The Inside Scoop of the Business Office in a Car Dealer

Discussion in 'Off Topic' started by larryh1108, Jun 12, 2019.

  1. larryh1108

    larryh1108 Active Member Supporting Member

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    We've discussed the buying experience of the New car and the Used car and touched on the pay plans of those involved in those processes so you can understand why they do or say something. The purpose of these threads is to allow you to see the other side so you can figure out what is really happening so you can take away their (important) element of controlling the deal. It is said that he (or she) who controls the deal will come out on top. This applies to most things in life.

    Also, as has been mentioned every time, you have to be prepared when you walk into that dealer to buy a car or truck. You have to do your homework up front. You have to know what finance rates are available to you from your bank or credit union. If you are not prepared ahead of time, you will not get control of the deal because all the cards are controlled by the salesman.

    You also have to know what you are looking for and do the homework on that model. If you walk into a dealer and announce that you are looking for a nice, used car for around $10,000 and you want to see what he has, you will surely pay a lot more than you should because you didn't know exactly what you wanted. How can you research the prices of any car if you don't know what that car is?

    So, be prepared. Spend an hour or two (or even more) researching the prices of a specific vehicle (or vehicles if you are looking at 2 different models). Know what you want. Know the going rates for interest.
    Have it written down or on a memo on your phone. If you do this before you walk in, you will have alot less surprises and more control of the deal and process. Walk in confidently because you will know what to expect. The salesman can sense your confidence and will change his mindset. You've already started the process.

    This thread will discuss the Business Office that is in almost every car dealer. The exception is the smaller guys who deal right at their desk. The desk closes are more informal and friendly with a lot less pressure. Pressure is a word that is very real in the box (inside term used to describe the business office. They used to be small square offices, much like a cube, where the paperwork was processed). It is still called the box (to this day) because it looks like a box, by it's design).
     
  2. larryh1108

    larryh1108 Active Member Supporting Member

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    As mentioned, the business office is in most dealers. It is where all of the paperwork is signed to legally process the paperwork into your name.
    It is also where you commit to payments to the bank, if you finance your purchase. It is also the place where most people know, ahead of time, where the guy or girl who sits there will try to sell you a lot of stuff you don't want. You already have "bought the car" in your mind. You are probably tired and brain dead from the experience. Your nerves are frayed, you are hungry, the kids (if you brought them along) are way past restless and all you want to do is go home. However, you still have to sign the paperwork and this guy (or gal) is standing in the way of you getting your car and leaving and staying another hour or two. Doing the paperwork with this person is considered a necessary evil, and it is.

    Up until the early 2000s, these offices were know as the Finance Office. Dealers began to realize that the name itself sounded intimidating and it confused many buyers who were paying cash. They actually believed that cash wouldn't work because it was call the "Finance Office". So, to make matters less confusing and intimidating, they started calling it the Business Office and the people in them Business Managers. After all, this is where you 'took care of business' when buying the car or truck. I still use the term Finance Office because that's what is was called for decades.

    Before we get into the nuts and bolts of the process in the Finance Office, I first want to cover a very important part of financing a vehicle. It is a fact that millions and millions of people have less than perfect credit. All the special rates offered and the rates that the banks advertise are for people with the best credit and credit scores. Almost every bank and credit union out there charges their rates tied to your credit FICO score.

    e.g. If you have a FICO score of 700+ and want a new car, the rate may be 3.9& for up to 60 months and 4.9% for 61+ months.
    If your score is 680-699 the same loans word be a point higher, 4.9% and 5.9%
    If your score is 679 or less, no loan without a cosigner with a 700+ credit score
    This is for a new car only.

    Used cars has slightly higher rates. Usualy the bump is 1% for the same scores and terms. They may cap the term at 60 months but that depends on bank policy and/or the amount borrowed.

    If you have that 700+ score, the banks will usually finance with $0 down (100% financing) and with 680-699 they may require 10% down payment.
    They'll usually finance an extended warranty (new car) or ESC (Extended Service Contract) with reasonable caps on the amount, usually $1500 for cars and $2500 on 4x4 pickups and/or diesels or turbo/super chargers. The may offer their own GAP insurance but they usually do not finance a lot over MSRP so this is not an issue. GAP Insurance is an insurance policy that will pay off the difference from what your insurance company pays the lender for a total loss and what they actual payoff is to the bank. This can be a very large number (thousands of dollars) if the buyer rolled over a lot of negative equity on a trade into the new loan when they owed a lot more than it was worth. This happens if an owner puts a lot more miles than average on the car or if the car has some minor body damage that the owner didn't report to his insurance. Also, if the owner had bad credit with a high interest rate, less principle was paid off during the first 2-3 years than if they had a good rate. Another way to have negative equity on the trade (called being upside down) is to take out a 5 or 6 year loan and then trade the car in after 2 or 3 years.
    They continually roll the negative equity into the new loan because they just want a new car after a few years.

    So, banks and credit unions are very conservative and their rates and requirements reflect that.
    To begin this thread, I want to start by discussing the process of financing people with credit issues. It started with a question/comment by one of our members, which I will post to begin the ball rolling.
     
    Last edited: Jun 18, 2019
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  3. Howland

    Howland Your daily dose of snark

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    I once bought a truck and went to see the F&I Guy. He was wearing an eye patch.

    Not making this up. He was truly an F*in' Eye Guy.

    Not making this up either. A couple years later the salesman who did the deal got picked up for a string of supermarket robberies.

    I'm not sure which one was the biggest crook.

    :confused:
     
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  4. larryh1108

    larryh1108 Active Member Supporting Member

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    A very interesting topic. I ran a BHPH operation for 3 years so I know how it works and why it works. Some things are obvious and some things will be a surprise but we will dig deep into it.

    I will have a complete, in-depth, analysis into the finance area. IMO, this is the bread and butter of every New Car dealer. This should provide an eye-opening (yet not too surprising) look into why the finance office (the box) is akin to a torture chamber.

    Also, the sub-prime lenders are a much needed part of the industry. So many people screw up their credit for many reasons. The percentage of people with bad credit is huge and this is a market that needs more regulation to protect the consumer but keep in mind that the default rate is extremely high. The middle ground is how they work things now. These folks need reliable cars, too (well, most of them).

    I also ran a sub-prime finance department at a large New Car dealer for 10 years. I know the total inside account of these types of loans, buyers and all the pitfalls as well as the profit structures. This thread will be very comprehensive. I just created a third thread for the finance aspect of buying a car.
    It is it's own topic and needs it's own thread.

    I am disappointed in the number of people who are following the thread but I feel many are just reading without comment. This thread has been good therapy for me and for the few who I know follow it. I've said all along that if 1 person saves a thousand dollars and more people can now walk into a dealer knowing what to expect then these threads will be a success.
     
