Monday, July 9, 2012

Crappy Econoboxes Marketed to the Young

Toyota created a whole car division to market to the 20-something demographic.  Does it make sense, as a young person to buy a brand-new car?  And why do young people want to do this?

At GM, they had a saying, "You can sell a young person's car to an older person, but never an older person's car to a young person" - which has been attributed to "Bunky" Knudsen, among others.  Knudsen, along with DeLorean, was responsible for taking Pontiac division, once known as selling deco-clad "old man's cars" and turning it into the "wide-track excitement" division, with such cars as the GTO and Firebird.

That phrase explains why youth is used in marketing.   We all want to feel young forever, and buying a Camaro at age 60 is one way of pretending you are still a "dude" for just a little while longer.  No one wants to buy a stodgy car - or fewer people do, anyway.

But young people are a big source of profits for the car industry, and the industry also markets specific models and brands to the very young - the under-30 crowd.  Usually, these are cars in the sub-$20,000 range, small hatchbacks, coupes, and mini-utes or crossovers, that are supposed to be perceived as hip and cool.

And ironically, just as Knudsen predicted, many of these "youth" marketed autos end up in the hands of old people.   To fill out the lineup in their new Scion youth-segment division, Toyota took an older home-market Toyota bB, and re-badged it as the "Scion xB" for the U.S. market.  And it was wildly popular - with older people.  Toyota was rather surprised by this.

Hyundai followed suit with its Kia Soul, which has been a hit with the old set as well (underpowered empty boxes can be practical as well as stylish, I guess).  They now sell something called a Hyundai Veloster, which is ugly as sin, and advertised on The Daily Show along with sex lube and an Irish Whiskey no one ever heard of five years ago (selling kids trendy drinks is also a big deal as well).

But other cars in the Scion lineup were strictly youth-market vehicles - which never took off with the olde set.  Old folks don't like climbing out of cramped hatchbacks or coupes.   And adults don't perceive front-wheel-drive four-bangers based on economy car chassis as serious performance or sports cars.

But to the 20-something set, such cars appear "sexy" and "cool" and what's more, appear to be affordable.   The key word being "appear"  - as they are often sold on monthly price, but the overall cost can be huge.

What sort of cars are these?  Well, the Scion tC is one, the Mitsubishi Eclipse was another, The Volkswagen Golf, has been popular, and the ever-present Civic Coupe, of course.  Remember the Hyundai Tiburon?  Most are sporty-looking cars, based on economy-car chassis, and available with a four-cylinder or V-6 power.  Usually there are different model levels, including an upgraded "race" version allegedly prepped by the company's oddly-named "race" divisions (T.U.R.D. or something like that).  But the upscale models are just "halo" cars used to sell the lesser models to the plebes on monthly terms.

And this is nothing new - it is a trend that started back in the 1960's with the introduction of the pony car.  The Mustang was nothing more than a re-styled Ford Falcon, just as the Camaro was a Chevy Nova in drag.  And while you might drool over a "Firebird TransAm" in the showroom, the sticker price might be more than your wallet could bear.  So the salesman would steer you to a less expensive "Formula" which he told you, wink-wink, was "just as good, for a lot less!"

And fast-forward 50 years and I hear the same thing from young people, who were snookered into buying a "youth car" and downsold into the base model using similar tactics.  "This is just as good, but a lot less!  And by leasing it, the monthly payments are affordable!"  It is so sad to hear this.

Why is it a bad idea, if you are under 30, to buy a brand new car?   Well, there are several reasons.  And many of these are the same reasons buying a brand-new car is a bad idea at any age.

1.  Insurance:  Until about age 26, your insurance rates are murder.  The only way around this is to drop as much coverage as you can.  If you are living in an apartment and your only assets are your computer and your car, then you don't have a lot of assets to protect.  You can afford to do with less liability coverage and the like.  But the big savings are in Collision and Comprehensive insurance, which can double or triple your coverage costs.

The insurance companies are basically saying that they expect you to wreck your car within about five years or so, which is why, by the time you pay off the loan, you've paid for the car twice - once in loan payments, and once in insurance payments (and maybe half again in interest payments).

And the insurance companies are right.  They have the statistics on this, based on experience.  The average American gets into an accident every eleven years.  For young people, this is often less that five.  They assume, rightly, you are going to be in a wreck.

