Attending college and getting by on just $13,000 per year meant I had to count and track every penny. So tight were my finances that I not only "knew" when I had taken a girl to dinner, I FELT it in my finances. I could literally feel $30 poorer the week after I took a girl out because I couldn't afford as many groceries. This level of poverty has many benefits as it does drawbacks, but one thing it did provide me with was deadly accurate ability to assess whether or not somebody was supporting themselves or living off of somebody else.
This came in particularly useful when you had some idiotic college student claim they were "independent" (notably girls) while they drove a new car. Within a few questions you found out they "may have" been paying for their tuition, but daddy was financing the car
and the credit card
and the health care
and the rent
and the gas
and the groceries.
Fastforward to today and this skill still serves me well, especially when it comes to commercial lending. I already know, 9 times out of 10, based on how somebody acts, how much they brag, and how well-spoken they are whether or not they are a viable client, likely to pay us back, or some poser schmoe on the brink of bankruptcy that has (like President Obama) mastered the art of talking a lot, yet saying nothing. The fancier the suit, the nicer the car, the larger the balance sheet, the more he smiles the more likely he's insolvent and on the verge of bankruptcy.
However, it wasn't always that way because until I got some experience I made one erroneous assumption - if you drove a nice luxury car like a Beamer or a Mercedes then you MUST have had money. Who would afford such frivolous luxuries unless they were spectacularly wealthy?
It wasn't until I saw the balance sheets of the Denny Heckers and Adam LaFavre's of the world did I realize it was quite the opposite. The VAST majority of luxury cars you see on that highway are 100% financed to the hilt. The people driving them are MORE LIKELY to have a lower net asset value than the local waitress cocktailing at the local bar and certainly a lower credit score than your average blue collar worker in the Bakken oil fields.
Still, faux rich posers, trophy wives and criminal real estate developers aside, I have a question - who buys brand new BMW's? Let alone who buys brand new cars?
The reason I ask is because I can't plain fathom spending the $50,000 on a brand new luxury car. Whether you have the money or not, isn't $50,000 a tad excessive? Couldn't you buy a brand new Toyota for the fraction of the cost, better reliability and lower maintenance costs WITH money to spare? Money that could be spent on other items thereby improving your standard of living? Heck, the extra $30,000 could put a kid through most of bachelors degree at a 4 year institution. Why do people buy brand new cars, let alone, why do THOUSANDS of people EVERY YEAR buy brand new luxury cars? Why is it so common when it just does not make sense?
This is a question that I haven't really spent the time to research and answer, but has nagged me for the past 2 decades. Thankfully, somebody answered it. And (as I feared) the answer will not help us improve economic growth or close the trade deficit.
Hence why I'm never going to buy a new car, a new house or marry a woman, despite what my parents or society what WANT me to do. When I have enough stable income, then I can consider buying a car or a house as long as I'm commited to those things in the long term, but I will never marry. It's not worth getting into all this debt trying to impress her or take her out to dinner or all that BS. I've never really cared for dating and now I know why. Those Leykis 101 lessons are really starting to come in handy.
ReplyDeleteI also hate people that get into a lot of unnecessary debt and then blame everyone else for their problems and then want the overly benovelent government to give them something for nothing. That infuriates me to no end because these people had every power to think about their decisions and their long-term consequences. Most people I've come across in life don't really seem to think about the long-term and that's where they get into problems in my humble opinion.
SOMEBODY has to buy them otherwise we wouldn't be able to buy a used one in nice condition.
ReplyDeleteTruly nice cars are a joy to drive. Acceleration, handling, ride, quiet, comfortable seats, top notch ergonomics, a little burled walnut... If I could afford it (as in, pay cash and not feel it), fuck yeah. A guy I know scored a great deal on a used Lexus with a few miles on it. Wonderful car. He spends a lot of time driving for his job, and it's worth every penny -- for him, in his position, since he could afford it. For most people it may be a status thing, and if it's borrowed money, they're preposterous retards.
ReplyDeleteBut I don't think it's quite right to knock nice cars as such.
Fairly well off people tend to drive new cars with reasonable options that are nice but not from super brands. Say a brand new Toyota Camary. The focus is on safety and dependability (less time in the shop).
ReplyDeleteIf they are striving upper middle class they may drive used BMWs.
Hell, I see 6-series Beemers and $100k Benzes around here all of the time. Unless I had a billion $, I'd take that much money, buy a house, duplex, or something else that gave me some cash flow, and forego the immediate depreciation in asset value that you get when you buy a "luxury" vehicle. Conspicuous displays of wealth are rarely justified outside of a tiny minority of the population.
ReplyDeleteskh.pcola
I believe it has to do with outward displays of status.