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  5. larryh1108

    larryh1108 Active Member Supporting Member

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    Good stories!
    Am I surprised? Not at all.
    As I mentioned, some of the top, slimy, car salesmen have some very bad habits. Gambling and drugs seem to be on the top of the list.
    If they befriend the wrong kind of people, $7-$8k a month just doesn't cut it.
    I've met a lot of very talented salesmen and managers who ended up in the gutter or in jail.
    Jobs that can pay a lot of money, fast, tend to attract a certain element. No collecting a paycheck every week and get a $20,000 bonus once a year. It's feast or famine for these guys. If you have a good week, your check next Friday could be $3000. That is what attracts this type of person.
     
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  6. larryh1108

    larryh1108 Active Member Supporting Member

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    Also, in re the BHPH dealers.
    As I mentioned, I ran one for 3 years and these dealers actually provide a service for poor people and people who could never buy a car of any price at any other place. These are people who are paid cash, are on public assistance, unemployed and need a car to find work, etc. These folks are (so-to-speak) not the BHPH dealers you are speaking about, IMO. Yes, many impressions of shady deals and extremely high interest rates and 2x the payment people can't afford but those dealers are actually at the New Car Store, the Mega Used Car stores and the $5000 and under stores, not the true BHPH dealers.

    The "*Everybody Drives" (with a good down payment, a recent pay stub and a utility bill) is a very real program almost exclusively offered at New Car dealers and the Mega Used Car dealers. Why? Well, there are a few Finance Companies that offer this program and they will only offer a Dealer Agreement with a new car franchise or MegaStore. It is a very lucrative business for the dealer who can move those $5000 cars, instead of wholesaling them, and getting $1200-$1500 profit to boot. The catch is that the dealer contracts the buyer per the deal structure that was structured by the Finance Company. The dealer enters in the inventory he has for these "special" buyers and when an application is entered and it meets the minimum income of $1000 a month before taxes, minimum $500 down and a utility bill proving their address, the company sends back the structure of every car in the inventory you uploaded to them (they keep them on file for easy retrieval). The profit is (usually) their down payment. They book out the car with their software and it's usually close to your ACV if you took it in right. You can sell their warranty (they pay you a straight $150 for profit, they set the retail) and they offer their own GAP Insurance (very much needed but still optional, by law). If you sell their GAP you get $100. Their retail price, their cost. You just get the profit shown.
    So, with $500 down and a GAP and a warranty you get $750 in profit. Not bad for the little guy but the big guy wants more. So, since the down payment is profit, the dealer "requires" a minimum down payment of $1000 to $1500 to get a car there. It gets these low income buyers a car and the dealers get to move some additional inventory, usually stuff they'd wholesale for $500 profit. They really don't do much of a credit report. Unless you have a repo under 6 months the credit report and score means nothing. Almost everybody does drive.

    Now, the part that makes it unsavory. The finance company sends you a check that should cover the ACV of the car you own plus Warranty and GAP profit (if sold). However, that dollar amount is actually 60% of the amount financed by the buyer (e.g. the financed amount on the contract is $6,000 and they send you a check for $3600 (60% of total). They keep the 40% that is (in theory) put into an escrow fund (that you own) that covers the uncollected money if (when) the buyers of all the loans you submitted defaults (the default rate is seriously high like 40% . So, the money not advanced to you is in a pool that pays off the loans for the defaulted buyers. If a dealer has a negative "escrow" for all their deals, the Finance Company will drop that dealer from doing any more loans with them if it continues for a period of time.

    So, the loan company caps the payment at 25% of the provable income. $1000/mo gets a $250 payment for a maximum 36 months. If you have a car that can't be paid off in 36 x $250 then that buyer cannot buy THAT car. They need to find a cheaper car. This is where the champagne taste and beer money comes in. If they want a car, they have to buy a car the Finance Company says they can buy. So, with 40% held back and unlikely to ever be collected the dealer accepts the 60% as their (likely) total paid from the lender and that determines the profit mentioned (they get a check for (basically) their ACV plus they keep the down payment. The mantra is "Down Payment = Profit".

    So, to get a (60%) check from the lender, they loan amount has to be a lot more. So, the get that check for ACV, the dealer has to contract the buyer for a total amount where the 60% is what is needed to pay for the car. In the example used above, the contract amount has to be $6000 for the dealer's check to be $3600 and ACV is $3300. SO, the numbers have to work out to a selling price of $6995 plus tax, title, DOC and tags less down payment and the unpaid balance works out to $6000 (plus warranty and GAP if purchased (they all purchase it or a deal can't be made, in theory).
    The DOC fee can be whatever but to the lender it is profit so lower the sale price and raise the DOC, no matter. It's the same to the lender. All paper money. So, the dealer sells a (retail) car of $4995 for $6995 to get a check for $3600 but has to pay the taxes, title and tag fee from that money. Net check would be about $3300 which is ACV.
    So, they get the ACV (after taxes and fees) plus $150 for the warranty and $100 for the GAP and keep the $1000 down payment for a deal profit of $1250. Get $1500 down and the profit goes to $1750.

    Also, they charge interest from 18% to 24% (or state usury cap). They do give you the option of charging only 9% (to rate sensitive people with no credit) but your check will be less, to make up for the lost interest). Keep in mind that these buyers have open repos, multiple repos and pages of charge offs of bills they never paid. They are the worst of the worst and deserve the higher interest as well as paying more for the car to subsidize the bad loans of others (or themselves). So, this type of lender caps payments at 25% of their monthly gross so being stuck with high payments is usually not the issue. The issue is that the cars have higher mileage and spotty Carfax and service histories. When the car breaks down, these credit abusers just stop paying for it because they don't want it any more and don't want to fix it.

    BUT! These aren't the worst lenders out there.
    Who is worse?
    Coming next.... stay tuned.
     
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  7. larryh1108

    larryh1108 Active Member Supporting Member

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    Predatory Lenders.... do they exist?

    We're talking auto loans here. Predatory lending has been a hot topic for many years which was mainly about the mortgage industry but also mentioned the auto industry. It is a very real thing in the auto world but without these lenders, a very large percentage of the population would not be able to buy cars, which would cripple the auto industry.

    Let's face it. Bankruptcies are at an all time level. A few years back, credit card debt was at an all time high with amounts owed over a trillion dollars (with a "T"). Americans had no issue pulling out the plastic, for some reason, because they didn't have the common sense to realize they had to pay it back with more than the minimum payment to stay solvent. Housing costs are at a ridiculous level. What is the average mortgage? $2000 a month? $2500? Dual income households had to have that nice house, nice cars, nice, designer clothes and all the electronic gadgets with the latest features. All of this by way of signing for everything without reaching into their wallet, except to grab the plastic. All of a sudden, their monthly expenses exceeds their income. Throw in a divorce, child care and a couple of housing market corrections and they are in serious trouble with no feasible way out. So, they file bankruptcy.

