Comments on: Free money? Sure, what could be wrong with that?

By: tegwar

tegwar — Thu, 20 Nov 2008 17:18:55 +0000

How many can afford to not finance a car purchase (new or used)? What we're talking about is a lump sum transaction of nearly $10,000 to $20,000 (and on up). That's a lot to set aside - on the order of at least $250/month for 3+ yrs, i.e. not that different from the car payment (and in the meantime, repair bills on the aging car may eat at the wallet).
Personally, the idea of a big car loan boggles my mind: it's a lot of money per month for something someone else can destroy real quick with no guarantee that the insurance payout will make you whole (since they reimburse on 'blue book value', not what you owe).

By: bryanfromhouston

bryanfromhouston — Wed, 19 Nov 2008 22:40:22 +0000

Saved by Zero is Toyota's way of nailing the coffin shut on the Big 3. Sadly, there is nothing that will stop this trajectory of GM losing market share. Just like a plane that stalls on take-off...pull out your parachute and jump away from the plane. It can't be recovered! The fact is that Toyota, Honda, Nissan, and Mazda are all reducing or shutting down production lines. See here: http://www.newsweek.com/id/162933 Certainly, this is no fun. People will lose jobs, homes, etc...but it will not change the reality that I can't afford a new car at the moment at any price, nor are there enough buyers to provide the demand to keep those folks employed. Just bailing out auto companies to pay workers to produce cars that nobody is able to afford or can get credit to buy is foolish. What we are facing right now is deleveraging. It is what happens when Wall Street, the Big 3, and the housing industry gets drunk and no one takes away the punch bowl. We have way too much capacity for production, entirely too much supply and not nearly enough demand unless we begin exporting to India and China at prices that they can afford.
-
The supply / demand curve in the present economy is out of whack, and there is no easy or non-painful way to put it back in balance. God knows, I wish there was, but it is time to pay the Piper. We can't keep robbing Peter to pay Paul. The Saved by Zero campaign is just further evidence of the coming restructuring.

By: harryfox

harryfox — Wed, 19 Nov 2008 20:10:35 +0000

Two points about zero-percent or other low-rate car financing:

One, its usually offered as an either/or: You can have low-rate financing, or you can have a cash rebate. In one case the manufacturer explicitly cuts the purchase price with a rebate, in another case it uses some cash to buy down the interest rate on a car loan. In either case its an admission that the list price for the car is far above the market price, and they need some incentives to move the product.

Two, only a minority of buyers will actually qualify for the low-rate loans. When I was buying a (used) car at my local Ford dealer six months ago they were offering 1.9% financing. But the finance guy admitted that about the only people who qualified for that rate were those who could afford to pay cash for the car anyway.

By: Barbara Kiviat

Barbara Kiviat — Wed, 19 Nov 2008 19:22:32 +0000

@rrsafety: True enough, though 0% financing often means the term of the loan is shorter—and monthly payments are higher. Does 0% financing entice people to add more to their monthly budgets than they should be doing at a time when folks all over the place are losing their jobs? I don't have any data on that, but I'll put it out there as plausible conjecture. These deals also often require buyers to give up cash-back rebates, which can be more meaningful, dollar-wise, in the long run. - The other thing I don't like about 0% financing is that it encourages people to finance in the first place. I know I'm probably old-fashioned and naive, not to mention unlike 99% of Americans in that I don't have to have a car to get to work or the grocery store, but isn't this the point in the credit cycle where we're supposed to all look at each other and start saying things like, "You know, whenever my parents bought a car, they paid with cash. They sort of just saved up over the years and then went shopping at the used-car lot. Hm." But maybe I'm, as you say, insane.

By: tegwar

tegwar — Wed, 19 Nov 2008 18:34:38 +0000

what (s)he said. Aside from being annoyed, I thought it notable that Toyota (and Nissan now too, I think) is running this ad / deal but GM and company aren't. That is: Toyota is, GM can't. I take it as a measure of relative strength.

By: rrsafety

rrsafety — Wed, 19 Nov 2008 18:30:06 +0000

0% and other ultra-low rates are NOT the problem.

Low INTRODUCTORY rates are a problem.
No interest loans with a high interest reset a few years later are problems.

But the idea that 0% FIXED loans are worse for consumers than 8% fixed loans is simply insane.