ReplyDeleteUpper class => Quality housing (i.e., exclusive neighborhoods), quality* cars and quality* clothes are assumed. Since status just "is" in this demographic, outward displays center on experiences (expensive vacations, etc.) and toys (expensive, non-productive assets such as resort homes, yachts, etc. that are enjoyable but cost money to maintain).
*: Quality here includes expensive and/or exclusive.
Upper middle class => Quality cars and clothes are assumed, so displays of status center on housing.
Middle and lower-middle class => Decent clothes are assumed, but quality housing is out of reach, so displays of status center on cars.
Lower class => Quality housing and expensive cars are out of reach, so displays of status center on clothes (accessories, hairstyles, etc.). This can include flashy but not-so-expensive cars.
In most cases except for the truly wealthy, these outward displays of status for the respective classes are equivalent to 'handicapping' such as a buck's massive rack of antlers or a peacock's tail. i.e., an attempt to display greater fitness that is actually evolutionarily (in this case, financially) disadvantageous.
Hey, let them buy new vehicles - I need to have a good supply of used vehicles for my consumption!
ReplyDeleteI don't have any need to impress anybody or to a big shot or give false appearances of great wealth or power or sophistication.
Get real.
I really like having vehicles that are so old that I don't have to worry about washing and waxing them, nor do I have to worry about a dent here or a scratch there.
I haven't purchase a new car since 1986 and haven't had a car loan since 1992.
Not that I'm bragging, I'm a stealth millionaire and am debt-free. It's no big deal, but you can do that when you live frugally and don't go into debt buying unnecessary "assets" that depreciate rapidly.
Cars are a commodity now. Luxury cars are like Apple, a vulgar display of wealth. People do, in fact, KNOW they are vulgar, and that is part of the appeal. Lots of girls dig a big ass fake gold chain or grillz more than a real gold wedding ring; betas figure this out the hard way.
ReplyDeleteThe real wealthy aren't driving. They're flying.
hey Capt. ypu might remember my red italian convertible i bought second hand for 6000 swissies in 2008. it had 56k km. i drove to 122k km with no troubles at all, big service was due, a turkish guy ran a stop and i tboned him. car is a total loss. insurance paid 4700 francs and i keep the wreck, i can break up and sell the parts. i then bought for 5800 cash a fiat diesel. 2006 and 100k km, top condition. it does 50mpg. i guess i deserve good grades :-)
ReplyDeleteBMWs are REALLY nice to drive. Terrible electronics, but they feel fantastic behind the wheel.
ReplyDeleteMy parents and a friend each have one. Certified Used in both cases, of course.
The thing is with modern game, the "costs" of being a player are pretty much absolutely fixed and make a luxury car pointless:
1) be able to provide privacy
2) have said privacy be in a location where women of reproductive age are accessible
3) have clean and reliable means of transportation (a car like a used Honda Civic will do, but in certain places public transit is enough)
4) have a wardrobe
A luxury car really gets you nothing these days with the ladies.
I think its more of a status thing than actually affording that type of car. People always want to be noticed no matter where they go. I have seen many young people today driving these types of cars. Do you really think that they bought it usually 9 out of ten times mommy and daddy are footing the bill. And if you lived in the ghetto like i did you would see these types of cars driving by people you know cannot afford a car like that.
ReplyDeleteso to me its more of a status thing. Why spend so much money when in just maintenance alone will cost you a lot. Be for real folks
At the ancient age of 42, I purchased my first new car: A 2012 Fiat 500.
ReplyDeleteYou have till the count of three to stop snickering, and start listening.
My previous cars were; a 66 Ford Galaxie 500, a 64 & ½ Ford mustang, and a 71 Ford Ranchero. You might notice a pattern here. They were all economically viable, in the fact that I could repair anything on them. In some cases, this was literally done on the side of the road with rags and soda-can pull-tabs. Driving these cars and maintaining them myself was a big part of the reason I was able to avoid debt traps. It was unfathomable to me, when a friend paid $350 to have a distributor cap replaced.
The downside, is the older they get, the more work they require. Hence the new car. The math was pretty straight-forward: Given the distance I was driving, and the price of fuel, the saving in gas alone was enough to justify the decision.
How well will it hold up? I’ll have to wait and see. Frankly, I’m just enjoying it right now.
Anonymous: "It's no big deal, but you can do that when you live frugally and don't go into debt buying unnecessary "assets" that depreciate rapidly."
ReplyDeleteLike a 'wife', for instance?
They do not buy them. They rent them or "lease" them. The financial services industry figured out that people who wnat to drive a $50k car, but cannot afford one would be willing to pay monthly to rent one. In essence, our consumption oriented culture played into their hands; everyone has a car payment, right?