    Another faction of buyers are the ones who did nothing wrong but got laid off during slow time or got hit with astronomical medical bills.
    An accident or major illness can, and will, cripple a good many families. How about the dual income family that loses one earner to an accidental death (like a car accident) or a factory that closes unexpectedly? Devastating to so many.

    It used to be that filing bankruptcy was shameful and kept quiet. Today it's almost a badge of honor for passage from stupid kid to adulthood. If you haven't filed bankruptcy, you haven't lived! The ones derived from tragedies still mar their credit for 10 years.

    Even if you never filed bankruptcy your credit report can be filled with collections and chargeoffs. A very real problem is the trillions of dollars in student loan debt. It does show on your credit report and it does tank your score if you don't pay on time, like any other loan. However, so many feel that they only have to pay if they have extra money after all the other bills are paid and once they go to collections (default) they just don't care any more because the .gov takes their annual tax refund and maybe even garnishes their wages. Well, it's getting paid so they just don't care.... until they want or need a new car. Yeah, those student loans tank their credit score. Try buying a car without mommy or daddy cosigning and it just isn't going to happen. Not with bad student loans.

    Medical bills and parking tickets are another credit score dumpers. Very common. I guess they feel that nobody pays parking tickets so no bog deal.... until they want a new car. Medical bills. Well, they paid the copay and the insurance paid so what's the big deal?
    Until they need a new car. This is all very common. That apartment lease that they broke because they broke up with their boyfriend or girlfriend? Well, he (or she) didn't pay it once you moved out because they couldn't afford it. What were you supposed to do? You couldn't afford the payments either! Result? A civil suit for $5000, that's what. Credit score tanked.
    When we (car dealer) asks about these chargeoffs, they always have a good reason (excuse, actually) and all of them made sense but none of the reasons absolved their responsibility. They earned their 525 credit score.... every bit of it. It is accurate.

    So, your credit is ruined for 7-10 years. Unless you pay these debts, it will stay ruined for 7-10 years. If you just give up because your bad credit has no end in sight and you continue to stiff everybody you just keep pushing that 7 years further along. A new parking ticket? Big deal, you have 10 in collections already. What's 1 more? Well, 1 more with a new collections date of today moves the 7 years to a clear report to starting from today instead of 2 years ago. Perpetuity to infinity.

    I'm guessing that a solid 1/3 of the buying public has credit issues that makes buying a car a costly endeavor. If the lenders didn't find a solution, the auto industry would tank. Losing 1/3 of their buyers would cripple them. A solution had to be found. So, the factory had to find an answer or perish. They teamed up with their lending branch and came up with a "D" tier which, basically, allowed a certain sector of the credit challenged buyers to get in to a New Car. There was a few "must qualify" standards that had to be met to get that new car:
    #1 ) a 3 year job or a minimum 1 year job with a 3 year history (with no gaps) in the same field.
    #2 ) a minimum of $1500 a month of provable income. No cash jobs. Waitresses and other tip earners did not qualify unless they could provide income tax statements that proved they claimed enough tips to qualify (right, who did that?).
    #3 a minimum 1 year residence or a 3 year verifiable history.
    #4) enough cash down (minimum $100) to cover tax, title, tags and DOC fees as well as the dealer's profit. This meant that the most they will lend you is the actual factory invoice price. (dealer cost). The actual invoice needed to be included with the contract when submitted. However, factory rebates could be used as down payment to reduce the amount financed to under factory invoice. So, at factory rebate time, people with credit issues could buy New cars.

    This helped the dealer sell new cars and the factory producing more cars. Each factory finance arm came up with their own program to help people with credit issues to buy a new car. And the factory can sell more new cars. Win/win.
     
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  8. larryh1108

    larryh1108 Active Member Supporting Member

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    With the success of the financial arm of the New Car dealers and their "D" Tiers, other lenders decided to get into the game.
    Sub-prime lending was a real thing and people with rough credit still needed a car and were willing to pay for it. Capital One cut their teeth in the top tier of the bottom tier buyers. They've become a behemoth today from their beginning as a lower tier credit company. In the 90s, having a Capital One credit card meant that you had less than perfect credit. Today a Cap One card says you've made it. Back in the early 90s, Capital One and other lenders wanted the risk/reward of the risky credit people.
    When the factory charged 18% for their D Tier buyers, these sub-prime lenders went to 24% and higher. They also capped their loans at $10,000 to reduce risk. This was back when a new car average was $12,000 or so. Today it's almost $30,000 for a new car.
    So, these new lenders went after the used car buyers, the ones who could not qualify for that new car the factory sponsored.

    Then other finance companies were born. These lenders had tiers for the bad credit people. Capital One wanted the best of the worst.
    If you had a bad credit score but always paid your car loans, they thought you were worth a gamble. The same theory the factory loan companies used to underwrite their loans. You had a repo? We don't want you.. Never a repo but stiffed everybody else meant you were worth a gamble at a very high interest rate.

    These newest loan companies sought after the buyers who the factory finance companies and the Cap Ones of the world didn't want.
    These new loan companies wanted the people fresh out of bankruptcy. Their logic was that these people had no credit debt because it was all wiped out in the bankruptcy (except the student loans). So, all of their income was disposable because no one else would give them credit. No credit cards.
    Nothing but rent to pay. They couldn't file bankruptcy for 7 more years. They were ripe for a car loan.

    They decided that if you had no repo before the bankruptcy but just got out of control, you were worth the risk. If you had a car loan that went into the bankruptcy, that was ok as long as there wasn't a repo before the bankruptcy. No one wanted a buyer who already showed he would let a car loan go to repo. Too risky. However, if you paid you car loans and screwed everybody else, you were good to go.
    However, these transgressions came with a cost. 24% to 38% interest rates. $8000 loan cap (equivalent to about $15,000 today). The way these loans worked is the dealer faxed in the credit application with the pay stubs. The lender would look at the app, credit bureau and pay stubs and call the dealer back with a loan structure. (e.g. Approved with a max loan of $8000 for a max term of 36 months. Interest rate of 36% with no mark up.
    Max ESC of $1200. GAP ok, max $395. Min 10% cash or trade down payment. Max payment $375. Loan purchased at 85% of Amount Financed.
    Loan must be behind book or invoice (NADA Trade in or factory invoice). 15% discount. This means that the loan company will advance 85% of the contracted term as a discount as part of the risk on their part. The buyer pays 36% APR. The dealer gives up 15% of the balance.
    So, the buyer was approved IF the car fit the criteria.
    Pretty lucrative for the lender IF and only IF the buyer actually pays off the loan.
    The national average for bank repos with people with good credit is about 2%. If it gets close to 3%, they begin to panic.
    Repo rates for these lenders approaches 10-15%% or more. The higher interest rates means a much higher payment for the same car than from the bank. However, these are high risk borrowers with a history of not paying their debt. They earned a higher rate. Did they earn a 36% rate that could bury them again? Well, let's talk about that...
     
