Affordability & Cars

"CarsofFortLangley - Oppo Forever" (carsoffortlangley) 02/22/2019 at 11:20 • Filed to: None

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I’ve been thinking over the last few days about money, affordability and the growing trend of consumer debt in the form of car loans. These thoughts were spurred on by some comments on a joke I made on the FP about financing tires. I realize that you can finance tires and more and more these days I see “we offer financing” on sites for car parts, mods, tires and mechanic’s shops. Usually at higher rates.

On one hand, I get it, times are tough for a lot of folks and credit is fairly cheap. This means that a lot of people who are not well off are financing basic repairs and a lot of people who want fancy new cars are plopping down $0 and driving away in a new Crosstrek or whatever.

When is the shit going to hit the fan? We are seeing growing term lengths for even the cheapest new cars and people taking out loans/financing on basic maintenance to keep the cars they currently own (or finance) on the road for high rates. People in the USA and Canada have never been more in debt, job security seems to be declining and costs seem to be rising.

I don’t buy that “modern” cars (let’s say 2012 and up) with their infotainment screens, sensor suites, adaptive exhaust/suspension hybrid systems or fully electric drive-trains last as long as the cars that came before them, at least, not without a significant amount of maintenance that I don’t think the average consumer is able to do.

When I see pickups from the 80’s and 90’s still being used as work trucks or a senior couple driving to coffee in their Crown Victoria they bought new off the lot 25 years ago, I just don’t feel that if we fast forward 20-30 years that we will see cars sold today doing the same thing.

I guess TL:DR, we are spending more money at higher rates/longer terms on items that, in my opinion, won’t last as long. And it stresses me out.

Also, I understand there is an element of hypocrisy at play since I have a 2014 Fiesta ST, 2016 CX-3 and 2018 Forte.  

E90M3 > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:24

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It’s unsustainable, and there is going to be a crash like back in 2009. It might not have the same effect as 2009, but it’s going to be a shitshow when it inevitably happens. 

Ash78, voting early and often > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:25

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On one hand, increasing transaction prices and longer financing terms are a problem. On the other hand, cars are damn near like computers in terms of how much more affordable they’ve gotten (compared to wages). The problem is humans: Rather than accept a really nice base model, we want the upper trims...and we pay the price.

When I was 16, I bought a brand new 115hp VW Golf (upper trim...still cloth and 5MT). It was $15,500 out the door. My job paid $4.25 an hour. You do the math.

The manufacturers and financiers are doing a great job. If anyone is to blame, it’s us. The ratio of minimum wage to entry-level purchase prices may be as good as at any point in human history. We’re mucking it up.

KingT- 60% of the time, it works every time > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:25

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It’s the American Way™

CB > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:26

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There'll probably be a crash or correction in the next few years. I was looking at cameras yesterday and it said "financing available". It's gone way too far.

Neil drives a beetle and a fancy beetle > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:30

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I am in constant conflict between my desire to have less debt and my desire to own a cool car. However, it’s not a matter of me surviving; it’s more a matter of me wondering if I took out a car loan for $60-100 extra a month would I miss that $5000 down the line or be happy I enjoyed parts of my life. When you’re talking about financing tires or repair, I think that’s indicative that someone’s finances aren’t sustainable and  I think everyone owes it to themselves to get their finances sustainable. But once you do Have a sustainable financial situation, the choice becomes harder; cool stuff now or more money later for retirement/security/fun.

CarsofFortLangley - Oppo Forever > CB 02/22/2019 at 11:30

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Just type “Can I finance....” into google if you really want to know how fucked we are.

3point8isgreat > E90M3 02/22/2019 at 11:30

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100% agree. It’s just hard to pinpoint what will cause it since the bubble seems to be ALL forms of credit instead of one segment like mortgages.  

Arrivederci > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:31

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I suppose, but cars today are the most reliable they’ve ever been. Sure, some things may not work forever, but the drivetrain of today’s cars is generally more precise and well-built than older cars.

That said - new technology can and will fail until it’s thoroughly tested. I wouldn’t buy one of those variable compression Infinitis anytime soon. Same goes for the SkyactivX Mazdas. New EVs. Older hybrid cars. The list goes on.

The issue with today’s cars is damn near everything is controlled with a computer, so when that fails, you lose just about everything and it can be very costly to repair, so most folks will just move on to something new.

Ash78, voting early and often > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:31

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On a macro scale, car notes are not securitized and repackaged to nearly the same degree as mortgages, so you’re not going to see car loans “take down the economy.” If anything, the pain will be felt by the banks (and other non-bank lenders) and some of it passed along to consumers in the form of stricter terms and higher rates.

