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Sign, drive, default, repossess and resell
October 31, 2011 7:34 PM   Subscribe

In this little-known but fast-growing corner of the auto market, dealers command premium prices for road-worn vehicles and finance the sales at interest rates that can top 30%.
posted by sf9719 (66 comments total) 7 users marked this as a favorite

 
Perhaps this business could continue to serve its customers in a more legitimate and non-deceptive form, but as described, it's not on the level.

Scammers that appeal to greed are kinda dirty, but meh.
Scammers that appeal to the needs of desperate people with no resources, who need to use what little they can muster try to better their lot before dire consequences overtake them... only to have their meagre chance ripped away for the sake of some easy bucks? That kind of scammer is disgusting.
posted by -harlequin- at 7:43 PM on October 31, 2011 [8 favorites]


Whaddya know. Small businesses can be evil too.
posted by schmod at 7:46 PM on October 31, 2011 [7 favorites]


Ugh. This is the logical conclusion of a society in which there are no usable options to get anywhere other than private vehicles, and most residential neighborhoods have very few jobs. It should come as no surprise that this story is from the LA Times.
posted by troublesome at 7:46 PM on October 31, 2011 [10 favorites]


Pssssh.. amateurs.

They should repackages these loans into CDOs and sell them. That's where the money is!
posted by formless at 7:47 PM on October 31, 2011 [12 favorites]


formless, did you see the teaser for the next installment?

"Coming Tuesday: Why Wall Street is betting on Buy Here Pay Here"
posted by troublesome at 7:49 PM on October 31, 2011 [8 favorites]


It's almost like -- well, it is like, I guess, the scammers hope for the default, then they can cycle the car back into the system. With that attitude, of course, the borrowers are screwed.

Listen, we protect people from this stuff all the time, so I hope free marketers are not going to state "they get what they deserve", because when people are buying the only car available to them to get to work and appointments, they're desperate and simply not acting rationally.

What I can't get is why not put up something as collateral (say a necklace, computer, etc...) and try to buy a car and something closer to sane levels (the markup from Blue Book is shocking) -- a real opening is here for someone who wants to sell at a fairer price and charge something like 8% to a high risk borrower.
posted by skepticallypleased at 7:50 PM on October 31, 2011


a real opening is here for someone who wants to sell at a fairer price and charge something like 8% to a high risk borrower.

With a 20-25% default rate (FTFA), that's a great way to go bust real quick.
posted by unSane at 7:53 PM on October 31, 2011 [2 favorites]


Pop quiz! One of the following is a real used car dealer commercial, the rest are fakes. Can you find the real one?
  • Funtown Auto
  • What do I gotta do?
  • Used Car Sam
  • Krazy Kenny

  • posted by twoleftfeet at 7:55 PM on October 31, 2011 [1 favorite]


    This article is so depressing on so many levels I don't even
    posted by rtha at 7:55 PM on October 31, 2011 [1 favorite]


    What I can't get is why not put up something as collateral (say a necklace, computer, etc...) and try to buy a car and something closer to sane levels (the markup from Blue Book is shocking) -- a real opening is here for someone who wants to sell at a fairer price and charge something like 8% to a high risk borrower.

    The thing about high risk borrowers is that...they're high risk. Repo-ing cars is expensive and a huge pain in the ass (usually, seems like that dealership in the story has a nice gimmick) and people with low and variable incomes get behind on car payments all the time.

    Like troublesome says, it really is a ridiculous state of affairs when people need something that can cost 50% of a year's salary or more just to get to work and live their lives.
    posted by ghharr at 7:59 PM on October 31, 2011 [1 favorite]


    With a 20-25% default rate (FTFA), that's a great way to go bust real quick.

    Sure it's a high risk pool, but that default rate has a lot to do with the ridiculously high monthly car payments.
    posted by eddydamascene at 8:00 PM on October 31, 2011 [2 favorites]


    Usury upon usury: utterly, unbelievably ugly.

    Gary Rivlin's certainly not going to lack for material if he decides to write a sequel to Broke USA.
    posted by RogerB at 8:01 PM on October 31, 2011


    Actually my idea for reforming the sketchy used car business is a straightforward extension of the GPS trackers already installed in these cars. I'd add a small video camera underneath the windshield, and a remote control for the gas, brakes, and steering. Skip a payment on your car? The seller can just wait for the middle of the night, log in, and drive the car back to the lot without even involving a repo man.
    posted by miyabo at 8:03 PM on October 31, 2011


    troublesome: "formless, did you see the teaser for the next installment?

    "Coming Tuesday: Why Wall Street is betting on Buy Here Pay Here"
    "

    I... I thought you were joking. I hope *they* are joking because dear fucking god...
    posted by symbioid at 8:03 PM on October 31, 2011


    "Repossess Auto" is just off the 105, half a mile east of Hawthorne Blvd. This is not the greatest part of Los Angeles. It is economically depressed, and it wouldn't surprise me in the least to see most of the vendors on Hawthorne Blvd -- nearly all of them these one-off used dealers until you start getting into Torrance -- engaging in this kind of practice.

