Underwater Car Loan BailOut ?

Got your attention didn’t I ?

You all do realize that anyone who buys a new car is UNDERWATER the minute you sign the papers and drive off the lot ? That you get further and further underwater every single day ? Maybe thats why so few are  buying new cars ?  We havent instituted a bailout for their underwater car loans.

78 thoughts on “Underwater Car Loan BailOut ?

  1. Don’t you wonder why after so many spoke out against the Detroit bail out George Bush did it anyway?
    I wonder if it was because a company named Cerberus; Chaired by old Bush insider and former Secretary of the Treasury, John W. Snow owns 80.1% of Chrysler. That in it self may stink a little until you dig deeper and find that Global Investments, Chaired by another Bush crony former Vise President Dan Quayle and led by Cerberus management purchased 51% of GMAC finance in late 2006 at which point it begins to stink a lot. Just who is really getting bailed out? Quayle is also on the board of IAP, and their bread and butter comes from, you guessed it, Gov Contracts. By the way, look the word Cerberus up and you will find it is the name from Greek mythology of a 3 headed dog that guarded the underworld. Sweet!
    As far as I can tell Ford Motor who opted out of the bail out doesn’t have a dog in the hunt with regard to these Bush connected investment groups which makes me want to hold my nose even harder than the last time I had to vote for President Bush.
    Are you asking yourselves some hard questions right now? I am. I learned of this from Michael Savage on one of the talk radio shows that may soon be silenced by the so called “Fairness Doctrine”. I did some research myself as well, links provided below.
    J. J. Smith

    Comment by J. J. Smith Jr. -

  2. instead of giving the big 3 bail out money, why not take some of the billions we give away
    in foreign aid and buy cars and trucks from them and send them as part of aid. kill two birds with
    one stone.

    Comment by robert rothbard -

  3. Instead of the government having a 700 billion dollar bailout plan trying to descide which corporations will survive and which will fail, why don’t they comprise a list of corporations. Then divide the list by industry (auto, banks, retail, whatever) then apply a percentage value to each industry according to the the overall impact to the US economy. Send each taxpayer a form and let us choose which corporations we would like to keep. They can up the stakes, instead of giving us another stimulous package check give us $25,000 (or more) to invest in the corporations we want to survive. It can become our Social Security since that program is not working out either.

    Comment by JP -

  4. QUESTION: (this is a straight question from someone who may be missing somethign.)
    what does the term “UNDERWATER” mean EXACTLY? i get it, but i might be missing something.
    as well as, what difference does it make if your loan is “underwater” (which i believe as a negative term)? if the payment is $500, it will be $500 until it is paid off.
    in general, i’m asking, what is so bad about buying a car Now?

    Thank You
    A Man With No Transportation

    Comment by Quest St. Jacobs -

  5. I might have mustered the strength to feel sorry for GM until I
    saw the movie “Who Killed The Electric Car”.

    Comment by Chris Griffith -

  6. The auto industry can become enormously successful, creating hundreds of thousands of new jobs by leapfrogging the competition technologically. That can be done by developing and switching to the turbine engine. This is discussed in http://www.economic-plan.com.

    Comment by David Sieverding -

  7. About the bail out of GM. Why don’t government give money to all the tax payers toward their new cars payments? This will also solved economy issue but putting money back in circulations. Tax payers get a new cars, car salesmen get to make their commissions, car dealer make their sales, and factory car workers will still have their jobs making cars to sales to people. Instead of just bail out company by giving money to the company so the CEO can leach off and all the workers will still going to get layoff. Everyone still end up poor and jobless accepts for the people that runs the company who will used the bail out to benefit themselves.

    This also goes with all the other bail out. Really what is the point of bail out if people are still going to loose their jobs and economy still in the slump. With billion of dollars that government giving away to support the riches. Why don’t government give to the people that actually needed. I understand that we received tax refund, but seriously, WHAT’S THE HELL IS $600 DOLLARS GOING TO DO FOR US? Government willing to give billion of dollars away to the millionaires and billionaires, but only give us $600. Instead of using tax money to bail them out, why don’t they divide those money and give it to middle class people that are trying to make ends meet. We all will put those money back in circulation and people will still have jobs. The only people that are benefit out of all the bail out are people like CEO and other that are already making million and billon of dollars anyway. Why help them? Why don’t Government help us? Government is just giving more money so these guys can just get even richer and poor will just stay poor or get even poorer.

