Economics of new cars

PistolsAtDawn said:

The really sad and telling thing there is that it's true that if you have to borrow, you can't afford it. My ~$122k house will wind up costing me over a hundred thousand dollars more just in interest alone. So no, I actually can't afford it. But what choice do 99% of us have if we want to "own" and not rent (so long as a creditor can legally take your property from you, I contest the "ownership" bit of a house). I'll probably sell the property in the near(ish) future.

A car basically works the same way, but you aren't paying compounding interest for 30 years, so it's far more within the reach of the average person.

Not to steer the conversation in this direction: but this is the perfect example of the upper class rigging the system so that they stay rich and we stay poor.

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Unless you decide not to allow this to happen.

I agree that a home is one thing that most people will have to borrow for and times like now with the housing market in the dumps it might make sense to borrow for a home. 10 years ago I was offered 300,000 for my house and I turned it down. It is now worth 190,000. It would make sense for some one to borrow and buy it at the much lower cost if I was going to sell it.

I do not borrow money point blank. I would rather save the money and pay cash. I have a good friend who I believe will have a mail box at his grave for all the payments he makes. I guess neither way is wrong but different. I choose to take the pain all up front and fast while he takes it slower and over time.

PistolsAtDawn said:

Not to steer the conversation in this direction: but this is the perfect example of the upper class rigging the system so that they stay rich and we stay poor.

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Uh oh....

Varmintman said:

Unless you decide not to allow this to happen.

I agree that a home is one thing that most people will have to borrow for and times like now with the housing market in the dumps it might make sense to borrow for a home. 10 years ago I was offered 300,000 for my house and I turned it down. It is now worth 190,000. It would make sense for some one to borrow and buy it at the much lower cost if I was going to sell it.

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Well, except that the situation stays the same no matter the price point. Throwing out all flux in the value of homes, when you are paying compounding interest over such a long period of time, what you think you paid and what you actually pay in the end are worlds apart.

PistolsAtDawn said:

The really sad and telling thing there is that it's true that if you have to borrow, you can't afford it. My ~$122k house will wind up costing me over a hundred thousand dollars more just in interest alone. So no, I actually can't afford it. But what choice do 99% of us have if we want to "own" and not rent (so long as a creditor can legally take your property from you, I contest the "ownership" bit of a house). I'll probably sell the property in the near(ish) future.

A car basically works the same way, but you aren't paying compounding interest for 30 years, so it's far more within the reach of the average person.

Not to steer the conversation in this direction: but this is the perfect example of the upper class rigging the system so that they stay rich and we stay poor.

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No offense, but it is not a God-given right to own a house, or a car for that matter. It's a choice people make. You have the option of living in an apartment or buying a used car and not borrowing from a bank. There is no 'conspiracy' to keep you poor going on here.

b-boy said:

No offense, but it is not a God-given right to own a house, or a car for that matter. It's a choice people make. You have the option of living in an apartment or buying a used car and not borrowing from a bank. There is no 'conspiracy' to keep you poor going on here.

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None taken. You are correct that there isn't a "right" to own a house. But isn't that part of the "American Dream" garbage that's been shoved down our collective throats since before our grandparents' generation?

And no offense in return, but if you really believe that the upper class hasn't setup the system in such a way that there's little-to-no upward mobility, you need to brush up on your history. Nothing has ever really changed with humans and our pursuit of wealth and power. The only way to keep yourself wealthy is to keep others poor since there are only so many resources to go around.

This is admittedly my fault, but we're getting way off topic. I'd be happy to peacefully and calmly debate this with anyone in another thread however.

PistolsAtDawn said:

A car basically works the same way, but you aren't paying compounding interest for 30 years, so it's far more within the reach of the average person.

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Minor nitpick, but mortgage interest does not "compound."

The only time mortgage interest compounds is with a negative-amortization loan. That is, with each payment, the remaining outstanding balance actually gets BIGGER. The payment doesn't even cover the interest portion. Such loans are extremely rare.

PistolsAtDawn said:

Not to steer the conversation in this direction: but this is the perfect example of the upper class rigging the system so that they stay rich and we stay poor.

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It's not the rich who are responsible for bidding home prices up to such a level where a loan has become a requirement - it's ourselves.

PistolsAtDawn said:

Throwing out all flux in the value of homes, when you are paying compounding interest over such a long period of time, what you think you paid and what you actually pay in the end are worlds apart.

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Again, you keep throwing that term around. I do not think it means what you think it means.

To address the OP, I'm def a fan of the used/not new car. I've worked on cars my entire life, I'm 32, and have bought/sold about 30 for relatives and fun/profit. That being said, about every 5 years my mom gets a new Honda. For anyone that has a job over 60k, it doesn't make sense to nickel/dime your daily driver. For about 25k now, you can get a car that will give you close to zero out of pocket costs/headaches for at least 3 years. When she is sick of this car, I'll sell it for probably 10g in 2015, and we'll do it again.