  9. turkeydance

    turkeydance Active Member

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    thanks for your posts.
    to find out that "just out of bankruptcy" is a prime demographic assuming that ALL of the income was disposable is a revelation.
     
  10. charliesgrave

    charliesgrave cosmoline enthusiast Benefactor Life Member Supporting Member

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    Reading through your posts, for me, you paint a pretty grim picture of the whole industry.

    As someone who has always bought used cars with cash and drove them til the wheels fell off, I don't feel any more inclined to deal with loans, large dealerships, or even buy a new car.
    It feels like I need a degree in business just to understand the process well enough to not get screwed at every turn.
     
  11. notso556

    notso556 Member

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    A whole new area of the car industry to see behind the curtain.

    Yes, I've seen those "No credit? Bad credit?" ads and my first thought was - here we go again.
     
  12. larryh1108

    larryh1108 Active Member Supporting Member

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    Well, you don't need a degree in anything if you've read and understand what I've written here. I've posted like I was teaching a class with students there because they want to be, not because they have to be (like a requirement for a degree).

    Is it grim? It can be. When I read stories about how people are mistreated at dealers and when I witnessed it myself, I was disturbed enough to seek employment elsewhere. The good thing is there are great dealers out there, more than it would seem. The are under the radar, selling cars and making money and treating their employees and customers right. Of course, there are the dealers that give the entire industry a bad name and who prompted me to write this encyclopedia.

    If anybody read this in full walks into a dealership and notices any red flag I've posted here and does not leave then they didn't learn a thing.
    Whoever read this should have confidence that they won't be the next "story" a salesman brags to another at a bar.
    Forewarned is forearmed.
     
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  13. JimP42

    JimP42 Mostly harmless Benefactor Charter Life Member

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    I have read all your threads, without commenting much. I am sure that many others appreciate them as much as I do.
     
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  14. larryh1108

    larryh1108 Active Member Supporting Member

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    If you think about it, a person can discharge virtually all of his debt and gets to start over from scratch.
    A few items cannot be discharged such as Student loans, tax liens and child support. Basically, if it you owe the government they don't allow it to be tossed away.

    You can also reaffirm selected debts which means you agree to pay them as originally agreed. You have to sign paperwork reaffirming these debts. Debts people usually reaffirm are mortgages and car loans on houses and cars you want to keep. However, if you have equity in either, the courts could force you to sell them to help satisfy any debt owed. e.g. you have a house you've lived in for 15 years and have $50,000 in equity in it. If you are filing bankruptcy because of $200,000 in medical bills, the courts will force you to take out a 2nd mortgage for the equity (and no lender would do that if the medical bills have gone to collections) or sell the house to get this equity to pay as much as possible before discharging the unpaid balance due. The courts do allow (I believe) $15,000 in assets before they go after the equity, $30,000 if married and both are on the mortgage. So, they could force you to sell to pay $20,000 of the $200,000 owed.

    The same with 401k plans and profit sharing accounts. The total exempted is the $15,000/$30,000 (may vary by state law) and the rest can be used to pay creditors. So, if you are sitting on $300k in 401k and profit sharing, that has to be liquidated before you can discharge any debt. It is not as easy as it sounds but if you are young and don't have equity or much of a 401k set aside, you can, basically, start from scratch.

    Lenders find these people prime for an auto loan (if they didn't keep their car). They will pay the price but they do have options, which didn't exist 25 years ago and the auto industry can still sell cars.
     
  15. Alfred

    Alfred E. Deplorabus Unum Supporting Member

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    Well written and comprehensive. Kudos. You should teach a class.

    Speaking of classes, with the demise of vocational ( shop ) classes in schools, we have probably spawned generations of consumers who are ripe for the $ plucking when it comes to knowing anything about cars. So many do not have even basic knowledge of something they will be very dependent on in their adult lives. To many, no car= no job = no money.

    I find it odd, however that despite the modern educational community shunning any public school curriculum with SHOP as we once knew it, how few individuals will opt for taking an adult ed class or whatever to learn about them ( cars) on their own. I'm talking about those that didnt' have the benefit of close family that would put your hands on wrenches and make sure you could fend for yourself. (Me, I grew up in a nuts and bolts world ...)

    Common bitch: Oh man I had X go wrong with my car, it cost me $2000 to fix and I think the mechanic screwed me. What did you do ? Paid it and resented not knowing a damn thing actually about how much it should or could have cost. But to make up for that, one simply blathered on about how expensive repairs are and damn, those mysterious "unlucky " surprises that happen to cars and how anyone who works on them is out to screw you. Under the hood ? Dark Arts. What? Fix it myself ? Well, what if I mess it up ? Psst its already broken.

    The $2000 repair entailed $500 in parts ( AT RETAIL) and required 12 hours worth of labor or thereabouts. Even accounting for maybe needing $300 in buying special tools you didnt own before, thats $1200 or so left on the table. This in a world where people will stampede Walmart at 5am to save $100 on a damn TV. What ?

    Access to information is better today than ever, and how-tos are all over the internet. Frankly anyone who is INTERESTED could do a pretty wide range of auto repairs themselves, without a lot of special tools, and without a huge amount of experience. What it takes is making an effort. Maybe you don't tackle tough projects on your own at first, but the confidence you gain from knowing what goes on inside the different systems that make up a car is very rewarding personally and financially. You are then able to choose work that is "worthwhile" to do yourself vs paying to have done. But- its an informed choice, not a foregone conclusion forced on you by others.
     
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  16. larryh1108

    larryh1108 Active Member Supporting Member

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    Thanks. I appreciate the kind words.
    I've gotten quite a few PMs with questions and nice comments. I do know many people read these threads without comment.
    I was just looking for more questions that can be answered. However, I am trying to be so thorough that most questions are probably answered in the posts.
    When I began this almost 2 weeks ago(?) I had no idea it would be so deep and thorough but as I typed, I realized that I couldn't breeze thru a topic without explanation. The whole purpose here is to explain the other side so I find it difficult to touch on it without a thorough explanation.

    That plus I do tend to get wordy.
    :rolleyes:
     
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  17. larryh1108

    larryh1108 Active Member Supporting Member

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    Thanks, Alfred!

    After writing all of this in such a detailed manor it occurred to me that this would be a great adult education class that I could teach I have no idea where to start but I live near Alamance Community College. That would be ideal if something like this is possible.

    I think these threads would be a great syllabus (with editing, of course) for the class.
     
  18. JimP42

    JimP42 Mostly harmless Benefactor Charter Life Member

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    I just assume I can do anything I really want to and plow on through it until I get there. This applies to everything, and repairing things in general, and cars in particular. Between old school shop manuals and YouTube and forums you can find how to do anything.


    Sent from my iPhone using Tapatalk
     
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  19. larryh1108

    larryh1108 Active Member Supporting Member

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    Predatory Lending or getting what they earned?
    High interest loans are high for a reason.

