants, particularly USA. But of course, so are the Japanese auto makers.

c1ue
12-10-07, 08:16 AM
The '8s are aluminum body - makes up for the weight of all of the other luxury features. Thus the car is roughly the same weight as a BMW M5, but significantly nicer IMO.

As for overseas plants - they help with the cost side, but they don't help as much with the profit side.

Repatriating profits is still not going to be great if the conversion ratio sucks - that's why the Japanese try so hard to keep their yen cheap vs. the dollar.

brucec42
12-17-07, 01:50 PM
This is funny. When I go to German car forums I am the one trying to convince the debt lovers there it's a bad idea for a 23 y/o kid with college debt, a rented apt, and no savings that maybe leasing a 335i coupe isn't a great idea.

I'll clarify again, there is a happy medium between overborrowing and borrowing a modest amount within a sound financial situation if one's needs require it. Any column entitled "how much of a car should you finance? Zero percent" was an oversimplification or based on the bias of the author towards fiscal responsibility rather than the factors I mentioned before. All things in moderation.

If one is 59 and still borrowing to buy cars, that's one thing. But for a young person with other financial obligations (kids, homes, investing for retirement) a modest car payment shouldn't be a scarlet letter either.

But not to worry, the coming credit crunch and recession will have them all buying used cars anyway.

brucec42
12-17-07, 01:54 PM
In capitalist societies, it will never be cool to be frugal for long. The last true "poor is cool" anti-capitalist movements in the U.S. were the 60s/70s hippie movement and the early 1980s punk rockers. Then lot of hippies and punker rockers got rich along with the aspiring capitalists during the decades that followed. Both movements started in the UK. I suspect in the next prolonged downturn, there will be a social movement to wrap "cool" around "poor" and the movement will arise from the UK.

Frugality works in any case, but even better when times are good. Saving doesn't preclude making money, but when things are good you can save more money more quickly with less deprivation. The level of deferment of gratification depends on a person's goal. Mine has always been personal liberty, and to me that means not having to work for anyone I don't want to work for, or doing any work I don't like. Not working at all is not an option for me; I like to work. But I really have a hard time understanding anyone who, given a choice, decides to take on a lot of debt to maintain a standard of living that requires them to work for people they don't want to work for and/or doing work they don't like. That's the opposite of liberty. And if and when things get tough, a heavy saver's life goes from many options to fewer, while the indebted person's goes from few to none. Dread of finding myself in the latter position has also been a motivator to defer gratification and save more.

Very well put! Now that's more like it. Frugality = freedom.

I'm 44 and currently work for myself the equivilent of about 9 months a year, btw, but I had a car payment on and off over the years as recently as 4 years ago. So the two are not mutually exclusive.

jk
12-17-07, 09:43 PM
just as there is no one-size-fits-all investment portfolio, there is no one-size-fits-all balance sheet.

GRG55
12-18-07, 10:02 AM
Ok, my shitbox story is...

I didn't go to college right out of high school. I worked for a year, bought a new Honda Civic and drove it for the first year I was in college, then had to sell it to pay tuition. Lived without a car for a semester but hated being without a car at UMass, Amherst, as I was living-off campus. Using classified ads (no craigslist in those days), found a 1970-something Datsun 510 sedan with no rust on the body (a rarity for Datsuns) and a seized engine in one town, bought it for $250. Found the same model year as a station wagon with a rusted out body and new engine, bought it for $450. Drove the crap station wagon up to Amherst, following my brother who towed the sedan with his car. Rented an A-frame and put the new engine from the station wagon into the sedan, had a tow truck tow the other to the dump, got $40–the cost of renting the A-frame.

Total cost: $700. Car lasted through college until I lent it to a friend after I left college while in CA. Someone drove into him (not his fault).

I'm on Christmas holdiay leave as of now, and tired of worrying about the end of the (financial) world, so came back to this much more entertaining thread...

The 510, with it's L series engine, was a wonderful performance sedan for its day. I spent a lot of time wrenching on my Datsun, hotrodding it for gymkhana racing on the weekends during my later college years. A couple of times I broke it, precipitating a mad Sunday night scamble to fix it to get to classes the next morning. At its twelve year mark I replaced the front fenders, rocker panels, and welded in new rear quarter panels to deal with the rust. The following year it was stolen. Who the hell in their right mind would steal a 13 year old Datsun???

Replaced it with a Volvo GLT sedan (gas shocks, 15 inch wheels, electic overdrive) that I drove for more than 18 years and 450,000 km. Gave it away to a friend's son when I moved to the Gulf. He drove it to college for the next 4 years. That car never left either of us stranded - not once. In the mid to late 90's when I had senior positions in the oil patch, every single employee, even the boys operating my gas plants, had more expensive vehicles than I did. It became a perverse little game to see how long I could make that last.

I think the main reason I could never bring myself to replace it was to avoid spending any of my time with anyone whose only goal was to sell me a car. Had to break down a few years ago and buy my wife a pick-up with tow package so she can pull her horse trailer. We'll see if it lasts 18 years. :cool:

BTW, my wife sold her car when we got married and we became one of those rare one-car families. It's quite interesting how much more time we spent together doing things as a couple, compared to our multi-car-family friends, It changes the way we ordered our lives and set priorities.

GRG55
12-18-07, 10:39 AM
Okay, I've been worth well into 8 figures in recent memory, but my everyday car is a 2000 Chevy Suburban 2500 4wd beast. I use a manual lawnmower, have solar power and use extensive alternative energy technology, but I've also been put thru the windshield of a taxicab on I-55, put a tiny econobox into a telephone pole at high speed, and been hit by a cop in pursuit.

Until gas hits $600 a gallon or my net worth falls bellow 4 figures, I'm going with self preservation.

Did I mention it's paid for?

Evidently Jeff, Jim and a few others remember Newton's Second Law from high school science (F= ma).