For now, though, the longer terms (years) on the loans also corresponds to people keeping their cars longer. That seems to make sense, but it could also be a chicken/egg situation: “I’m stuck in this 7-year loan so I have to keep this car”

CarsofFortLangley - Oppo Forever > Arrivederci 02/22/2019 at 11:36

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Are they? I’ve had serious issues with my 2014 ST that I bought new off the lot. Paint quality, engine overheating, infotainment problems.

I’ve had to have the backup camera system replaced twice in my 2016 CX-3.

Sure, they start every time, but all the systems that have been added in the past 10 years don’t last long.

CarsofFortLangley - Oppo Forever > Ash78, voting early and often 02/22/2019 at 11:37

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!!! UNKNOWN CONTENT TYPE !!!

You’re giving way, way to much credit to the average consumer.  Dealers are always rolling existing loans into new cars.

E90M3 > 3point8isgreat 02/22/2019 at 11:37

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Right, although I think this one is going to be prolonged because a vast majority or people need their car to get to work so they have to pay for it, foregoing paying other bills. 

BaconSandwich is tasty. > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:38

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I keep wondering that same thing.  Albertans carry the largest consumer debt of anyone in Canada.  There’s been a number of surveys that have showed that a large percentage of the population is living paycheque to paycheque.  What if the economy tanks (which it very well could)?  Are we going to see mass amounts of people declaring bankruptcy?  I think there’s a reason the Bank of Canada is having a difficult time raising interest rates.  They know that if they do it too quick, everything could go belly-up.  But rates have been so low for so long that people have become accustomed to living a certain lifestyle (spending more than they are earning, and only paying the interest), and a lot of people are going to be in for a lot of hurt unless they start getting smart.

nermal > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:39

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I think that people with good credit will be fine, while people with shitty credit will not be. It’s equal parts funny and sad how that works out - The most important concept of personal finance hasn’t changed , which is don’t buy shit you can’t afford on credit.

Companies like Affirm that are offering financing on a lot of internet stores will be interesting to watch. They’re basically a credit card company, but different.

The level of technology advancement in autos has accelerated. In most models there are several significant improvements between a new model and a 3yr old one. That drives consumer demand for the new models.

Ash78, voting early and often > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:41

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Yep, been there...ironically, used cars are better at absorbing negative equity than new ones, so people have a better chance of rolling their bad decision into a much worse one (ie, overpaying for a used car that has a shorter life, all that negative equity AND tends to have more dealer profit built into it)

But I was looking at it in a macro sense: If the average car note goes from 5 years to 7 years in a decade; but the average vehicle age goes from 8 years to 10 years in the same time...then it’s likely a wash. People (on the whole) are matching the financing terms to the asset life, which is what we all want.

smobgirl > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:43

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I don’t know if you’re bringing this up because you e seen it in the news lately or you independently came to the same line of questioning, but this was a pretty good article on half of your post: https://www.washingtonpost.com/business/2019/02/12/record-million-americans-are-months-behind-their-car-payments-red-flag-economy/?utm_term=.77e69b1d05cf

But I also agree with you on the longevity of vehicles with the electronic/computer controls on the market now. I see the point of a lot of that in supercars, where in order to take the car to the limit you need the assistance of technology. But I really, really don’t want most of that in what I’m driving. I don’t want to NEED a touchscreen in order to set the temperature or change the fan speed. Then again, I don’t want any of that on ANY of my appliances. My washing machine shouldn’t need WiFi! I feel like  I’m going to end my life Amish because I hate all of this.

GLiddy > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:44

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If there is some sort of finance crisis , it will be different. All of this is unsecured consumer debt. There will not be mass foreclosures as when so many homes went upside down on their loans. Similarly, this debt is not being bundled and sold with the blessing of federal insurance backing. In my mind, if we are going have a debt fueled economy (which we do have), then this is exactly part of the boom-bust, debt-default cycle that is just part of what we’ve decided to do.

I trust that some lenders have factored in default rates and debt /income ratios in considering how much they loan and at what percentage they charge each individual. If they haven’t done this well, then they will go under. I don’t really care about that. What does worry me is that people have mortgaged their future income for what is essentially a big pile of rusty crap. They may never get ahead of their debt and will be a societal burden when they get old and demand government benefits to simply exist . That’s the coming crisis. A few will get amazingly rich and the debt-saddled will be paupers on the government dole.

