Overdrive: How America's Amazing Car Recovery Explains the U.S. Economy

[marmar]

from The Atlantic:


Overdrive: How America's Amazing Car Recovery Explains the U.S. Economy
What does it mean that one of the country's most iconic and fast-growing industries doesn't need American workers to work?

DEREK THOMPSONSEP 6 2013, 9:58 AM ET


There was a time, not so long ago, when cars supposedly personified the American character. Our aggression, our style, our rugged independence. In the last 30 years, the automobile has faded slightly in the American imagination, but today the car industry does, in fact, explain the American economy.

It is a surprisingly durable, fantastically productive juggernaut, whose success relies on the old, the rich, and foreign trade -- and less on American workers.

***

To begin this story, let's appreciate the big picture. The car economy, a small but mighty sliver of American industry, has been on a roll. Since 2009, car production has nearly doubled, accounting for between 15 and 20 percent of our whole recovery.



.......(snip).......

Young vs. old might not be the most important binary for car companies. That would be rich vs. poor. The U.S. is beginning to look like the aristocratic auto market we're used to seeing in Europe, McAlinden said, where the top 25 percent buys most of the new cars and the bottom 75 percent only buys old and used. "Seventy-five percent of households here are relying on used cars, thinking 'I hope that rich guy is done,'" he said.

Plutocracy in the car market isn't unique, but rather illustrative. There is “no such animal as the U.S. consumer,” three Citigroup analysts concluded in the heart of the real estate boom in 2005. Instead, we have the rich and the rest. As Don Peck wrote in his summer 2011 cover story for The Atlantic, for many industries, "the rest" just don't matter. ......................(more)

The complete piece is at: http://www.theatlantic.com/business/archive/2013/09/overdrive-how-americas-amazing-car-recovery-explains-the-us-economy/279413/

[leveymg]

1. 3 factors: much easier credit; pent-up demand and worn-out cars; the China market

Might as well buy it, now, while you still can. And, if the economy crashes again, there's cash for clear titles.

[JayhawkSD]

2. You, and everyone else, forgot rising interest rates.

The recent boom in car sales has less to do with any surge in prosperity than it does with the talk of the Fed "tapering" and a resulting increase in interest rates. Cars will see a rise in interest rates, and an increase in the size of car payments, and buyers are moving to beat that increase.

[leveymg]

3. I was going to add low interest rates, but that's been the case for years. Freer lending is driving

this as QE runs through the system and the banks and financial intermediaries are becoming freer in their lending with the expectation that rates will rise and demand will taper off. They're grabbing the end of this mini-bubble of demand.

[FreeJoe]

4. 0.9%

Just bought a new minivan. They gave us a 0.9% interest rate. he odd thing is that they gave us a $500 discount for financing it instead of paying cash.

[JayhawkSD]

5. Not odd at all

Banks have plenty of money to lend. Problem is finding people to lend it to. They have a problem in that qualifications basically dictate that the only people who qualify for loans are people with so much money that they don't need to borrow. The lender pays the dealer a kickback for signing up a loan. Illegal, of course, but they find ways around it.

My wife and I qualify, for instance, because we have 65% equity in our home, own both our cars outright, and have no credit card debt. Banks want to throw money at us, but we're where we are because we don't want to borrow.

Anyway, buy that minivan a year from now and that 0.9% rate will be more like 8.9% and the payment will be $150 per month higher. That's why sales are booming right now. It's certainly not because we have so many more people with jobs or because wages have soared.

[FreeJoe]

6. Still seems odd

Is it really illegal? The car salesman told me flat out that the dealership gets $500 for originating the loan. If I paid cash, he'd have to add that back into the price. I asked him what the minimum loan amount was and how soon I could pay it off. He said $10,000 and that I'd have to wait 90 days to make sure that they got credit for it.

Even if you assume that I just made the minimum payment for 3 years on a $10,000 0.9% loan, that works out to a grand total of $139.36. Given the work involved in creating and completing an auto loan plus the fact that their finance unit has to pay something for borrowing the money, it just doesn't seem worth it.

Oh well, I'm a cheap bastard, so I took the deal. I'll make two regular payments and then pay off the balance with the third payment. The total interest cost to me will be about $25. Throw in the hassle of setting up the loan in my accounting system, making the payments, making sure that I get the title, and it is still worth the savings, but it sure seems like a hassle for which no one is really benefiting.

BTW, my wife an I had identical credit scores. The salesman said that was the first time he'd ever seen that and he'd been doing this for a very long time. Our credit is fairly simple because, aside from this silly car loan, the only credit we use is a set of credit cards that are automatically paid off every month.

[JayhawkSD]

7. So do my wife and I

We can't have anything but identical credit scores, because California is a common property state. From a financial standpoint, my wife and I are a single entity.

Even without the commom property law, if the credit card account is in both names, property is held jointly and you have a joint bank account, it would very difficult to have different credit scores. Even with separate bank accounts your credit scores would likely be the same. Your salesman must be a real rookie, because married couples with different credit scores are the exception rather than the rule, unless you are recently married. Maybe he's only sold to newlyweds.

Our credit is also pretty simple. Like you, we have one credit card account, the balance of which is paid in full monthly. We do have a mortgage on the house, for about 30% of its current value. (The value of it went up, the mortgage stayed the same.) We own two cars, both fully paid for because we paid cash (from savings) for them when we bought them.

Banks are not stupid, they are merely desperate. For them to pay $500 for a car loan is not a bad deal, because most people will just keep the loan and pay it off on schedule. Once in a while someone will pay it off like you do, but seldom enough that overall they win.

Yes, it is illegal, by federal laws, so the salesman is pretty stupid to tell you he's getting the kickback in that direct a form. There are ways to disguise it, but...

[liberal_at_heart]

8. When we bought our van in 2008 we paid in cash. They tried to sell us on financing. We would

have none of it. We have become a cash family. It is too hard to understand financing these days. Banks don't really want us to understand. The more we don't understand the easier it is for us to get into trouble and when we get into trouble that's when the banks really clean up.

[bhikkhu]

9. All good news, but I wish I could say I liked the new cars

The styles are like bathtubs, and the electronics are getting out of control. I got better mileage back in 89 with my Honda CRX than just about anything on the road now, and it was easy and cheap to work on.

Being in the business I get to drive and work on plenty of the new stuff. Mostly it just makes me wish they still made a simple old pickup, like to 70's Datsuns, without ABS, ESC, GPS, OBDII, two dozen airbags, rearview cameras, bluetooth, etc...maybe I'm just old, but I like the idea of a vehicle that's simple and affordable by design.

[marmar]

10. The totality of this story is hardly good news.

[bhikkhu]

11. People with money to spare buy new cars

people with less money, or who are more careful with it, buy cars 3 or 4 years old. People who just need good transportation buy cars older than that. What else is new? The story is more people are buying new cars.

I've never bought a new car myself. I have an 18 year old hand-me-down car (140k miles) from my mom when she replaced hers ten years ago and a 21 year old car (230k miles) I bought for $1100. That's not bad news, its just good sense. The best thing about cars about that old is how well they last - both are in perfect mechanical shape and very reliable. It used to be 100k and a car was going downhill fast, but plenty of cars in the 10-20 years old range are still in great shape now and engines and transmissions last much longer than they used to. I still ride my bike most of the time anyway.