Here in the Arabian Gulf the locals are even more insane drivers than Jim's description of the freeways aroud Fort Worth. Large parts of the population truly believe that everything that happens to them is pre-ordained at birth according to Allah's will, and therefore it doesn't matter what they do, or how they behave behind the wheel, because it makes no difference. The single-vehicle fatal accident rate is the highest in the world, apparently.

In a recent Saudi court case the local (who caused the accident) argued that it was wrong for the expatriate that he hit to have been there in the first place, and therefore it was not his fault. He argued that it was interfering with Allah's will to have any infidels (non-Muslims) in the Land of the Two Holy Places. The court ruled in his favour.

It's because of this attitude that I drive 5700 pounds of gas-swilling, airbag-filled Toyota Land Cruiser over here. You just can't tell which direction you're going to get hit from. Good thing petrol prices are cheap.

Jim Nickerson
12-18-07, 02:28 PM
Evidently Jeff, Jim and a few others remember Newton's Second Law from high school science (F= ma).

Here in the Arabian Gulf the locals are even more insane drivers than Jim's description of the freeways aroud Fort Worth. Large parts of the population truly believe that everything that happens to them is pre-ordained at birth according to Allah's will, and therefore it doesn't matter what they do, or how they behave behind the wheel, because it makes no difference. The single-vehicle fatal accident rate is the highest in the world, apparently.

In a recent Saudi court case the local (who caused the accident) argued that it was wrong for the expatriate that he hit to have been there in the first place, and therefore it was not his fault. He argued that it was interfering with Allah's will to have any infidels (non-Muslims) in the Land of the Two Holy Places. The court ruled in his favour.

It's because of this attitude that I drive 5700 pounds of gas-swilling, airbag-filled Toyota Land Cruiser over here. You just can't tell which direction you're going to get hit from. Good thing petrol prices are cheap.

What I thought I remembered was that Kinetic Energy = mass x velocity x velocity, i.e. velocity squared. But Wikipedia say it is 1/2 of m x v(squared). Either way speed can kill and maim and does.

GRG55
01-09-08, 08:51 PM
Here's one that probably doesn't need much, if any, financing. :)

Couple of themes emerge in the article. The obvious "cheap-car-for-the-masses" resonates. Anyone who has ever been in a crowded Indian city and witnessed a young family - father, mother, child - balanced on a Bajaj scooter weaving through the traffic, can instantly see the appeal of something like this.

I wonder, however, if the comment about "Gandhian engineering" is yet another foreshadowing of a coming time of championing frugality as socially acceptable, not only in LDCs but in the developed world as well. If the popularity of the Daimler "Smartcar" in the endures beyond the novelty of its USA introduction, that may be another interesting indicator.

Four Wheels for the Masses: The $2,500 Car
By ANAND GIRIDHARADAS
</NYT_BYLINE>Published: January 8, 2008
<NYT_TEXT>MUMBAI, India — What does it take to build the world’s cheapest car?
For Tata Motors (http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=TTM) of India, which will introduce its ultra-cheap car on Thursday, the better question was, what could it take out?

The company has kept its new vehicle under wraps, but interviews with suppliers and others involved in its construction reveal some of its cost-cutting engineering secrets — including a hollowed out steering-wheel shaft, a trunk with space for a briefcase and a rear-mounted engine not much more powerful than a high-end riding mower.

The upside is a car expected to retail for as little as the equivalent of $2,500, or about the price of the optional DVD player on the Lexus LX 470 (http://autos.nytimes.com/2006/Lexus/LX_470/258/2958/279294/researchOverview.aspx?inline=nyt-classifier) sport utility vehicle...

...Even so, the “People’s Car” (a nickname, since Tata has kept the real name under wraps, too) may ultimately affect what many people drive around the world, since it is part of a broader trend among carmakers to try to build less expensive cars.

“It’s basically throwing out everything the auto industry had thought about cost structures in the past and taking out a clean sheet of paper and asking, ‘What’s possible?’” said Daryl T. Rolley, head of North American and Asian operations for Ariba, which helps supply parts to Tata, BMW (http://topics.nytimes.com/top/news/business/companies/bayerische_motoren_werke_ag/index.html?inline=nyt-org), Toyota (http://topics.nytimes.com/top/news/business/companies/toyota_motor_corporation/index.html?inline=nyt-org) and other carmakers. “In the next five to 10 years, the whole auto industry is going to be flipped upside down.”

The French-Japanese alliance Renault (http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=RNSDY)-Nissan (http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=NSANY) and the Indian-Japanese joint venture Maruti Suzuki (http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=SZKMF) are trying to figure out how to make ultra-cheap cars for India. And struggling Western automakers are looking to see where the cost-obsessed ethos of the developing world can help their bottom line. In the most recent example, Ford (http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html?inline=nyt-org) was expected to announce Tuesday that it would make India its manufacturing hub for low-cost cars.

Some analysts are predicting that just as the Japanese popularized kanban (just in time) and kaizen (continuous improvement), Indians could export a kind of “Gandhian engineering,” combining irreverence for conventional ways of thinking with a frugality born of scarcity. Or, as Indian auto executive Ashok K. Taneja describes the philosophy, “When I need silver, why am I investing in gold?”...

Link:
http://www.nytimes.com/2008/01/08/business/worldbusiness/08indiacar.html?pagewanted=1&_r=2&ref=asia

</NYT_HEADLINE>

The Outback Oracle
01-09-08, 10:25 PM
I lived a great part of my younger life in Rural Australia. In our local community there were quite a lot of us young married folk. Your prestige ranking sort of went with the age of the car...the older the car the higher your prestige. It was a matter of who had both the technical skill and the determination to keep the damned thing on the road!! :)....And the roads were pretty crook!

GRG55
03-25-08, 06:16 AM
Oh, oh. So where do I fuel my Tata "People's Car"??? Yikes!

