Automakers screwed by their own greed, along with their customers.

[Greyhound]

Great piece in MJ that looks at the often overlooked scourge of the industry, the dealers. Thanks to almost a century of buying legislation state by state, these guys are, literally, a law unto themselves.

According to industry analyst Art Spinella, president of CNW Research, fully 85 percent of Americans with a car loan have negative equity. Other studies show that these loan holders, on average, owe $4,400 more than their cars are worth. Millions of Americans didn't get upside down on their car loans without a lot of help. Enter the great scourge of the American consumer market: the car dealer. Car dealers have been out in force in recent days lobbying Congress and holding rallies at dealerships around the country to generate support for the rescue plan. As a result, there's been a fair amount of sepia-toned media coverage about the desperate plight of the poor, local car dealer, that pillar of the community who supplies softball teams with T-shirts. And it's true. These folks are now threatened right along with the Detroit assembly-line workers. The National Association of Auto Dealers predicts that 900 dealerships will fail over the next year.

Lost in all the news coverage is the fact that many car dealers played a central role in creating the current mess. As franchisees of the manufacturers, car dealers don't make much money actually selling cars. The markups are pretty slim, and in recent years, Detroit has squeezed their dealerships for more and more profits. In the old days, car dealers would come up with creative ways to compensate for the small margins, such as rolling back odometers to sell cars for more than they were worth. But after Congress cracked down on the practice, dealers (and manufacturers, too) found a better way to pump up their bottom lines: selling financing.

Back in 2003, Forbes magazine observed that GM was better described as a bank that happens to make cars than as an automaker. At the time, as much as 90 percent of the company's profits came from its lending arm (which also had a mortgage branch), not from car sales. For the past decade, much of Detroit's output has been little more than a vehicle for selling credit, and the dealers have done the dirty work for them the way local mortgage brokers generated large volumes of questionable loans for big banks and finance firms.

Congress could also roll back a provision auto lenders won in the 2005 bankruptcy reform bill requiring individuals who file bankruptcy to repay the entirety of a car loan, even if they owed substantially more than their car was worth. Previously, someone in bankruptcy would only be required to pay back the loan up to the actual value of the car. Returning to the old system would allow more people to get out from under their debt—some of which was created through dealer fraud—and allow them to eventually rejoin the car market.

http://www.motherjones.com/washington_dispatch/2008/12/auto-bailout-dead-end-cars-on-credit-2.html">More to learn in the whole article.

[Greyhound]

1. Never mind, it's not like this will effect any of us.

[BlooInBloo]

2. I would guess that being upside down on a car is a very different thing...

from being upside down on a house, for three main reasons, all contained in one example:


If somebody buys a $300,000 car on a 30 year adjustable rate loan, given the depreciation curve that cars are subject to, that's kinda their own fault.


Of course examples of that nature are rare in the extreme - assuming any examples like that exist *at all*. In the normal world, where people could be upside down on a 5 year fixed rate $20000-$40000 car, being upside down sucks, but would hardly be a cause for bankruptcy unless something *else* were fucked up - like, say, being upside down on a house loan.

I mean, people don't declare bankruptcy because they're $4000 in the hole.

[SammyWinstonJack]

4. .

:thumbsup:

[Greyhound]

6. I must be missing something here, who said that being upside down

in a car loan is making people go bankrupt?

To try to get this to your point, you can go bankrupt and get out from under that $300,000 mortgage, but the bankruptcy "reform", brought to us by a host or "our leaders" incidentally including the next VPOTUS, means you can't get out from under the car loan.

[BlooInBloo]

7. If you're bankrupt, what you owe on the car loan* is the least of your worries...

If it's not, then you have a serious problem, and should cease and desist from buying $300,000 cars.


* I mean the *residual* debt here, of course - after selling the car. Which of course you're likely to have to do, because you're, like, bankrupt.

[SammyWinstonJack]

8. $300,000 cars.

:spray:

[Greyhound]

9. If you're bankrupt, a vehicle becomes far more important. Did you read the article?

Bankruptcy is a relief from debt, a fresh start. It is the only remedy specifically mentioned in the Constitution, do you think that was just an accident, something that was simply thrown in at the last moment on a lark?

[BlooInBloo]

10. Easy, o breathless one.

Regardless of how important it is, bankruptcy filers routinely have to sell off their significant assets. Commonly including cars. I would imagine that a cheap-o car would have a good shot at being excluded from the sell-off.

I'm sorry about that. I didn't make it that way.

[Greyhound]

12. All this is completely beside the point of the article. I'm guessing you didn't read it. n/t

[Romulox]

16. As I've pointed out, the article contains factual inaccuracies... nt

[Romulox]

15. How many ways can I tell you that you are flat out WRONG about the bankruptcy code?

The bankruptcy code handles debts secured by a primary residence in a similar fashion to so-called "910" cars. In fact, the code allows you to modify the interest rate of such a car, where the code forbids modifying the interest rate on the principle mortgage.

Any collateral securing a debt can be surrendered in a bankruptcy. That includes houses and cars.

So you are flat our mistaken in your analysis. I'll provide cites if you like. :hi:

[Greyhound]

18. As many as you like, my bankruptcy was done before the "reform", so if you would like to take it up

my attorney and the US Bankruptcy Court go right ahead.

BTW, did you read the article?

[Romulox]

20. Unless new filers are being issued a TIME MACHINE, the law as it exists now is the one in question.

"BTW, did you read the article?"

As I pointed out, the article contains factual inaccuracies. :hi:

[Greyhound]

22. Then I suggest your beef is with the author of the article and all this crap is

simply diversion. Do you deny that Bill Heard Inc. has gone under? Do you deny that GM cut off their financing because they were falsifying loans? Do you deny that 900 additional dealerships are likely to fold in the near future?