I just took the wheels off to inspect the brakes etc as car just turned 50k, and they basically look new. If you buy a used car, whether off lease, or private sale, there will always be a surprise or 2 that will come up. Now for someone like me, I'm cool with that, but my 65 year old mother, not so much. There are plenty of good lease deals out there, and there are some horrific ones. My cousin just went way over mileage on his lease, and had to pay to buy care. Obv a retarded financial move, but he also has to deal with nagging wife, 2 kids, and makes a ton of money so he doesn't care. Its all relative, if I did that on a lease car, I would kill myself in shame. To each is own.

Let's also address the economics of buying a beater at the "Buy Here Pay Here" dealers that many people buy from.

Think 3-9% is crazy for a new car? (most new cars are under 3% currently) Try 19-29% for a beater. This is how much they can charge poor schmucks that finance through them with no other means. Can't make the payments? Repo it, bring it back to the lot, and sell it again.

The other shady tactic they can use is the pre-computed interest loan, which I didn't even know existed until recently.

SpentGrains said:

Think 3-9% is crazy for a new car? (most new cars are under 3% currently) Try 19-29% for a beater. This is how much they can charge poor schmucks that finance through them with no other means. Can't make the payments? Repo it, bring it back to the lot, and sell it again.

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Yes, that's how it works. The kind of folks who can't get financing at "regular" dealerships (because they suck at paying their bills) can either accept that they can't afford/are not responsible enough to finance a vehicle, and take the bus, or they can choose to pay exorbitant interest rates and finance at such dealers. They're adults, they make their own decisions, but the rates such dealerships charge reflect the reality that the borrowers represent a much higher risk than someone with a 780 FICO who can get financing anywhere.

What was your point?

kombat said:

What was your point?

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Simply looking at the economics of well used cars from the same perspective.

I come from an automotive background and my profession was an auto tech (for a while) and I still have many ASE certifications and an associates degree in automotive technology...

I can honestly say the only reason I would buy new is for status and new car smell reasons only. Can I afford one? Yes. Will I buy one next? Maybe. Would I ever buy a used GM, Ford or Chrysler? Absolutely not. Reason being that I worked at a GM dealership for years and have mostly worked on domestic vehicles in my career. Very poor quality cars in the 90's and 00's with high maintenance costs because there's always something wrong/leaking, although they are getting better. New car warranties are key for domestic vehicles in my opinion.

My last purchase 3 years ago was a 2005 Toyota 4 Runner with 90k miles for $14,500. To some of you this may sound like a crazy price for the mileage, but I can assure you it was a little below market value. This car will last easily until 200k with basic maintenance. My last was a Toyota Tacoma that I totaled at 165k miles. My insurance company gave me $8500 for this totaled 11 year old truck because of Toyota's crazy awesome resale value. Both of these vehicles still looked and drove new with over 100k miles.

This is just my opinion and experience, not trying to debate foreign vs. domestic!

Someone in here said "Rent everything you can"

Worst.

Advice.

Ever.

When I moved to town, I rented a one-bedroom duplex. $300/month. Small kitchen, moderate living room, small bedroom, and a basement that got water every time we got a 2" rain.

Stayed there for three years. $300*12*3=$10,800 I will NEVER see again.

Because of where I live, I was able to buy a two bedroom house, with a nice living room, similar-sized kitchen, and full USABLE basement, effectively doubling or tripling my living space...and my mortgage payment at the time was TWO DOLLARS more than my rent was. Refinanced the house four years ago when interest rates dropped, and my payment dropped about $90, but I instead bumped my payment UP $10 (so I was now paying $100 extra every month).

Three years ago, I traded in my 2001 Silverado, after spending over $3,000 in 16 months on repairs. Picked up another $15,000 in debt, but the current truck was 5 years newer with 110,000 miles less. Because of some unexpected income, I will pay that truck off Friday, as well as about 1/4 of the debt I have remaining on my house. Rolling my truck payment over onto the house payment, I will be debt-free in a little over two years.

At that time, I will have a house worth approximately $20,000 MORE than I paid it due to improvements I have made, instead of having paid nearly $30,000 in rent with nothing to show for it. Yes, the improvements cost money, but because I did 90% of the work myself, I've got about $10,000 total invested in them.