And if you get a few speeding tickets and even just a small fender-bender, well, your high rates will go into the stratosphere.  I recall spending $3500 per year, at one point in my life, after a series of tickets.  And that was back in 1983 or so.  Today, I can only imagine what the rates in the "risk pool" would be like.

A better bet is to find a reliable used car, usually from the owner, and drive it carefully and learn how to fix it.  The thousands of dollars you save on insurance will be the foundation for a down payment on a house, or a start to your investment portfolio.

2.  Depreciation: New cars depreciate about 5-10% the moment you drive them off the lot, and are a horrible financial proposition for anyone of any age.  Most cars depreciate 50% every five years.  Even cars with "low depreciation" don't vary from this curve much.  And kids cars?  They drop to nothing in no time, as they are usually beat upon and "modded".   Why do you think the terms "adult owned" appear in auto listings?   Because we all know how you drive and how you take care of your cars - Badly!

So, in five years, that $20,000 econobox is lucky to be worth $10,000.   And you've already paid $20,000 in car payments, another $5000 in interest (if you're lucky) and anther $10,000 in insurance premiums.  $35,000 for an econobox - was that worth it?

If you buy used, you can pay a lot less.  And think about it - instead of getting the "base" model, you can get the T.U.R.D. racing edition for less than what they want for a "Sally Stripper" new car.  But of course, the racing edition might be more expensive to insure.

3. Interest:  As a young person, you are going to get the worst interest rates imaginable, as you do not have a long credit history.   Some people think that the way to "fix" this is to get Mom and Dad to co-sign the loan.  Generally, that is a very bad idea.  It ends up dinging Mom and Dad's otherwise good credit rating and doesn't do much for you to establish credit.  A better idea is to not borrow money at all.

Taking come-on financing aside (low or non-existent rates that are a joke, as they raise the price of the car to compensate) you can expect to pay about 3-4% for an auto loan these days - if you have excellent credit.  These are very good rates, compared to the 12% and higher rates we had back in the 1980's.  For most young people, however, rates may be higher - on the order of 5% or more.  On a five year loan of $20,000, this adds over $2600 in interest.  That is a lot of money.

And since you are borrowing money, you have to get a low-deductible collision and comp policy on the car.  Debt creates a snowball effect here, creating more expenses overall.

Save up money - get in the habit of saving.  Drive the wheels off you clunker and put aside a couple hundred a month.  In no time, you will have enough CASH to buy that car of your dreams, a few years old, without having to finance it.

4.  Getting Snookered By A Car Salesman:  Let's face it - you've never bought a new car before.  You've never been in that situation and seen, firsthand, how they can screw you.  How do I know this?  I've been there, done that.  If you had, you would never set foot in a new car showroom again (although many do, thinking "this time, it will be different!" - those folks are idiots).

You can be astute all you want to, if they perceive you to be young and naive they will offer you the worst deals.  Double this if you are a woman, triple it if you are a minority.  Yes, that is the sad truth of the car sales business - they profile customers and offer deals based on race, creed, and sex.  And no, not much has changed over the years.

And I've seen this happen to friends of mine - snookered on a crappy lease deal (whose monthly payments would have BOUGHT the car, if they had been astute) or urged to take on high-interest long-term loans of 72 months or more.  It is nearly impossible to "get a good deal" at a car dealer, and if you just walk in, as a young person, particularly vulnerable to emotional thinking, they will snag you.

Come on, admit it.  You want that new car so you can get laid.    That's emotional thinking right there.

5.  Quality:  Most cars sold to the younger crowd are econoboxes or cars based on econobox chassis.  I rented a Mitsubishi Eclipse Spider once, and it was an utter piece of shit, particularly compared to the M Roadster.  Parts were falling off the interior as I drove it.   My niece, being of that age, thought the Spider was "cool" as all the boys in high school wanted one or had one.  The M Roadster?  Just a blank expression.  She had no clue what it was.  Still doesn't.  Kids don't know shit about cars.

Shitsubishi, of course, is the crappiest Japanese Car maker there is - their cars fall apart faster than Russian cars.  You can't sell these to adults, at least in America (which is why they are struggling so badly).