    The really depressing thing is that almost exactly three miles west of here is where the LA Kings practice, billion dollar companies have their headquarters, and there is a massive amount of money in the industrial and corporate sections of El Segundo. A mile south of that, and you have ultra-rich Manhattan Beach. (Check Google Maps-- look a bit to the southwest; homes near the "Manhattan Village Shopping Center" are $2M+) The area around Hawthorne Blvd is basically lower class. If you ever want a visible reminder of the 99%/1% divide, drive a few miles east on Rosecrans Avenue.
    posted by mark242 at 8:06 PM on October 31, 2011 [2 favorites]


    formless, did you see the teaser for the next installment?

    "Coming Tuesday: Why Wall Street is betting on Buy Here Pay Here"


    wow.. I thought I was cynical, but.. golf clap for Wall Street.
    posted by formless at 8:09 PM on October 31, 2011 [2 favorites]


    Rarely are prices displayed on car windshields. Instead, negotiations focus on how much the customer can put down upfront and then pay each month.
    posted by T.D. Strange at 8:15 PM on October 31, 2011


    I was reminded of the car buying scene in one of the early chapters in The Grapes of Wrath. I don't think these are new tactics, but a combination of crap economy and lessened state regulatory power might be the magic recipe for expanding these businesses.
    posted by Forktine at 8:16 PM on October 31, 2011


    unSane wrote: With a 20-25% default rate (FTFA), that's a great way to go bust real quick.

    Their loss ratio, however, is somewhere near zero, possibly even positive. They almost always get the car back and they almost always sell it again for as much or more than the previous buyer paid.

    Say someone buys a car from Bob's Buy Here Pay Here. The selling price is $7000 (on a car that cost Bob $4000 at most), with $500 down and a $300 a month payment. The buyer pays for 6 months, but then fails to make any more payments, leading to the car being repossessed. Bob has now made $2300 on the car, which he can once again sell for $7000, either repeating the cycle again or leaving the buyer having paid well over $10000 for the $4000 car that Bob already dinged some other buyer for $2300 on.

    If Bob turns that car over twice, he can have it paid for in a year and have a damn good chance of another spin at the wheel.
    posted by wierdo at 8:18 PM on October 31, 2011 [3 favorites]


    I agree these dealers are scum but why didn't Tiffany Lee just buy a beater for the 3K down......save the $387 for 18 months =$6996 (which she paid to the shady dealer) after 18 months sell that original beater ,add that money in with the $6996 and get a really decent car in 18 months INTEREST FREE? Rinse and repeat every 18 months. sounds crazy doesn't it?
    posted by HappyHippo at 8:42 PM on October 31, 2011 [14 favorites]


    Capitalism will eat is eating itself.
    posted by bardic at 8:43 PM on October 31, 2011 [1 favorite]


    I know two guys who run what could be described as 'buy here, pay here' used car dealerships, in that they allow the customer to make payments on their purchase.
    Both these guys charge no interest. Both are very successful.

    (side note, one of these guys had moved to Libya a couple years ago, he was freed this past August from abuSalim prison in Tripoli. He was imprisoned by gaddafi soldiers for smuggling food and supplies to besieged towns in the Nafusa mountains)
    posted by mulligan at 8:43 PM on October 31, 2011 [3 favorites]


    They almost always get the car back and they almost always sell it again for as much or more than the previous buyer paid.

    I didn't get that from the article. There were examples of each of those presented but it wasn't clear to me how representative they were.

    As always, it sucks to be poor though.
    posted by Tell Me No Lies at 9:10 PM on October 31, 2011


    When I bought my car (from a GM dealership), we were offered interest-free financing due to my good credit. When I asked what would happen if I didn't have good credit, the finance lady said point-blank "We'd charge you 28% interest."
    posted by monkeymike at 9:11 PM on October 31, 2011


    It used to be that you paid for quality. But somewhere along the line, people figured out that it's a lot easier to make $1 each from a million people than to make $1000 each from a thousand people. This has been referred to as disposable culture. Quality has trouble competing. See the articles from a few years ago about companies with good reputations for quality going under or outsourcing trying to supply to WalMart. And it turns out, not only is it easier to sell a million people something for $1, but it;s easier to sell someone ten things for $10 each than 1 thing for $50. But you can only push it so far, or people will start to gravitate back to higher quality products (or going without). So the next trick is to keep people thinking they can only afford the lower quality products.

    This is the same thing, really. It's easier to make money selling lower end things to people who can barely afford them, because those are the people you can really fuck over. And they pretty much have to take it. And despite a news article here and there, no one really cares. They deserve it for being poor. They deserve it for making bad decisions. They deserve it for not being able to save up for three months. We're not always sure why they deserve it, but we're sure they do. Which is why we deserve it.
    posted by Nothing at 9:16 PM on October 31, 2011 [5 favorites]


    Buy Here Pay Here dealers make $80 billion in loans every year, according to the Federal Deposit Insurance Corp.