ReplyDeleteYour points are well taken. So many people with brand new BMWs that cost $50k lease them and are willing to pay over half the value of the car in "rent" in order to drive it. Now, finance people will say that you can "run the numbers" and show that it makes sense. However, unless you have a tax incentive to lease via a business, it makes no sense for a consumer to lease.
Unfortunately, our culture thrives on "not-enoughness." We want things to make us feel whole. Being "car rich, house poor" is one of the symptons.
One of the guys from my Guard unit works at a dealership. He mentioned that leasing a vehicle works out well for keeping up appearances.
ReplyDeleteThose kids you knew in high school with shiny new cars from their parents? Leased. Lawyers and doctors with student debt up to their eyeballs and nice cars? Leased.
Sure, you need full insurance coverage, but the monthly lease payments decrease every time you sign up for another consecutive two year lease. You'll always have a shiny new car under factory warranty, the automakers get to move product, and the dealership will get to sell it for near new prices when you're done with it on terms favorable to them.
The inverse correlation between a fancy car and a fat bank account is similar to one of Parkinson's Laws. He observed that how successful a company is varies inversely with how fancy its building is. Young, growing, productive companies don't have time to build monuments to themselves. It's only once things start to slow down that you can do that.
ReplyDeleteIf you are an upper-middle or lower-upper class professional, you need to have an expensive car to fit in with your peers and clients. Everyone I work with drives beemers, audis and lexuses. And we all make enough money that $40-50K on a car is not a big deal.
ReplyDeleteYou have a poor man/working man's mindset. You're looking at a car as only being a tool, and do not seem to recognize its value as a tribal marker. There is much value in having a wealthy and connected peer network. Belonging to the "tribe" by dressing, driving and living like people who earn as much as you is quite valuable.
I agree, You said it exact.
DeleteI've never cared what kind of car a person or how they spend their money as it is none of my business. I do know individuals that are what you would call gear heads and buy the best car that they can, but also live modestly elsewhere. Someone driving a 50 to 75k car isn't necessarily living beyound their means. They simply want to have a nice car, and that is what capitalism is about. How many individuals care what kind of button down shirt they have? I do, and I spend the money for custom made ones. It isn't for displaying any sort of status, I just appreciate well fitting clothing.
ReplyDeleteAnd frankly, which would you consider worse? A person who bought a 100k car and drove it for nearly two decades or a person who gets a new 20 to 25k car every two to three years?
Now I can see irritation at those who drive really expensive cars but then complain about how the government needs to do more (the hollywood effect) as it seems disingenious to do so when you are driving a car that is worth two salaries for the average American.
BMDubya's????...hell who buys a "new" car. Period. Jeebus you drive it off the lot and you can hear the depreciation rolling out of the exhaust.
ReplyDeleteMost folks I know have the comapny foot the bill for the fancy ride. It's a tax write off.
Tip: Have ya ever noticed how a 12 year old Porsche looks just like a new one? Therein lies your savings. (As an aside, have you ever noticed a 12 year old Chevy? Me either, less I am at the junk yard looking for parts!) Bob's yur Uncle.
Comment above summed it up. A lot of luxury cars you see on the road are leased.
ReplyDeleteWhat's going through a consumers mind is why finance a Honda civic when you can rent a BMW 3-series or Mercedes C-class for the same money each month -- and get a new car every 36 to 48 months!!
The thought of NOT having the debt of a loan or lease payment never crosses their minds.
This comment has been removed by the author.
ReplyDelete"Why do people buy brand new cars, let alone, why do THOUSANDS of people EVERY YEAR buy brand new luxury cars? Why is it so common when it just does not make sense?"
ReplyDeleteAaron, love you buddy, but I will answer this question for you as someone who economically worked out buying a new car.
I'll just go straight for the heart and answer why it's SOMETIMES not stupid to buy a new car vs a used car. And the principal is this...
"People who buy used cars should be buying new, where people buying new cars should be buying used."
Well that seems like a contradiction how does that make any sense?
What I bought for someone is a 2011-2012 Honda Fit. The small little hatchback and the cheapest car Honda makes. It priced around 17 000 when all told is done. After 3 years / 36 000 miles when the bumper to bumper warranty is up, the blue book value of the car is estimated around $12 000. After 5 years / 60 000 miles even a fair sell is 10 000.
So the difference in depreciation is around $7000 all told. Now the question is, what does that $7000 get you vs a used car?
A: Gas Milage, the new car vs the old Dodge Stratus gives us 33 MPG which is about 10-12 MPG better than the old car. Yes you won't make up the difference but the gap between the cars has shortened a little bit thanks to this MPG difference.
B: Standard features: Air-con, cruise control, aux jack, and MP3 Player support is all standard. Although most cars come with the first two, the last two is rarely seen and is usually a $100-$200 option on cars back in the day.