    Comment by CJ -

  8. For all that say buy American, I say to you Make A Better Product and Make it in America. Most “American” cars are not made here, we support Mexico, Canada and who ever else will make them at a lower wage. Open new plants in America and implement them with new pay scales. We know labor is the most expensive part of auto industry. People will work for a reasonable and fair wage and benefits. If the UAW does not agree to the new terms, they are out of business as well. If things are done fairly, it should work. Foreign auto has proved that in America. Stimulate America…..
    Those of us who do not buy American, we are not traitors or any of the other names that you like to call us. First of all , we probably have and would buy american autos, if we went by looks alone, but we don’t. Our money is hard earned and we look for quality and longevity in a auto. American auto makers have depended on us to buy there product because they look good, not quality of the auto. They depended on us coming back for expensive repairs or trade- in a few years, because we are tired of spending money on repairs. They knew we had little choice on where to go. They were Three Big Shots who forgot about the little niche that foreign car companies held. They are not so big , now are they….
    I was in the market for a new auto three months ago and ran into the same old things in “American” autos, as I did years ago. Little things to start out with matter. Open and close the doors they rattle and don’t have that solid sound when you close them. Screws that are not all the way tighten or laying on the floor. Sloppy interior carpet, leather and dash finish. A solid and quite cabin feel when you are driving, not the engine noise that make you wonder if it running o.k. or the hard transmission shifts. Drive over a pothole and more rattling. We build some awesome engines, but we build some horrible ones also and continue to use them. Get rid of the old cheap to build engines. Surround the awesome ones with quality materials and craftmanship and “We Will Come”. The auto industry has known this for years and done nothing about it. They though that Americans would always be like “Cattle Lead To Slaughter” . Now they are reaping the whirl wind and looking to “The Cattle” for help. I say help them now, if they address some of the problems that they know caused there failure. Instead of making quantities of autos with good Iooks . Make quality autos that look good. If this doesn’t happen, we will be pouring money into the same bottomless pit.

    “Americans” make some of the best looking auto on the road. Now we have to make some of the best built autos they can stay on the road.

    Comment by Ron -

  9. Another reason not to bail out auto companies. The lazy and poor work ethics of the American people. What about the old saying never buy a car that was finished on a monday or friday. Say No To The Bail Out.

    Comment by John Peccin -

  10. It is funny how we rushed blindly into shelling out $700 billion to companies with few jobs to and are not going to help protect hundreds of thousands of jobs in the mfg. sector which is where the middle class with and without college degrees live and breath. The only reason I can think of for not helping them is that if they file Chapter 11, they can break the back of the union and end their contracts in court as part of reorganization and offer them their jobs back as less pay. My vote is to help them out now. I think $50 or $75 billion is better spent here and than $700 billion was previously. Here is a sample letter I found and a site to locate your representatives as well to support bridge loans to the auto industry. They loaned Chrysler money years ago and they were a strong and growing company until Daimler bought them raped them and they threw them out with little to nothing. Oh, I am sorry that was a merger of equals. Ha.

    Comment by rmay4 -

  11. Darn, I just bought a new 2009 Honda Fit Sport 2 months ago.
    I do love it however.
    I traded in a 2002 Honda Civic that only had 15,000 miles and
    had been paid off by 2005

    Comment by George -

  12. Not everyone finances their vehicles to the hilt. A lot of people do when easy credit is available, like the 0 Down, 0% financing stuff, where people with higher credit scores can leverage that to get financing. There are also a lot more risky loans available for people who don’t have credit, like the 72 or 84 month loans with little down that quickly can go upside down.

    We’ve gotten our family to where we’re enjoying two paid-off cars that are 8 years old. Sure, some people probably look at us differently, but we’ve decided to live a little more simply. I love the concept of not paying interest.

    Even with 0% financing, they’re still making money off of you on the price of the car (except, apparently, US automakers). So if you can afford it, that’s your choice.

    However, it sucks balls that our government is so eager to tax/punish those who work, invest, and save while rewarding those who did not make the correct choices with handouts. The same thing goes for giving “bailouts” (financed by the Chinese?) to those who’ve made ludicrous business decisions at the future expense of all who profit and pay taxes.

    Comment by BadIdeaGuy -

  13. The reason AIG was bailed is because of their vast holdings of government pension monies; including Fed, state, teachers and union funds and other. The rest, like Merrill Lynch and Lehman, our 401k managers, get left hanging in the wind.

    Comment by tony -

  14. The reason AIG was bailed is because of their vast holdings of government pension monies; including Fed, state, teachers and union funds and other. The rest, like Merrill Lynch and Lehman, our 401k managers, get left hanging in the wind.

    Comment by tony -

  15. I understand the meaning of this post, BUT Mr. Cuban, tell me this—As a recent college graduate who is looking to purchase a car, and fully intends to as is common to take an auto loan in order to purchase their first car, “being underwater” is a fair description but does that imply one will eever need a bailout?

    Lets be careful to not stereotype the actions of many in foreclosure with the possiblity of the rest of us taking loans we can afford and responsibly paying them back.

    Comment by peterI -

  16. I bought a new car in 2003. From the moment I drove off the lot, until
    it was paid off last Feb, I was never once “upsidedown” on my loan…but
    that is probably because I shopped smarter than most seem to do, and had
    access to the GM discount. In 2003, that discount actually meant something.

    1. I went shopping near the end of the month. Salespeople at the dealerships
    are a little more desperate to throw in something extra above and beyond any
    discounts you might already be elegible for. My 20k+ car only cost me 10k
    as a result.

    2. I made a large downpayment of ~20% which gave me a VERY nice interest rate
    on the loan from my Credit Union…just under 2%. They knew that the 8k loan
    they were granting for a brand new 20k+ car was a very good investment for them.
    If I defaulted, they could sell the car for more than I owed.

    Comment by Dan -

  17. Screw this shit man…Go Mavericks is what I say…Hmm lets see now
    so the big 3 auto makers need a helping hand all of a sudden…WHAT
    Yeah bail them out 2 and by the way how about the usa just files a chapter
    7 and starts over again…

    Comment by James Blevins -

  18. I love driving my 92′ Tercel to my Club and having the younger
    guys scoff at me. I figure the money ive saved on silly cars almost
    completely paid for the new Sauna, radiant floors and
    the addition at my ski house.

    Comment by mojowrkn -

  19. “underwater” only if you bought a loan along with that new car. The car is not underwater, the loan is. Start paying in cash.

    Comment by DRUMZ -

  20. Just wait when the bailout does not happen. A few large suppliers will drag down smaller suppliers, drag down many more smaller ones. Thousands of jobs. Then another OEM will decide this is the way
    to do it and file chapter 11. Another supplier stack will dissappear and with it thousands of jobs. These jobs are people, people buy goods. They go to a doctor, dentist, drop off their dry cleaning. But now they won’t – no income. I think they will also stop going to basketball games. So, think twice, lucky guy. This will affect you.

    Comment by Keyser Soze -

  21. Simply said, it is the manufacturer and car lot’s profit that is built into the price you pay. You aren’t able to find many consumers that will pay you the exact same price that they can pay at the lot.

    Comment by Mike -

  22. Pingback: FreshSuperCool.com » GM, will you please die already?

  23. Could someone please tell me why this phenomenon exists? Is there a book or an article that explains this issue? Why is it that when we buy a new vehicle it depreciates substantially in vlaue the second we drive it off the lot? Is it a flawed business model? Has this always been the case?…What falesly props up the values on the display floor? thanks for feedback in advance

    Comment by Mr Daly -

  24. That’s exactly why I don’t take out loans for depreciating assets.
    Sure with my income I could afford a nice BMW and even save up to
    pay cash for it, but writing a check for $60k makes me sick… so
    I drive a 2002 Ford Taurus and will until it dies. Borrowing money
    makes you think you’re spending other peoples’ money, so you don’t
    think about spending $60k, you think about the monthly payment
    instead, even if it is spread out over 7 years.

    Comment by Tom W -

  25. I think the cost of new cars may finally be out of whack with real incomes.

    I like the guys post above that says he put about 1/10 of his annual income into a car 25 years ago. I’m fairly certain that is not the case anymore.

    I looked at some new GMC trucks and yukons yesterday. I was a little shocked by the sticker price on some of these things. I was sitting there wondering who the hell can afford these things?

    Not me.

    Comment by John -

  26. It doesnt make sense at all when the Government taking the people’s
    money and giving out (bail out) to save the big banks and other big coporations.

    Why everyone of us has to sacrify our money to protect and
    save those BIG coporations?
    Is the Government for American people or just for those Big Coporations?

    More or less, many of us are loosing our money in retirement funds,
    or our individual investments, our home or real estate investment
    are falling under water, is it just another form of “business failure”
    like the big coporations are facing but got bail out from our Government.
    But who bail out for us and help our loss? NONE

    So why our taxed money are giving free to other big banks or any coporations
    to help them restore their businesses or to retore back their path
    to fill up their own pockets and profits again?

    The government should just Lend the money to those failure coporations
    who should be responsible for their business, then use these loan money to
    figure out the way to restore their business and do better.
    And of course, the money borrowed from American should be returned back
    to American. We all should not need to have reponsibility to give our
    money for any coporations or banks, etc.. to maintain and
    enlarge their businesses.

    Business is business. No people’s money should be freely giving to
    any coporations’s or businesses for their own benefit.

    The Government, please consider this. American’s money is for
    the country and for the people and should not for any private coporations or business,
    no matter in any form.

    In addition, when free money available, any coporations would not love such
    free money, we will see more and more companies coming out with bad reports
    to seek for help with such FREE MONEY.
    And who knows, how many of them really really face difficulty?
    That could worsen our economy…

    We all love America, we all want the best for the country,
    as we are part of it.
    But it has to be fair and reasonable for the country and for
    the people. No more free money or bail out any coporations.
    That is not the right way to do.

    Comment by Anna K -

  27. individual and corporate bailouts are immoral, socialistic, and more importantly THEFT from our kids and grandkids! Google ‘Ron Paul’ like yesterday if you’re not hep, you’re being sold donkey doo by both parties.

    Comment by Patrick Henry -

  28. everyone has their hand stuck out for a bailout now. Atlanta is the
    latest city to ask for federal help. Disgusting & the American Sheeple just put up with it.

    Comment by kctinman -

  29. I don’t know if this has been said before but I’m thinking how about if instead of bailing out the auto companies, we give the people the money and say you can only use the money to buy new cars?

    Comment by Babsy -

  30. Mark,

    Here’s some math to consider…

    Say 300 million people in the USA.

    I hereby declare there are 200 million passenger vehicles.

    40% are trucks and SUVs

    20% are under lease

    Average deficiency of market value of trucks and SUVs is $7000.

    The math indicates $120 BILLION of losses that have not been recognized by consumer inance companies so far…

    Staggering statistic I think.

    Comment by David McCully -

  31. Pingback: Underwater Car Loan BailOut ? | Puadkee

  32. Only item I would like to know, is if the USA loans the auto ind. some money ,
    How about making the auto makers bring back the jobs to the USA
    and keep them here, no more overseas and incintifes to them

    Comment by curtis floyd -

  33. if you can afford a $20,000.00 car then shouldn’t buy a $70,000.00 car then you shouldn’t buy it. or
    you don’t need that $500 dollar watch don’t get it. it may not be fun
    to wait but at least you will be financially secure.

    Comment by Brian -

  34. Marc

    It is time for people like yourself to lead a revolution.
    Our ‘elected’ officials, including the newly elected, have
    no answers and no clue. And they don’t care. Our country
    has been stolen.

    The reason why I say yourself is because you have the resources
    and connections to do it. The peasants like me (at least that is
    how Obama, Pelosi, Reid, Bush, Cheney see us) can
    only resort to very base means to accomplish the mission

    Comment by Jeff Berlin -

  35. Excellent point. But taking out a car loan is almost never a good idea.
    My rule of thumb: never buy a depreciating asset with debt.

    Comment by William -

  36. damn, i paid my car off two months ago, and my xbox. maybe i can get a bailout for my two laptops?

    Comment by simplyscott -

  37. to prfx:

    my son will be graduating from college in a few years, and I’m
    hoping the overall situation will be better by then, and that
    he doesn’t find himself in such a situation

    When I graduated, 25 yrs ago now, I bought a car that cost about 1/10
    of my annual salary, because that is what I could afford. This is
    the main problem with many people now: they do not allow themselves
    any buffer zone. No one should be living on the edge, I don’t
    care how much you earn