    All the public transit in the United States only cost $37 billion to operate in 2009, with an additional $17 billion in capital investments. [PDF, table 2]

    Of course, transit agencies also employed almost 400,000 workers, mostly in the kinds of decent-paying jobs where they don't have to get fucked over by predatory lenders. Damn, that invisible hand is beating the hell out of socialism.
    posted by Homeboy Trouble at 9:33 PM on October 31, 2011 [20 favorites]


    The only real story here is that some of these dealers do actually crooked things like seize cars they might have no right to seize (because of a personal bankruptcy), or lie about interest rates. That was a piece if the story, but the meat really says nothing more than it sucks to be poor and most of all, have bad credit. People with bad credit tend to get shit loans for good reason: they're high risks. This is a cold, hard, depressing reality that won't change. That a used car dealer has little to lose if the buyer defaults really says nothing about the ethics of the dealer. It does illustrate the unusual dynamic of that particular niche of desperate car buyers, and the businesses that cater to their unique needs.
    posted by 2N2222 at 9:38 PM on October 31, 2011 [1 favorite]


    Poor financial education. I bet most of their customers don't actually have terrible credit, but they just don't know enough about their options.
    posted by Cool Papa Bell at 9:50 PM on October 31, 2011 [1 favorite]


    I did some work, once upon a time, in the auto-loan servicing business. It's a deep hole. Even among people who do repossessions work at conventional auto loan servicers, buy-here-pay-here was regarded as scummy.

    Often, places like that were referred to as "three cars and a tow truck" operations; apparently that's really all you need to go into business as one. A couple of cars, which you 'sell' over and over, and then a tow truck to assist with the eventual repossessions.

    They exist, though, as part of the Greater American Automobile Ecosystem, which depends on everything from Wall Street (which buys up the CDOs assembled from auto loans originated at more legitimate retailers, ones that can at least maintain the bare appearance of lending standards) down to private investigators (who do 'skip trace' work, locating vehicles whose owners are attempting to hide them to keep from having them repossessed). It's vast, truly. That tow truck operator who shows up to give you a jump start when you call AAA? Once he's done with you, he might go (depending on the state) and repossess a car or two, if it's a slow day. Bigger, full-time repo guys (though the term is disliked) have trucks with machine vision systems that can automatically scan license plates in parking lots -- so even if you are keeping your car parked at your cousin's place, some day when you go to the mall, it won't be there when you go to leave.

    I can't really blame the industry, though; it serves a market -- a desperate one, in some cases. We've created a society that is utterly dependent, in many places, on the automobile for transportation, to the point where you might as well be quadriplegic without one. Under those conditions, it's really no surprise what forms the bottom end of the market takes.

    The solution is more public transportation and less car-centric communities, but that'll never happen as long as the car is being actively used as a way to keep the poor in their place.
    posted by Kadin2048 at 9:54 PM on October 31, 2011 [3 favorites]


    "Coming Tuesday: Why Wall Street is betting on Buy Here Pay Here"

    Yerp!
    posted by ambient2 at 11:49 PM on October 31, 2011


    I don't get it. When I had no money, I bought a car for no money. I had $1500, so I bought something for $800, spent $500 fixing the most broken parts, and I had a relatively reliable car for the three years I needed it. If I had $3000, I could've bought something with working A/C and a radio, neither of which were absolutely necessary. Why would you finance anything at all if you had $3000 to buy a decent used car on Craigslist?
    posted by 1adam12 at 11:56 PM on October 31, 2011 [4 favorites]


    I bet most of their customers don't actually have terrible credit, but they just don't know enough about their options.

    Honest question: If you have three kids and make under $30K a year, when a bank won't give you a loan, what other options are available that don't involve a legal or illegal loanshark service? Those seem to be the type of customers that make those buy-here-pay-here businesses so profitable, after all.
    posted by Blazecock Pileon at 12:17 AM on November 1, 2011


    "Yerp!"

    ...from the article...

    "In the last two years, investors have bought more than $15 billion in subprime auto securities. Although they're backed mainly by installment contracts signed by people who can't even qualify for a credit card, most of these bonds have been rated investment grade. Many have received the highest rating: AAA."

    #OWS
    posted by mark242 at 12:17 AM on November 1, 2011 [10 favorites]


    I worked at (not for) a variety of car dealerships for half a year a while back and saw something very similar to this, but involving third-party loan origination. I don't know how the numbers worked out for the dealership, exactly, but I overheard a conversation between one of the salesmen and the fearsome financing lady VP that was basically "Yeah, I can put them in the car, but they won't be able to keep it, and I'll be selling it again by summer."

    This particular dealership had a huge showroom that was as spacious and clean as an Apple Store, and lavish, respectable, friendly TV ads and billboards, so even though I also worked at other dealers -- one very traditional and middle-class, and a couple others that were way downmarket and had huge, depressing volume of the desperate -- it was interesting that this existed at the so-called high end.

    I'm so glad the contract work I was doing ended, because I couldn't stand another minute in that cynical cesspool. It still makes me feel dirty.
    posted by dhartung at 12:21 AM on November 1, 2011


    Honest question:

    Most of these folks are dropping hundreds, if not thousands, in cash as a down payment. $1000 and some legwork will get you a serviceable car just about anywhere in the U.S.

    Moreover, a thousand in cash will get you a bank account and (very often) a credit card, or even just a secured credit card, which you can immediately cut up and throw away and instantly start re-building credit.