    These lenders say that they are taking a big risk lending high risk borrowers $10,000 or more.
    They say they need the high rates and dealer discount (85% of amount borrowed) to offset the much higher default rate of these borrowers. Many seemed to know what they were doing because many of these newer lenders succeeded (Americredit, Capital One and others) but even more failed after 3, 4 or 5 years. Lenders with looser standards were attracted to the higher interest rates but needed looser guidelines to get the deals from the better established guys. So, instead of that 3 years of continuous employment history, 1 year at the current job with a different type of job as previous employment worked for them. So, if you worked at McDonalds for a year then worked as a secretary for a year and then landed a job at the local factory for the last year, that worked for them. Transient worker but always worked. A repo that was 3 years old and some kind of credit since (those $500 credit limit credit cards became popular) showed progression to reestablishing good credit was good enough for them.
    So, the looser standards of underwriting opened the door for previously unfinancable buyers.

    So, these newest, higher than ever, risk lenders flooded the market. Investors with expendable money bought in to these high risk/big reward investment pools to get double digit returns. Gamble big to win big they say. Well, thru extending loans to a subset of the biggest credit risks, many of these "predatory lenders" lost their asses and the investors were left holding the bag. No big deal to them, just another write-off.

    So, the theory goes, the people who need the most help in getting back on their feet are also the targets from these lenders who see no problem in charging them 36% interest for a car that someone would pay 9% interest.
    So, it sounds outrageous but let's look at a few numbers to really understand it.
    E.g. 2 buyers both finance $8000 for a used car. One credit score is 720. The other is 525.
    The 720 score buyer pays 36 payments of $237 with total interest paid of $523.
    The 525 score buyer pays 36 payments of $284 with total interest paid of $2213.

    The difference of $50 per month is the "punishment" for never paying your bills.
    The extra $1700 in interest, over 3 years, is the true cost.

    Tell me, is this predatory lending or is it a way for credit challenged people to get a better car than from that BHPH lot?
    Is $50 per month really that much more?
     
  20. larryh1108

    larryh1108 Active Member Supporting Member

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    I have to say that even though I am quite familiar with how the automobile works and functions, I am hesitant to attempt to remove the plenum to get to the guts, I grew up in the 60s and 70s and took shop in high school. As we all know, working on those engines was a lot easier than anything today. I had a total understanding of how everything worked under the hood and the chassis. Then the smog devices started to come out. Then no more carbs and points and plugs and distributor caps. Starters used to be easy to get to. Changing an alternator was a snap as long as you had a large enough steel bar to get the belt as taut as possible. Batteries we as easy to get to as the gas cap. Today? not so much. There is no easy task. Everything is controlled by a computer. BCMs, ECMs, there is a computer for every function on the car. If you don't have the right diagnostic and computer programming equipment, you are starting in the hole.
    Ever try to get a BCM flashed? What do they do? Download a computer program to it like we download a book? Cost? $175-$300? Really?

    However, I have found that the nuisance repairs are a lot less than the old days. At least in the cars I've owned. Either they are more reliable, as a whole, or the imports I've been buying the last 20 years really are better. I am one who just goes to a guy I trust and hope he is as honest as I believe.
    I am smart enough to suspect what is wrong and if I'm told I need something totally unrelated to the issue, I know I am getting jobbed. I know enough to be dangerous but not confident enough to pull pout the wrenches.
     
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  21. larryh1108

    larryh1108 Active Member Supporting Member

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    Predatory Lending... what next?
    So, as the saying goes, pay for this high interest loan in a car that you don't want for 1 year and you have "reestablished" credit. Well, partially true. Paying on time for this loan does reestablish your credit but since you pay mainly interest the first year, you barely touch the principle. This means that if you borrowed $8000 and paid it for a year, you still owe around $7000. Your car devalued a year and probably has 15,000 more miles so even though you paid diligently for that year you are probably now $4000 upside down (owe more than it's trade ACV) if you trade your car in after a year. However, you have to trade because you will not get 2 loans with credit issues, reestablished or not.
    So, since you still have a low credit score (though better, like 550 instead of 525) you have to put enough cash down to get to "even" because the lender will still only finance "invoice" on a new car. Does he or she have $4000 to put down? Ummmm, no. Not likely. So the alternative is to pay another year to get the payoff more in line with the trade in ACV. You will still be upside down but more like $1500 than $4000.

    In the time between paying for 12 months and 24 months (around 18 months or so) you see that the local New Car Dealer is running their Year End Clearance Sale with factory rebates of $2500. So, your mind goes to work and if you can come up with $1500 and get that $2500 rebate, you have your $4000 down! Brilliant! (unknown to her is the $1000 dealer cash)

    Yes, that's how you reestablish your car credit and get that new car in a little over a year. A new car! You deserve a new car.
    You've made your payments on time, paid off that $500 credit limit credit card like a clock and have been at your job for 3+ years now AND got a raise and promotion! Life is good!!

    It could be good if this buyer remained smart and humble. What does that mean?
    Well she (or he) wants what they want. If they are going to pay the note, they are going to buy what they want, not what the bank and finance company says they can afford. Makes sense, kind of..... They have a history of mismanaging their credit, They've taken big steps to getting back to good credit again. It's been 3 years since they went bad (or had that bankruptcy) so that poor credit will drop off in 4 more years (it remains for 7 years on your credit report). (The bankruptcy stays on for 10 year, though)/They are half way home and loving life.

    So, what do they do? Well, lets talk about them buying that new Nissan Altima. It's a good car with a solid reputation and looks great too. They want that Altima. So, they go to the New Car Dealer and shares their situation with them so there are no surprises like the last time. They explain they'll used the $2500 rebate to take care of the negative equity on the trade in and they have $1500 cash to put down. BUT, they want THAT Altima, the one with the wheels, leather, heated seats, power roof and GPS. That loaded one. If they are paying for it, they want the one that they want and they want THAT Altima.

    Well, the salesman knows, from what he is told, that she wants what she wants and who is he to tell her different? So, they find one she likes and they test drive it and she loves it and they go inside to do all that needs to be done to buy it, The salesman know the factory finance company will finance her (from what she said) so they just move forward. Credit app, 3+ year job, check, $3000 a month job, check, all the stipulations (stips) needed for the bank like address mail, present loan payment coupon, 6 compete references, proof of that $400 per month child support that is paid thru the courts (hubby is being garnished at his job), etc. Everything needed to get that car she deserves. Payment is never brought up or discussed. At this point, the buyer knows what she wants and is going to get it. The salesman is just taking notes and making copies.

    Soon, it is her turn in the finance office (called "the box"). So, she goes into the box, all proud of herself for getting what she wants and earned. She deserves this car. She is pumped.

    So, the finance guy gets this bubbly buyer who is totally clueless as to this part of the process. He grins, knowing he has a grape ready to be peeled. He sharpens his fangs and goes to work. She is ripe and ready to earn him a juicy commission.

