mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Thursday, May 22, 2008

Where did all the expensive German cars come from?

When I was in bumblefuck, PA last week, we made a late-night convenience-store snack run. On the ride there, one of the guys commented that when he grew up in rural upstate NY as a kid, he would see ads for BMW's and Mercedes cars and wonder why they paid to run ads for them, because he would never see them around. Why were they advertising cars nobody bought?

He had a point. I'm a few years younger than him, and grew up in Somerset County, NJ, which in the past has made the top-10 richest counties in the country (though not for the part I grew up in). I can't say I never saw a beemer or a benz as a kid, but they were definitely rarer than they are today - it was a "oh look, a mercedes" moment, something out of the ordinary.

One of the reasons that was brought up was that both carmakers have moved downmarket, and it's true - heck, both bwm and mercedes have introduced hatchbacks in the last 10 years, although neither sold real well. But the price has come down, and they have smaller cheaper models.

I think there is another reason, though - long-term auto financing. It wasn't that long ago that most car loans were 3 or 4 years long, way too short for the average American to spread the cost of a luxury car over. Now, though, 6 year or longer loans have become not only available, but common. I wrote a post on this last year, and the article I had read included stats that said the average loan was 71 months - nearly 6 years. Part of the reason people are probably taking on such big loans is because they are buying more car, and need more time to pay it off.

Leasing is probably another reason for the prevalence of luxury cars - it's another way to get people into vehicles that they otherwise couldn't afford by lowering the monthly payments - but also causing the person to always have those payments, since they never actually own the car.

Is this good or bad? You could argue it's good - people are getting to own (or lease) the cars of their dreams, to get luxuries and enjoyment they otherwise wouldn't. But from an investment/net worth standpoint, it's probably not a great thing - cars are depreciating assets, and spending more money on them is not a way to build net worth. Having a car payment means much less flexibility in budgeting, which is bad if you get laid off or have a sudden unplanned expense like medical bills. And spreading payments over a long period of time means a much more chance of being upside down on your car - owing more than the car is worth. That can suck if you are in an accident where it's totaled (and didn't pay for GAP insurance). It can also be bad if you find yourself needing to change vehicles because, say, you drive a Miata and your wife is having triplets.

MadAnthony, for the record, is not one of those people with a fancy german car. I drives a 2006 Ford Ranger, which is paid off. I often feels self-conscious, because I feel like everyone else on the road has a cooler/better vehicle than I do. But they also probably have giant loans, which I don't.


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