Hard to believe, but it’s been ten years since the great financial crisis. Sorry, The Great Financial Crisis! You know. The one where excessive consumer debt, particularly in the form of subprime mortgages that were repackaged as investment grade debt instruments and peddled to the very same public, led to the near-catastrophic failure of the entire global financial system. A failure only abated by federal governments taking on even more excessive debt loads sold to central banks in order to bail out giant financial firms collapsing under the strain of that aforementioned excessive consumer debt. Excessive bonuses for everyone!
Some giant, non-financial firms also earned bailouts, notably many of the most name-recognizable automobile manufacturers in the world, because, surprise, they were actually financial institutions too. Thanks to their rutting compulsion for selling us brand new cars we didn’t really need expedited by ridiculously-termed financing programs, automakers didn’t so much sell cars as they sold debt-facilitation-machines.
It was the kind of near-fatality that one would hope, dare I say expect, society to learn hard, sticky lessons from but of course we didn’t. In fact, we’re recklessly going about things relatively unchanged, seemingly oblivious to the lessons of last week, never mind last decade. Give me now what I can’t afford until later and let me pay for it with insanely low interest rates over ballooning contract lengths. It’s a win-win. The car companies get a steady stream of income for multiple reporting periods and I get to orgasm all over a depreciating asset for a few days and continue to pay for this momentary bliss for years beyond the afterglow.
Cash is no longer king; it’s barely even a court jester. No, the true power in the modern, capitalist world lies in debt. Make a major purchase with cash and you’ll get what you want along with a shrug, at best, or an overtly derisive look, at worst. You are partaking in the holiest of actions, consumption, but you are doing it in a finite way, one that limits the transaction to a single act. You have not allowed for any form of snowballing, trickling down, or outright plunder with your purchase. This represents the minimum acceptable participation in the world’s most beloved, universal religion. You have essentially stood for the national anthem, but forgotten, or refused, to remove your hat, cover your heart, and sing along. It’s damn near treason!
Debt is so desirable in the eyes and pocketbooks of consumer goods purveyors that they will offer the silliest of monetary incentives in hopes of convincing you to resist a cash purchase. They adorn hooks with crisp, hundred-dollar bills and dangle them in your face hoping you’re as dumb as fish. Automakers, not surprisingly, are among the worst for this chicanery.
The wife and I have recently gone on a bit of a buying spree, acquiring both a new travel trailer and a new SUV. Contrary to our usual habit, “new” in this case actually means “new” rather than “new to us”. This may not seem overly boast-worthy, damn near everyone does it and far more regularly than this, but we take pride in restricting our lavish purchases to a modest minimum. When we do acquire large assets, we typically choose the used route, thanks to my considerable free time, my Kijiji hunting prowess, a likely misguided belief we’re slowing the rape of the planet’s resources, and my dislike of salespeople. We also prefer saving for the future.
Here’s the funny thing about saving for the future. Eventually the future morphs into the present At 46 and 44 respectively, our future was not only firmly in the present, it was venturing dangerously close to morphing further still into the past. It was time to cash in some of our accumulated frugality rewards and that meant a trailer and car off the lot.
Both major purchases we intended to acquire with cash, our waning memories recounting childhood days when our fathers’ generation would employ the power of cash-in-hand to negotiate a better price. An upstanding citizen with cash was always afforded a better deal than those desperate or naïve enough to need financing. Or so the legend goes.
First came the trailer and with it warning signs that this wasn’t my father’s Kansas anymore. It was weird that within minutes of meeting, or should I say being trapped by, a salesperson, one of the first questions they utter is “how will you be paying?” It must have been the second question asked every time we stepped foot in a dealership. They were already scoping us out for our true value as a customer and it wasn’t for what was in our wallet but rather what was on our T4 slips and credit scores. Any inkling that paying cash would garner a better deal was quashed faster than Cleveland Browns playoff hopes. Besides, we were buying a small trailer, one that could literally fit inside the massive fifth wheel rolling mansions RV dealers salivate to sell and most Albertans salivate to buy. We definitely weren’t winning friends or influencing anyone with our shameful tandem of modest purchase and cash-in-hand. Negotiation was limited to the point of non-existence and though the cash was accepted, we couldn’t help but feel we’d somehow been a disappointment to them.
