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Back Seat Driver: Seven-year car loans smell of huckterism

One of my father’s favorite expressions was ‘Nothing in this world is free.’

Wise words that reflect proverbial wisdom going back centuries. And words we love to forget.

Take the recent development of automakers offering car loans spread over seven years or longer. Yes, the payments are lower but as James Healey points out in USA Today, vehicles lose half their value in three years and trading one in at that time on a seven-year loan means significant debt is still outstanding.

That means people will either hold off on buying new cars or take on more debt.

Option 1 is not good for future sales and Option 2 just adds more debt onto consumers already saddled with high levels of credit card and mortgage debt.

I mean, help me out here. Are we not in the middle of a financial meltdown due in large part to “sub-prime mortgages” going belly up? Those are the house loans made to folks who were not eligible to take on the financial responsibility they signed up for.

But they did not buy the mortgages in a vacuum. They were sold the mortgages by people who in many cases knew the loans could go bad. Indeed, many of the loans were structured to take advantage of ill-informed people who signed up for low initial payments only to be hit be massive increases a few years down the road.

There is another word for this type of seling: hucksterism. And huckstering is a fine American tradition. Indeed, some of the funniest passages in “Huckleberry Finn” describe the shenanigans of two hilarious hucksters – the duke and the king - who try to take advantage of country folk by pretending to be European royalty.

And it seems to me that with seven-year car loans we have yet another example of hucksterism - in this case, of presenting debt as affordable and pain free.

So long as you don’t look at it too closely and the implications down the road.

- Peter C. T. Elsworth

Posted by Peter C. T. Elsworth  at 11:46 AM to commentary | Permalink | Comments 0

GM's strides not enough

Despite a historic new labor agreement, a garage full of new products and $9 billion in cost-cutting over the last two years, General Motors' release of its worst-ever annual financial results Tuesday shows that its North America division is still struggling to post the profits that Wall Street expects, according to The Detroit Free Press.

GM Chief Financial Officer Fritz Henderson acknowledged "there are still a number of near-term challenges," but overall he seemed positive about the progress GM has been making.

Posted by Peter C. T. Elsworth  at 11:43 AM to GM | Permalink | Comments 0