    And, how about a scooter or a motorcycle, for those in good-weather locales (like L.A., where the article originates) that don't need to be carrying cargo and passengers? Not an option for the three kids example, obviously. Always surprised I don't see more scooters anywhere other than a college campus.

    But this all comes from financial education, which is sorely lacking.
    posted by Cool Papa Bell at 12:41 AM on November 1, 2011 [3 favorites]


    People have bought into this idea--you see it in ask all the time--that any car older than six weeks is a disaster waiting to happen. People also feel like cars are a place they can "fake it 'till they make it" and by driving something nice they can convince themselves they're not doing so badly.
    posted by maxwelton at 12:51 AM on November 1, 2011 [6 favorites]


    Seems like a non-profit, charity, etc., could get some good things done by helping the people who would buy these cars learn about, as people have said, getting something decent and used.
    posted by ambient2 at 1:21 AM on November 1, 2011


    Cool Papa Bell wrote: $1000 and some legwork will get you a serviceable car just about anywhere in the U.S.

    So you're in a situation where you've got a grand in the bank, knowing your existing car is about to have a transmission failure or whatever. It's clearly on its last legs and will be thousands of dollars to fix. You're hoping you can hold out until April when you get your tax refund and will have a couple grand and a few days off to look for a car. Sometime round about October, your transmission finally gives out. Luckily for you, it happened the day before your one day off this week, not so late at night you couldn't get a ride home from a friend, and it happens to be a school holiday, so you don't have to take the kids to school on that day off. You wanted to take them to the aquarium, but now you can't because you have to deal with this.

    Problem is, you have to get a car tomorrow, or your kids won't get to school the next day and you won't have a job, because you've already been missed work twice in the last month and your manager is breathing down your neck, about ready to fire your ass. What do you do?

    Oh, and don't forget you don't have Internet service because it's too freakin' expensive, and it's difficult to keep the ancient computer running, anyway. So, what, you go to the library and browse Craigslist, hoping against hope you happen to find a car that you can buy today? Or do you go to the buy here pay here dealer who at least gives a 3,000 mile powertrain warranty, so you're not completely fucked if you make a bad decision in the 12 hours you have to deal with this?

    This is the thought process that goes through the mind of people living on the edge. They don't have time to sit here and kvetch on the Internet about what people should do. They're too busy working 10 or 12 hours a day, helping their kids with homework, cooking dinner, and cleaning up the house to do much else. It's not the same working in some office job where you can futz around on the Internet for half an hour and make some phone calls or whatever for some personal shit you have to deal with. No, you're on your feet helping customers in the retail store or taking orders at the fast food restaurant. You can barely get them to give you legally mandated breaks.

    For you or me, this isn't an emergency. We've got credit cards, so we can either fix our transmission or rent a car for a week or two, possibly even months if we have to, while we get the transportation situation worked out. Not a really big deal. With good credit, you can get a cut-rate loan for little to nothing down if you don't have cash in the bank to buy another car. And if you do, even better. You have the luxury of time to think. They rarely even have the luxury of time to act.
    posted by wierdo at 2:15 AM on November 1, 2011 [37 favorites]


    ...why didn't Tiffany Lee just buy a beater for the 3K down......save the $387 for 18 months =$6996 (which she paid to the shady dealer) after 18 months sell that original beater, add that money in with the $6996 and get a really decent car in 18 months INTEREST FREE?

    Because she doesn't have your understanding of how to work the system? Because she was focused on simply getting a car in order to get to work, the doctor, etc. tomorrow. Because the difference in time between walking onto a lot and driving away with a car today vs. pouring-through umpteen private car ads and Craigslist for a week or more, is huge. Because she would have to enlist friends to drive her around creation to look at the beaters, and she's already worn-out their willing to help bumming rides to work. And on, and on, and on...
    posted by Thorzdad at 4:02 AM on November 1, 2011 [5 favorites]


    J D Byrider is still out there?! For fuck's sake, they had gov't action against them just a few years ago!
    posted by magstheaxe at 4:47 AM on November 1, 2011 [1 favorite]


    ...why didn't Tiffany Lee just buy a beater for the 3K down.
    Tiffany from the article was coping with the bus but wanted a car for the benefits private transport brings - fair enough.
    IMHO the reason Tiffany in the article bought a $3000 down car with repayments is because she wanted a nice car, and justified buying a 3 or 4 yro car with the idea older cars are unreliable.
    There isn't much unusual about this, it is typical of the stupidity most people display when picking a car. I drive a 13 year old car, yet I could easily get credit for a new car. Why? My 13 yro Toyota costs about $1500 a year in maintenance, repairs and depreciation, a new Toyota of the same model would cost $5000+ per year, but mainly in depreciation, instead of mechanic work.
    The idea somebody with $3k in the bank who can cope with public transit should be buying anything but a cheap beater is symptomatic of the problem - better to buy a $2000 car and fund the taxi fare and repairs than a usurious loan that could easily result in no car at all.
    Judging from Ask.metafilter, there will be a phalanx of posters who claim there is no alternative to late model, expensive cars - but they are wrong, and the sooner you realise cars are a stupid way to spend money, the better.
    posted by bystander at 4:47 AM on November 1, 2011 [6 favorites]


    there is no alternative to late model, expensive cars - but they are wrong, and the sooner you realise cars are a stupid way to spend money, the better.

