The American Dream Built on Debt, Living in Beverly Hills

For the last three decades millions of Americans have been living in Beverly Hills. How can this be? Only 35,000 people reside in Beverly Hills, California. Millions have acted like they live in Beverly Hills, where the median household income is $125,000. The median household income in the United States is $50,000. There are 116 million households in the United States. Only 12 million households have income of $125,000 or more. There are 60 million households making less than $50,000.

Why shouldn’t the 60 million households be entitled to live like the top 10%? This is America, where the American Dream of wealth and riches is achievable. Just one small problem. Millions chose to live like the privileged Beverly Hills elite without doing the difficult work to earn their way into the top 10%. They made these dreadful decisions of their own free will. No one forced millions of Americans to borrow and spend like drunken soldiers.
It appears that the psychology of the nation transformed in the early 1980’s. Was it the optimistic message of “Morning in America” preached to the country by Ronald Reagan? Was it the fact that the youngest Baby Boomers were turning 35, entering their prime spending years? Or, was it the long-term decline in interest rates from 18% to 1% over two decades? Whatever the rationale, millions are now drowning in deep pool of debt.

I spend 500 hours per year in my car commuting on the Schuykill Expressway to and from work. In my spare time, I’ve calculated that I will spend at least a year of my life in traffic before I retire. While commuting at 5 mph on the Schuykill, I can’t help but survey the cars I’m sharing the road with. There are thousands jamming the highways in the Philadelphia area. There are 230 million cars in the U.S. and approximately 200 million drivers. We are a car crazed nation, with the number of cars per person 40% higher than Europe, 500% higher than China and 6,200% more than India. In 1970, when I was seven years old, the number of cars per 1,000 people was 529. Today it is 765, a 45% increase in three decades. Suburban dwellers have a love affair with their cars.

The average price of a new car exceeds $30,000 today. That is a nice chunk of change. I have a mental block paying that much money for an asset, that losses 20% of its value in the 1st year of ownership. My price limit is $20,000. I finance my cars over 4 years and try to get 10 years out of them. The 6 years of no payments goes directly into savings. My frugality regarding cars probably harks back to my father buying used cars during my entire childhood. Cars were a means of transportation, not a symbol of success. It appears to me that expensive luxury cars are an attempt at filling a psychological or emotional void in people’s lives. We spend half our lives in cubicles or offices and the other half in our shielded houses with gates and fences to keep people at a distance. The only time we are seen by others is on the highways and byways. An expensive sports car tells the world you are a success. A luxury car is a futile attempt at increasing your perceived happiness. Your fashion sense may be a little whack, but your car isn’t a piece of crap.

This brings me to the conundrum that has confounded me as I drive to work each day. There appears to be many more BMW and Mercedes vehicles on the road than people with enough income to own one of these vehicles. How can this be? I was befuddled. After a little research it became quite clear. The graphs below tell the whole sordid story. Borrow today, live like a Beverly Hills hotshot, roll the loan or lease into the next loan or lease in 3 years, and don’t be troubled about the future. According to the Federal Reserve, consumer non-revolving debt grew from $300 billion in 1980 to $1.6 trillion today. About $1 trilion of this is auto loans. The average automobile loan today is for 63 months, with some going as high as 84 months, compared with an average of less than 48 months in the early 1990s. In 1997 banks financed an average 89% of a new vehicle's price. The average loan amount was $17,000. In 2007 banks financed 101% of a new vehicle’s price, since consumers borrowed to cover the amount they were upside down on their trade-in. The average loan amount is now $29,000. A full 40% of all trade-ins involve upside-down car loans. The average American car “owner” is in debt up to their eyeballs and upside down on their loan, but at least they look like a million bucks in the eyes of their neighbors and co-workers. Looking marvelous is what passes for achievement today.

Complete big article-: http://www.marketoracle.co.uk/Article13294.html

 

the whole car thing is like the peacocks feathers, basically makes the male a target for predators, but the females like it so evolution drives it.

Driving a big expensive car is bad for your health but presumably good for your sex life.

 

Job one America, production and consumption of the auto. On one hand we bitch about oil dependency, then provide stimulus money to rebuild roads and bridges, etc.

Sad state of affairs that the cars next to you on the road are Beemers and Mercede's, testimony to the fact American auto cos offer poor and few choices what the American consumer wants.

 

Great article with an intersting perspective. I have long thought that automobiles were the #1 wealth destroyer in the US. I had a roommate shortly after college who traded cars like RenTec trades stocks - high frequeny. He kept rolling over car loans to the point where he "traded down" to a 5 year old Crown Vic with a $20k+ loan on it! The guy was making insane payments on a piece of crap car and had student loans and massive credit card debts to boot. He wasn't a dumb guy per se, just "living the American dream".

 

as an ex bryn mawr native---- i would say this article is a little behind the times--- maybe interesting if written in 1997---now it reads like a history lesson and not relevent.

furthermore, he is forgetting the "luxury cars" that are purchased used or second hand. 3-4 year old top of the line normal luxury sell in the 20-30k area-----



regards, surf

 

Which makes you wonder, WHY, after spending $$$billions on R&D, advertising, building the "brands", STUPID GM shuts down Saturn, Pontiac, Hummer??????????!!!!!!!!!

I can understand NOT getting involved in the process of building additional brands/capacity but just wiping out these divisions altogether? They just gave away a HUGE chunk of market share to their foreign competition. What the hell for? To become even LESS competitive. They'll now enjoy even LESS economies of scale.

The Japanese started Lexus, Scion, Acura, Infinity divisions not long ago. The RETARDS at GM couldn't even keep their "division of the future", Saturn!!!

 

Some people like buying a year old used car to take advantage of the big 1st year drop in value. My problem with this is that you don't know how the car was taken care of. The first year can be critical. Many cars traded in after one year are rentals and corporate cars where there is no incentive to care for the car.

I'd rather buy a new car and keep it for 7-10 years.

 

manufacturers warranties take care of the worry, imho.

even at 3 years old, you normally have another year left, or you can pay to extend.

i never understood someone driving a new honda for 30k when a slightly used jag, benz, bmw, etc can be had for same...

surf

 

here is a thought:

Debt equals optimism equals boom times for all.

you only go into debt when you are optimistic about the future and markets only go up when there is optimism.

debt is the reflection of not only a good thing, but a must in the society


surf

 

Regardless of everything else, legacy costs and union influences = lesser product.

Either lesser quality for the same money as Asian competitors, or equal quality car for more money.

If American car makers can't retool and compromise, they will eventually be gone... regardless.