What is your point?

[Romulox]

24. No. You don't know what you're talking about, and you're trying to bluster through

The fact is that the bankruptcy code does not treat an obligation secured by a car much differently than it does an obligation secured by a primary residence.

And where the code does treat the two differently, it treats the obligation secured by a car less favorably (from the perspective of a creditor) than it does to an obligation secured by a home.

In any event, one may always surrender either a home or a car in a bankruptcy.

So the article (and your argument derived therefrom) are both starting with a faulty premise, which is leading you to a faulty analysis. 11 USC § 1325.

That is my point. :hi:

[Greyhound]

27. Thanks for the kick, but I didn't say anything. I posted the article (4 paragraphs anyway)

and attempted to address this distracting nonsense. You do not answer questions nor do you establish any authority at all. We can keep kicking this all day going around and around about... I have no idea what except you claim the author of the article is wrong about one sentence in the last paragraph regarding the obscene bankruptcy law that was foisted on us by Biden & Co.

I could not possibly care less what your opinion is regarding the current bankruptcy law and did not write the article.

I have seen the auto industry from inside the FoMoCo parts distribution center in Denver and from four different dealerships over the years in three states, so I can attest that auto dealers are lying, thieving, scum that would turn their grandmothers out if they thought it would make them some more money.

I have no argument regarding the bankruptcy provision mentioned in the article as I am not a bankruptcy attorney, that is your obsession.

But again, thanks for keeping this kicked, I'm sure some others have followed the link and read the article which was the point of posting it.

[Romulox]

29. 11 USC § 1325 is a cite to the Bankruptcy code. That is the controlling authority in this case. nt

[Romulox]

30. Btw, this is the part you are 100% wrong about (from your post #6 to this thread)

"To try to get this to your point, you can go bankrupt and get out from under that $300,000 mortgage, but the bankruptcy "reform", brought to us by a host or "our leaders" incidentally including the next VPOTUS, means you can't get out from under the car loan."

This is absolutely, positively, irretrievably wrong.

[Greyhound]

32. OK, I see what you're getting at and I was not too clear in conveying

that I take what was presented in the article at face value. I was trying to guess what BinB was talking about and relating to his perception. One thing that is apparent is that he did not bother to read the piece, as usual.

Since, this took such a bizarre turn I gave my lawyer a call. He says there is still no firm consensus and the courts and attorneys are still figuring out what to do with this abomination. He makes $400 an hour doing this for his living and you're some guy on a message board, for the time being I'll take his word as more accurate than yours.

He did not say you're wrong, only that there is currently no consensus, that the individual courts are still issuing conflicting decisions, and individual state laws make it even more of a mess.

[dysfunctional press]

11. people are generally "upside-down" on a "new car" loan as soon as they drive it off the lot.

depreciation and all.

[Greyhound]

13. There you are. apparently 85% of Americans are in this position and

therefore not able to purchase a new one without the old "we'll just roll it into the loan on the new car" ploy.

I worked for FoMoCo when I was just out of HS and I got out after learning how the business works, it is thoroughly corrupt, top to bottom. It's just too bad so many people's lives are dependent on such a system.

[Romulox]

14. That's because a car is a depreciating asset. ANY financed car will be "upside down"

as soon as you drive off the lot.

Has not a thing to do with "corruption".

[Greyhound]

17. Yes, but some vehicles are more equal than others.

For example, my sister's Honda CRV was worth more than what she owes in less than a year, while her Dodge truck was still worth less after paying for four years.

The corruption is epidemic from the top down, the executives lie to the workers and the manufacturers lie to the dealers who lie to the managers who lie to the salesmen who lie to the customers who pay the price. If you believe you "got a deal" on your new car purchase, and you don't work for the manufacturer or dealership, the sales and F&I staffs did a good job of ripping you off. It is the cornerstone of the business.

[Romulox]

19. You can't finance a car for the sticker price. Financiers need to make a profit.

It has nothing to do with corruption. It costs money to finance an asset. The situation you describe has to do with depreciation not the cost of financing... :hi:

[Greyhound]

21. The Maroney has absolutely no bearing on the price of the vehicle

and the article is about dealerships screwing themselves by screwing us.

[Romulox]

23. I have no idea what "The Maroney" is, but theprice paid for a vehicle ABSOLUTELY has something to do

with the amount of equity one has...

Present value - amount owed (made up of amount financed x term x APR less payments made) = equity.

I think this thread is so full of misunderstood facts and half-truths it's difficult to know where to begin.

[tammywammy]

25. The window sticker on a New vehicle is called the Monroney.

It's from the Monoroney Act requiring all vehicles to display certain items: VIN, MSRP, accessories, transportation method, freight cost, etc.

[Romulox]

31. Ah, thanks for that. nt

[tammywammy]

26. Except, when someone defaults on a car loan that doesn't effect the dealership

The vast majority of dealerships don't do in house financing (except the little tote-the-note lots). The dealership is separate from who the customer actually OWES for the vehicle.

[Greyhound]

28. That is true and I imagine a big reason for the Forbes statement about GM

being a bank or financing company that happens to make cars.

[Romulox]

3. VP Biden was a champion for BAPCPA, and the 910 car provision applies to Hyundia, Toyota, et al...

:eyes:

[Romulox]

5. The article is flat out wrong as to Biden's Bankruptcy "reforms" handle cars...

The current version of the code allows modification of the principle amount due on a car if it was purchased more than 910 days prior to filing.

It doesn't allow any modification of an obligation secured by a principle residence. This provision hurts more people than the "910" car provision ever did, but then again, VP Biden (and Congress in general) has a lot more friends in the mortgage industry than they ever have in the car industry! :eyes: