Have you been shopping for an automobile recently?
If you want to understand the impact the Federal Reserve is having on the real economy, I suggest you do a little online homework and then go hit the auto dealers. You will be astonished at what you find.
Whether you are buying a car or leasing one, the financing component is a very large part of what is typically the 2nd largest purchase the average American family makes (homes being the largest).
Regular readers know I am fan of the automotive arts, from the $15k Fiat 500 to exotics that cost 50X as much. I always have a good sense of what’s available, what’s coming out, and their prices. One of my marketable few skills is the ability to figure out the ideal car for a person within 15 minutes of meeting them (its true).
Take this background, and add in my daily awareness of where interest rates are, and one would imagine that I would not be surprised at the cost of buying or leasing a new car today.
As it turns out, I was stunned at the bargains available across all price points.
We lease our cars through the office. By dumb luck, I have two cars coming up within 30 days of each other. I am the spendthrift, while Mrs. Big Picture is the one who reins in my attempt at single-handedly reviving the American economy.
To give you an idea of how things have changed — nearly all due to interest rates — the same monthly payments for leases now buys you about 25%-33% more car for your buck. Financed purchasing power gives you almost as much gains for your buy relative to 3-4 years ago.
A car I suggested to the missus as her daily driver in 2009 was dismissed out of hand as “way too expensive.” It was about $18k more (almost $200 more on a monthly lease) than what we ended up with. The same car leased today cost $20 more per month than our current ride. Several cars I didn’t even dare suggest last time (lest I get yelled out) we actually test drove and made offers on.
The cost of any given car is a function of its MSRP, programs the dealers are running, what is hot or not, and many other factors. But the key factor today is ZIRP — the near zero percent rates that the Fed is running.
If you have half decent credit rating and are even remotely thinking about replacing an automobile, I strongly urge you to go do some shopping. You will be very pleasantly surprised by what you find.
This is the entire purpose of QE/ZIRP. To stimulate the economy, move houses and cars and other financed goods. You might pay the cost for it in higher inflation (eventually) and much worse income if you live on a fixed income, but during the mean time, listen to what your Uncle Ben has been suggesting to you — go make some financed purchases.
I’ll get some details up on the various car prices we have seen and what the negotiations were like later this week.