    I think the problem with the beater suggestions is that what some people need is not just a car, but a reliable car. I have a nice white collar job -- if I need to be late today, I just phone or send a text and show up late, no big deal. Most people don't have that luxury, and need to be there no matter what. That means owning two beaters (to have one to drive while the other is in the shop), or having the cash reserves to take taxis or rent a car whenever the beater breaks down. That's not always a great option, and people knowingly make the choice to pay more in order to get a vehicle that they feel they can trust.

    I mean, I kind of agree with the broader point -- people often pay a lot of money for newer cars out of a desire for status and luxury, and that's silly if you don't have the money to easily afford it. But there are genuine reasons to buy newer for many people, and I'm not sure some of the suggestions here are acknowledging that.

    I'd also note that the beater market got fucked up big time by the Cash For Clunkers program -- a lot of decent old cars got taken off the streets, which is probably good environmentally and economically, but sucks if you are looking for a cheap old vehicle. Add in that people are holding onto their used cars longer now because of the economy, and finding a great deal on a reliable beater is a lot harder than it was just a few years ago.
    posted by Forktine at 6:52 AM on November 1, 2011 [1 favorite]


    These places are always found gathered around military bases. Something about 18 year olds with a steady paycheck and an uncle that makes sure they pay their debts seems to draw them like flies.
    posted by The Violet Cypher at 6:58 AM on November 1, 2011


    One less obvious difference between financing a new car and buying an old car outright is that the payments on the new car are predictable, but the transmission may fall out of the old one at any moment landing you with a lump sum you can't manage. (Not to mention the issue of reliability).

    I've had old cars and new cars. My experience with old cars is basically painful. The problems come in spurts. The brakes fail, the gas tank springs a leak, the O2 sensor fails, it needs new tires, all within three months.

    So it may (or may not) be cheaper in the long run but unless you can keep a cushion of cash, the clunker can be a financial disaster in waiting.
    posted by unSane at 7:16 AM on November 1, 2011 [5 favorites]


    So why exactly did the Cvitanovs trade up for the Mercedes Benz after 6 months anyway?

    They are broke, have bad credit and yet still feel that they need to be seen in a decent car.. is there something I"m missing about the 2003 Mitsubishi Galant?

    Its hard for me to feel sorry for these people even though yes they are being ripped off.... haven't any of these people heard of 'living within your means'?
    posted by mary8nne at 8:03 AM on November 1, 2011 [2 favorites]


    It's not the American Way.
    posted by unSane at 8:10 AM on November 1, 2011 [2 favorites]


    1adam12: "I don't get it. When I had no money, I bought a car for no money. I had $1500, so I bought something for $800, spent $500 fixing the most broken parts, and I had a relatively reliable car for the three years I needed it. "

    Go out and try to find a similar car today. You can't.

    Tightened emissions inspections, decreased demand for new cars, increased demand for secondhand parts, high fuel costs, and cash for clunkers all obliterated the cheap used car market. Simply put, there's almost nothing under $2000 worth having. Things aren't even much better if you double that threshold to $4000.

    People love to talk about their 13 year old Toyotas and Hondas that need very little maintenance, and it's true that the late-90s Toyotas are fantastic cars that will run forever, given a modest amount of TLC. However, the market knows this, and the cars are priced accordingly. A quick scan of my local Craigslist shows that a 1999 Corolla with fairly high mileage can cost $3-$5000, and is certainly not guaranteed to be problem-free in the first few years. They're reliable, but every single car on the planet needs brakes and tires, neither of which are cheap, or likely to be particularly fresh on a used car.

    Simply put, just because you bought a clunker after High School does not mean that this option still exists today.

    A better option is probably to downsize your home, and move someplace where there's good transit, or you can bicycle to work. Sadly, there are many places in the US where this really isn't an option. After taking the Hampton Roads Transit buses to work for a month a few years ago, I finally caved and bought a car. There is no excuse for that system's bus routes (or performance) other than to systematically fuck the poor.

    The poor are becoming enslaved to their cars, and it's a crying tragedy.

    Oh, and if you need a reliable car, forget about buying a clunker. I drive a fairly good 12 year old car, and would never rely on it for a commute where I absolutely, positively could not be late. Similarly, if I was strapped for cash (or needed the car for my commute), I'd be in constant terror, given that cars of this vintage frequently need expensive repairs when they do break. Also, my gas mileage is abysmal. In this scenario, you're best off buying a certified pre-owned Nissan or Hyundai. It costs more, but the warranty makes it worthwhile.

    Yeah, buying late-model high-end cars is dumb if you're strapped for cash and in massive amounts of debt. However, don't automatically assume that the low-end is all that much cheaper.
    posted by schmod at 8:14 AM on November 1, 2011 [12 favorites]


    Being poor can make it much more difficult to live within your means. I drive a 10-year-old car. It is quite reliable, but that's partly because I have a job where I can go "I'm going to work from home today because the car has to go in for its oil change etc." and no one bats an eye, and we have enough of a financial cushion to cope with the "Well, when we were changing the oil we discovered [expensive and unexpected thing] that needs to be fixed or you will die a fiery death on the freeway." If you need to get a payday loan in order to keep your car working so that you can get to your job so that you can make money to pay the vig on both your car loan and the payday loan - well, that's a hole that can be awfully hard to climb out of.

    Of course, one way to get poor is to not live within your means, but for a lot of people, it's just not as simple as that. Most people living on the economic edge already know they're there, and are aware that non-edge-living people think they're somehow morally terrible for being there. Shaming people in situations like that doesn't really help them out of their situation.
    posted by rtha at 8:15 AM on November 1, 2011 [6 favorites]


    HappyHippo: ...why didn't Tiffany Lee just buy a beater for the 3K down......save the $387 for 18 months =$6996 (which she paid to the shady dealer) after 18 months sell that original beater ,add that money in with the $6996 and get a really decent car...
    That is a good plan. It is, no doubt, what many middle-class people would like to imagine they would do if they found themselves in similar circumstances (myself included). But there are a couple of problems.

    For one, as it turned out, she didn't actually have the $387 per month, although she surely would have been better off saving something. A "beater" is a risky sort of investment anywhere, but I'd guess that in car-centric, rust-free LA, a $3K car would be ridiculously old or abused. And there is real-world uncertainty to account for: She could lose her job, her kids could need braces, the beater could require unexpected repairs, her rent could go up, etc. In other words, she would be investing a large chunk of capital in something crappy not for a guaranteed reward of a better item later, but for a chance at getting a better item later.

    More seriously, though, the psychology of poverty works against plans like these. Poverty changes both what seems rational and what is rational; it makes perfect sense to avoid discomfort and uncertainty in the short term if the long term is entirely unknowable. There's even reason to believe that the extra cognitive load associated with poverty consumes cognitive capacity that the rest of us apply to other things, which makes long-term planning much more challenging for the poor than it is for the comfortable.
    posted by Western Infidels at 8:16 AM on November 1, 2011 [5 favorites]


    Its hard for me to feel sorry for these people even though yes they are being ripped off.... haven't any of these people heard of 'living within your means'?

    It's worth noting that 75% of the people using these dealers do NOT default.

    To me that means that a lot of people who are at the bottom of the credit ladder probably did not get there by habitually overspending. I've certainly known some people who ended up there by being continually stupid around money, but they didn't change their tune suddenly when they arrived.

    So, compassion for the 75% at least?
    posted by Tell Me No Lies at 8:47 AM on November 1, 2011 [2 favorites]


    Actually my idea for reforming the sketchy used car business is a straightforward extension of the GPS trackers already installed in these cars. I'd add a small video camera underneath the windshield, and a remote control for the gas, brakes, and steering. Skip a payment on your car? The seller can just wait for the middle of the night, log in, and drive the car back to the lot without even involving a repo man.

    Mel Farr, the Superstar car dealer, used a repo technique not too removed from this:

    "Throughout his business career, Farr had shown an unusual willingness to take risks, many of which brought him considerable success. In the 1990s, Farr decided, first, to tap the largely underserved market of those with poor credit, and, second, to open a nationwide chain of used car superstores to serve the so-called “sub-prime” market. Triple M Financing Co. was established by Farr in 1990 to support and expand his businesses. Specializing in high-risk auto loans, Triple M had eighty employees in 1999, over 12,000 clients, and almost $50 million in outstanding loans, according to the Michigan Chronicle . Farr sought to greatly increase the financial resources of Triple M and the number of used cars he could sell nationwide. Triple M employees were trained to monitor their clients’ payment record closely. Those whose payments were two days late received phone calls. Vehicles were repossessed if payments were two weeks late. In 1999, Farr began adding to each used car an electronic device that would automatically prevent the car from starting if the customer was not up-to-date with payments. Many praised Farr for enabling people with low incomes to have transportation while some complained about high interest rates and the electronic device, claiming it had shut the engine off while they were driving in traffic. In 2000, Farr settled lawsuits about the devices by issuing coupons worth $200 to 1,500 customers, according to Black Enterprise . Farr’s company sponsored workshops on credit and budgeting personal finances to make his customers better consumers." - http://encyclopedia.jrank.org/articles/pages/4228/Farr-Mel-1944.html
    posted by Oriole Adams at 10:46 AM on November 1, 2011


    Just a note...

    From the article:

    "What's more, these hand-me-down wheels hold their value remarkably well. The sale price is sometimes higher the second or third time a car is sold, records show -- a testament to the desperation of buyers and the market power of Buy Here Pay Here lots as lenders of last resort."

    Also, in the thread above, someone asked why folks don't just buy a really inexpensive car, do the repairs needed, and drive that?

    The short answer is the recession, and "cars for clunkers", which gave the auto industry a shot in the arm back in 2009, but also resulted in a significant lack of inexpensive used cars in the marketplace. Right now the used car industry is in a bubble, because people are having a harder time qualifying for a new car loan, so those that need wheels have to settle for used, and so prices are up; meanwhile, at the bottom tier, there are very, very few sub-$3000 cars available -- and many cars available for more than $3000 would have depreciated into sub-$3000 cars by now, if it weren't for the bubble.