    So, he sees all the info, app, stips, paycheck. Her $1500 cash is already on the table. The numbers are still at MSRP because this was never touched on BUT the factory lender determines how much she can borrow. The finance guy knows what this is; 100% of invoice PLUS tax, title, tags and DOC. Extended Warranty max $1995, GAP, max $595. Buy rate 18% max cap on rate 2% (meaning 20%) max payment 25% of $3400 ($3000 wages plus $400 child support) which maxes out at $850/month.
    Since she paid he last car note perfectly for 18 months, she qualified for the D+ tier which means she can finance the taxes, etc instead of advancing a maximum of invoice including the taxes and misc fees. He also knows, from experience, that the finance company will not allow more than double her last payment (she qualifies for $850 as the call back should approve) but her last payment was $300 a month. The payment will be capped at $600 instead of the $850 her income says it could.

    ...(con't)
     
  22. larryh1108

    larryh1108 Active Member Supporting Member

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    ...(con't)

    So, he puts it all into the computer; MSRP, Tax, Title, Tags, DOC, trade in ACV (it did come in at $4000 upside down but the $2500 rebate helped eat it up) cash down, rebate, ESC and GAP. 20% interest, 60 months. Computer spits out a payment of $730 a month. Ok, the finance guy knows that the lender will only advance invoice +++ and this is at full MSRP since the rebate ate up the negative equity, He knows it's priced about $1600 too high but the buyer doesn't know this.
    He also knows the max payment will be $600, but the buyer doesn't know this either. So, he hits her with the payment of $730 per month and she falls out of her chair. Whaaaat? Why so high? I can't pay $700 a month! I have car insurance too! That will be $150 a month! That's almost $900 a month! That's crazy! You made a mistake! I can't do it.

    The finance guys knows this and he also know that the lender won't do it either. So he politely tells her that because the car she wants has all the luxury extras (Wheels, leather, heated seats, GPS, etc, that it just pushed the payment to $730.
    Dollars and cents! Your interest rate came down from your last car, which was 28% to 20%. You don't get that 2.9% financing until your bad credit falls off after 7 years (still 4 years away). This is just your want of the extras and your 550 credit score. If you really want an Altima, which is a great car, then you have to look at the model without all the expensive upgrades. I'll have your salesman bring one right up to look at while I work on your loan.
    (He calls the salesman and tells him to bring up an Altima in the same color but without the toys and park it out front.)
    The salesman knew this was coming because this is a common scenario. He had the keys in hand and went to get the car.
    The now stunned buyer walks out front, still in a daze, and sees "the same" car parked next to the one she wanted.
    Other than the wheels, it looked the same from the outside. It was a new Altima. She didn't need to drive it. It was the same car. So, she perked up a bit and went back inside. She was now at the mercy of the finance guy. She HAD to get THIS car because she wants an Altima. He talked sense. She couldn't afford the luxury extras. It would be nice but not at $700/mo.

    So, the finance guys tells her he has good news! With this car, he got her payment down to $599. (funny how that works, huh?)
    She was still not excited. She figured her payment to be MAXIMUM $500. This was $600. However, it is still a brand new Altima. She tells him that she only wanted to spend $500 a month. He tells her that he stretched to to 66 months to get it under $600. He told her if she put another $1000 down that the payment would drop to $575. She didn't have it and the $25 drop was not worth $1000 in cash. She began to realize that if she wanted that Altima, she had to step up. She was thinking about it and the Finance Guy could see she was conflicted. He still has 2 points and $2600 in back end adds in the payment which, if he removed them, would get to her payment. By dealer rule (all dealers) you cannot allow a buyer to walk if there is still profit built into the payment. That is, simply, a no-no.

    So, he takes another stab at her psyche. He tells her she is sure he can get to her $500 payment if she buys a Sentra instead of an Altima. It's the same car but only smaller, he says. She's well aware of the Sentra. She used to have one and it's not as nice as the Altima. While she ponders knowing this is a big payment, he tells her he'll talk to the New Car Mgr to see if he'll help by putting $500 more in to her trade. He leaves and goes to the NCM and tells him she is wavering. The NCM asks the finance guy if he still has all his "adds" in the deal and he says yes. The NCM tells him it's time to do some chopping to keep the deal. The Finance guy reminds the NCM that he is still sitting on the $1000 dealer cash which the NCM thought was already used up (the Finance guy worked the numbers, not the NCM). The Finance guy said he tried to keep some profit for him (they watch each other's back if they like each other). So, the NCM says he'll give up $500 if the Finance guy gives up the rest. Ok, done. We'll make it happen.

    So, the fiance guy goes back and tells the buyer that the NCM bumped the trade to make the deal on the Altima. He plays with the numbers, uses $500 of the $1000 dealer cash on the trade allowance and bumps the 66 months to 72 months.
    Payment comes in at $559. HE tells her he can split the difference. $559. She hears the $550 part and sighs a sigh of relief. We have a deal.

    Profit: $500 on the front end (not bad for end of year!)
    Back end profit:
    ESC: $1500 for the aftermarket 6/75 wrap (new car).(cost $475)
    GAP: $470 (cost $125)
    Points mark up (reserve): $1445 (75% of difference between 18% (cost) and 20% (sold))
    Total front end: $500
    DOC: $595
    Total Back End: $3415
    Total Deal Profit: $3915

    Very, very real deal structure and how having credit issues can crush you if you are swept away with having THAT car.

    The sickest part? If she makes every payment, her total INTEREST ONLY paid is: $16,950 @ 20%
    total principle paid (amount actually borrowed): $23,400
    Total payments: $40,300+

    Ok, the same deal stripped (no ESC, GAP or reserve:
    Old payment: $559
    Stripped payment: $489
    Difference: $70 month

    Same deal with the adds with a 720 credit score:
    $379 / month with the adds as shown

    Bad credit cost her $180 per month on a new car.

    Predatory or earned by the buyer?
     
  23. Alfred

    Alfred E. Deplorabus Unum Supporting Member

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    Frankly cars have never been better, safer, performed better or been more reliable, nor more long lived etc. Yeah some of them are more soul-less than the old iron. But I have a 270K+ mile vehicle that would have been scrapped 5 times over had it been built in 1960s Detroit.

    I think I caused a few UCMs to starve along the way ;)
     
  24. larryh1108

    larryh1108 Active Member Supporting Member

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    How true!
    It wasn't that long ago that the car's useful life ended at 100k miles. If you had an American built car with 120k on the odometer, it was like you were lying or replace the engine and trans. When the Japanese imports really took hold in the 80s the American car companies had to either build them better or perish. Then came Lee Iaccoca and his "K" cars which saved Chrysler. Soon the new top end mileage was 150k miles. Now it's 200k plus. They cost an average of $30,000 today to pay for the better safety features, the much better MPG and all the computers that make it run. Of course, all the electronic toys do add up. If you do the regular maintenance on today's car, 250k it not unexpected. We've come a long way in the last 30 years. The next 30 should be amazing.
     
