How Much of Your Car Should You Finance? Zero percent.

[Jim Nickerson]

Re: How Much of Your Car Should You Finance? Zero percent.

Evidently Jeff, Jim and a few others remember Newton's Second Law from high school science (F= ma).

Here in the Arabian Gulf the locals are even more insane drivers than Jim's description of the freeways aroud Fort Worth. Large parts of the population truly believe that everything that happens to them is pre-ordained at birth according to Allah's will, and therefore it doesn't matter what they do, or how they behave behind the wheel, because it makes no difference. The single-vehicle fatal accident rate is the highest in the world, apparently.

In a recent Saudi court case the local (who caused the accident) argued that it was wrong for the expatriate that he hit to have been there in the first place, and therefore it was not his fault. He argued that it was interfering with Allah's will to have any infidels (non-Muslims) in the Land of the Two Holy Places. The court ruled in his favour.

It's because of this attitude that I drive 5700 pounds of gas-swilling, airbag-filled Toyota Land Cruiser over here. You just can't tell which direction you're going to get hit from. Good thing petrol prices are cheap.

What I thought I remembered was that Kinetic Energy = mass x velocity x velocity, i.e. velocity squared. But Wikipedia say it is 1/2 of m x v(squared). Either way speed can kill and maim and does.

[GRG55]

Re: How Much of Your Car Should You Finance? Zero percent.

Here's one that probably doesn't need much, if any, financing.

Couple of themes emerge in the article. The obvious "cheap-car-for-the-masses" resonates. Anyone who has ever been in a crowded Indian city and witnessed a young family - father, mother, child - balanced on a Bajaj scooter weaving through the traffic, can instantly see the appeal of something like this.

I wonder, however, if the comment about "Gandhian engineering" is yet another foreshadowing of a coming time of championing frugality as socially acceptable, not only in LDCs but in the developed world as well. If the popularity of the Daimler "Smartcar" in the endures beyond the novelty of its USA introduction, that may be another interesting indicator.

Four Wheels for the Masses: The $2,500 Car
By ANAND GIRIDHARADAS
Published: January 8, 2008
MUMBAI, India — What does it take to build the world’s cheapest car?
For Tata Motors of India, which will introduce its ultra-cheap car on Thursday, the better question was, what could it take out?

The company has kept its new vehicle under wraps, but interviews with suppliers and others involved in its construction reveal some of its cost-cutting engineering secrets — including a hollowed out steering-wheel shaft, a trunk with space for a briefcase and a rear-mounted engine not much more powerful than a high-end riding mower.

The upside is a car expected to retail for as little as the equivalent of $2,500, or about the price of the optional DVD player on the Lexus LX 470 sport utility vehicle...

...Even so, the “People’s Car” (a nickname, since Tata has kept the real name under wraps, too) may ultimately affect what many people drive around the world, since it is part of a broader trend among carmakers to try to build less expensive cars.

“It’s basically throwing out everything the auto industry had thought about cost structures in the past and taking out a clean sheet of paper and asking, ‘What’s possible?’” said Daryl T. Rolley, head of North American and Asian operations for Ariba, which helps supply parts to Tata, BMW, Toyota and other carmakers. “In the next five to 10 years, the whole auto industry is going to be flipped upside down.”

The French-Japanese alliance Renault-Nissan and the Indian-Japanese joint venture Maruti Suzuki are trying to figure out how to make ultra-cheap cars for India. And struggling Western automakers are looking to see where the cost-obsessed ethos of the developing world can help their bottom line. In the most recent example, Ford was expected to announce Tuesday that it would make India its manufacturing hub for low-cost cars.

Some analysts are predicting that just as the Japanese popularized kanban (just in time) and kaizen (continuous improvement), Indians could export a kind of “Gandhian engineering,” combining irreverence for conventional ways of thinking with a frugality born of scarcity. Or, as Indian auto executive Ashok K. Taneja describes the philosophy, “When I need silver, why am I investing in gold?”...

Link:
http://www.nytimes.com/2008/01/08/bu...&_r=2&ref=asia

[The Outback Oracle]

Re: How Much of Your Car Should You Finance? Zero percent.

I lived a great part of my younger life in Rural Australia. In our local community there were quite a lot of us young married folk. Your prestige ranking sort of went with the age of the car...the older the car the higher your prestige. It was a matter of who had both the technical skill and the determination to keep the damned thing on the road!! ....And the roads were pretty crook!

[GRG55]

Re: How Much of Your Car Should You Finance? Zero percent.

Oh, oh. So where do I fuel my Tata "People's Car"??? Yikes!

Reliance Industries May Shut Gas Stations in India, Times Says

By Dinakar Sethuraman
March 25 (Bloomberg) -- Reliance Industries Ltd. may shut its retail fuel stations in India because of rising crude oil prices and a lack of government subsidies, the Economic Times reported, citing a person familiar with the matter.

Reliance's retail market share of 14 percent dropped to zero after sales fell as the company raised prices and more than 5 million customers switched to buy fuels at lower prices sold by its competitors, the newspaper said.

Reliance operates about 1,400 retail stations and sells fuels at higher prices than state-owned oil companies, the newspaper said. In May 2006, the company's outlets were selling four times more fuel than stations run by state oil companies, the report said.

State oil companies sell fuels at lower prices because of government subsidies. A Reliance spokesperson declined to comment, the newspaper said.

Reliance, Royal Dutch Shell Plc and Essar Oil Ltd. are asking the government for subsidies to stem losses from selling petroleum products below cost, the report said.
http://www.bloomberg.com/apps/news?p...refer=consumer

[EJ]

Re: How Much of Your Car Should You Finance? Zero percent.

Oh, oh. So where do I fuel my Tata "People's Car"??? Yikes!

Reliance Industries May Shut Gas Stations in India, Times Says

By Dinakar Sethuraman
March 25 (Bloomberg) -- Reliance Industries Ltd. may shut its retail fuel stations in India because of rising crude oil prices and a lack of government subsidies, the Economic Times reported, citing a person familiar with the matter.

Reliance's retail market share of 14 percent dropped to zero after sales fell as the company raised prices and more than 5 million customers switched to buy fuels at lower prices sold by its competitors, the newspaper said.

Reliance operates about 1,400 retail stations and sells fuels at higher prices than state-owned oil companies, the newspaper said. In May 2006, the company's outlets were selling four times more fuel than stations run by state oil companies, the report said.

State oil companies sell fuels at lower prices because of government subsidies. A Reliance spokesperson declined to comment, the newspaper said.

Reliance, Royal Dutch Shell Plc and Essar Oil Ltd. are asking the government for subsidies to stem losses from selling petroleum products below cost, the report said.
http://www.bloomberg.com/apps/news?p...refer=consumer

In the 1970s pre-FIRE Economy US, the economy was also highly vulnerable to increases in energy prices as are the economies of primarily goods producing and exporting countries such as India and China today. The US FIRE Economy has allowed the accordion-like credit system (Martin Mayer's term from a recent interview) to expand and contract to absorb the loss of purchasing power as the price level rises and falls helping to maintain household and business cash flow. This is how the US has absorbed the more than four fold rise in oil prices from under $20 to over $90 since 2002.

As the US FIRE Economy goes into crisis and the credit accordion develops holes in the bellows, this facility of the endogenous credit system to blunt the cash flow impact of rising energy costs is rapidly becoming dysfunctional. The US economy is increasingly vulnerable to rising energy prices; cash flow of households and businesses is being squeezed on two sides by rising prices and declining access to credit with no wage inflation relief in sight.

Driving the rapid descent into recession, accounting for the stunning rate of slowing of the US economy, are two engines of demand destruction running at once, what we call the Cash/Goods Price Inflation Spiral driven by currency depreciation and the Credit/Assets Price Deflation Spiral driven by the asset price crash.

This circumstance is completely unique in history as far as we can tell from our research and by canvassing economic historians, including Dr. Steven Keen and Dr. Michael Hudson. I spell these out in detail in my commentary this week and explain what the Fed and government will eventually have to do about it; yet another heretical forecast from iTulip.

Why is the US Economy Crashing?

America's unique post credit bubble dual demand destruction spirals

Cash/Goods Price Inflation Spiral:
Negative GDP growth
Declining dollar
Rising import prices
Traded-goods cost-push inflation

Credit/Assets Price Deflation Spiral:
Asset price deflation
Declining collateral values
Credit Contraction
Non-traded goods price deflation

Both spirals feed into:
Declining household and business cash flow
Bankruptcy
Unemployment
Declining incomes

[metalman]

Re: How Much of Your Car Should You Finance? Zero percent.

In the 1970s pre-FIRE Economy US, the economy was also highly vulnerable to increases in energy prices as are the economies of primarily goods producing and exporting countries such as India and China today. The US FIRE Economy has allowed the accordion-like credit system (Martin Mayer's term from a recent interview) to expand and contract to absorb the loss of purchasing power as the price level rises and falls helping to maintain household and business cash flow. This is how the US has absorbed the more than four fold rise in oil prices from under $20 to over $90 since 2002.

As the US FIRE Economy goes into crisis and the credit accordion develops holes in the bellows, this facility of the endogenous credit system to blunt the cash flow impact of rising energy costs is rapidly becoming dysfunctional. The US economy is increasingly vulnerable to rising energy prices; cash flow of households and businesses is being squeezed on two sides by rising prices and declining access to credit with no wage inflation relief in sight.

Driving the rapid descent into recession, accounting for the stunning rate of slowing of the US economy, are two engines of demand destruction running at once, what we call the Cash/Goods Price Inflation Spiral driven by currency depreciation and the Credit/Assets Price Deflation Spiral driven by the asset price crash.

This circumstance is completely unique in history as far as we can tell from our research and by canvassing economic historians, including Dr. Steven Keen and Dr. Michael Hudson. I spell these out in detail in my commentary this week and explain what the Fed and government will eventually have to do about it; yet another heretical forecast from iTulip.

Why is the US Economy Crashing?

America's unique post credit bubble dual demand destruction spirals

Cash/Goods Price Inflation Spiral:
Negative GDP growth
Declining dollar
Rising import prices
Traded-goods cost-push inflation

Credit/Assets Price Deflation Spiral:
Asset price deflation
Declining collateral values
Credit Contraction
Non-traded goods price deflation

Both spirals feed into:
Declining household and business cash flow
Bankruptcy
Unemployment
Declining incomes

let me guess... let wage inflation rip? no friggin way. we'll see gov. schwarzenegger driving a smart car to flower arranging class first.

[obstruksion]

Re: How Much of Your Car Should You Finance? Zero percent.

or buy a '74 Buick Century for $100. (that was the only car I ever owned, bought in 93 in Houston).

Other than that, I've lived in cities with good public transit. Public transit (and the implied lack of car) is not a great chic magnet, but it sure helps build up the savings.

Public transit plus Zipcar! The combo saves me $5-600 a month in Boston...

[mfyahya]

Re: How Much of Your Car Should You Finance? Zero percent.

I live in Dubai where inflation is over 10% according to the government. I can get a car loan for an effective (fixed) rate of 3.5% for 60 months thanks to the US $ peg.

I can pay up to $15000 in cash for a 2-3 year old car. Isn't it a good idea to make use of the negative 6.5% real interest rate and pay the minimum possible down payment, and buy gold with the leftover cash? Especially as I would resist the temptation to buy a car pricier than what I would pay for in cash anyways.

[metalman]

Re: How Much of Your Car Should You Finance? Zero percent.

I live in Dubai where inflation is over 10% according to the government. I can get a car loan for an effective (fixed) rate of 3.5% for 60 months thanks to the US $ peg.

I can pay up to $15000 in cash for a 2-3 year old car. Isn't it a good idea to make use of the negative 6.5% real interest rate and pay the minimum possible down payment, and buy gold with the leftover cash? Especially as I would resist the temptation to buy a car pricier than what I would pay for in cash anyways.

"Isn't it a good idea to make use of the negative 6.5% real interest rate and pay the minimum possible down payment, and buy gold with the leftover cash?"

as we say state side, hell yes! my take is this thread is aimed at folks in the usa. here we have 5% phony gov't reported inflation, 12% actual inflation, and a car loan is 6% or so. even here it makes sense as long as the interest rate is fixed. with your gov't subsidizing credit to the tune of 3.5%... wow! go for it.

my two cents. and two cents ain't much these says...

[seanm123]

Re: How Much of Your Car Should You Finance? Zero percent.

EJ, I just took deliver on a new car on Friday!

Next thing you know you will be telling us that it is not ok to buy Jewerly, even with cash!

[santafe2]

Re: How Much of Your Car Should You Finance? Zero percent.

Giving up the car culture is similar to giving up smoking. I speak from experience as I grew up in LA and 'driving' was a huge part of our life. Driving 150-200 miles a day in traffic was not uncommon. A great car was the reward for dealing with this insult.

