Monday, December 31, 2007

I see stupid people

Not content with overspending on housing, Americans are hell bent on overspending on cars as well. This article confirms what I have thought for a long time. All those shiny new BMWs, Hummers and Escalades out there are driven by broke - and very stupid - people.

When Jennifer and Bobby Post traded in their 2001 Chevy Suburban last year for a shiny new Ford F-350 turbo diesel with an extended cab, it seemed like a great deal. Even though they still owed $9,500 on their SUV after the trade-in value, they didn't have to put a penny down.The dealership, near the Posts' home in Victorville, made it easy; it just added the old debt to the price of the new truck and gave the couple a seven-year, $44,276 loan.
If you've ever been in Victorville, you wouldn't be surprised. WhiteTrashville would be a very appropriate name. Hey ma lookey here, we can get one o' dem shiny new F-350s with nothing down. And WTF does anyone need an F-350 for? Unless you're towing some serious shit - like 15,000 lbs - you do not need that much truck. Seriously people, what the hell is wrong with you? I cannot possibly fathom taking out a loan for $44K on a car. But even if I were on some really trippy drugs and did that, I would still know that a 7 year car loan is suicidal as you are upside down pretty much the entire length of the loan.

"I didn't realize how much debt was in it," said Jennifer Post, who has since moved with her family to Iowa. Now, she'd like to get rid of the truck but can't, because there's so much debt that she'd literally have to pay someone to take it off her hands.

What? Didn't realize how much debt was in it? Hey Jenny, did you graduate from 4th grade? Since that is the level of arithmetic needed to figure out this stuff. And doesn't this sound familiar to everyone? As in "I didn't realize my $800K mortgage would cost me $5000 a month, nobody told me". I smell a federal government bailout coming for these poor, poor "victims".

And no Jenny is not the only complete moron out there. Unfortunately the majority of her countrymen and women are in the same boat.
At the same time, the amount of money drivers owe on their cars is soaring. In October, the average amount financed hit $30,738, up $3,500 in just a year and nearly 40% in the last decade, according to the Fed. More troubling, today's average car owner owes $4,221 more than the vehicle is worth at the time it's sold -- up from $3,529 in 2002, according to industry analyst Edmunds.
I encountered this when buying my last used car. I'd see a car with an asking price of $18K. I'd offer $12K which was the true value. Seller would come back and say he has to get $18K since that is what he owes. My reply was of course, I don't give a fuck what you owe, your car is worth $12K. The car I ended up buying was from a dealer. Asking price was $17K. After a week of negotiating by email I bought it for $11K and had them do about $450 worth of repairs that my mechanic found during the inspection. The dealer probably paid $8K at auction so everyone was happy in the end I suppose. Well everyone except the doofus who owed $20K on it. I don't know exactly what he owed, but I do know the previous owner defaulted on the loan. One man's idiocy is another man's gain.

I got a great deal on financing too. $0 a month with 100% down. I did this weird thing where I bough something with cash and didn't go further into debt. I am a horrible American, I know. What I should have done was take out a $50K loan and buy the 2007 version of the car with all the options, including the 19" $3000 wheels. Gotta impress those neighbors you know. According to CNBC I would be a good American as I would be helping the economy. But I didn't. I acted responsibly, lived within my means. And according to Larry Kudlow and Jorge W. Arbusto, I believe I allowed the terrorists to win.

The Larry Kudlows of the world along with every talking head on CNBC never mentions this stuff. They just gibber jabber about consumer spending. Oh how wonderful, consumer spending was up 0.5% last month. Sure it was up 0.5%, but it was all due to taking on extra debt. An economy cannot run on this model. You cannot just keep taking on more and more debt to buy more and more things you don't need. At some point that debt needs to be paid back.

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