[arete]

November 25 - Dow Jones (Christine Richard): “Large cash-back payments and other incentives have been driving auto sales in the U.S. in recent years, but besides shifting cars out of the showrooms, these deals are also creating riskier auto loans. That’s because incentives aren’t just being used to discount the price of vehicles. Often, they provide a way to bail customers out of old auto loans, freeing them up to finance new purchases. ‘Dealers are very creative,’ said Bob Kurilko, vice president of marketing at Edmunds.com, which provides research and information on buying vehicles. ‘They do what they have to do to get the deal done.’ Sometimes that means giving a hand to buyers who owe more on their current auto loan than the auto’s trade-in value - otherwise known as being ‘underwater’ on a loan. It’s a surprisingly common problem. According to the latest data from Edmunds, during August, 29% of all trade-ins in the U.S. were underwater, with the average shortfall between the loan amount and the trade-in value standing at $3,700. That’s up from August 2002, when 26% of trade-ins were underwater by an average of $3,280… In California, Texas and Alabama, 40% of all trade-ins were underwater in August. In California, the average shortfall on trade-ins was $4,700, said Kurilko.”

So I would think that many new car owners are driving off the lot with increasing debt on a faster depreciating set of wheels. What happens when they go underwater for the third time? Class?

Richard W.

[arete]

FYI

Comments and opinions welcome.

Richard W.

[sarcasm]

October saw a total of 333,429 empty outbound containers, a new record and 56% of the month’s total inbound containers

[imawit]

Class?

TEACHER !! There won't be a 3rd time. Cars are going to get tooooo expensive with the reflating inflation.

Gotta take a break, ran out of popcorn. Anybody watching the worldwide currency-gold play through ?

Gonna take a break. I'll be back with my popcorn. Good to have you back. You are the prime chat catalyst. Kinda like jalapeno hidden under the pepperoni.

[Axenolith]

What happens when they go underwater for the third time? Class?

Why, thats easy! Declare bankruptcy and go for a 4th on a subprime...

[razorback-bert]

these deals are also creating riskier auto loans

As I have posted before, a friend of mine has been in the used cars business for over twenty years and made a very good living in it. Now, he tells me, he is getting out, because the big multi-dealers are opening(with different names) lots to sell their upside down fleece deals and are competing with him with advantages in size, financing (sub prime [18%+] and dealer recourse) and access to cars that he doesn't have.