Kicking The Trade

wallyj84

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Car dealers telling hard-up borrowers to have their old cars voluntarily repossessed - Baton Rouge Business Report

I just learned about this from the Dave Ramsey show. Apparently some car dealerships are convincing customers to stop making payments on their car loans, a voluntary repossession, in order to buy a new car.

This is a bad idea for obvious reasons.

What do you guys think of this? Have you ever met someone who fell for this scam? How do you think this problem should be dealt with?

I'm of two minds about it. On one hand, I think anyone stupid enough to fall for this is kind of thing deserves whatever they get, but on the other hand I think that by NOT punishing the dealerships who are pushing this scam we as a society are kind of endorsing it. What do you think?
 

keenobserver

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Car dealers telling hard-up borrowers to have their old cars voluntarily repossessed - Baton Rouge Business Report

I just learned about this from the Dave Ramsey show. Apparently some car dealerships are convincing customers to stop making payments on their car loans, a voluntary repossession, in order to buy a new car.

This is a bad idea for obvious reasons.

What do you guys think of this? Have you ever met someone who fell for this scam? How do you think this problem should be dealt with?

I'm of two minds about it. On one hand, I think anyone stupid enough to fall for this is kind of thing deserves whatever they get, but on the other hand I think that by NOT punishing the dealerships who are pushing this scam we as a society are kind of endorsing it. What do you think?

I spent a number of years in the car business. This was a new low from a group that I thought could not get any lower.
On a personal note, I'm a 'pay back what you borrow' kind of guy. You sign the note, you pay the note. Car loan, school loan, credit card. Don't like the terms? Don't borrow the money.

You are correct that this is bad for a number or reasons. First, there is going to be a serious stain on a person's credit who allows a car to go to repo under any circumstances. Bankruptcy is one thing, but just saying 'fuck it' to a car loan because you want a new car will not wear well going forward. Second, this is going to tighten credit to other borrowers if it becomes a thing. Right now, I have not seen anything to indicate this is a trend that is catching on. That of course can change.

I doubt seriously any dealership is pushing something like this as a matter of policy. I can see where individual sales people and finance staff might push it to improve their individual paychecks, but if someone arranged financing through a dealer, the dealer can be on the hook for a repo, especially if a pattern develops. This can cause the dealer to lose financing options for his future customers when direct lenders cut him off. Controlling the financing is a critical component of selling many vehicles.

The problem however is ultimately created by manufacturers who raise the price of cars and extend financing terms extra years to cushion the cost to consumers. I remember when the 'old timers' went apoplectic when dealers started offering 4 year financing, then 5, and not 6 is common and seven and eight are possible. This takes a customer out of the market for almost the entire duration of the loan, because the vehicle is so leveraged it is not worth the loan balance. This cuts the number of new vehicle buyers, and reduced follow up sales because trade ins are run for years longer and more worn when they are finally traded in.

I hope this does not become a trend, but it would not surprise me if it did.
 

wallyj84

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I spent a number of years in the car business. This was a new low from a group that I thought could not get any lower.
On a personal note, I'm a 'pay back what you borrow' kind of guy. You sign the note, you pay the note. Car loan, school loan, credit card. Don't like the terms? Don't borrow the money.

You are correct that this is bad for a number or reasons. First, there is going to be a serious stain on a person's credit who allows a car to go to repo under any circumstances. Bankruptcy is one thing, but just saying 'fuck it' to a car loan because you want a new car will not wear well going forward. Second, this is going to tighten credit to other borrowers if it becomes a thing. Right now, I have not seen anything to indicate this is a trend that is catching on. That of course can change.

I doubt seriously any dealership is pushing something like this as a matter of policy. I can see where individual sales people and finance staff might push it to improve their individual paychecks, but if someone arranged financing through a dealer, the dealer can be on the hook for a repo, especially if a pattern develops. This can cause the dealer to lose financing options for his future customers when direct lenders cut him off. Controlling the financing is a critical component of selling many vehicles.

The problem however is ultimately created by manufacturers who raise the price of cars and extend financing terms extra years to cushion the cost to consumers. I remember when the 'old timers' went apoplectic when dealers started offering 4 year financing, then 5, and not 6 is common and seven and eight are possible. This takes a customer out of the market for almost the entire duration of the loan, because the vehicle is so leveraged it is not worth the loan balance. This cuts the number of new vehicle buyers, and reduced follow up sales because trade ins are run for years longer and more worn when they are finally traded in.

I hope this does not become a trend, but it would not surprise me if it did.

I first heard about it on the Dave Ramsey show and he got it from the WSJ. So I think it might be more common than we might want.

Regardless, it is really bad. Thank you for your insight.
 
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EllieP

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I spent a number of years in the car business. This was a new low from a group that I thought could not get any lower.
On a personal note, I'm a 'pay back what you borrow' kind of guy. You sign the note, you pay the note. Car loan, school loan, credit card. Don't like the terms? Don't borrow the money.

You are correct that this is bad for a number or reasons. First, there is going to be a serious stain on a person's credit who allows a car to go to repo under any circumstances. Bankruptcy is one thing, but just saying 'fuck it' to a car loan because you want a new car will not wear well going forward. Second, this is going to tighten credit to other borrowers if it becomes a thing. Right now, I have not seen anything to indicate this is a trend that is catching on. That of course can change.

I doubt seriously any dealership is pushing something like this as a matter of policy. I can see where individual sales people and finance staff might push it to improve their individual paychecks, but if someone arranged financing through a dealer, the dealer can be on the hook for a repo, especially if a pattern develops. This can cause the dealer to lose financing options for his future customers when direct lenders cut him off. Controlling the financing is a critical component of selling many vehicles.

The problem however is ultimately created by manufacturers who raise the price of cars and extend financing terms extra years to cushion the cost to consumers. I remember when the 'old timers' went apoplectic when dealers started offering 4 year financing, then 5, and not 6 is common and seven and eight are possible. This takes a customer out of the market for almost the entire duration of the loan, because the vehicle is so leveraged it is not worth the loan balance. This cuts the number of new vehicle buyers, and reduced follow up sales because trade ins are run for years longer and more worn when they are finally traded in.

I hope this does not become a trend, but it would not surprise me if it did.

You know what the problem with your way of thinking: sign the note, pay the note? Like most people you believe that is the right way to do things. And morally you are correct.

But financial institutions are not moral creatures. They will default in a heartbeat on their obligations in order to make a better deal elsewhere. They do it almost daily. I know. I found out. I deal with them on an almost daily basis.

There is no loyalty. There is no contrition. It's business, pure and simple.

A dear friend of mine lost his house in the crash in 2008. The bank sent him a letter saying they were going to foreclose. He packed up his family and left town. Gave up a good job too. This was Countrywide, which was one of the more despicable financial institutions there ever was. Bank of America took over everything when Countrywide went under.

A person I know at BofA told me he could have stayed in that house for years without paying a note. There were so many foreclosures it would take a long time before they dealt with him. Repo men don't take houses.

But we are moral people who are as good as our word, which is exactly what the banks are counting on while they play their shenanigans.
 
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keenobserver

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You know what the problem with your way of thinking: sign the note, pay the note? Like most people you believe that is the right way to do things. And morally you are correct.

But financial institutions are not moral creatures. They will default in a heartbeat on their obligations in order to make a better deal elsewhere. They do it almost daily. I know. I found out. I deal with them on an almost daily basis.

There is no loyalty. There is no contrition. It's business, pure and simple.

A dear friend of mine lost his house in the crash in 2008. The bank sent him a letter saying they were going to foreclose. He packed up his family and left town. Gave up a good job too. This was Countrywide, which was one of the more despicable financial institutions there ever was. Bank of America took over everything when Countrywide went under.

A person I know at BofA told me he could have stayed in that house for years without paying a note. There were so many foreclosures it would take a long time before they dealt with him. Repo men don't take houses.

But we are moral people who are as good as our word, which is exactly what the banks are counting on while they play their shenanigans.

I don't disagree with anything you posted. My word matters to me. I read the fine print and if I take on a debt I make sure I pay it. I understand that the lender may be immoral - that is what capitalism rewards. I am not obligated to be immoral as the cost to participate in the financial system. This is an issue that has been frustrating people for many years. The financial reforms after the last financial crisis were supposed to deal with many aspects of this, however now they have been dismantled by the current administration in the name of improving the economy.
 

EllieP

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I don't disagree with anything you posted. My word matters to me. I read the fine print and if I take on a debt I make sure I pay it. I understand that the lender may be immoral - that is what capitalism rewards. I am not obligated to be immoral as the cost to participate in the financial system. This is an issue that has been frustrating people for many years. The financial reforms after the last financial crisis were supposed to deal with many aspects of this, however now they have been dismantled by the current administration in the name of improving the economy.

The only thing I'll disagree with is the last three words "improving the economy." That may have been what was communicated, but what it meant was to line the pockets of the ultra-wealthy.

We have no control over the economy. We only participate according to their rules.

But I am just like you. My word is my bond. I will never deceive or take advantage of someone elses weakness. But I know so many that would.
 
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