Is a Better Year Coming?

What will 2012 bring? A presidential election and all that accompanies it. A new baseball season with Albert Pujols wearing a Los Angeles Angels uniform. A slew of new vehicle introductions. But what will it bring for the auto industry and the individual car buyer? That’s a question that is vexing analysts around the world, because volatility is the word of the day … maybe of the year.

For clues on 2012, let’s look at 2011: If we consider the year-over-year comparisons with 2010, auto sales this year look pretty good. And that’s what the general media is reporting. Cars sales are up more than 8 percent versus last year, and light truck sales are up more than 10 percent. So things must be good and getting better, right? 

Well, getting better, yes. But good? Not so much. When all is said and done, 2011 light-vehicle sales will exceed those in 2010, but 2010 was a no-growth, high unemployment year. So though 2011 will turn out somewhat better than 2010, it will not prompt many to go out and buy a new car. Employment and savings are still too iffy. Home values are still in a very depressed state.

But doesn’t the increase in auto sales in November indicate that the consumer is finally ready to come out of her cocoon and start buying again? Not necessarily. What is most troubling in this supposedly post-Great Recession era is that the Great Recession seems to linger on … and on … and on. Unemployment is still dreadfully high at 9 percent; despite reasonably optimistic early holiday sales, consumer confidence is at a low ebb. Many auto analysts share the pessimism regarding next year, because there are a lot of negative signs on the horizon. 

In light of the ongoing economic malaise -- reflected principally in continued high unemployment plus diminished home values -- and the real possibility of an economic meltdown in the Euro zone, that pessimism seems utterly rational. Though the seasonally adjusted auto sales rate topped 13 million in November, few are predicting that U.S. auto sales will exceed 13 million next year. To put that in perspective, at the beginning of the decade, the annual sales rate was around 17 million. 

Somehow, we have lost 5 million sales a year, and the auto industry has lost all the revenue that would be derived from those sales. That means less research and development money in an era in which research and development are more critical than ever. For the consumer, this means fewer choices and a slower pace of technological improvements.

These are the questions confronting us as we enter 2012: Are we in the first few years of what will be a no-growth decade? Will unemployment linger above the 8 percent level for years to come? Will fewer people buy new cars than in the year 2000? Some would answer yes to all three, but others believe most Americans embrace growth and economic progress; in fact, they feel as if it is their birthright. With that spirit ready to break out, this decade might end up far brighter than it has begun.

Are You Drowning in Car Loans?

Are you underwater in your car loan? If you’re in the middle of a five-year, six-year or longer-term loan, that could be the case. The terms “underwater” and “upside down” refer to the instance when you owe more money on your vehicle loan than what the vehicle is worth. It has gained a lot of currency in the home-mortgage arena as housing prices have tumbled, but it is also an issue with car loans. Most consumers find themselves underwater for a simple reason: the pursuit of the lowest monthly payment possible. There was a time when the standard auto loan was just 24 months. But as cars grew more expensive, loan terms stretched to three years, and then to four years. Now, industry data indicates that the average car loan term is more than 60 months.

Because the long-term loans are often accompanied by relatively small down payments, a vast majority of buyers have less equity (real ownership) in their cars than they might believe. Though you’ve religiously made three years of payments on your five-year loan, the financial institution might own more of the car than you do. Plus, the vehicle’s value is less than what you owe the financial institution to complete the loan.

Consumers with a 60-month loan will frequently walk into a dealership after three or four years with the goal of buying a new car, and that is where being underwater can hit home with a vengeance. Before they can even consider buying a new car, the first hurdle is to get clear of that old debt, which can run into the thousands of dollars. This is where some prospective buyers decide that getting a new car isn’t the right move, but that isn’t something the typical dealer wants to hear. So, dealers typically say they will “work with you” to solve the debt problem. Their usual solution, however, isn’t all that financially palatable. It consists of rolling the accumulated debt from the old vehicle into the loan on the new vehicle.

Here’s an example. A Texas dealer signed a customer to a $47,000 96-month (8-year) loan on a big SUV, a loan that was for some $15,000 more than the value of the vehicle the customer was buying. The customer got his new vehicle, but he guaranteed himself that he would be underwater -- and making huge monthly payments -- for many years to come.