    So, over time, the bubble will burst, and prices will come back down, and cheap wheels will again exist. For the next few years at least, however, if you have bad credit or a low-paying job, you are absolutely, royally fucked if you don't have a paid-off car or access to public transportation options.

    It is tempting to say "oh, well, it is also because consumers want nicer cars than they can afford", and there is certainly a grain of truth to that, but that is a problem that exists at all economic levels and thus isn't a direct contributor to this anomalous market condition.
    posted by davejay at 11:26 AM on November 1, 2011 [1 favorite]


    Oh, and to give you an idea of the bubble going on: I had an inexpensive 2008 imported car, and after two years I wanted to sell it in a convenient way. CarMax offered me $10,000 for it, and I owed a bit more, so I hung onto it for another year. After three years, CarMax offered me $10,000 for it. Essentially no depreciation for the third year, because used car prices (from 2010 to 2011) were bubbling up to compensate. That means my dinky little stickshift in Los Angeles, not-a-Honda import, owned for three years and sold, had a three-year residual value of 57%. Which is crazy, but that's the market right now. And that's at CarMax, the pinnacle of high convenience/low offer conditions -- they initially offered it for more than $14,500, and it left the lot three months later with a published asking price (they're no-haggle) in the high $12s.

    which is probably why I get a letter every month like clockwork from the dealership, asking me to sell it back to them, as they think I still own it.
    posted by davejay at 11:32 AM on November 1, 2011


    God damn, I'm starting to realize that cash for clunkers was a huge fuck you to both the poor and the environment.
    posted by symbollocks at 12:01 PM on November 1, 2011 [2 favorites]


    Yes and no; in the short term, there are many, many people who were able to ditch worthless cars that didn't run, and apply that $3000 to taxes and a partial down payment on a $14,000 economy car at a subsidized load rate. However, those success stories were limited to those already in a position to take advantage of the benefits (ie had credit sufficient to qualify for the subsidized loan rate, and resources sufficient to make the resulting payments and pay insurance.) In the mid-term (3-5 years), yeah, a nightmare for the poor, and no argument on the environment, either.
    posted by davejay at 12:13 PM on November 1, 2011


    Oh, and if you really want to think about the poor and the environment being screwed, look beyond "cash for clunkers" and pay attention to how much money is spent preventing public transportation options from expanding in your town.
    posted by davejay at 12:14 PM on November 1, 2011 [2 favorites]


    small correction to my phrasing: "a nightmare for those among us who are poor." I'm sick of the whole "there's us, and there's the poor" mentality, and so I don't want to contribute to it.
    posted by davejay at 12:15 PM on November 1, 2011 [2 favorites]


    Oh, and if you really want to think about the poor and the environment being screwed, look beyond "cash for clunkers" and pay attention to how much money is spent preventing public transportation options from expanding in your town.

    Ugh. Kemper Freeman is a douche-bag.
    posted by formless at 8:03 PM on November 1, 2011 [1 favorite]


    One of the places mentioned in the article is just a few minutes away from the house where I grew up. It's located in a quarter-mile stretch of small used car joints that have taken over buildings formerly occupied by restaurants and small retail shops. Last time I went back, the one that caught my attention was the shop just down the block from the one mentioned here — the one with the Reader Board advertising that buyers could "trade [their] TVs and gold" for a down payment.

    The old neighborhood makes makes me sad sometimes.
    posted by FreelanceBureaucrat at 10:27 PM on November 1, 2011


    T.D. Strange writes "Rarely are prices displayed on car windshields. Instead, negotiations focus on how much the customer can put down upfront and then pay each month."

    A law I'd like to see here in Canada is a requirement for finced price advertising to include in the same font right next to the finance price the cash purchase price. It's gotten so bad that its not unusual to see daily or weekly payment prices as the only price advertised (Sometimes on loans of 84 months).

    1adam12 writes "Why would you finance anything at all if you had $3000 to buy a decent used car on Craigslist?"

    People are, IMO, irrationally afraid of buying a used car, especially an older used car. And there are fewer people fixing their own transportation, even for easy stuff like tire rotations or oil changes. I had to walk to the Canadian Tire last month to warranty swap my inch torque wrench (walk because my old one failed while doing a band adjustment on my van's transmission) but even then I much rathered the $70 bill for materials than the ~$250 bucks a mechanic would have charged for this routine maintenance.

    schmod writes "Tightened emissions inspections, decreased demand for new cars, increased demand for secondhand parts, high fuel costs, and cash for clunkers all obliterated the cheap used car market. Simply put, there's almost nothing under $2000 worth having. Things aren't even much better if you double that threshold to $4000."