    Comment by Brian -

  38. I financed a vehicle and was laid off a week later, this was last January. I called the creditor multiple times to ask if there was anything I can do to ease the burden until I got another job. Nothing. After burning through my savings I had to make a decision to pay rent or pay for the vehicle. I gambled that I could get a job before getting evicted and decided to try and preserve my credit rating. The relentless calls from the creditor also influenced that decision. They somehow convinced me to give them my routing number and soon they just started taking the money straight out of my checking, I overdrafted because of this and incurred hundreds in fees because the bank takes out the largest amounts first and then does the little amounts, so each time I had used my checkcard at Walgreen’s that week got a $40 fee. Soon after I got evicted (lost most of my stuff, no $ for storage) and was couch surfing at friends. That’s when you find out who really has your back. It become that much harder to get a job.
    I am educated (in economics ironically) and overall being way more competent than the average person. I made decisions that were prudent given the information available at the time. Ironically, I had been predicting a recession for about 3 years and was shocked that as of last December everything was still sailing along, so I decided to get on board (I really needed a vehicle).
    Somebody posted “Being upside down on a 5 year car loan really isn’t that bad.” That’s true if you are middle class or greater. It is a huge deal for the poor. Having painstakingly worked years to recover from the debt and bad credit rating that my education incurred and finally gain some independence only to have it snatched away by bank fees and a traffic ticket just does not feel just. There are tons of people in similar situations but none of them have the access and ability to be heard.
    The bottom line is that we do not have a socially sustainable form of governance and economics. The capitalism/ socialism argument is BS rhetoric. Strong economics is based on fair competitions and there is a distinct lack of competition because of barriers to entry through selective regulation. It seems that whenever something that is good for overall competition comes up it gets shot down as “socialist” and whenever something that bails out the big beezies comes up it’s “in the best interest of capitialism”. All in all it is a sad state of affairs and I am very disenchanted with most of Americans. The executive/ investor class (by and large, there are obviously exceptions) is the worst though: elitist, hypocritical, self righteous and solipsistic. To people in the financial and legal industries: Congrats on getting rich at the expense of our nation and children’s well being! Anyways, I’ll be on riding a Black Triumph Triple owned by GE if any of you want to hit me with your Audi.
    Looking Forward.

    Comment by prfx -

  39. If you couldn’t afford the car, you shouldn’t have bought it.
    I am tired of us bailing people out when they make stupid decisions.
    What happened to taking personal responsibility? Ugh!

    Comment by Dawn -

  40. I’d like to see the auto bailout money go toward a real solution rather than plugging the hole of a broken industry. Maybe something like:
    1. Sign up US and non-US corporations to commit to facilities in Michigan
    2. In return, these companies will receive payroll subsidies and tax deductions for new construction
    3. Build workforce transition and training centers with the capability to train specifically for the new jobs these companies bring into the area
    4. Provide free training to those laid off by the auto industry, and even give them a stipend to allow them to continue their house/rent payments while in training

    There are thousands of open jobs in different industries around the country. We don’t have an unemployment problem, we have a skills/job mismatch problem. What is the real goal here, is it to save the GM brand? Make sure that the Chevy Suburban lives on? No. It’s to make sure that motivated and hard working michigan families have the opportunity for a good job to feed their families and pay their bills. Yes, auto production workers might have to learn call-center, nursing or another set of skills, but we need to move forward with these problems, not try and fix past mistakes.

    How’s this for an advertisement: Bring your company to Michigan. The US government give you tax breaks just to come here. On top of that, we have a large pool of eager, willing employees to fill your jobs. The US government will also pay for their training, and we’ll even subsidize their salaries for the first year.

    Doesn’t that sound better than a bailout?

    Comment by matt -

  41. GM produced an electric car in the mid 90’s, couldn’t that be updated. Watch the movie “Who Killed the Electric Car” if they had continued this development then they could compete with Toyota etc. The same tech used by Tesla and licensed from GM, plus the purchased the Lithium battery patents for the cars?

    More short sighted management concentrated on quarterly earnings rather than long term growth.

    Comment by Gadge -

  42. why would anyone ever buy a new car anyway…i think it illustrates poor judgment, unless it is some corp deal or if you have a lot of discretionary income laying around. i have an old 88 landcruiser and an old 93 740i bmw and that suits me just fine. (disclaimer–just bot this weekend a toy sequoia 05 sr5 for my wife/newborn as she had some pimped out honda civic 05 that is too small)

    Comment by gwin scott -

  43. Why has our Country turned into a place where the people who have
    lived their lives the right way get nothing but the people who run up
    high credit card debt, mortgages they cannot afford, etc. get bailed
    out by the government? Is this great Country we live in now a place
    that rewards bad behavior but punishes the people who try and live
    their lives the right way. I did not get a stimulus check last time
    and bet I will get missed again. Is it FAIR that someone who is paying
    less in taxes than me is getting a check instead. Has this Country
    finally come to its end like the Roman Empire? Give me a DAMN break
    already. Where is my handout? Sorry that I am off topic but I have
    been following this blog for almost a year and I am so angered right
    now I had to finally comment. Mark you make a lot of GREAT points!!!