I don’t borrow. I don’t work for some finance company or bank.

Arrivederci > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:44

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The engine overheating is surprising, but remember old cars had issues as well, usually more prolific than new ones. We’ve all just forgotten. The old cars that are still around are the ones that were reliable and still are. There’s a bunch of them in junkyards, certainly more than on the road.

Part of the point I was trying to make was that the actual drivetrains on new cars will be superior to old ones (as long as not groundbreaking new tech) . Ancillary stuff like cameras, vented seats, infotainment, etc... that’ll all die, but the car doesn’t need it to still be a car . Old cars didn’t have that, of course, so it makes a comparison in that regard a little difficult. They had fewer components to fail.

Highlander-Datsuns are Forever > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:45

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When I was a kid even tho we were dirt poor my parents never financed a car, they always bought with cash or drugs.

MrDakka > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:45

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The rise of the megacorps is nearly upon on us. Then the megacorp wars will start. It’ll be an interesting several decades.

CarsofFortLangley - Oppo Forever > Arrivederci 02/22/2019 at 11:46

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I daily’ed (and still frequently drive) an 86 Ram, I seriously have had less issues with that as a whole than my 3 newer cars.

Urambo Tauro > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:46

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This bothers me too. And it’s happening from so many different angles. Today’s consumers are overly willing to get themselves into debt... to buy way more features and technology than they need... from an industry that is ruthlessly trying to maximize their profits by any means necessary. It’s a black hole.

CarsofFortLangley - Oppo Forever > smobgirl 02/22/2019 at 11:49

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This was independent , but that article is great.  As much as I like technology, I am starting to shun it more and more

Arrivederci > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:50

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It’s a basic truck, what’s there to go wrong on it? :)

My mom had an ‘85 Pontiac Safari and it died on the way to school one day. That was replaced with a ‘89 Olds Custom Cruiser which had tons of electric gremlins and the entire cooling system let go. My dad had an ‘85 Caprice that was basically bulletproof, also had an 80's K-car that was basically a lemon (but it was a wagon with a stick(!) , he was Oppo before it was cool).

Ultimately anecdotal evidence is unreliable.  Would be interesting to see actual data on all this.. I’d still wager that modern cars are more reliable than their forebears. 

CarsofFortLangley - Oppo Forever > Highlander-Datsuns are Forever 02/22/2019 at 11:51

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lol. I luckily had a relatively (to most of the world) affluent upbringing, solidly middle class. My parents though, especially my dad, grew up poor and passed on a lot of values to me.

facw > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:52

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I don’t buy that “modern” cars (let’s say 2012 and up) with their infotainment screens, sensor suites, adaptive exhaust/suspension hybrid systems or fully electric drive-trains last as long as the cars that came before them 

So people have been saying this essentially forever. Certainly if you go back 40 years people were saying that these newfangled computer contr o lled would lack the longevity of traditional cars, and I suspect people were saying similar things about adding complicated automatic transmissions and fancy luxuries like air conditioning.

However, the median age of cars on the road has been trending ever upwards, basically doubling since the ‘60s (I think the most recent number I saw for the US was 11.4 years). This is generally taken as an indication that quality has been increasing, though the fact that cars (new and used) are somewhat more expensive (even adjusting for inflation) probably also means there are more cases where repairing makes sense, even with higher re pa ir costs.

I’m a lot less concerned than you though. We’ve had common airbags for even three decades, and even though a deployment can easily total an old car, median car ages have continued to increase. Sensors may be expensive to replace, but if they prevent crashes that a huge net win; one hospital bill avoided will pay for a ton of sensor modules.

There are certainly things that may be pricey to replace, but I’m not at all convinced we are hitting a wall in terms of car longevity.

CarsofFortLangley - Oppo Forever > Arrivederci 02/22/2019 at 11:52

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Touche lol.  

Highlander-Datsuns are Forever > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:53

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My dad told me that he bought his first MG-A with 1.5 lbs of hash, this was like 1968 or some th ing .

facw > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:54

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Any think your anecdotal evidence doesn’t really say much. I can assure you that old cars had issues with paint quality, engine overheating, and head units. Probably not issues with backup cameras, but they had issues with running over children, pets, and backing into cars, and I think I’d take the camera replacement costs over that.

facw > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:56

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My company pushes financing hard for what we sell. Let’s us sell a $2000 unit instead of a $400 unit, and lets us sell accessories, as tacking on $1 a month sounds a lot better than paying $5 0 up front.

facw > E90M3 02/22/2019 at 11:57

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It won’t be like 2009, because the total money involved is an order of magnitude smaller and it’s a lot easier to liquidate cars (and to do so without completely destroying the market), but it’s definitely going to be bad, especially for new car manufacturers.

CarsofFortLangley - Oppo Forever > facw 02/22/2019 at 11:58

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I never think about the hospital bill aspect I guess. I always forget/underestimate how prevalent that is in the decision making of people.  

vicali > CarsofFortLangley - Oppo Forever 02/22/2019 at 11:58

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Cars are turning into phones, and phones are getting as expensive as cars..

My Parents have a 95 F-250 and a 96 Camry. My Dad can and has fixed most of the parts on each. They paid less than $8K for both of them.

How many 10+ year old vehicles do you see driving around? All I see is 2015 kias and hyundais (no offence CoFL)..

Nothing > CarsofFortLangley - Oppo Forever 02/22/2019 at 12:05

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For every 95 Crown Vic I see driving, heck, I don’t see any ‘95 Crown Vics. I’d say if someone in their 60s is buying a Toyota Avalon today for their last new car, it’ll see no miles and equally be a time capsule in 20 years, and still be working.

Emissions came along, and none of those cars were going to last at all. Fuel injection came along and that wizardry was going to ruin all cars. OBD came along and dang it, nobody was going to be able to determine what the flashes meant. Then OBD2 came out, and you had to have a dang code reader...power windows, power brakes, air condition, more crap that’s going to break and ruin cars!

Any 60s-90s cars remaining are survivors that are remaining because they were taken care of (or deemed valuable and restored). The average age of cars on the road in 1969 was 5 years old. In 1995, they were 8 years old. In 2018, they are 12. Every time there’s an argument for today’s cars not being like the good old days, they magically keep staying on the road longer.

CobraJoe > CarsofFortLangley - Oppo Forever 02/22/2019 at 12:13

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I daily’ed (and still frequently drive) an 86 Ram, I seriously have had less issues with that as a whole than my 3 newer cars.

I’ve found that older, high mileage cars can sometimes be as reliable (or sometimes better) than a brand new car. Most catastrophic failures caused by defects in the building process happen far earlier than 100k miles, and any small failure has probably been fixed with an updated OEM or aftermarket part.

That seems to go double for V8, RWD based american vehicles. The big 3 put all of their engineering effort into those vehicles, and had decades of finding the weak points. (Though, as an 80's vehicle, I’d guess you had electrical and engine sensor problems.)

That being said, my experiences are far more varied.  I had an ‘84 Mustang that had engine, trans, interior, and electrical failures, and an ‘86 Mustang GT that was damn near bulletproof (and still is for my friend).  My entire car history reads like that, Something that needed work, something that was great.  Condition matters more than age in used cars.  

CarsofFortLangley - Oppo Forever > CobraJoe 02/22/2019 at 12:14

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Luckily, it's a slant 6 older platform vehicle. No electric stuff

davesaddiction @ opposite-lock.com > KingT- 60% of the time, it works every time 02/22/2019 at 12:21

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Sad, but true. The dark side of optimism.  

davesaddiction @ opposite-lock.com > vicali 02/22/2019 at 12:22

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My M3 is 10 years old. =)

BaconSandwich is tasty. > CarsofFortLangley - Oppo Forever 02/22/2019 at 12:37

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As a software developer, I hear you. It’s not usually hardware problems, it’s software problems. From lazy and inefficient programming, rushed deadlines, and throw-away products that are only produced to attract the next investor, it’s a poop-show.

RiceRocketeer Extraordinaire > CB 02/22/2019 at 12:37

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even Amazon is getting in on it ... they have financing offers on laptops with 19.99% APR (!!) directly on their pages.

CarsofFortLangley - Oppo Forever > BaconSandwich is tasty. 02/22/2019 at 12:39

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What I’m really trying to avoid is buying games/products that rely on a service hosted off site.