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  25. CZfool68

    CZfool68 Int'l Man of Mystery Charter Member Supporting Member

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    Don’t forget so overloaded with gov’t mandated crap that they cost as much as a house now. I’d like a new truck at some point, but will likely end up overpaying for a rare used vehicle about 15 years old so I can get want I want dammit.

    And stay the heck off my damn lawn.
     
    Last edited: Jun 12, 2019
  26. fishgutzy

    fishgutzy Senior Member

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    One thing I always do first is get preapproved at the credit union. Their rate was more than 2 points lower than the dealer until I said I'll go complete the financing with my credit union.
    Then then came down. 0.3 below the credit union.
    Also knew exactly what I wanted going in.

    Be patient. Go in fully loaded. I even went in with an extra magazine. Ha!

    Sent from my SM-G970U using Tapatalk
     
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  27. larryh1108

    larryh1108 Active Member Supporting Member

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    Very sound advice.
    When you hold all the cards, you control the deal.
    It really is that simple.
     
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  28. Alfred

    Alfred E. Deplorabus Unum Supporting Member

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    I'm sure you remember the quote: "Whats good for General Motors is Good for America".:rolleyes:

    And I wasn't doing donuts on your lawn, I was dethatching it. ;)
     
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  29. CZfool68

    CZfool68 Int'l Man of Mystery Charter Member Supporting Member

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    My Zoysia needs no dethatching. And that phrase was economic BULLCRAP.
     
    Last edited: Jun 13, 2019
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  30. Alfred

    Alfred E. Deplorabus Unum Supporting Member

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    I can imagine this spray painted like a gang tag on a Scotts Lawn Care building somewhere :)
     
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  31. larryh1108

    larryh1108 Active Member Supporting Member

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    I hate government overreach and excessive regulation but in the instances of mandating MPG goals and emission levels has made for much cleaner air and less dependency on oil, both good things.
    If left up to the Big 3, we'd still have 12 mpg trucks and cities with air 5x worse than it is today.Other than that, I can't think of many other govt regulations that actually helped us.
     
  32. CZfool68

    CZfool68 Int'l Man of Mystery Charter Member Supporting Member

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    Did government regulation cause changes in the Big 3’s car lineups or did Japanese automakers cause those changes? And wouldn’t Suzie Greenpeace want a Prius without the Gov telling her to?
     
  33. larryh1108

    larryh1108 Active Member Supporting Member

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    Ok, the example above, like most of the examples I've used, shows an extreme scenario for several reasons.
    All of the scenarios I've used are examples of real deals but these are the exception, not the rule. If you've followed this from beginning to end, you will see a pattern I am trying to exploit. I'm sure most readers see the pattern but I want to discuss it further anyway.

    The things all these horrifying scenarios I've presented showed a common scenario; the buyer was unprepared, the buyer had a big mouth (giving up too much information) and the buyer's focus was on the totally wrong part of the deal. By stating "I want THAT car because I deserve it" means that as long as the buyer gets THAT car, everything else is (basically) irrelevant. When statements like that are made (and heard) it's saying that you are open to being opened up to the staff at the dealer for maximum profit.

    Let's be honest here. Even the nicest, most reputable and decent dealers, salesmen and management will always take every penny you place on the table. Why wouldn't they? They are there to earn a paycheck and if you want to contribute more than you fair share, why would they stop you? If you say "Here's a signed, blank check. Fill in the numbers and give me my car," they will. They won't write a pack deal. Why should they? You said to fill it in and they will, for max profit.

    Being unprepared when you walk in WILL cost you thousands of dollars by the time you walk out. Chances are, if you got the car or truck that you wanted, you don't even notice you got whacked. If you can afford the payment and you like the car, who cares? That's what management and the sales staff look for. Give me THAT car at a payment I can afford and I'll be happy.

    So, you walk in hoping for a payment of $400 or less. You never tell the salesman this because the net says not to (to be discussed later).
    You have $500 down and have good credit. The car you want (used) has a tag in the window for $14995. Maybe 1/3 of the cars have these tags (can anyone tell me why?) You don't care because the one you want is "On Sale".

    You do the dance with the salesman. Blah blah, $500 down, blah blah, good credit right around 700. Blah blah a good car loan in the past. Blah blah blah, etc.

    Ok, got it. We should be good if everything checks out, says the salesman.

    Good, you think. This wasn't as bad as I thought it would be.

    Ok, busy paperwork done. Copies made. Insurance info. You are not trading the car you have because your daughter needs a car and it's a decent car. No pressure by the sales staff. So far, so good. No mention of payment even though the salesman asked.
    You told him that will be discussed in the Finance office. You may even pay cash.
     
    Last edited: Jun 13, 2019
  34. larryh1108

    larryh1108 Active Member Supporting Member

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    IMO? The .gov forced the Big 3 to redesign the engines and anti-pollution systems to comply with the new regulations. Did the Japanese automakers have a big part too?
    Definitely yes! The Japanese builders also forced us to build better and more reliable cars that could go 150k without falling apart (at that time). So, both played a big factor.

    As for Suzie, would there have been a Prius without the .gov forcing the automakers (foreign and domestic) to find ways to get 50 mpg? Like all progress, it's all a matter of time but the American automakers were in no hurry to fix what (in their eyes) was not broken. Why double the price on automobiles, in the Golden Era, when the public was happily driving disposable cars? Like I said, I hate government regulations and over reach but the automakers were fat and lazy and uninspired to change things. The .gov forced their hand (along with the better, foreign imports).
     
  35. notso556

    notso556 Member

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    I think the actual forerunner to the MPG revolution was the VW.

    In 1971 I bought a new Datsun 210. I'll grant that it was an economical little shitbox, both in terms of MPG as well as price, but it was a little shitbox nevertheless. And that is what almost all those imports were in those days. Little freaking boxes the Japanese didn't mind squeezing into back home but Americans were not overwhelmingly enthusiastic about.

    And then came the 1973 OPEC oil embargo and the price of gasoline shot through the roof in the United States because availability dropped through the basement. For those too young to remember, there actually was rationing. Gas stations allowed people to get gas - and then only so many gallons at a time - on odd / even days based on the last digit on your license plate. Need gas on the 20th of the month and your plate ends in 7? Too bad, come back tomorrow........... and get in line.

    That's what really changed minds about MPG. And gave rise to American built versions of the little shitbox. Does anyone remember the Plymouth Horizon? LOL

    But people still were not crazy about squeezing into little cars so a compromise was reached. Better MPG was designed into mid-size cars and peace came upon the people. Except for those who liked muscle cars or big land yachts - those were dead forever.

    As for Suzie's Prius........... would that even exist without government push? I don't think so.
     
    Last edited: Jun 13, 2019
  36. noway2

    noway2 Senior Member Charter Life Member

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    As I mentioned in one of the other threads, be sure to run the numbers and double check the amortization. One of my ham radio friends wound up in the same situation: credit union had better terms so the dealer one upped it. Until he ran the calculations and saw they were trying to get him on an 8% loan, which they denied until he proved it to them.
     
