News Flash: People Borrowed Way Too Much For Overpriced Cars

And now they’re whining about the consequences.

Hopefully when you were little you were told the story of the grasshopper who played all summer while the ants worked, then the grasshopper had to depend on the ants to survive the winter. It’s a good story about not thinking times will always be sunshine and roses, although after reading an article from the Los Angeles Times about how people are getting buried in car debt, I’m starting to think a lot of parents skipped the story altogether.

Learn about the surprisingly wise blind automotive engineer here.

Of course, the article tries to portray people who are living way outside of their means as helpless victims who just had to get a new car, a basic life necessity even people in third world countries enjoy! The problem is any adherent of Dave Ramsey knows this is an outright falsehood as people get needs and wants confused constantly and that’s where real financial trouble starts.

The first story in the article is the big tell: a guy and his wife needed a new vehicle because they were about to have their fourth kid. That’s great, have the family, but I don’t think they absolutely needed a new Ford Explorer to transport everyone, even though that’s what you’re supposed to believe. With the pandemic crush on the auto industry, the cost of a new Explorer went from about $49,000 to $66,000 or so the LA Times says and that’s actually believable.

But wait, the story gets better: this couple was already $14,000 underwater on the two vehicles they “owned.” Guess what: if you don’t hold the title in your hot little hands, you don’t own a car, the bank does. This is why Ramsay is so big on paying cash for vehicles.

Another hot take I know will anger those who love victim narratives: a $66,000 car is by definition a luxury vehicle. According to the Bureau of Labor Statistics, 2022 median weekly earnings for workers in this country was $1,059. With 52 weeks in a year, that’s $55,068 annually. In other words, that Explorer costs more than most people make each year.

A lot of people stupidly finance vehicles they can’t truly afford. They focus on the monthly payment, something dealership sales and finance workers are well polished at getting them to do, ignoring the overall cost of the car. They go in with little to nothing down, get a high interest rate, and end up upside down on the vehicle the bank owns and might repossess in short order. Meanwhile, they fiddle away their finances on meaningless crap because they look for meaning in the material world as they cry for someone to bail them out.

As the LA Times article points out, a lot of people are in a truly bad situation where they have a crushing amount of negative equity in one or more vehicles. Thankfully it also highlights how people who are rolling negative equity from a previous loan into a loan for another car are making their own beds. One dealer who has a Kia location and a Volvo dealership says his concern is the people buying the Kias since the Volvo crowd often pays cash. You can try making that a story about haves and have-nots, but perhaps you should ask why the haves aren’t strapped financially? It might have something to do with years of sacrifice and wise money habits. After all, plenty of those haves were have-nots at one point.

Part of the problem the article doesn’t point out is that people started getting big covid relief funds during the government-imposed shutdowns. For some, they were getting more cash than they’d ever seen before. Instead of being smart and socking some of it away for a rainy day, they did the grasshopper thing and lived like there was no tomorrow. They bought an expensive vehicle, justifying it by looking at the inflated market and saying they had to pay that much instead of just making their current car work until the market came back down to a sane level. They splurged on other luxuries like food deliveries, multiple streaming services, the latest phone, and designer handbags. Now the piper wants his pay and reality is taking its pound of flesh. I feel for these people, but at the same time they need to learn a hard lesson or they’ll go right back to doing this sort of thing the next time they get a windfall of cash.

Check out the Los Angeles Times article for yourself here.

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