Reliance Industries May Shut Gas Stations in India, Times Says

By Dinakar Sethuraman
March 25 (Bloomberg) -- Reliance Industries Ltd. (http://www.bloomberg.com/apps/quote?ticker=RIL%3AIN) may shut its retail fuel stations in India because of rising crude oil prices and a lack of government subsidies, the Economic Times reported (http://economictimes.indiatimes.com/News/News_By_Industry/Reliance_to_shut_petrol_pumps/rssarticleshow/2896626.cms), citing a person familiar with the matter.

Reliance's retail market share of 14 percent dropped to zero after sales fell as the company raised prices and more than 5 million customers switched to buy fuels at lower prices sold by its competitors, the newspaper said.

Reliance operates about 1,400 retail stations and sells fuels at higher prices than state-owned oil companies, the newspaper said. In May 2006, the company's outlets were selling four times more fuel than stations run by state oil companies, the report said.

State oil companies sell fuels at lower prices because of government subsidies. A Reliance spokesperson declined to comment, the newspaper said.

Reliance, Royal Dutch Shell Plc (http://www.bloomberg.com/apps/quote?ticker=RDSA%3ALN) and Essar Oil Ltd. are asking the government for subsidies to stem losses from selling petroleum products below cost, the report said.
http://www.bloomberg.com/apps/news?pid=20601205&sid=achIEObVmJ5U&refer=consumer

EJ
03-25-08, 09:21 AM
Oh, oh. So where do I fuel my Tata "People's Car"??? Yikes!

Reliance Industries May Shut Gas Stations in India, Times Says

By Dinakar Sethuraman
March 25 (Bloomberg) -- Reliance Industries Ltd. (http://www.bloomberg.com/apps/quote?ticker=RIL%3AIN) may shut its retail fuel stations in India because of rising crude oil prices and a lack of government subsidies, the Economic Times reported (http://economictimes.indiatimes.com/News/News_By_Industry/Reliance_to_shut_petrol_pumps/rssarticleshow/2896626.cms), citing a person familiar with the matter.

Reliance's retail market share of 14 percent dropped to zero after sales fell as the company raised prices and more than 5 million customers switched to buy fuels at lower prices sold by its competitors, the newspaper said.

Reliance operates about 1,400 retail stations and sells fuels at higher prices than state-owned oil companies, the newspaper said. In May 2006, the company's outlets were selling four times more fuel than stations run by state oil companies, the report said.

State oil companies sell fuels at lower prices because of government subsidies. A Reliance spokesperson declined to comment, the newspaper said.

Reliance, Royal Dutch Shell Plc (http://www.bloomberg.com/apps/quote?ticker=RDSA%3ALN) and Essar Oil Ltd. are asking the government for subsidies to stem losses from selling petroleum products below cost, the report said.
http://www.bloomberg.com/apps/news?pid=20601205&sid=achIEObVmJ5U&refer=consumer

In the 1970s pre-FIRE Economy US, the economy was also highly vulnerable to increases in energy prices as are the economies of primarily goods producing and exporting countries such as India and China today. The US FIRE Economy has allowed the accordion-like credit system (Martin Mayer's term from a recent interview) to expand and contract to absorb the loss of purchasing power as the price level rises and falls helping to maintain household and business cash flow. This is how the US has absorbed the more than four fold rise in oil prices from under $20 to over $90 since 2002.

As the US FIRE Economy goes into crisis and the credit accordion develops holes in the bellows, this facility of the endogenous credit system to blunt the cash flow impact of rising energy costs is rapidly becoming dysfunctional. The US economy is increasingly vulnerable to rising energy prices; cash flow of households and businesses is being squeezed on two sides by rising prices and declining access to credit with no wage inflation relief in sight.

Driving the rapid descent into recession, accounting for the stunning rate of slowing of the US economy, are two engines of demand destruction running at once, what we call the Cash/Goods Price Inflation Spiral driven by currency depreciation and the Credit/Assets Price Deflation Spiral driven by the asset price crash.

This circumstance is completely unique in history as far as we can tell from our research and by canvassing economic historians, including Dr. Steven Keen and Dr. Michael Hudson. I spell these out in detail in my commentary this week and explain what the Fed and government will eventually have to do about it; yet another heretical forecast from iTulip.

Why is the US Economy Crashing?

America's unique post credit bubble dual demand destruction spirals

Cash/Goods Price Inflation Spiral:
Negative GDP growth
Declining dollar
Rising import prices
Traded-goods cost-push inflation

Credit/Assets Price Deflation Spiral:
Asset price deflation
Declining collateral values
Credit Contraction
Non-traded goods price deflation

Both spirals feed into:
Declining household and business cash flow
Bankruptcy
Unemployment
Declining incomes

metalman
03-25-08, 09:34 AM
In the 1970s pre-FIRE Economy US, the economy was also highly vulnerable to increases in energy prices as are the economies of primarily goods producing and exporting countries such as India and China today. The US FIRE Economy has allowed the accordion-like credit system (Martin Mayer's term from a recent interview) to expand and contract to absorb the loss of purchasing power as the price level rises and falls helping to maintain household and business cash flow. This is how the US has absorbed the more than four fold rise in oil prices from under $20 to over $90 since 2002.

As the US FIRE Economy goes into crisis and the credit accordion develops holes in the bellows, this facility of the endogenous credit system to blunt the cash flow impact of rising energy costs is rapidly becoming dysfunctional. The US economy is increasingly vulnerable to rising energy prices; cash flow of households and businesses is being squeezed on two sides by rising prices and declining access to credit with no wage inflation relief in sight.

Driving the rapid descent into recession, accounting for the stunning rate of slowing of the US economy, are two engines of demand destruction running at once, what we call the Cash/Goods Price Inflation Spiral driven by currency depreciation and the Credit/Assets Price Deflation Spiral driven by the asset price crash.

This circumstance is completely unique in history as far as we can tell from our research and by canvassing economic historians, including Dr. Steven Keen and Dr. Michael Hudson. I spell these out in detail in my commentary this week and explain what the Fed and government will eventually have to do about it; yet another heretical forecast from iTulip.