Other youth-market cars are a little better screwed together (at least these days) but they show their economy car underpinnings at nearly every turn (sometimes literally, in the case of a Golf, which tends to "lift a leg" in the corners).

They are not very expensive cars, and oftentimes this shows, over time.  This is not to say they are bad cars, only that to pay $20,000 for one is to pay far too much money for it.

6.  Maturity: As a young person, we like to think we are mature - and it grates on us that older people are always accusing us of being infantile.  But let's face it, when you are in your 20's, you do a lot of stupid things - spend recklessly, drive too fast, get tattoos and piercings, buy trendy clothes, do drugs, drink until you puke - the works.

So, young people don't take care of their cars.  They spend hundreds, if not thousands of dollars putting ill-advised "mods" on their Civic, but don't have enough money to pay to have the dents pounded out of it (which would actually preserve its value).  And pretty soon, the car is turned into a caricature of a car - with fart mufflers, loud intakes, and bizarre colored lights and the like.

And young people - young men in particular - are immature enough to think this "adds value" to the car, and the econobox is now a real "street racer".  It isn't.  It is just an econobox with an annoying muffler.

Kids are hard on cars, and they rarely keep them for long.  If they don't wreck them, they drive them hard to the point where they break, and break bad.   It is a far better idea to get an older, less expensive car at this point in your life, as you are basically going to trash it, anyway.

7.  Accidents: Every year, when I lived near Washington, D.C., there would be a story in the paper about how some wealthy "weekend Dad" tried to make up for lousy parenting by purchasing a brand-new BMW M3 or a Mustang GT for their 16-year-old kid.   And the story only made it into the paper because the kid wiped out the car, usually killing everyone inside.  High performance cars are very tricky things, and just because you bought it (or it was given to you) does not mean you know how to drive it.   Youth doesn't get this, and often gets killed as a result.

Brand new cars and youth are a bad mix, particularly when it comes to performance cars.

8. Distraction:   Believe it or not, at one time in this country, you were not allowed to bring a car to campus until your Sophomore or Junior year in college.  When I was in High School, only Seniors were allowed to drive to school, even though I had my license in the 10th grade.

The thought was, a car would be too much of a distraction for young people, who after all, were in school for a reason - to learn.

But of course, that has all changed.  College is just a big party now, with everyone graded on the curve.  And since everyone has a car these days, it would be considered quaint and antiquated to outlaw cars for even Freshmen.

A brand-new car can be a distraction, and when you are very young, having this very expensive piece of machinery can dominate your life.  I recall one friend of mine, who bought a Z/28 Camaro (which his Dad co-signed on) and it was all he ever talked about.   He spent all his free time washing and waxing it and in the winter, put it up on blocks to keep it out of the snow.

From the perspective of 30 years later, it all seems kind of humorous.  It was not a very expensive car - for an adult - nor a very collectable one.  In fact, it was an utter piece of crap made by GM.   And still is today.  Most cars are - they are just appliances.  Only young people attach emotional values to them, or claim to pledge allegiance to Ford or Chevy.  As a result of this lack of Maturity they Get Snookered by Car Salesmen.  Once you attach emotional values to a car, they have you.

My friend ended up dropping out of Community College and working slacker jobs.  He felt that his life was complete, as he had a "cool car" and some spending money, as he lived with his parents.  The car ended up being a distraction from life - and a substitute for it.

Having a nice car is fun and all, but not the end of the world.   There are far more important things in life, such as getting an education, creating your own wealth, and finding a mate in life.  A fancy car can thwart all of these things, distracting you from your studies, draining your bank account, and turning you into that "jerkoff with a fancy car" - whose only dating opportunities are girls impressed by fancy cars (generally bad choices for mates in life).

* * * 

Rewards in life should be in response to accomplishments.   When you buy a brand-new car at age 23, you are rewarding yourself a little too soon.  You are borrowing from the accolades of the future, and as a result, end up with less in life, overall.   For the cost of the econobox today, you could pay cash, tomorrow, for a much nicer car.

But alas, we don't see that, when we are that age.  All we see is, for $259 a month I can have a cool car and where do I sign?

And it is a rip-off, plain and simple.  And yes, like title pawn loans and rent-to-own furniture, a lot of people do it.   But that doesn't make it an astute bargain.