Earlier essays pointed out that auto loans, once merely 36 months, now can stretch to 84:
Car companies are also offering auto loans over longer periods of time. Edmunds.com found that more than 27 percent of all new cars sold in the first quarter went to customers who took out loans lasting 73 to 84 months, up from 23.4 percent in the same period a year ago.
Long distance auto loans will have some side effects:
- total cost goes up
- more profit to the lender (often an arm of the car company)
- and the subtle one; as buyers of stuff do so on long length terms, they become less eager to be economically mobile
That last needs some explanation. If your monthly "nut" grows as a percentage of your monthly income, you become more cautious. Becoming more cautious means you're less likely walk from a job that's any of illegal, unethical, uncomfortable, and the like. The big corporations win. They get more cash flow from autos. They get to sell higher priced autos. They increase the fealty of workers. What more could you ask?
Luxury makers tend to lean on leasing more heavily than more middle-of-the-market brands. For example, more than half of all Lexus, BMW, Mercedes-Benz, Audi and Acura cars are leased. Still, all automakers use leasing to some extent, and all shapes and sizes can be leased.
If you read the fine print in the TeeVee ads (be quick about it, the fine print just flashes up), the per mile fee past the "low mileage" lease terms is eye watering. More money in the car company wallet.
One of the benchmarks of the status of the middle class is per capita new car sales. Not that you'd be surprised, but that number has plunged since 1970. Here's a picture:
Is it any wonder that auto companies are trying the same trick used by CountryWide (and auto companies in the past)? Don't sell on the price, but on the monthly.