Why is the US Economy Crashing?

America's unique post credit bubble dual demand destruction spirals

Cash/Goods Price Inflation Spiral:
Negative GDP growth
Declining dollar
Rising import prices
Traded-goods cost-push inflation

Credit/Assets Price Deflation Spiral:
Asset price deflation
Declining collateral values
Credit Contraction
Non-traded goods price deflation

Both spirals feed into:
Declining household and business cash flow
Bankruptcy
Unemployment
Declining incomes

let me guess... let wage inflation rip? no friggin way. we'll see gov. schwarzenegger driving a smart car to flower arranging class first.

obstruksion
04-08-08, 01:10 PM
or buy a '74 Buick Century for $100. (that was the only car I ever owned, bought in 93 in Houston).

Other than that, I've lived in cities with good public transit. Public transit (and the implied lack of car) is not a great chic magnet, but it sure helps build up the savings.

Public transit plus Zipcar! The combo saves me $5-600 a month in Boston...

mfyahya
04-16-08, 06:40 AM
I live in Dubai where inflation is over 10% according to the government. I can get a car loan for an effective (fixed) rate of 3.5% for 60 months thanks to the US $ peg.

I can pay up to $15000 in cash for a 2-3 year old car. Isn't it a good idea to make use of the negative 6.5% real interest rate and pay the minimum possible down payment, and buy gold with the leftover cash? Especially as I would resist the temptation to buy a car pricier than what I would pay for in cash anyways.

metalman
04-16-08, 05:59 PM
I live in Dubai where inflation is over 10% according to the government. I can get a car loan for an effective (fixed) rate of 3.5% for 60 months thanks to the US $ peg.

I can pay up to $15000 in cash for a 2-3 year old car. Isn't it a good idea to make use of the negative 6.5% real interest rate and pay the minimum possible down payment, and buy gold with the leftover cash? Especially as I would resist the temptation to buy a car pricier than what I would pay for in cash anyways.

"Isn't it a good idea to make use of the negative 6.5% real interest rate and pay the minimum possible down payment, and buy gold with the leftover cash?"

as we say state side, hell yes! my take is this thread is aimed at folks in the usa. here we have 5% phony gov't reported inflation, 12% actual inflation, and a car loan is 6% or so. even here it makes sense as long as the interest rate is fixed. with your gov't subsidizing credit to the tune of 3.5%... wow! go for it.

my two cents. and two cents ain't much these says...

seanm123
04-16-08, 09:00 PM
EJ, I just took deliver on a new car on Friday!

Next thing you know you will be telling us that it is not ok to buy Jewerly, even with cash!

santafe2
04-22-08, 02:10 AM
Giving up the car culture is similar to giving up smoking. I speak from experience as I grew up in LA and 'driving' was a huge part of our life. Driving 150-200 miles a day in traffic was not uncommon. A great car was the reward for dealing with this insult.

Since moving to Santa Fe over 12 years ago we've changed. A long commute is 5 miles. Our family and most of our friends live within a 3 mile radius. My office is about 1.5 miles from our house. I could walk but I ride my bike. When I want to use a car, I borrow one from one of my kids unless she's home from college, then I ride my bike everywhere.

Again from experience I would offer this; if you can organize your life within a smaller mobile energy radius, you'll be happier than you are today. The price of gasoline is an abstract construct for a bike rider. We think in terms of the $200 a year it costs for tires, tubes and a tune-up.

The auto financing argument is a quick retort but it begs a much deeper question...is it ok for a moral human being to drive a car that uses fossil fuel? We're fairly sure of the 20MM barrel a day consequence in the US so do we have a responsibility to organize our lives so we are less of a problem?

jimmygu3
04-22-08, 03:53 PM
Giving up the car culture is similar to giving up smoking. I speak from experience as I grew up in LA and 'driving' was a huge part of our life. Driving 150-200 miles a day in traffic was not uncommon. A great car was the reward for dealing with this insult.

Since moving to Santa Fe over 12 years ago we've changed. A long commute is 5 miles. Our family and most of our friends live within a 3 mile radius. My office is about 1.5 miles from our house. I could walk but I ride my bike. When I want to use a car, I borrow one from one of my kids unless she's home from college, then I ride my bike everywhere.

Again from experience I would offer this; if you can organize your life within a smaller mobile energy radius, you'll be happier than you are today. The price of gasoline is an abstract construct for a bike rider. We think in terms of the $200 a year it costs for tires, tubes and a tune-up.

The auto financing argument is a quick retort but it begs a much deeper question...is it ok for a moral human being to drive a car that uses fossil fuel? We're fairly sure of the 20MM barrel a day consequence in the US so do we have a responsibility to organize our lives so we are less of a problem?

Good for you, santafe2! I also commute to work by bicycle and most of the places my family needs to go are within a 3 mile radius here in Atlanta. I believe Atlanta still has the longest commutes in the nation, due to our sprawling suburbs and overcrowded highways. Many people I work with spend 3 hours a day in their cars. Even on days I have to drive my car, my 3 mile commute is a predictable 15 minutes, just like my bike ride.

zenith191
04-22-08, 06:35 PM
I thought I'd play devil's advocate here and throw this scenario out.

So you've saved up for years to buy that car. You've got enough and you go buy a modest used car.

A couple of years later you are in desperate need of cash with no lines of credit available to you. The car has sunk in value due to greater than normal asset depreciation but at least you can take out a secured loan for some amount of money on it. Unfortunately interest rates are higher now than they were when you could have got a loan on it.

Perhaps it would have been better to lease it? You would have enjoyed downside protection from excessive depreciation. Remember the residual value used in the lease calculation is backwards looking not forward. You would have also gotten a lower interest rate than you can now. And who knows, at the end of the lease you may have been able to negotiate to buy at wholesale from the leasing company rather than the contracted end of lease buy price due to the currently distressed auto market.