C: Peace of mind: Used car buying is always a risk, there's obvious chance for horror stories such as write of rebuilds being sold way more than their valued. And shady people who clock odometers both analog and digital. If you know what to look for then you can get a cracking deal, but most people are no where near AES certified level mechanics, and a lot miss the obvious stuff like body work damage, checking oil levels, and reading service histories. Even then if it busts on you in the middle of the highway it may cost you your job, and that's something you can't always afford.
D: Safety: The biggest innovations in cars in the past few years has been the addition of stability control which prevents the car from skidding out sideways even in icy conditions. That and the safety cell of the smaller cars are actually SAFER than the big cars 10 years ago. Fifth Gear did a crash test and proved a small mini-car like the Honda Fit will beat out a Volvo Wagon from the late 80s. Since the structure cell is so rigid and tough.
E: It's only you that drove it: No one else has driven the car, and that ultimately goes into the enjoyment of it since you know no one has had sex in it, or pissed themselves on the car seat. If you want to see, Top Gear bought a whole bunch of used BMW's and found stuff ranging from urine to feces in the car from forensics. Can't quite drive the same knowing that right?
So is all that worth slightly less than $7000 over 5 years? Well I made the decision that yes it is. And a used car that's only 5 years old is a much quicker sale than a used car from the 90s. Opportunity cost, standard features, safety, and mitigation of risk was worth the 7 grand.
I'll post more later regarding luxury cars and it'll be a different story....
Now onto expensive cars.
ReplyDeleteNow what I mean by people who buy new cars should buy used, is that the average consumer spends around 25k-30k for a regular sedan (Accord, ,Camry)
For that you can get some awesome reliable luxury rides for WAY less then you ever expect to.
Don't buy BMW's, Mercedes, and Audis for your used luxury cars. These cars especially the BMW's don't depreciate as much since everyone and their mother wants a beemer, whether it's a great car or not. Not only that but maintenance cost on these things are horrendous and way overpriced for the actual cost of the car itself. They are also not totally reliable as the complex engines have always a chance of busting on the highway
The biggest kept secret in used car dealing is that American cars past 2008 are fantastic. After that year, the big 3 American companies decided to actually take the market seriously. So the Chrysler 300/Dodge Charger, Cadillac CTS, and Ford Taurus are actually very well made, luxurious cars with simple but powerful and efficient American engines that are easy to maintain and very reliable.
You can find a Cadillac CTS with a 3.6L 306BHP V6 engine with Navigation, sunroof, and all the fixings that would total new for almost $50 000 for 25k with less than 20,000 miles on the clock.
Whats even crazier is if you really want to look rich and you are willing to budget yourself out and have a very good and honest mechanic you can buy an ultra luxury car for literally 20% of what it costs new.
You can find BMW 7-Series and Mercedes S Classes for 35 grand or LESS with only 40-60 thousand miles on the clock. I found one with 50k miles for 25 grand for an S-Class. Keep in mind these cars were designed to be the best of the best of their day costing 6 figures, and meant to be choffered in rather than driven. All the nice stuff that doesn't even exist yet on ordinary cars like the Corrola, can exist on 4 year old BMW 7-Series and Mercedes S-Classes like Radar Guided Cruise Control, Voice recognition, memory seats, massaging seats, refrigerators, and more. All with a powerful V8 Engine and enough legroom in the back to make you feel like a CEO for only 25k.
Now repairs are going to be high, but if you bought one for 25k and budgeted out for more than 10k in repairs, which is TOTALLY INSANE to budget that far for repairs, but that's me being a bit liberal with my estimate. You will spend less than 35k for a car much much bigger, more powerful, and more luxurious than the guy who paid 40k for his beemer. Chances are if you bought that, you would have a better car than even most middle managers.
If you want to really look rich, a new BMW 3-series is not going to, but for the same money you can get a car that most people will mistake you for being the boss of the company.
I usually buy a 3 or 4 year old car and drive it until the wheels fall off. Depreciation doesn't matter much if you keep it until 200K+ miles.
ReplyDeleteMy last purchase was a 10 year old car with only 50K miles on it. Alas, my son totalled his Saab and it's loaned to him until he can buy a replacement.
If buying a new BMW seems unfathomable to you, then I’m sure buying a secondhand vehicle will be your more preferred choice. This option allows a car buyer to gain a lot of advantages in terms of the car’s overall price and payment scheme. Anyway, new or used, a BMW is still a BMW. :)
ReplyDeleteI always buy used, it saves a huge percentage over a new car! Why not get a better car with less money by buying preowned?
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ReplyDeleteUsed cars are also good I myself bought a used bmw . & there was just one issue with headlight . I changed LEAR 7316186 it . It was just a minor issue of driver module. make good choice with little bit care that all we have to do.
ReplyDelete