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Minyan Mailbag: GM

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Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.

Vitaliy,

After 9/11 I visited with some clients that own dealerships and we had a great discussion about how well they were doing with more people buying cars than leasing. I spoke up that the industry was altering their repeat buyer with people coming off leases having to lease another car. The industry has successfully gotten people to ownership, which is great for inventory in the long run but it also will stop many from turning over their cars. If you own a car outright after 4 years compared to leasing after three, you will be less likely to trade in a 0 car payment for another purchase.

There will always be people who want to have a new car every two to three years but many that leased in the past were baited with 0 interest loans and huge discounts that it was too beneficial not to buy. Those people are going to own a car that is still working fine and probably not trade it in for another payment.

The "Keep America Running" program did just that but in the next few years it will be a huge burden because less vehicles will need to be produced which means less jobs.

Minyan Sean

Sean,

Nice to hear from you. I agree 100%, especially considering the following: 1. New car loans have longer maturities (see chart below). Maturities are up from roughly 4.5 years pre-9/11 to 5 years today. It seems that consumers are opting for longer repayment options for two reasons: they cannot afford to buy a new car otherwise and at 0%, a longer payout schedule makes more sense. 2. As you said, resale values should drop as they are closely linked to new cars pricing, which have been on decline.

Best regards and see you at MIM3.

Vitaliy

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