Me personally, I prefer to keep my gun powder dry.

gobears
04-23-08, 04:54 PM
I have been thinking the same about the advantages of leasing. Suppose inflation continues to takeoff. You have financed at much lower interest rates AND have the option to buyout the lease and get the car for much cheaper than buying the exact same used car on the open market at the end of the lease.

On the other hand, if massive deflation sets in, you are at least not stuck with a severely deflating asset. You can just let the lease run out and buy back a similar car at a much lower cost.

If you are pretty sure prices are going to be volatile, but don't know which direction they will go, a lease seems to offload the risk to the lease originator.

c1ue
04-23-08, 06:47 PM
You guys are thinking too hard.

Keep in mind that cars are depreciating assets.

Sure, you can play lots of games to reduce your absolute loss, but you're still going to lose.

The only way to benefit from buying/leasing a depreciating asset is if that asset gains you income. Cars don't of themselves do that - certainly no more than the car you already have.

Your best course is to spend as little money as you can - including up-front, interest and in maintenance costs.

Don't forget that for a leased vehicle, you are paying a premium for zero ownership; not only do you end up having to pay up for your rental (a la negative amortization mortgage), you end up paying sales taxes and transfer fees twice. Excuse me, use tax the first time and sales tax the second.

Too much effort for too little gain.

metalman
04-23-08, 07:06 PM
You guys are thinking too hard.

Keep in mind that cars are depreciating assets.

Sure, you can play lots of games to reduce your absolute loss, but you're still going to lose.

The only way to benefit from buying/leasing a depreciating asset is if that asset gains you income. Cars don't of themselves do that - certainly no more than the car you already have.

Your best course is to spend as little money as you can - including up-front, interest and in maintenance costs.

Don't forget that for a leased vehicle, you are paying a premium for zero ownership; not only do you end up having to pay up for your rental (a la negative amortization mortgage), you end up paying sales taxes and transfer fees twice. Excuse me, use tax the first time and sales tax the second.

Too much effort for too little gain.

zactly. that's the point of this article, no? don't borrow to buy depreciating assets... you're shorting the value of your future labor. how is leasing any different from borrowing? as you say it's worse... you have zero equity at the end of it.

buy the cheapest & safest car you can afford to buy with as much cash and as little debt as possible. i'm hoping to hit up some car auctions soon. the auction lots are filling up with cars previously "owned" by folks who didn't read this article. :eek:

Contemptuous
04-23-08, 08:09 PM
moved down

Contemptuous
04-23-08, 08:28 PM
There is something fascinating about how this one thread garnered more page views than any other topic on iTulip. 44 thousand page views, and counting! And the topic is CARZ, how much you should pay for one (what was the swankest one you owned, so you get to preen a bit for the general community). The fact is everyone is fascinated by cars here - one of the most captivating topics is an apparently endless "I used to own a Porsche, what did you used to own?" or "I used to own a Range-Rover, what did you used to own?" conversations with everyone else.

Perhaps the extent to which people are fascinated with cars, how many they've owned, which was the coolest, etc, is in direct inverse ratio to the intellectual range of other irresistible interests they have. The more you keep getting drawn back to this thread in fascination about tweaking the very best way to squeeze value out of owning a car, the less you are likely to have a broad range of spontaneously lively general topic interests elsewhere, with the obvious exception of making money which everyone here is presumably avid about.

History, philosophy, the arts and humanities, international affairs, political science, the implications of a post-carbon world, the potential paths of political evolution for the human race in the future - all pales into a bland insignificance when in the proximity of the subject of CARS, and how to best own them. 44 thousand page views! WOW! And we talk down our noses about all the 'sheeple' out there in the 'rest of the world', eh? :rolleyes:

I thought the fascination with cars tended to pall after one got past one's twenties, but apparently it lives on. And on, and on and on, so threads like this have the long life and staying power of an energizer bunny.

metalman
04-23-08, 10:18 PM
There is something fascinating about how this one thread garnered more page views than any other topic on iTulip. 44 thousand page views, and counting! And the topic is CARZ, how much you should pay for one (what was the swankest one you owned, so you get to preen a bit for the general community). The fact is everyone is fascinated by cars here - one of the most captivating topics is an apparently endless "I used to own a Porsche, what did you used to own?" or "I used to own a Range-Rover, what did you used to own?" conversations with everyone else.

Perhaps the extent to which people are fascinated with cars, how many they've owned, which was the coolest, etc, is in direct inverse ratio to the intellectual range of other irresistible interests they have. The more you keep getting drawn back to this thread in fascination about tweaking the very best way to squeeze value out of owning a car, the less you are likely to have a broad range of spontaneously lively general topic interests elsewhere, with the obvious exception of making money which everyone here is presumably avid about.

History, philosophy, the arts and humanities, international affairs, political science, the implications of a post-carbon world, the potential paths of political evolution for the human race in the future - all pales into a bland insignificance when in the proximity of the subject of CARS, and how to best own them. 44 thousand page views! WOW! And we talk down our noses about all the 'sheeple' out there in the 'rest of the world', eh? :rolleyes:

I thought the fascination with cars tended to pall after one got past one's twenties, but apparently it lives on. And on, and on and on, so threads like this have the long life and staying power of an energizer bunny.

dude you are going for the...

http://i28.tinypic.com/160ea0n.jpg

prize.

Contemptuous
04-23-08, 10:41 PM
dude you are going for the...

http://i28.tinypic.com/160ea0n.jpg

prize.

Hmmm... all a matter of your sense of priorities in life Metalguy. What your proudly presented water bottle squirts out after a daily tour of duty (as you so genteelly recommend it, at any rate), may be more reminiscent of the endless hypnotized chatter about where home economics intersects with ownership of CARZ, found on this thread.