W hy should I pay $100+ for something when the company that makes it could just stop existing or turn off the servers on an aging product and turn it into a piece of plastic

vicali > davesaddiction @ opposite-lock.com 02/22/2019 at 12:55

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O ppos excluded in this exercise ..

gmporschenut also a fan of hondas > BaconSandwich is tasty. 02/22/2019 at 13:47

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On a tangent from your article I worry “how many businesses rely on this risky consumer behavior?” I worry it is a number larger than anticipated. Additionally on all these loans how many carry a  variable interest rate?  

gogmorgo - rowing gears in a Grand Cherokee > CarsofFortLangley - Oppo Forever 02/22/2019 at 13:52

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I would argue that they don’t start all the time. I spent most of the recent cold snap with my   truck blocked in my driveway because my roommate’s 2014 Juke bricked itself. Keyless entry, remote start, all these systems running constantly draw down the battery. Most discharge prevention systems will allow discharging down to 10.5V, which is about the minimum acceptable starting voltage. Except y ou really don’t want your battery dropping that low if it’s going to hit -30, let alone the -40 we saw a few mornings, because the cold already decreases the current the battery can provide, and in that state of discharge there’s no way the battery will be able to start your engine, which requires more current to turn over in the cold. Any attempts to start your vehicle will just further draw down the battery, leading to a block of ice instead of a useful current supply.

My 25+ year old fleet may not be as luxurious or efficient as a modern vehicle, but at least they shut themselves off when I turn the key off. Doesn’t matter how fancy your brick is if it’s still just a br ick.

E90M3 > facw 02/22/2019 at 14:01

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I would agree with this. 

SilentButNotReallyDeadly...killed by G/O Media > CarsofFortLangley - Oppo Forever 02/22/2019 at 16:37

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Cars are more affordable now than we we last bought our current cars new around the turn of the century. We paid $30k for the Forester and $45k for the Transporter back in 2001/02. The was a smidge of finance for the VW but the Subaru was outright.

The equivalent cars today are around mid $30k and high $50k. Taking into account 18 years of inflation... that’s a bargain compared to what we paid back then. ( The only caveat to this simplistic take is purchase price versus weekly wages , both then and now - but I don't think that'll take down my take! )

But we had to wait and save to get them. These days, credit is easier to get as the risks are better understood by lenders. And since it’s easier to get...why save and wait?

Probably because you don’t want to go into debt, sucker. That’s why we drive 18-20 year old cars...

CarsofFortLangley - Oppo Forever > SilentButNotReallyDeadly...killed by G/O Media 02/22/2019 at 16:42

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Oh, I'm I debt, trust me. Like $400,000 total for mortgage and cars

SilentButNotReallyDeadly...killed by G/O Media > CarsofFortLangley - Oppo Forever 02/22/2019 at 16:58

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Yikes! Well...yikes from my perspective anyway.

But you and yours are perfect examples of modern living and, if the lifestyle is manageable, then live the Hell out of it.

CarsofFortLangley - Oppo Forever > SilentButNotReallyDeadly...killed by G/O Media 02/22/2019 at 17:03

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Man’s gotta have a roof.  Anything that is livable costs upwards of $500K for a condo, 750K for a townhome or $1M for a home in my area.

SilentButNotReallyDeadly...killed by G/O Media > CarsofFortLangley - Oppo Forever 02/22/2019 at 17:05

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Yeah...living rural in Oz has  some advantages. Those numbers are familiar to my mates in the city.

BaconSandwich is tasty. > gmporschenut also a fan of hondas 02/22/2019 at 17:33

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So if people start declaring bankruptcy, it cascades into businesses that are also relying on people's poor finances, then those businesses fail, and even more unemployment. Yay!

gmporschenut also a fan of hondas > nermal 02/22/2019 at 21:46

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I think its more than just those with bad credit. I think the bigger issue is how many people think credit score equals finacial standing. When really it is just a rating of how good a customer you are to teh bank/credit cards .

I have a cousin similar age, similar income, to me. But if he lost his job I have doubt he couldn’t rub 2 nickles together. He forgot to get heating oil, and needed to borrow $ 600 from his dad. then gets his christmas bonus, pays his dad and then blows the rest and then some on a new mower. “i have great credit I got 0% financing.” moron. How much of a warning does he need to think, I should be more responsible. 

gmporschenut also a fan of hondas > Ash78, voting early and often 02/22/2019 at 21:53

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I agree it won’t be as bad, but I have concern due to all the folks that had savings wiped out in 2008, they’ll be homeless the next time. 

gmporschenut also a fan of hondas > CarsofFortLangley - Oppo Forever 02/22/2019 at 22:33

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I think the bigger problem in general is no understanding of finance, and that credit scores don’t equal your ability to afford something. “oh but I got approved by the ___”

I have a cousin that makes nearly as much as me, didn’t go to college, lived at home till 27, and if he had to, couldn’t rub two nickels together. Completely pissed away every dime he made. L evereged to the hilt. 50+k truck, atv, mower, house. If he lost his job, him and his wife would be immediatly shit out of luck.