While it might seem fine to accept more debt to buy a new car, the result of all this is that individual consumers keep falling deeper and deeper into debt. Some have now found that filing for bankruptcy is a better solution than continuing to live with the huge debts they’ve accumulated. Over the past several years, we have seen a number of financial institutions get burned from this merry-go-round of escalating debt. Seven years ago, we predicted that this would be a problem. Now, increasingly, this problem is coming home to roost.

2011 Los Angeles Auto Show Preview

In a week, auto journalists from around the world will converge at the Los Angeles Convention Center for the opening of the annual Los Angeles Auto Show. What they will expect to find are yet more hybrids, plug-ins and electrics since California, often called “the land of fruits and nuts,” has gained a justified reputation as a place that is more than friendly to alternative types of transportation. Certainly, as was so famously said on “Seinfeld,” there’s nothing wrong with that. Many eco-friendly cars will be introduced, but what the auto writers might not expect is the number of new performance-oriented cars they will see. Here is a look at three of the hottest rides that will be displayed in Los Angeles.

Zenvo ST-1 50S
Talk about “limited-production!” Only 15 of the $1.8 million Zenvo ST-1 50S cars will be manufactured, and only three will be sold in the United States. The supercar is completely hand-built by Danish craftsmen. The research and development for the prototype was started in 2004 by Jesper Jensen and Troels Vollertsen, so no one could say they are rushing the car to market. It is powered by a turbocharged and supercharged 7-liter V-8 engine that will wring out 1,250 horsepower and 1,050 pound-feet of torque. Tests reportedly indicate that its top speed is 233 miles per hour -- just the thing for running out to pick up a loaf of bread. When it comes to comfort and convenience -- something you could justifiably expect in a $1.8 million car -- the Zenvo features keyless entry, satellite navigation, a power telescoping steering wheel and electronically adjustable leather racing seats.

Subaru BRZ Concept STI
OK, the name doesn’t exactly roll off the tongue. BRZ STI? Can’t a few numbers and/or an animal name be worked in there somewhere? Nevertheless, the car that is attached to all those letters is pretty cool. The precursor to the production BRZ, the concept provides very broad hints at the car that will be Subaru’s first-ever rear-drive vehicle. Power will be provided by the all-new FA 2.0-liter naturally aspirated boxer-style four-cylinder engine. The inherently low center of gravity offered by the engine will be enhanced by its placement low in the chassis for better balance. The BRZ Concept STI also features a full-on Subaru Technica International (STI) suspension, substantial Brembo brakes, one-off 18-inch alloy wheels with 215/45 performance tires in front, and 245/45 tires in the rear.

Fiat 500 Abarth
Of course you remember that Carlo Abarth started his association with Italian automaker Fiat in 1952, building a wild-looking, rocket ship–inspired concept car for the Turin Auto Show called the Abarth 1500 Biposto. Fiat absorbed Abarth -- the company, not the man -- in 1970. Since then, Abarth has become the cool cousin of many a Fiat model. The latest to receive the Abarth treatment is the Fiat 500, and a U.S. specification of the Fiat 500 Abarth is expected to be displayed at the Los Angeles show. The Fiatistis are being very cagey about the car, but we bet it will be powered by the Fiat 1.4-liter multiair four-cylinder engine equipped with turbocharging to develop something like 150 horsepower. It will feature special body pieces to distinguish it visually, as well as a sport-tuned suspension with larger wheels and tires to help it go fast through turns.

2010 Los Angeles Auto Show Images: Getty Images

Time to Refinance Your Car?

If you haven’t noticed lately, the American economy is in doldrums. That’s not considered good news for consumers, but there are some silver linings in the cloud, and one of them is lower interest rates. The federal government and the central bank are trying to give the economy a boost by keeping interest rates at historically low levels. That means you can borrow money cheaply, and many people are taking advantage of that by refinancing their home mortgage. In fact, some folks have actually refinanced their home loans a couple of times in the last few years as interest rates have continued to fall to unheard-of levels. But did you know you can also refinance your auto loan. Sure, a car loan seems trivial in both length of term and monthly payment compared to a mortgage. That doesn’t mean, however, that you should not investigate the opportunity, because it could be a big money-saver or help you get through a period of lower income.

