What Consumers Ought to Know When Purchasing A Car

by Shelton on September 15th, 2012

filed under Car Lending

When I was growing up in Texas, I learned the importance of basic maintenance working on my grandfathers car. Back then, thats what we did. You bought a car, and you kept it ten years, maybe longer. I made it all the way past my 1982 college graduation in a 1970 Olds 88. It wasnt great for gas mileage, but it got me where I needed to go.

When my kids were growing up, the story was different. Leasing had come into vogue. And even those purchasing autos frequently upgraded to bigger, more expensive models.

The financial crisis, of course, changed that. Since then, many of us have gone back to repairing what are now our older cars. Ive often noticed late 90s models on the road, and its not unusual to see cars in need of a paint job with dings and dents.

To look at the issue more methodically, our senior economist examined this trend, and heres what he found, and the answer is what you might expect: The older models youre seeing on the road these days are highly reflective of the economy. In 2007, a total of 16.5 million new cars were sold in this country, but sales sunk to 10.6 million in 2009, as the financial crisis froze credit markets and consumer confidence plummeted.

And now, the trend is changing again: Sales have been increasing since 2009 and have averaged 14.6 million (annualized) in the first six months of 2012. This year may turn out to be the strongest year for new auto sales since the start of the recession.

Labor market improvements – while painfully slow — are helping to boost demand for cars. And, there appears to be a good deal of pent up demand in the system, because our cars are older. According to a study conducted by Polk Automotive that was released earlier this year, the average age of US cars was 10.8 years in 2011 – a record high that compares to just 8.4 years in 1995.

As a veteran credit union guy, I view all this with a sense of cautious optimism. Its great that families will be purchasing new vehicles again, but I wonder how well informed theyll be when making their purchases. After all, its been a while. So just to be safe, a few tips from a CEO who has tracked auto lending for decades. I do come at this from a credit union perspective. But credit unions are member-owned cooperatives. Their job is not just to lend; its to provide their members with sound financial advice, so here is mine:

o In this uncertain economic environment, its especially important to maintain good financial habits and to shop around when looking for financial products and services. Besides purchasing a home, buying and financing a new car is one of the biggest financial decisions youll ever make. Cautious and informed purchasing can save consumers thousands.

o September is a good time to negotiate. Dealers want to get their 2012 models off the lot to make room for the 2013 new vehicles.

o Think beyond the ads. A dealers zero percent (or low-rate) interest financing option usually seems like a great deal. For some, it may be. But for many its too good to be true. Low-rate dealer financing usually is only available to the most creditworthy buyers – the top 10% or so of all purchasers.

o Yes, its still true; read the fine print and do the calculations. Even if you do qualify for the low-interest rate option, youll likely pay more than you otherwise would for the car. Dealers are less likely to negotiate on the cars price when they know the purchaser is opting for low-rate financing.

o Loan terms often are different (often shorter) for low-rate dealer financing. As a purchaser, you may find you cant afford the monthly payments on a 3-year or 4-year loan even with a low interest rate (compared to, say, a 5-year loan with a slightly higher rate).

o On many low-rate financing deals you may also have to forego any rebates or cash-back options – low rate financing and cash-back are typically either/or propositions. When comparing financing options its important to consider the effects of using any cash-back options to lower the purchase price (ie, financed amount) of a new car when using conventional financing.

o For the majority of consumers who dont qualify for the best financing deals at the dealership, conventional financing from a financial institution is very often the best option.

o Additionally, and yes because I am a credit union advocate, Id note that when using todays average interest rates, consumers can save well over $1,000 just by financing their new car purchase at a credit union rather than at a bank. Thats because, on average, new car loan rates are substantially lower at the nations credit unions compared to the banks.

Finally, a tip not from a CEO, but from a fellow consumer. Learn to repair a car, too. You can at least save on basic maintenance, and youll have some fun along the way. And you never know how talented a mechanic youll be. That 1970 Olds lasted a long time.

Railway finances in red, earnings short by Rs. 1783cr

by Shelton on September 11th, 2012

filed under Finances

What was suspected has now been revealed: The financial health of the railways is progressively and rapidly becoming worse. A mid-year appraisal of rail finances presents disturbing facts.
Until June end, earnings of the public transporter are short of budgetary targets by as much as Rs.

The Economist on the American Catholic Church’s Finances

by Shelton on September 10th, 2012

filed under Finances

The Economist has posted an interesting story, reporting the results of its detailed investigation of Church finances in the US. ¬†(HT Daily Intel) It does not paint a pretty picture. ¬†Here’s a taste, but go read the whole thing:

The documents that have been disclosed reveal that some bishops in the bankrupt dioceses presented the diocesan funds of parishes, schools, hospitals and retirement accounts as separate when they were really simply book-keeping entries in the same pooled investment account. The diocese of San Diego, for instance, reported to the bankruptcy court that it had over 500 accounts. But these were merely entries in a “Parish, School Diocese Loan Trust Account”, maintained in a single bank account at Union Bank of California.

Such pooling saves on administrative costs and allows dioceses to use a surplus in one area to cover shortfalls in another, often a legitimate course of action. But it has presented problems when it comes to working out which assets belong to whom in bankruptcy proceedings.

The vast majority of parishes that commingled their funds with those dioceses now in bankruptcy lost all their investments. In some cases they were misled into believing that the money would be kept separate from the main diocesan funds, and thus safe in the event of bankruptcy. The judge in the Wilmington bankruptcy, Christopher Sontchi, said parishes that had suffered this fate had grounds to sue the diocese for breach of fiduciary duty. None has–but that is hardly surprising, given that the bishop and the chancellor of the diocese sit on the five-member board of trustees of each parish.