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  37. larryh1108

    larryh1108 Active Member Supporting Member

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    Now, this is the Finance Dept thread so let's assume that the buyer we are discussing got a good deal because the unit is 80 days old and was marked with the "No Haggle Price" of $14,995. Let's assume this is a pack deal and the price was competitive. No funny stuff here, so far. The price is fair and the buyer sees this.

    Now, the scenario I am moving towards is a very common practice in the Finance office. This has nothing to do with good credit or bad credit. It has nothing to do with buying a new car or a used car. I want to show a typical process of a deal going into finance. We can discuss what takes place once we build the scenario.

    Ok, into the box you go.
    Finance guy seems nice and friendly.
    You sit down and he begins by discussing your credit report.
    He circles a few things. Flaws form 5 years ago when you got divorced but it's been fine since. He asks about the medical bill for $75 that went to collections but was paid 5 years ago as well. (When good credit people get these bumps AND they pay the balance timely, after 3 years they are pretty much dismissed (by the credit score) as an anomaly, not a pattern). Things do happen, you know. However, your score would be lowered if the collection was never paid. That red circle would hurt your chance at the best rates out there if still unpaid.

    So, he knows that these are paid blips that mean very little today but he is psychologically attacking your psyche by pointing out these credit flaws from 5 years ago. You start to doubt your ability to get the best rates (which you diligently looked up before you got there. The going rates for the best credit is 4.9% and your score is 717. (It's not 720+ due to those bumps 5 years ago but 717 is still good). The Finance guy knows the bank charges the same (best) rate for a 700+ score if any collections are shown paid on the credit report 3+ years ago.

    Ok, you think, maybe not 4.9% but 5.9% max is what the rate should be. The finance guy, by circling in red ink, just bumped your rate by 1%, in your head, by just pointing out a few minor flaws. That's why he did it, to get you to raise the rate, in your head. ($500 per point in finance reserve which is 1%). This subtle move generated $500 profit, given up by you (in your head).

    Now, no rate or payments are quoted yet. He is determining the rate and term now. The salesman did tell him that when he asked for an ideal payment that you declined to answer and told him you may pay cash. So, next the Finance guy wants to know if you wanted to pay cash or if you wanted to see some payment options. So far, nothing has gone wrong in the Finance Office so you tell him to present the going rates and payments and you will decide.

    Ok, the Finance guy now knows you are financing whether thru him or thru your bank. He now puts some figures into his computer. He asks if you had any preference in months? Do you want to pay it off early and save interest or do you want to spread it out over time to get the lowest payment. Not sure, you tell him to give you the options and you will decide. Ok, no commitment yet, you think. Just gathering info at this point.

    So, he types some more. Sometimes a slight shaking of his head, very subtly, and sometimes a light smile and a tiny nod. You notice his face as he is typing, without his knowledge (he does know, BTW. His non-verbal signs are pre-planned).

    Ok, per the internet advice, no payments have been discussed. He has no idea that the buyer wants to be around $400. (Are you sure? Did your last 2 car payments come in around $350? Did he miss that fact? It's on your credit report, you know. Most people can be bumped from $75 to $100 per month for a newer car than the last one. Prices do go up every year, you know.)
    He knew you were ok from $350 to $425+.
     
  38. larryh1108

    larryh1108 Active Member Supporting Member

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    I totally believe this but what I don't understand (unless they didn't print the contract yet) was at the top of every installment contract is the "Truth in Lending" box. It is required by law. It specifically states the interest rate, amount financed, total amount of payments and interest paid (if all payments are paid as agreed). This cannot be fudged, altered, circled, or have any non-printed markings of any kind in this box. So, if the payments didn't match what your buddy's schedule said but the rate matched what your buddy said he would pay, then there was a hidden fee in there somewhere that was not disclosed. e.g. the payment included (but was never discussed, yet) an ESC or GAP ins or a service package or (most likely) a life insurance premium, the the numbers would not jive and it would look like he was charging a higher interest rate instead of a hidden cost by reverse calculations. This is the only way I could think of in charging a higher rate than stated.
     
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  39. larryh1108

    larryh1108 Active Member Supporting Member

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    He next asks how much cash down you want to put and you tell him $500. $500 works for you so $500 it it.
    He nods and types. He then asks if you are aware that most banks require a minimum down payment of 10% to qualify for the best rate? That would be $1500 down, not $500. You don't have $1500 to put down so you ask if that means you can't get financed. He says "No, but that bumps the rate by half a point" (Another $250 reserve profit). You think, ok, you can handle 1/2 a point. You have heard about the 10% down. The Finance guy knows that it is true to have to put 10% down if your credit score is less than 680 but not with a 717 score. A little half truth/white lie.
    So, now you are at 6.5% interest in your head. Still no payments or rates but that's coming. So far, no surprises. So far, so good.
    (The Finance profit is now $750)

    Ok, the Finance guy continues. He states: Selling Price is $14,995, the advertised price. All of our used cars have a 3 month and 3,000 mile warranty. You have $500 down with a 717 credit score. As we discussed, you are close to the lowest rate but you had some minor credit blemishes and less than 10% cash down Sound right?

    You say "yes" because what he said was all true, no surprises. Still good. Good communication.

    Ok, you wanted your payment options. I'll write them down for you to compare and choose......
     
  40. larryh1108

    larryh1108 Active Member Supporting Member

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    Ok, the Finance guy writes down some options.
    36 payments of $555 @6.9%
    42 payments of $486 @7.25%
    48 payments of $435 @7.49%
    54 payments of $389 @7.9%
    60 payments of $367 @ 7.9%
    66 payments of $340 @ 8.25%
    72 payments of $322 @8.75%

    OK, he says, which payment works best for you?
    All of these payments are with $500 down and include a 36/36000 warranty.
    Also in these payments is payment protection in case your car is ever stolen or totaled.
    This covers the gap between what your insurance pays and what you owe the bank. If you get the 36 or 42 month option, it is usually not needed but if you go to the extended terms, it is smart to have it.
    This added about $5 to the payment. It is totally optional but I recommend it.

    You see the options. Full disclosure, you think. Ok, I get choices here. Looks ok.
    So, you ask the Finance guy "Why the different interest rates? The 8.75% seems kind of high. You said i got near the top rates."

    The Finance guy explains that rates change with each tier of months to pay (it does, to a degree. Usually in 12 month increments, not 6 months as shown). Standard length in the year you are buying is 36-42 months.
    Anything over 42 months is considered extended term and there is a quarter to half point bump for each tier.
    (This is also a half truth. In older cars, the bump is after 48 months. In a car with your year, 60 months is considered in the standard range. Extended terms of 66 months and 72 months does raise the rate).

    So, the rate bump is a half truth, again. Some truth but not exactly true here.