Pay It Down

By Eric Peters, Automotive Columnist

You’ve probably heard about “paying it forward” and of course, we all know about paying it back. But what about paying it down?

Debt, I mean.

Sit in traffic and look around. Probably no more than 20 or 30 percent of the cars around you are paid-for. People routinely buy more car than they can really afford via the seductive mechanism of debt-financing. It is the keystone of our economic life – which is arguably why our economic health is pretty poor.

Debt allows artificially rapid progress – sort of like shooting some nitrous oxide into a car’s engine. It will go much faster than it otherwise would, but the catch is – not for long. It is not sustainable. When the nitrous (or the creative financing) runs out, there is a severe and sudden slowdown – kind of like what we’ve been experiencing these past few years.

With debt-financing, people can “afford” a car with six air bags, more computing power than the Apollo 11 rocket, with 17 inch wheels and 300 hp, swathed in leather and fitted with the finest 12 speaker stereo. Well, they can drive it around for awhile – so long as they can keep up with the payments.

Which amounts to an economic sword of Damocles hanging over the head of the debtor – who probably also has mortgage debt and credit card debt and some other debts on top of that. Multiple that by 300 million and you have a picture of the American economic system as it currently exists.

That’s bad – but worse is the way debt-financing hides the cost of government from the average person. Consider vehicles. It is no coincidence that the pile-on of government mandates that started small in the late 1960s with seat belt requirements and a few basic emissions controls that rapidly upticked to increasingly global requirements that began to necessitate the wholesale redesign of entire systems, then entire cars, during the ’70s and ’80s and right through to now tracks exactly with the rise in debt-financed vehicle “purchases” and also the ever-increasing length of the payment plan.

Three years has become five years – even six years.

And as every sharpie salesman knows, extending the loan decreases the monthly payment – creating the illusion of affordability. Innumerate people think if they’re paying “only” $250 a month for six years they are doing so much better than their neighbor who pays $340 a month for three years.

And not only salesmen count on this shuck and jive. The government does, too. In fact, it is the Obi Wan Kenobi – no, the Yoda – of financial deception. It is masterful at fleecing the public by preventing the public (most of it) from even being aware that it has just been fleeced. Consider withholding as just one example. You never miss it if you never actually had it.

If debt-financing weren’t so readily available – or the terms less “generous” than they are – it’d be interesting to see how much tolerance the average car buyer would have for a new mandate that adds another $1,000 to the price of the car he wants. For instance, Obama’s recent fuel economy mandates. How nice to think about a car that will deliver a government mandated 54.5 MPG. It’d be much nicer if people were forced to think about the cost of achieving that.

It’d be a salve for our economic and political health if the cost of all government mandates were made more obviously painful by confronting people with the cost up front rather than down the road.

First, why not demand that the cost of government-required add-ons be listed on the window sticker just as factory-added equipment is? For example, an automaker lists the extra cost of equipment such as air conditioning. Why shouldn’t government be forced to do the same?

* Dual air bags: $1,500.
* Traction control: $500.
* Emissions equipment: $2,000.
* 54.5 MPGs: $1,200.

And so on. Call it truth in advertising.

Next, pay for it up front, not on time. The Germans may have had a not-bad idea here. VW people will know about this. When the original Beetle came out in the 1930s, you bought a book of stamps, not the car. You made payments first – and got the car later. No debt, no finance flim-flam. True, under such a system most people would not be driving $40,000 crossover SUVs. But they would own whatever it is they’re driving. And ownership is a tonic, or rather, a talisman (like garlic or a cross) that is very effective at warding off government. Because the more you own, the less government owns you.

And that’s hard to put a price tag on.


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