There is your rhetoric on the one hand, and then there are 44 thousand enraptured page views poring over this topic on the other hand. I blink and your rhetoric is expended, but I have to spend a good couple of hours reading through all this crapola, which I'll frankly decline.

metalman
04-23-08, 10:45 PM
Hmmm... all a matter of your sense of priorities in life Metalguy. What your proudly presented water bottle squirts out after a daily tour of duty (as you so genteelly recommend it, at any rate), may be more reminiscent of the endless hypnotized chatter about where home economics intersects with ownership of CARZ, found on this thread.

There is your rhetoric on the one hand, and then there are 44 thousand enraptured page views poring over this topic on the other hand. I blink and your rhetoric is expended, but I have to spend a good couple of hours reading through all this crapola, which I'll frankly decline.

luke, it's a douche bag.

Contemptuous
04-24-08, 12:14 AM
luke, it's a douche bag.

xxxxxxxxxxxxxxxxxxxxxxxxxx

mfyahya
05-12-08, 05:45 AM
I've heard several times that a house purchase price, as a thumb rule, should be no more than 2-2.5 times annual salary. Is there a similar well known rule for buying cars? If not, what would iTulipers suggest?

metalman
05-12-08, 09:40 AM
I've heard several times that a house purchase price, as a thumb rule, should be no more than 2-2.5 times annual salary. Is there a similar well known rule for buying cars? If not, what would iTulipers suggest?

it's not like that. a house appreciates, or at least it used to before the housing bubble busted, so it used to make sense to buy on credit... using using that rule you say. the point of this article is that cars depreciate... lose value net of inflation. always have, always will. so you do NOT use credit to buy them. 'debt is a lien on your future labor' so debt... the result of a credit transaction... is for investment in things that appreciate in value like land and companies. an argument can be used for education, too.

so... back to the point of this article... buy the safest car you can afford to buy with cash. these days that means used. there are huge bargains out there buying cars coming off 30K lease. modern cars are just about broken in at 30k miles... have 100k or more to go before anything serious goes wrong if you get a japanese car.

just did a quick search of cars.com and you can buy a 2005 Honda Accord LX with 36,347 mi. for $14,995. a search within 50 mi of my home turned up 134 honda accords that are less than 5 yrs old for less than $15k. totally safe car.

if you don't have $15k and only have $5k then borrowing at least $10k is a lot better than buying new and borrowing $20k or $30k.

c1ue
05-12-08, 04:45 PM
Or you can do what I did: buy a 1999 1/2 Audi A8 in 2003 for $19K.

It is more than the Accord, but a much nicer ride. Admittedly, the MPG isn't so good - but pretty good for an 8 cylinder... I get around 16 city and 20 highway.

Verrocchio
05-13-08, 01:55 AM
Or you can do what I did: buy a 1999 1/2 Audi A8 in 2003 for $19K.

It is more than the Accord, but a much nicer ride. Admittedly, the MPG isn't so good - but pretty good for an 8 cylinder... I get around 16 city and 20 highway.

Or like I did: 1998 BMW 5-series, Motor Trend Car of the Year, for $18,000 in 2002, 50,000+ trouble-free miles.

mfyahya
05-13-08, 04:54 AM
it's not like that. a house appreciates, or at least it used to before the housing bubble busted, so it used to make sense to buy on credit... using using that rule you say. the point of this article is that cars depreciate... lose value net of inflation. always have, always will. so you do NOT use credit to buy them. 'debt is a lien on your future labor' so debt... the result of a credit transaction... is for investment in things that appreciate in value like land and companies. an argument can be used for education, too.



I understood the point of the article. My question was about determining what is an affordable car regardless of whether it's financed or paid for in cash. Assuming someone has enough savings to buy even a 40K car for cash, does it mean he should do so? I was thinking an appropriate cost of a car would be some function of monthly income and/or average monthly savings.

I should have mentioned that I live in Dubai where there is a negative interest rate environment, with inflation around 10-12% and car loans around 4%. I have saved up cash, but to me it makes sense to finance a car, and use the cash remaining after the down payment to buy gold. The most expensive car I bought so far was $3.5K (8 yr old Mitsubishi Eclipse). Now I can move up to a much better ride, but I'm not sure how far up I should go.

FRED
05-13-08, 11:52 AM
I understood the point of the article. My question was about determining what is an affordable car regardless of whether it's financed or paid for in cash. Assuming someone has enough savings to buy even a 40K car for cash, does it mean he should do so? I was thinking an appropriate cost of a car would be some function of monthly income and/or average monthly savings.

I should have mentioned that I live in Dubai where there is a negative interest rate environment, with inflation around 10-12% and car loans around 4%. I have saved up cash, but to me it makes sense to finance a car, and use the cash remaining after the down payment to buy gold. The most expensive car I bought so far was $3.5K (8 yr old Mitsubishi Eclipse). Now I can move up to a much better ride, but I'm not sure how far up I should go.

EJ writes in:

Welcome from Dubai. The article is aimed at the average American who has been conditioned to borrow to the highest monthly payment they can afford even if that means not having enough left after paying the bills each month to save a dime. The contrary iTulip guidance is "the best, safest car you can afford to buy with cash." I mention that bought my last car, an Infiniti FX with cash to make the point that if you over time buy cars you can afford with cash, and you save and continue to improve your income, over time you will find yourself in a position to buy a high end car with cash. Sounds like you are in that position. Congratulations.

We do make a couple of exceptions to the rule. One is the availability of zero interest rate financing. If you are able to paying interest that is equivalent to cash so it makes sense to do so and not tie up cash in a car if you don't have to.

You are raising another issue and it's an interesting one. The negative interest rate environment is a curious, non-market phenomenon that will eventually correct via an increase in interest rates and a decline in inflation, albeit not necessarily in that order.

Borrowing to buy a depreciating asset when money is relatively cheap seems to conform to the rule that borrowing at zero interest rates is equivalent to cash. If while inflation remains above 10% and you are able to lock in a 4% interest rate, that is, if it does not vary over the term of the loan you are in effect borrowing at better than a zero real rate of interest.

