Recently by Eric Peters: Detroit's Next Big Problem… AndJapan's,Too
If people could not or did not finance new cars, new car sales would probably drop by 75 percent and two-thirds of the currently-in-business car companies would probably be out of business.
What does this tell us?
First, the current market is an artificially created and very abnormal one like Frankensteins monster and just as destructive. It is not a coincidence that the explosion in brands and the geometric increase in the number of individual models sold by each brand coincides precisely with the rise in easy credit made possible by no-cost (or next-to-no-cost) money (i.e., interest) and loans stretched out over 5-6 years.
It was not all that long ago that the typical new car loan was just three or four years.
But perhaps the most insidious aspect of the flim-flam is the way it hides the cost of government mandates and regulations from the eyes (and thoughts) of the typical American making them seem affordable.
Or at least, we dont notice how unaffordable theyve made new cars.
Its really quite brilliant, in a Dr. Evil kind of way like withholding. Many workers never actually have to send the government a check, because the moneys already been taken before they ever even get to touch it. Similarly, long-range financing and low interest on that long-range financing makes the bloated MSRP sticker price of the typical new car seem more manageable because the payments are broken down into monthly chunks. It is no accident that car salesmen are trained to get the buyer to focus on the monthly payment not the actual sticker price of the car itself. They will ask, How much can you afford to pay per month knowing that, say, $400 goes down a lot easier than $40,000.
Since most Americans are innumerate as well as impulsive and thoroughly conditioned Consumerists, its no hard sell to get them to sign up.
And that is what makes possible the shoving-under-the-proverbial-rug of things like the federal passive restraint mandate that gave us the now-common 4-6 (or more) air bags that every new car has and which add according to most estimates about $2,000 to the bottom like cost of each and every one of those new cars. Ditto the Feds clean diesel mandates that have jacked up the sticker prices of vehicles with otherwise-efficient diesel engines by 20 percent. There is a literal laundry list of such mandates, ranging from the minor to the major but each costs something and those costs are all folded into the price of the car.
Now, if it werent for extended-range payment plans, the cost of all this rigmarole would be much more obvious and offensive to consumers. More to the point, it would be obviously unaffordable.
Instead of that $400 per month payment on the $40,000 car spread out over 5-6 years to ease the financial burden in the perception of the well-marinated Consumerist said Consumerist would be staring at $600 or maybe $800 a month for the same vehicle, scrunched down into a three or four-year payment plan.
And that, in turn, would make it much harder for the government to continue blithely imposing its mandates costs onto the backs of consumers, because consumers would simply stop buying cars and the wheels of industry would cease to turn.
And we cant have that.
Thus, the pyramid scam goes on. The regulatory burdens increase and with them, the cost of the end product. Finance greases the skids by making it all seem affordable when its really not and the Dumbos keep signing up for payment-in-perpetuity and wonder why theyre perpetually broke.
The tragedy is were still in control and could throw the proverbial switch overnight and then change the real thing would come. If even 20 percent of people who currently finance new car purchases on the 5-6 year plan chose instead to buy a lower-cost used car outright, with cash money, itd impose some much-needed financial discipline not just on the car industry which supinely accepts and often loudly amens every new federal safety (and emissions) mandate proposed by non-engineer, know-nothing bloviating politicians but it would also put a crimp on this disastrous living-beyond-our-means train-wreck-in-the-making that is modern America.
Reprinted with permission from EricPetersAutos.com.