    A quick Craigslist search returns plenty of autos available in the 1K-2.5K range in LA. Over a 1000 results posted in the last day. Including many Dodge Caravans appropriate for a family on a budget. And a rust free Datsun 1600 for $2200. Much less family appropriate but a hell of a lot more fun. God damn it I hate looking at car listings in California.
    posted by Mitheral at 2:06 AM on November 2, 2011


    Those vans you linked are interesting examples of how the used car market has changed. $1850 for a 22 year old Dodge minivan with no mileage listed? Are you sure you would trust that van for transport in a situation where a malfunction might mean getting canned at work? The '98 Caravan in the first link is priced about where those were five or six years ago; those years of Caravans were always super cheap used because the transmissions are famous for dying incredibly frequently. So that's a $2200 van with a $2000 surprise bill underneath -- is that the right van for someone who doesn't do their own work and doesn't have a backup car or a lot of savings?

    Seriously, I love old beaters, and I'm always looking for "for sale" signs while I'm driving around. But the market for cheap cars really has changed, and it takes a lot more looking to find good deals than it did before Cash For Clunkers. I mean, skimming down the first page of the LA CL listings you linked to, some of those prices are just nuts, compared to what there were before CFC, and a lot of them would be hard to trust as a primary vehicle for a family in a situation where breakdowns are not good.

    Again, though, financially buying old and used is clearly the best deal -- but there are reliability, safety, and other concerns that can make buying newer not a stupid decision, and I think we need to acknowledge that.
    posted by Forktine at 6:38 AM on November 2, 2011 [5 favorites]


    Yeah, if my transmission failed and I had to buy another car real quick, I'd be all over buying a minivan with a transmission that is almost guaranteed to fail any day now.
    posted by wierdo at 1:43 PM on November 2, 2011 [1 favorite]


    The 3 spd automatic common behind the 2.4 and 3L engines in 88-2004? caravan is very reliable and unlikely to fail without lots of warning. (the 4AOD is problematic nto so much because it's a bad transmission but because it requires special attention to maintenence) They'll clunk the 2-3 band for years before failure. I've got 290K on mine and the transmission is fine (I know, I just had the pan off to adjust the bands and everything is fine inside). The gotcha on those vans is the timing belt, when buying used you don't know for sure when it was done. And while the engine won't be damaged when it breaks, it's moderately expensive to fix though you don't need any special tools.

    Anyways, that was just an example of a personal preference plucked from less than a single day of ads on a single market aggregator; there were lots of other choices even toyotas and hondas if that is what floats your boat.

    I don't doubt the market has changed. I'm just saying on the face of it rather than comparing to three years ago there are cars available free and clear for less than what some of the featured buyers of the articles put down on an expensive loan. And at several hundred dollars a month you can quickly develop a buffer for even an expensive repair while not committing to a multi year usury rate loan. Cars are cheap in the states and even more so in California where extreme weather and salt doesn't eat cars up.
    posted by Mitheral at 2:53 PM on November 2, 2011


    You can never underestimate the power of the automobile as a signifier of status in North American life, and in particular US American, life. You walk through a movie studio parking lot and the only* people with shitty cars are famous actors, producers and directors, because they don't need to show how well they're doing. Everyone else knows that their vehicle is an indicator of their success. People will literally walk through the parking lot and make a mental note that Joe Editor is driving a 4-year old car -- he must be finding it hard to get work, don't hire him -- but Paula Casting Director has a honking new Merc wagon -- she must be hot again, better set up a meeting. And so on. Crazy but true. I have a friend who cut trailers who almost bankrupted himself buying a massive vehicle when he had *no* work at all, just so he could park it in a conspicuous place and send the correct signal.

    *actually English ex-pats also tend to drive truly shitty cars, mostly because they haven't yet figured out how the game is played.
    posted by unSane at 3:11 PM on November 2, 2011


    there are many, many people who were able to ditch worthless cars that didn't run

    This is absolutely, categorically untrue. One of the requirements for Cash For Clunkers was that the vehicle being turned in had to be drivable. This wasn't an insignificant requirement, and required both that the vehicle be driven under its own power, on public roads, to the place where it was turned in (the car lot), and both the dealer accepting it and the seller turning it in had to attest to its condition. I think some of the early iterations of C4C required that the vehicle have had insurance continuously for some length of time prior to the turn-in, to explicitly prevent the program from being used to dispose of "worthless cars that didn't run."

    It's possible that some dealers might have looked the other way on a few vehicles here and there that were in bad shape, but I saw some of the ones at a local lot lined up to killed (with sodium silicate in the crankcase to grind up the moving parts of the engine; this was an improvement over early iterations of the program where entire cars were just crushed without any salvage) and they were mostly nice cars.

    The entire point of the program was to destroy working vehicles. Whether you liked or hated the program, that was the key to the entire thing; none of its putative benefits would have been realized by destroying vehicles that weren't being actively driven.
    posted by Kadin2048 at 8:47 PM on November 2, 2011 [1 favorite]


    Too bad Cash for Clunkers took so many older cars off the street. My son's '65 MG could be fixed by kindergartners and it cost him around $1200 cash. Of course, Cash for Clunkers would have scrapped it.
    The LAT never spells out what troubles these buyers had, like the single mother who worked at UCLA Health services but went bankrupt and couldn't pay for her car.
    And what do the Kings have to do with this? Should they buy the neighborhood cars?
    posted by Ideefixe at 8:15 PM on November 3, 2011


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