Back on topic, my next truck will quite likely be new. I drive 30 miles one way (all rural roads) to work, and in the winter, I absolutely HAVE to have a dependable 4WD. And living in a rural area, it's hard to tell how much abuse a truck has suffered at the hands of its previous owner. There are times of the year I spend more time in my car or truck than I do my house (between my two vehicles, I usually run about 40-50k miles a year), so it's worth the extra money to me to have a vehicle that rides smooth, with comfortable seats, and avoid the squeaks, squeals, and rattles you start to pick up in 10+ year old cars.

kombat said:

Minor nitpick, but mortgage interest does not "compound."

The only time mortgage interest compounds is with a negative-amortization loan. That is, with each payment, the remaining outstanding balance actually gets BIGGER. The payment doesn't even cover the interest portion. Such loans are extremely rare.

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You are correct about the terminology. If that was my only failing in my argument, I'm doing okay.

It's not the rich who are responsible for bidding home prices up to such a level where a loan has become a requirement - it's ourselves.

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Hugely debatable. In another thread.

cosmatics said:

To address the OP, I'm def a fan of the used/not new car. I've worked on cars my entire life, I'm 32, and have bought/sold about 30 for relatives and fun/profit. That being said, about every 5 years my mom gets a new Honda. For anyone that has a job over 60k, it doesn't make sense to nickel/dime your daily driver. For about 25k now, you can get a car that will give you close to zero out of pocket costs/headaches for at least 3 years. When she is sick of this car, I'll sell it for probably 10g in 2015, and we'll do it again.

I just took the wheels off to inspect the brakes etc as car just turned 50k, and they basically look new. If you buy a used car, whether off lease, or private sale, there will always be a surprise or 2 that will come up. Now for someone like me, I'm cool with that, but my 65 year old mother, not so much. There are plenty of good lease deals out there, and there are some horrific ones. My cousin just went way over mileage on his lease, and had to pay to buy care. Obv a retarded financial move, but he also has to deal with nagging wife, 2 kids, and makes a ton of money so he doesn't care. Its all relative, if I did that on a lease car, I would kill myself in shame. To each is own.

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Lot of truth to that with a Honda - that's my daily driver, a 2002 Accord. Sunroof, leather, the works. 4 cylinder with a 5 speed. She'll turn 130,000 miles next month (Mom owned it until 2008, and only put 50,000 miles on it). The only thing I've done to that car is replaced the timing belt, plugs, new set of tires, and flushed the brake system. Still has original pads and rotors. I figure at 130,000, the car isn't even half used up yet. I'd have no problem buying another one brand-new if/when it dies.

SpentGrains said:

Simply looking at the economics of well used cars from the same perspective.

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Fair enough.

One other factor I'd like to bring up is to consider your climate. There's a big difference between a 10 year old car in Las Vegas and a 10 year old car in Toronto. Winters, with all the persistent moisture and road salt, is very unforgiving on vehicles, and has a major impact on resale value. As such, a 4-year old used vehicle in Canada might only have 5-6 useful years of life left in it (even if it IS a Toyota), whereas in Arizona, that vehicle might keep on going for another decade. This affects how much you should be willing to spend on it.

OT: If my rent was $300 a month I would never move, apples to oranges I know.

The only good thing out here is the weather, so our cars stay rust free.

Beater cars have done me well for the last 10 years. However, thanks to federal and state vehicle retirement schemes the price for beaters has been driven to artificially higher prices. These schemes are also a major contributor to people buying into cars they cannot afford. Can you blame the general public for this behavior if their own government not only condones it but encourages it?

SpentGrains said:

OT: If my rent was $300 a month I would never move, apples to oranges I know.

The only good thing out here is the weather, so our cars stay rust free.

Beater cars have done me well for the last 10 years. However, thanks to federal and state vehicle retirement schemes the price for beaters has been driven to artificially higher prices. These schemes are also a major contributor to people buying into cars they cannot afford. Can you blame the general public for this behavior if their own government not only condones it but encourages it?

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Nah. Try apples to bowling balls. At the time I started looking for a house, a college buddy of mine was also searcing. Me in Northwest Iowa, him in Minneapolis. He'd email me a listing of a $150,000 house in the city, and I would find a comparable house (on a larger lot) here for $35-$40,000.

I always get a well researched used vehicle when the situation calls for it. A car to me is a tool. Nothing more. I go into the situation with the regard that this depreciating asset must simply get me and (now) my family safely from point a to b. The best "deals" I ever made on cars were the two that were very lightly used, and one very old celica. The first, a 20k mile 1997 B2200 mazda pickup that I owned for 2 years, then sold for $500 less than what I paid for it, oil changes and gas. The second, a 1300mile 2005 Mini cooper S that I sold back to the dealer for the same price I paid 8 months later due to an overseas lifestyle change (I got lucky due to crazy good economic times in South Florida..Remember South Florida guys?), and finally, the family hand me down 1983 toyota celica that simply ran perfectly until it needed a new clutch, so $200 and a couple of hours later, back on the road and ran another 20k before I stupidly sold it for $500. (I was 24 years old, and didn't know better)

I had a couple of lemons, the 1995 jetta that I paid $1500 for and only got a dozen or so commutes before it crapped out (scrapped it for $800) and my first "dream car" a 280z that had some weird electrical problems that I couldn't sort out. But the "z" came back to be a winner, after it was stolen and recovered, I got the entire engine rebuilt and a new paint job and sold it for $1000 more than what I originally paid.

