From Chapter Seven:
Leasing: The Right Horse to Ride Out of Trouble
. . . As You Shoot Negative Equity Dead
“If it flies or floats, lease it.
If it has wheels or wears red pumps, it is nothing but trouble.”
—John S. Kraft
Renowned Restorer of Primitive Automobiles
Renowned Restorer of Primitive Automobiles
"So what are the potential alternatives to depreciation, long-term financing and the Rule of 78s’ interest penalties? One alternative is paying cash. This gets you past the interest penalty portion, but it still leaves you the depreciation issue to contend with. Furthermore, I don’t know about you, but paying cash is not a viable option for most of my family, and frankly, for most everybody I know. I have a feeling we are not alone in this regard. After looking at the U.S. consumer savings rate, I suspect automobile financing of some type or other will be necessary in order to support the industry for the foreseeable future.
"Given the fact that Americans prefer to trade vehicles every 39 months, we could always go with 36 or 42-month conventional financing. This strategy avoids the interest penalties, but creates unaffordable payments. You see, even if we get 0% interest on a $20,000 car loan, when we divide the principal balance by 36 months, we arrive at a payment of $555 per month. In order for the average consumer to qualify for the loan, he would have to earn somewhere in the neighborhoodof $2,700 per month over and above their current mortgage and credit card payments.
"Additionally, in order to get 0% or some other low APR financing,
most manufacturers’ deals require consumers to forgo the rebate. This means consumers can get either the rebate or low financing but not both. You know from what you’ve read so far, that banks, dealers, and consumers utilize rebates to mollify negative equity in order to get new loans approved. In addition, you know that consumers’ negative equity now averages $4,700 per vehicle loan. Rebates are needed to cover up this negative equity.
most manufacturers’ deals require consumers to forgo the rebate. This means consumers can get either the rebate or low financing but not both. You know from what you’ve read so far, that banks, dealers, and consumers utilize rebates to mollify negative equity in order to get new loans approved. In addition, you know that consumers’ negative equity now averages $4,700 per vehicle loan. Rebates are needed to cover up this negative equity.
"Since you can’t get both the rebate and low financing together, manufacturer-sponsored low APR financing proves less and less viable for you to get—even though it is frequently used as an advertising hook..."