I made the point in this article that in the 1970s when the dollar depreciated the resale value of the Japanese car I bought in 1975 actually increased; in 1979 I sold it for more than I paid for it, in nominal terms. Within the ricing structure within the US economy the car itself acted as a inflation hedge. Today as the dollar depreciates, since Japanese cars we buy in the US are either made here in the US or the exporting manufacturer in Japan is eating the FX costs versus passing them on, at least for now, no such price appreciation is occurring. The situation in Dubai, where the currency is pegged to the dollar, may be similar.

Forrest
09-20-08, 09:56 AM
Indeed, a VP Sales can't get away with driving a beater. For anyone with a job where a show car is justified because it's expected (e.g., a meaningful portion of income depends on appearances), a used luxury car is still the right way to go. For example, a three year old BMW M3 just off lease with 30k miles on it (that is, just broken in) can be had for $35,000 vs $49,000 new. Consistently avoiding the 30% haircut you get for buying new, even with cash, for the first 2 to 3 years of ownership... over time, this really adds up.

If you make enough money, you can drive whatever you want. One of the other things you can buy with financial independence is the right to eccentricity, and owning a car that's less expensive than the car everyone knows you can afford is one of them. Warren Buffett drives a Lincoln Town Car with a license plate that reads: "THRIFTY". The car's cost is a rounding error on the return he earns on his wealth daily.

I'm thinking of adopting the eccentric's car look... a Toyota Corolla or Honda Civic, because I'm concerned about pollution and fossil fuel consumption. Fifty percent of the pollution generated by a car is created in producing a car, so if I'm worried about pollution, I don't buy a new Pruis (rhymes with "Pious"), but buy a used Toyota Corolla or Honda Civic, and drive it slowly. That and an old truck, and replace the FX with the two–the Corolla for getting around, the truck for hauling stuff.

What do you think?


You're wrong about the VP Sales...I drove a 1976 Datson 280Z 4x4, picked up for 2K, refurbished it with a custom paint job, and rebuilt the transmission and engine...and since I had two other's at home in process of glamorization, I was a collector!

If they thought the less of me, at least no one had the nerve to say so, and it didn't seem to hurt my credibility. Just for fun, I'd drive the oldest one in on a Saturday, and discuss the latest body work I was doing, while driving my mountain roads was a daily pleasure to boot. Their oh-so dull new cars didn't seem to be any fun to them, particularly when they complained about the payments.

jimdice
02-28-09, 09:25 PM
Thanks for the great advice Eric J., Fred and members. I read this article well over a year ago, printed it out and kept it on my shelf. It took me a little while, but I got the exact car I wanted.

I just acquired a 2005 Infiniti G35x, with the fully loaded Nav package, just coming off a lease.

I told myself I'd just wait until the local economy got worse and prices got crazy enough and just buy the car outright. Of course being a used car, it's not perfect - couple of nicks, no dents though. It also looks like the original owner's son managed to jam a CD in the CD player but everything else looks just fine. I should mention that I paid less than one third of the original dealer price, and probably 20% less than the lease buyout price. It looks like the former owner wanted to keep it because it has a brand new set of tires, mileage wise also, well maintained. Car has just under 45,000 miles.

Would anyone recommend getting the extended warranty from the dealer?

Regards,

jim

Slimprofits
02-28-09, 10:31 PM
Would anyone recommend getting the extended warranty from the dealer?

Regards,

jim

Starting point for that conversation is, how long do you plan to keep the car for?

jimdice
03-01-09, 11:07 PM
At least three years.

jim.

Contemptuous
03-01-09, 11:22 PM
This thread gets my emphatic vote as the most terminally dull and boring thread ever posted to iTulip. :)

[ 55,000 page views, and counting! :eek: ]

jimdice
03-02-09, 03:34 PM
Well unfortunately, while Rome burns, people in other parts of the world still have to get to work...

jim

Contemptuous
03-02-09, 04:51 PM
Yeah sorry Jim. Did not mean to get on your case. Congrats on your supercheap deal for a high end car. Maybe I should do something like that, but I can't stay focused on this topic long enough to execute it. Mine is a generalized frustration with people (55,000 of them apparently) who when it comes to CARZ exhibit all of the fascination with this topic which we all had when we were 18 years old. What is it about CARZ anyway? On a side note, I "drive" a little turbodiesel Jetta that gets 47 miles per gallon (I gas up about once every five weeks) and yet I live four blocks away from my place of work! I never get to drive any freaking where! That's no fun! I guess I drive about 3000 miles a year, and I've got one of the most economical vehicles possible for when petroleum goes to $400 a barrel. Except it didn't, so I wound up buying the super fuel efficient car for nuthin'! :mad:


Well unfortunately, while Rome burns, people in other parts of the world still have to get to work...

jim

Slimprofits
03-02-09, 06:30 PM
Jim will you get to 100,000 miles in the three years?

You need to look at the cost of the warranty and measure it against possible repairs.

There is probably no need to buy your extended warranty from the dealer. I think you can almost always get the same coverage for less with an aftermarket warranty. Infiniti might have a program that is similar to Hondacare. I bought my Honda at a dealer in California along with an offer for their third-party warranty, but paid considerably less for true Hondacare (service at any Honda dealership) from another dealership in Massachusetts that serves the aftermarket.

You might be better off, even with low interest rates, depositing money on a regular basis in an interest bearing account for the same period and saving that for possible repairs. No repairs and you keep all of the cash.

Chris
09-29-10, 09:09 AM
This was the first iTulip article I ever read and because of it i proudly drove a rusty, 998cc 'shitbox' for the last couple of years. Until today; when I purchased a brand new diesel motor for the wife (cash) which turns in an impressive 80mpg on combined cycle. Powered on biodiesel and with no road tax to pay, this baby will be one cheap motor to run.