    Comment by Jeff -

  44. To Paul – Someone decided that the 400k house was worth 400k and they were willing to pay the mortgage amount that went with that loan. Now that others are only willing to pay 200k for it, whose fault is that? You are right, someone dropped the ball, and it is the buyer. Caveat Emptor.

    Comment by Chris -

  45. Why would anyone buy a car or anything else when there’s a good chance Obama & Co are
    about to provide incentives to do so? Expect the economy to continue
    in it’s downward spiral until we get very clear indications about where
    and how they will interfere in the economy.

    Comment by Jim -

  46. Its great to be able to go a whole week on 40 dollars worth of gas though.

    Comment by geiswaller -

  47. Not necessarily true. Depends on how much you put down on the car. If
    you pay 100% cash for a new car, you are Underwater? Agreed it is not
    an appreciating asset, but like your home in your previous post. You
    get a value by driving and that value has a cost.

    Comment by Keith -

  48. Being upside down on a 5 year car loan really isn’t that bad.
    Being upside down on a 30 year home mortgage loan is a different thing altogether.

    I do think that people are ‘spoiled’ into thinking that housing values should increase at an expotential rate AND today’s ( or yesterdays?) home loans were developed
    for the quick buy and 5-6 year sell off mentality.

    I know people who have purchased $400k homes that are now worth $200k.
    Someone dropped the ball there – there is a huge difference between a
    $400k mortgage payment vs. a $200k mortgage payment.
    There is really *no way* to get out from under such a bad investment without a restructring and *someone* taking a hit.

    And we know the bank doesn’t want to take the hit..so…

    Being $5k underwater on a car loan just doesn’t compare

    Comment by Paul -

  49. One wonders what happens if most people wise up and stop buying
    new cars. At some point, wouldn’t the supply of preowned cars drop,
    reversing the pricing where the undemanded new cars will hold their
    value and possibly appreciate somewhat? Yes, nutty and speculative,
    and requiring better education than most take home from their public,
    parochial, or private schools (they don’t even teach basic accounting
    or finance, so clearly, the education is deficient for actual life).

    At any rate, fun speculation. Commentary?

    Comment by ML Harris -

  50. Doesn’t it depend on how much you put down in the first place?

    Comment by jojo -

  51. Mark, you’re dumb.

    Comment by Larry -

  52. FN – You beat me by half a day. That was precisely how I was going to answer: “Yet.” I think that there will be all sorts of sugar handed out by this administration in what amounts to a populist buyout. The same with credit card debt. Shut up anyone who might complain about the program by promising them their own piece of the pie.

    Comment by Mark -

  53. It’s a lot easier to repo a car.

    Personally I’ve never bought a new car for exactly that reason, and I don’t particularly understand why people do feel the need to do so (the only way I’d get myself underwater for a car would be for something classic that will retain or gain value over a number of years).

    Of course, I currently don’t have any credit cards (or any debt) because I actively worked to train myself otherwise…

    Comment by Chris -

  54. most people understand the principal of a car being worth less– is it the mfg.’s fault that the market of automobiles works that way..?? the equity in homes has eroded and no longer will consumers spend, spend, spend to drive economy… a bailout of Detroit is more likely than a bailout for consumers… just what our govt needs to do– have ownership in Detroit– and then demand they make fuel efficient vehicles– you ever sit in a 5 year old Toyota– all functions instruments still work– sit in a 5 year old chevy– literally it is falling apart inside.

    Comment by Ken Burns -

  55. Here is a perfect example of why we are in the mess we are in today:


    People thinking they need to personalize everything! We can’t just go
    buy shoes anymore – nope! they have to be a certain brand and now you
    can even personalize your own shoes for a price. Another example from
    the link above is M&Ms – people are now paying $38.99 (plus shipping)
    for M&Ms with a race car drivers face on it when you can by one package
    of M&Ms for under a dollar (64 cents where I live). If you got the money
    then so be it – spend it how you want and do what you want with it. BUT
    if you don’t have the money and decide to go ahead and live/spend outside
    your means then why should those of us who live a “simple” life and live
    within our limits and put away for a rainy day pay for your negligence
    and stupidity?

    Comment by James Chaney -

  56. No kidding, when will the bailouts end. Big government at its finest.

    The premise is the economy is in a state of deleverage. Deleverage is taking several forms
    1. credit restriction
    2. spending is redirected from capital purchases to reducing debt/risk
    3. lower incomes reduce buying power or market is smaller.

    Apply this to the Auto Industry. Lowering credit requirements will create risky receivables. To increase sales the biggest lever is discount and incentives which lower profits. It appears that the current business structure of the auto industry needs to be reduced, in other words they cannot sell their way out of this bailout, but shrink the companies to match the market.

    Comment by EG -

  57. I think it makes sense to (a) only purchase a car when you absolutely need one, and (b) purchase a car that is 1 or 2 years old with less than 10,000 miles on it. Of course you are still going to be underwater but not as bad. The BIG advantages are having a warranty, since most are 3yr/20k, and, like Mark’s post on Home vs. Stocks, you will have the utility factor working in your favor.

    Let’s say that you keep your old car because you think that it is being prudent and wise. Initially this makes sense because the car is paid off and runs relatively well. Then without the privilege of a warranty, you start replacing big money things like the transmission or the engine and your plan does not look so smart. Since there is no warranty, you have to pay cash ($4k-$6k) at the time of service or charge it on a credit card at 23% interest. Secondly, you planned on saving the money that you were not spending on car notes; but of course you didn’t. Now you have to arrange for a tow truck, a rental car, time off from work, and significant use of your most precious resource – time; all because you wanted to “save” money.

    If you can afford it, contribute to the economy and buy a slightly used car. There are a TON of deals right now including some I’ve seen for 50% off MSRP on Ford trucks. Next donate your old car to charity and save yourself any future headaches or costs. Then rest easy because you have not only rescued the economy and got a tax deduction but you also helped people in need.(Pat yourself on the back)

    Comment by econ365 -

  58. This happened to me, and it happened to me without me realizing it.

    The fact that I didn’t do the math means I share a great deal of the
    blame, but then again this wasn’t mentioned at all during the buying
    process. I only figured it out by going through my car loan statements.

    One knock on effect is that even though I have auto-insurance enough
    to cover the cost of a new car (should be mine to totalled) I will
    *still* owe on the loan.

    Comment by Christian K -

  59. Everybody knows there are other car manufacturers in the US. Why are
    they not experiencing the same problems? Maybe we should just get rid
    of Detroit.
    Oh yeah, they aren’t unionized either….

    Comment by John R -


    Comment by eddie -

  61. I think the term “underwater” in these last two posts is missing the point. If borrowers were merely underwater on cars and homes, there would be no banking crisis. The problem is that they are not only underwater (the market value of the asset is lower than the purchase price), they are also upside down (the balance on the loan is greater than the market value of the asset).

    Smart homeowners are foreclosing because they are upside down by an amount large enough — often several hundred thousand dollars — to make the gain from default worth the damage to their credit. Banks are losing vast amounts of money to such homeowners. Bad for banks, good for homeowners.

    An auto loan is not usually going to be upside down by enough to make default a financially attractive option.

    As for being underwater on a car, that is what a rational buyer should expect. You plan your car purchase in hopes that you will derive more utility from your use of the car than you lose in depreciation and other costs. Sadly, homeowners who are now several hundred grand underwater after owning a home for just a few years are not in the same situation — they have suffered losses far greater than the utility they have derived from their homes.


    Comment by Martin Unsal -

  62. I’m a GM shareholder, nothing major but I invested a decent (for me) chunk of money in the company.

    I don’t want a bailout. I’m prepared to take my medicine… I made a poor investment by buying a company that fell behind the curve and wasn’t positioned to take advantage of high oil prices. Imagine what GM would look like had they continued to develop the EV-1. Anyone that hasn’t seen “Who Killed the Electric Car” should watch it.

    GM and any other business not strong enough to survive should fail. They will be replaced with stronger businesses. Employees that lose their jobs will start new small businesses and create jobs.

    Comment by Kevin -

  63. There are two reasons that american auto makers are failing.
    1 is that they have been producing cars that aren’t selling so well.
    2 is that their labor force has a history of pensions and health care for life.

    If the government took the health care issues for these aging industries (and others like the airlines, and while we are at it everyone) plenty of companies would have a fighting chance at being profitable.

    Comment by William C Bonner -

  64. Cars are different.
    lose of recent equity in the SM is why im taking things easy lately..
    but also gas prices, or waiting for the famed “electric car” to roll out in 2010.
    (why take on a 5 yr note now.. when that baby will be commin out).

    I dont think anyone really believes cars.. are an investment.
    they are an expected loss.. (well unless you are buying specifically for that.. like a 1970 Shelby.)

    Comment by noteguy -

  65. Yet.

    Comment by FN -

  66. By the way, why did you get rid of your terrific home loan commentary, or is here and I don’t know where to look?

    Comment by alessandromachi -

  67. This is super funny and profound!

    I was putting off typing up a post on my blog about the economy.

    Speaking of cars — I propose bailout of Oldsmobile brand! I hear
    it’s in trouble, there are some that say it is dead!


    Comment by Adi R -

  68. Gas has dropped in price by 50% in the last two months or so. When cars drop in price by 50%, then I will buy. This is the kind of sale we are used to in retailing. We can see it in cars if there is no bailout and GM files for Chapter 11. Liquidation of all the excess inventory will bring loosen thecredit markets and maybe one new auto company that can compete with Toyota will emerge. We will never find out if Congress stops this opportunity. One more example of unintended consequences which is an economic law that cannot be refuted.

    Comment by Ralph Harrison -

  69. That’s the biggest impediment for me. I will buy a new car once I’m out from under the one I have. (And yes, I have a car from an American car company.)

    Comment by Mike Sicotte -

  70. Maybe not, but our government yesterday announced a bail out for car makers! A so called innovation fund to encourage local car manufacturers to invest in greener tech. Now with a 5 – 7 year development time frame for new car models, I would have thought if a car company hadn’t already shown some interest in this, taxpayers dollars aren’t gonna help now!

    I know $6 bil is small fry compared to your figures over there but there is a whole lot better way to spend it (especially considering our local manufacturers parent companies GM and Ford will probably just siphon this government hand out into their ever declining balance sheet back home!


    I’ll be interested to see what happens at your end!

    Comment by Justin Barrie -

  71. hey mark

    just found your blog and wanted to let you know how much i’m enjoying it.

    we actually met briefly last year at the Air Canada Center when you were in to.wn to play the raps.

    i was taken by your extremely upbeat attitude and positive energy.

    please check out my site when you have a chance, i think we share some similar opinions about life.


    Comment by stacy -

  72. I still have a 30 year old car with the original engine and transmission. I don’t use it very much but it still gets 22-24 miles to
    the gallon. I recommend everybody buy 30 year old cars that get decent gas mileage. Better still, get a car from the late 80’s and early 90’s that still gets over 30 miles to the gallon, they exist. That was before they passed a law that all new cars had to get lower and lower gas mileage so that the United States could retain its status as the number one petroleum consumer.


    Comment by alessandromachi -

  73. No one wants to take responsibility for their own actions anymore. We’re basically becoming a country of cry babies. Boo hoo, I have to leave my house I can’t afford and go back to renting. Big whoop if you ask me. Can I get bailed out if I buy a bad stock? How about any other investment for that matter? Our politicians are a freakin’ joke.

    Comment by Jason Kiesel -

  74. and i wonder why the government didn’t give a loan to GM to help financance the buyout of Chrysler…but they can give AIG $60 Billion.

    Comment by david -

  75. Which leads me to another question: why do the banks need to have their “balance sheets” fixed with bailouts. I may be over simplifying but didn’t AIG need to be bailed out because they lost so much money covering the banks bad debt? Once AIG paid off the banks bad debt the banks should have been fine, right?

    Comment by Shawn Shepherd -

  76. I dont think we should bailout people that bought houses. It is just like buying a car, I sold cars for 4 years we never helped anybody out when they had made a bad decision. They would suffer the consequences and pay the negative equity on the next car loan.

    Comment by Brian Spears -

  77. I think we already covered that with the AIG bailout(s) since that is how most new cars get paid off, insurance!

    Comment by Shawn Shepherd -

  78. Mark, People don’t care about being underwater, (has become new American way, as long as
    you do not have to take responsibility for it.) But what has happened there is no “real money”
    in order to buy anything, ($300 shoes, $400 purses, $200 sunglasses, $2,000 televisions, etc.)
    and people can no longer use home equity, credit cards, and GMAC’s don’t have ability to write
    “worthless” paper as payment right now. This is only several months into cycle for people.
    First people will spend the rest of the money they do not have because they feel bad. Then
    will see their 401k, stock, inheritance values and believe it “a little.” And stop shopping for items
    that are for people in your tax bracket, that everyone has been filling their homes with. There
    are too many malls, car dealerships, Saks, expensive restuarants, etc. that will have to close before
    any of this changes. People would continue to buy cars, jewelry, furniture, clothes, and
    anything else they are extremely “UPSIDEDOWN” in the minute they purchase them if only they
    can get someone to front it to them. The NEW American Dream…

    Comment by Will Appleton -

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