Since moving to Santa Fe over 12 years ago we've changed. A long commute is 5 miles. Our family and most of our friends live within a 3 mile radius. My office is about 1.5 miles from our house. I could walk but I ride my bike. When I want to use a car, I borrow one from one of my kids unless she's home from college, then I ride my bike everywhere.

Again from experience I would offer this; if you can organize your life within a smaller mobile energy radius, you'll be happier than you are today. The price of gasoline is an abstract construct for a bike rider. We think in terms of the $200 a year it costs for tires, tubes and a tune-up.

The auto financing argument is a quick retort but it begs a much deeper question...is it ok for a moral human being to drive a car that uses fossil fuel? We're fairly sure of the 20MM barrel a day consequence in the US so do we have a responsibility to organize our lives so we are less of a problem?

[jimmygu3]

Re: How Much of Your Car Should You Finance? Zero percent.

Giving up the car culture is similar to giving up smoking. I speak from experience as I grew up in LA and 'driving' was a huge part of our life. Driving 150-200 miles a day in traffic was not uncommon. A great car was the reward for dealing with this insult.

Since moving to Santa Fe over 12 years ago we've changed. A long commute is 5 miles. Our family and most of our friends live within a 3 mile radius. My office is about 1.5 miles from our house. I could walk but I ride my bike. When I want to use a car, I borrow one from one of my kids unless she's home from college, then I ride my bike everywhere.

Again from experience I would offer this; if you can organize your life within a smaller mobile energy radius, you'll be happier than you are today. The price of gasoline is an abstract construct for a bike rider. We think in terms of the $200 a year it costs for tires, tubes and a tune-up.

The auto financing argument is a quick retort but it begs a much deeper question...is it ok for a moral human being to drive a car that uses fossil fuel? We're fairly sure of the 20MM barrel a day consequence in the US so do we have a responsibility to organize our lives so we are less of a problem?

Good for you, santafe2! I also commute to work by bicycle and most of the places my family needs to go are within a 3 mile radius here in Atlanta. I believe Atlanta still has the longest commutes in the nation, due to our sprawling suburbs and overcrowded highways. Many people I work with spend 3 hours a day in their cars. Even on days I have to drive my car, my 3 mile commute is a predictable 15 minutes, just like my bike ride.

[zenith191]

Re: How Much of Your Car Should You Finance? Zero percent.

I thought I'd play devil's advocate here and throw this scenario out.

So you've saved up for years to buy that car. You've got enough and you go buy a modest used car.

A couple of years later you are in desperate need of cash with no lines of credit available to you. The car has sunk in value due to greater than normal asset depreciation but at least you can take out a secured loan for some amount of money on it. Unfortunately interest rates are higher now than they were when you could have got a loan on it.

Perhaps it would have been better to lease it? You would have enjoyed downside protection from excessive depreciation. Remember the residual value used in the lease calculation is backwards looking not forward. You would have also gotten a lower interest rate than you can now. And who knows, at the end of the lease you may have been able to negotiate to buy at wholesale from the leasing company rather than the contracted end of lease buy price due to the currently distressed auto market.

Me personally, I prefer to keep my gun powder dry.

[gobears]

Re: How Much of Your Car Should You Finance? Zero percent.

I have been thinking the same about the advantages of leasing. Suppose inflation continues to takeoff. You have financed at much lower interest rates AND have the option to buyout the lease and get the car for much cheaper than buying the exact same used car on the open market at the end of the lease.

On the other hand, if massive deflation sets in, you are at least not stuck with a severely deflating asset. You can just let the lease run out and buy back a similar car at a much lower cost.

If you are pretty sure prices are going to be volatile, but don't know which direction they will go, a lease seems to offload the risk to the lease originator.

[c1ue]

Re: How Much of Your Car Should You Finance? Zero percent.

You guys are thinking too hard.

Keep in mind that cars are depreciating assets.

Sure, you can play lots of games to reduce your absolute loss, but you're still going to lose.

The only way to benefit from buying/leasing a depreciating asset is if that asset gains you income. Cars don't of themselves do that - certainly no more than the car you already have.

Your best course is to spend as little money as you can - including up-front, interest and in maintenance costs.

Don't forget that for a leased vehicle, you are paying a premium for zero ownership; not only do you end up having to pay up for your rental (a la negative amortization mortgage), you end up paying sales taxes and transfer fees twice. Excuse me, use tax the first time and sales tax the second.

Too much effort for too little gain.