Thanks EJ!

photoncounter
09-29-10, 03:12 PM
This was the first iTulip article I ever read and because of it i proudly drove a rusty, 998cc 'shitbox' for the last couple of years. Until today; when I purchased a brand new diesel motor for the wife (cash) which turns in an impressive 80mpg on combined cycle. Powered on biodiesel and with no road tax to pay, this baby will be one cheap motor to run.

Thanks EJ!

Same here -- first article I read on this site (thanks to my manager for introducing me to itulip). Drove an old 92 Honda (college car) with no regrets for 2 years after graduation, although I was fortunate enough to start working as soon as I graduated. Part of the money saved went in to buying some real yellow stuff.

I have passed on this article to few other friends, who have also benefited. I think this article must be handed to college grads on their graduation or by the employer along with the company manual or something.

Thanks to EJ and itulip.

don
09-29-10, 03:17 PM
I too have passed this approach on to many and you can gauge by the hefty percentage that look at you in disbelief where their finances lie. ;_CC

BiscayneSunrise
09-29-10, 07:17 PM
dude you are going for the...

http://i28.tinypic.com/160ea0n.jpg

prize.

Now that was one of your funnier ones MM. After seeing this thread revived, I am now aware of why Lukester was so disliked.

Slimprofits
11-27-13, 11:37 AM
http://www.bloomberg.com/news/2013-11-08/good-job-is-good-enough-as-subprime-car-buyers-lift-sales.html

As the fifth anniversary of the Federal Reserve’s policy of keeping interest rates near zero approaches, the market for subprime borrowing is once again becoming frothy, this time in the car business. As with mortgages in 2006 and 2007, the central bank’s stimulus is making it easier for people with spotty credit to buy cars as yield-starved investors purchase riskier bonds linked to auto loans.
While surging light-vehicle sales have been one of the bright spots in the U.S. economy, it’s increasingly being fueled by borrowers with imperfect credit. Such car buyers account for more than 27 percent of loans for new vehicles, the highest proportion since Experian Automotive started tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession.

touhy
11-27-13, 09:09 PM
http://www.bloomberg.com/news/2013-11-08/good-job-is-good-enough-as-subprime-car-buyers-lift-sales.html

As the fifth anniversary of the Federal Reserve’s policy of keeping interest rates near zero approaches, the market for subprime borrowing is once again becoming frothy, this time in the car business. As with mortgages in 2006 and 2007, the central bank’s stimulus is making it easier for people with spotty credit to buy cars as yield-starved investors purchase riskier bonds linked to auto loans.
While surging light-vehicle sales have been one of the bright spots in the U.S. economy, it’s increasingly being fueled by borrowers with imperfect credit. Such car buyers account for more than 27 percent of loans for new vehicles, the highest proportion since Experian Automotive started tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession.


What could go wrong. Bernack/Yellen knows what he/she is doing.

ljaycox
11-28-13, 11:03 PM
Indeed, a VP Sales can't get away with driving a beater. For anyone with a job where a show car is justified because it's expected (e.g., a meaningful portion of income depends on appearances), a used luxury car is still the right way to go. For example, a three year old BMW M3 just off lease with 30k miles on it (that is, just broken in) can be had for $35,000 vs $49,000 new. Consistently avoiding the 30% haircut you get for buying new, even with cash, for the first 2 to 3 years of ownership... over time, this really adds up.

If you make enough money, you can drive whatever you want. One of the other things you can buy with financial independence is the right to eccentricity, and owning a car that's less expensive than the car everyone knows you can afford is one of them. Warren Buffett drives a Lincoln Town Car with a license plate that reads: "THRIFTY". The car's cost is a rounding error on the return he earns on his wealth daily.

I'm thinking of adopting the eccentric's car look... a Toyota Corolla or Honda Civic, because I'm concerned about pollution and fossil fuel consumption. Fifty percent of the pollution generated by a car is created in producing a car, so if I'm worried about pollution, I don't buy a new Pruis (rhymes with "Pious"), but buy a used Toyota Corolla or Honda Civic, and drive it slowly. That and an old truck, and replace the FX with the two–the Corolla for getting around, the truck for hauling stuff.

What do you think?

EJ, that is exactly my program. 05 Accord bought used for 35% of new (original receipt in glove box, and an 01 Tundra. We are rehabbing a 100 year old house so the truck is a necessity. I also bought a used scooter as my main get around town vehicle so the truck gets driven very little. I have never liked high transportation outlays. It is much more environmentally friendly to buy something older and use it as little as possible. Always cash of course, but when you buy a vehicle at 3-5 years old they are a great bargain. Our Honda and Toyota experience shows that, properly maintained, these vehicles can easily last 15-20 years.

loweyecue
02-07-14, 09:07 PM
I agree with the sentiment of the thread only in case of looking at a car as an investment. I never look at cars as an investment. Yes I do borrow money to buy a car and in my opinion I am paying for the utility I get out of having the car. I have no interest in selling it either, because have owned all my cars till they are ready to be donated. I guess I am saying how you chose to live is a personal thing and should not be judged only from a financial POV.

aaron
02-07-14, 10:27 PM
I agree with the sentiment of the thread only in case of looking at a car as an investment. I never look at cars as an investment. Yes I do borrow money to buy a car and in my opinion I am paying for the utility I get out of having the car. I have no interest in selling it either, because have owned all my cars till they are ready to be donated. I guess I am saying how you chose to live is a personal thing and should not be judged only from a financial POV.

Wow, this is an old thread. The world has changed. It was an interesting one (I am not looking for new cars).


Perhaps buying a very fuel efficient car, right before the Second Great Inflation, using credit, might be a good "bet"? There are good financing deals around (under 0-3% is what you want). So long as inflation will not cause your company to have to lay you off, you should eventually have a higher salary and/or you can sell the car for more than you paid.

BadJuju
02-07-14, 10:48 PM
Better yet, a motorcycle. ;_TU

shiny!
02-08-14, 10:25 AM
Better yet, a motorcycle. ;_TU

Not from my POV.