The situation quickly evolved from uncomfortable to stupid when we waltzed our way into the car dealership in hopes of acquiring a brand new SUV with which to pull our brand new trailer. Hey, a new outfit needs new shoes, am I right?
I loathe buying new cars. There is good reason both our current vehicles are 2004 models. Used or new, private or dealer, the song and dance that comes with haggling makes square dancing in elementary school gym class enthralling by comparison. How this became the accepted procedure for procuring new automobiles is beyond me but it remains a major obstacle in my willingness to regularly participate in vehicular commerce.
Once again we were asked how we planned on paying for any potential purchase. Within milliseconds of the word “cash” emanating from my mouth, the salesman’s face ever so slightly cringed in bewilderment, or perhaps disgust. Then, regaining his composure and adopting a friendly “I’ll let you in on a secret” persona, he proceeded to drop an information bomb in our laps that still boggles my mind. It went like this.
We could, of course, absolutely pay cash but if we did pay cash, we wouldn’t qualify for the amazing financing offers direct from the automaker. However, if we financed our purchase with the financing arm of the parent company (remember, they’re banks as much as they’re car builders) we would receive an additional $1000 off the price. But wait! There’s more! We don’t have to finance the entire purchase to earn this discount, just the bare minimum of $5500. But wait! There’s still more! Not only that, but we can then pay off the balance, without penalty, after only six months. At the qualifying interest rate of 4.99%, six months of financing $5500 worth of our purchase would cost us a grand total of … … … $80.30. Yup, you read that correctly! We would pay $80.30 over the next six months and in return we would get $1000 now.
I have churned this over in my head dozens of ways, asked family members and friends and I still can’t understand the logic behind this deal whatsoever. What I did learn from my inquiries is that it is quite commonplace these days and that I should just shut up and do it. So we did.
But Wait! There’s even still more! When we returned a few days later to finalize our purchase, sign all the paperwork, and take possession of our shiny, new family hauler, the financial guy revealed yet another small surprise. We could, in fact, pay off the $5500 loan after one month without penalty rather than waiting the full six months the salesman had told us. In other words, that one thousand dollars will now only cost us $13.38 instead of $80.30. How. Is. This. Sane? It’s like ordering a birthday cake and the baker making it, giving it to you, and then just handing you a bucket of leftover frosting and sprinkles.
I’m not exactly sure what this says about our current economy but I’m pretty sure it isn’t flattering. When this all blows up, again, and based on this car-buying experience I have no doubt it will, remember that a major international automaker willfully discounted a new car $1000, paid all the staff wages and office supplies it required to draw up and implement a financing agreement that we, the buyer, didn’t want and earned a total of $13.38 for their efforts. All in the hopes of what, exactly? We would need to extend this loan to seven years for them to receive $1028.48 in interest and recoup their “discount”. See? It still makes no freakin’ sense!
There’s an addendum to this tale of stupidity. The last laugh for the financing world, at my expense. As many of you know, I’m a stay-at-home dad; a homemaker. My wife works and earns all the money for the family while I go about the dull chores of keeping the family and household functioning. One such chore is picking up brand new purchases like trailers and cars during daytime hours rather than evenings or weekends. It’s convenient for me, it’s convenient for my wife, and it’s even convenient for the dealerships. Ah, the elusive triple win.
Unfortunately, we live in an ugly world of legal annoyances. For example, whoever picks up the new vehicle must also sign all the sales and financing paperwork. If I come alone, then the vehicle is registered to me alone. If my wife picks it up alone, it would go under her name alone. If our marital trust is precarious and we want it jointly owned, well, then we both need to show up together.
Initially, we were content to have me pick up the vehicle and have it registered in my name only. We did the same with the trailer a few weeks earlier and it worked just peachy. Except we didn’t finance the trailer; we paid cold, hard, unloved cash. The new car was partially financed and since I don’t work I have no income, save for a few hundred dollars each year I earn from an investment account. Thus, I didn’t qualify for the financing we didn’t want. So we had to reapply for that financing using my wife’s income and the vehicle is now jointly registered and stayed at the dealership an extra week until an evening appointment time was available that she could attend. The things I’ll do for $986.62.