Now I run a 2003 crown vic ex-police cruiser. It was the chief of hollywood police's car, so it had 30k miles on it when sold to a guy by auction who was going to turn it into a taxi. He ran out of time on converting it, and sold it to me for what he paid, $5500. I have had this car for 3 years and have essentially beat the **** out of it, putting 40k miles on it and nothing but oil changes and a belt pully for $15. The car gets 18mpg on the highway, and my daily commute to work is now 1.5 miles, so this one will last me (knock on wood) a long time.

I bought a theft recovered (but clear titled) f250 diesel quad cab for my wife and baby to ride around in. 60k miles. Again, my wife works from home, so gas mileage is not a huge issue for us.

woknblues said:

Now I run a 2003 corwn vic ex-police cruiser.

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"It's got a cop motor, a 440-cubic-inch plant. It's got cop tires, cop suspensions, cop shocks. It's a model made before catalytic converters, so it'll run good on regular gas. What do you say? Is it the new Bluesmobile or what?"

SpentGrains said:

Let's also address the economics of buying a beater at the "Buy Here Pay Here" dealers that many people buy from.

Think 3-9% is crazy for a new car? (most new cars are under 3% currently) Try 19-29% for a beater. This is how much they can charge poor schmucks that finance through them with no other means. Can't make the payments? Repo it, bring it back to the lot, and sell it again.

The other shady tactic they can use is the pre-computed interest loan, which I didn't even know existed until recently.

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It's all about risk. The higher the risk, the higher the interest rate. Would you be willing to loan a shady person money without some incentive that you'll be repaid? Probably not.

Don't get me wrong. I think these guys are slimey as hell. They are also predatory. Same goes for payday loans and check-cashing services. I guarantee they get screwed over a lot by their clientele. They are filling a niche. If a person's credit is so bad that they can't get a basic car loan, their credit is really, really bad.

Again, people do have a choice. They can walk away (no pun intended).

PistolsAtDawn said:

"It's got a cop motor, a 440-cubic-inch plant. It's got cop tires, cop suspensions, cop shocks. It's a model made before catalytic converters, so it'll run good on regular gas. What do you say? Is it the new Bluesmobile or what?"

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"We're 105 miles from Chicago, we have a full tank of gas, half pack of cigarettes, it's dark out and we're wearing sunglasses. Hit it."

Those things are friggin' sweet!

Does it have a Ford 9" rear end?

I'm starting to imagine a lot of the members here living as hermits with all this discussion on anti-rich people, anti-buy anything, and anti-government.

b-boy said:

"We're 105 miles from Chicago, we have a full tank of gas, half pack of cigarettes, it's dark out and we're wearing sunglasses. Hit it."

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My favorite movie, hands down. Did you know it took a week to rig the bluesmobile up to disintegrate outside the Cook County building after that awesome car chase?

I'd say they got their money's worth out of that Dodge though, wouldn't you?

PistolsAtDawn said:

My favorite movie, hands down. Did you know it took a week to rig the bluesmobile up to disintegrate outside the Cook County building after that awesome car chase?

I'd say they got their money's worth out of that Dodge though, wouldn't you?

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Love it. Awesome movie. Best car chase ever! I still play the soundtrack on a regular basis.

PapsD said:

Those things are friggin' sweet!

Does it have a Ford 9" rear end?

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I don't think so. I think a 3.27 rear end, unless I don't know what the hell I am talking about, and that happens a lot.

woknblues said:

I don't think so. I think a 3.27 rear end, unless I don't know what the hell I am talking about, and that happens a lot.

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Should be a Ford 8.8" rear. 3.27 is the gear ratio.

Drive a paid for beater to and from work. Rent a car for trips. That way you have the best of both worlds. No car payment and cheap insurance with the beater and a brand new car every time you travel. If the beater breaks down, buy another. If the rental breaks down on the trip, they come out and get it and give you another one.

Win!

BTW, I have two paid off cars, both Toyotas, 2002 and a 2005. One has 250k miles and the other 180k. If I would have had a car payment back when I bought my first house, I would never have been able to afford it. I made 50K buying and selling that house and did the same for the next three that I lived in. In my case, and IMO most cases, carrying a car payment is not a wise move.