Experts say that refinancing presents a solid opportunity to save money, particularly if you’ve owned your car for a year or more. Lowering the interest rate on your auto loan by even a percentage point or two can make a big difference. It will lower your monthly payments and save hundreds of dollars in interest over the life of the loan. Of course, those with long loans at high interest rates will benefit the most from the process.

So is vehicle refinancing right for you? Well, as with any financial decision, it really depends on your individual goals. If your goal is to reduce the amount you are paying in interest, you should consider an auto loan with a term (length) that is the same as, or shorter than, that of your existing loan. If your goal is to have a smaller payment, you may want to consider getting a new loan that has a longer term than that of your existing loan. You should keep in mind, though, that this will likely result in you paying more interest in total.

A big question many people have about auto loan refinancing revolves around the fees involved. They’re accustomed to home loans that are accompanied by a variety of fees. The good news is that the fees that are associated with car loan refinancing are much easier to swallow. Typically, the only fees associated with an auto loan are fairly standard transfer of lien holder fees (usually $5 to $10) and state re-registration fees ($5 to $75). These estimated fees may vary by lender and the state in which you live, but they won’t break the bank. It is very important, however, to check with your existing lender to see if your current auto loan has any prepayment fees. This could turn a good deal into a no-go. Prepayment penalties can quickly eat up the savings that might otherwise be gained by getting a new, lower-interest loan.

How much you will save by doing an auto re-fi depends entirely on things like the remaining balance of your existing loan, the difference between your old interest rate and the new interest rate, and the term of your new loan. Examine each of these factors carefully to make certain the refinance of your car loan works in your particular circumstances.

House of Representatives Investigates Fuel-economy Deal

A few short months ago, the Obama administration announced its fuel-economy proposal, hailing it as a win-win. Endorsed by auto manufacturers and environmentalists alike, the aggressive set of standards had the appearance of a good old-fashioned political compromise. But in the weeks after the standards were introduced, there has been revisionist thinking on the proposal.

Some environmentalists have expressed disappointment that the standards were more stringent. Their goal was 60 miles per gallon. Meanwhile, some auto industry groups have proclaimed that the mpg bogeys proposed by the standards will be much more difficult -- and more expensive -- to reach than the administration claims. Now, Congress -- specifically the House Committee on Oversight and Government Reform, chaired by Republican Rep. Darrell Issa of California -- has held a hearing to question the Environmental Protection Agency’s (EPA) decision to impose those costly new standards. One major issue is whether or not the EPA has the authority to impose any fuel-economy standards at all.

“The Environmental Protection Agency is carrying out a power grab of breathtaking proportions,” says Senior Fellow Marlo Lewis of the Competitive Enterprise Institute, a conservative think-tank based in Washington, D.C. “The Clean Air Act was neither designed nor intended to regulate greenhouse gases, and it provides no authority to regulate fuel economy.”

The EPA claims that it has the authority to regulate fuel economy because so-called greenhouse gas emissions are inextricably linked to climate change. By labeling greenhouse gases as “pollution” responsible for “global warming,” the agency says regulating fuel economy is merely an implementation of the Clean Air Act. But, as Lewis notes in his testimony, the Clean Air Act was enacted in 1970, “almost two decades before global warming emerged as a public concern and five years before Congress enacted the nation’s first fuel-economy statute.” Thus, he suggests that Congress had no intention of allowing the EPA to construct standards for fuel economy.

So why have the car companies apparently signed on to the proposed standards rather than opposing them on the grounds that they would cause substantial harm to the industry and car buyers? Lewis says the EPA pursued a strategy of “regulatory extortion,” confronting auto companies with the economically ruinous prospect of allowing state-by-state fuel economy and greenhouse gas regulations if they did not waive their right to sue the EPA and sign on to the president’s proposal.

The EPA has asserted its power to regulate fuel economy despite the fact that a federal stature titled the Energy Policy and Conservation Act expressly prohibits states from adopting laws or regulations related to fuel economy. In the same act, Congress delegated the responsibility to regulate fuel economy to the National Highway Traffic Safety Administration (NHTSA).

Currently, no vehicles except plug-ins or battery-electric cars meet the 54.5 mpg standard that has been proposed for 2025. The administration has claimed that the standards can be met at a cost of something like $2,000 per vehicle, but others say the cost could well be more than $10,000 per car. The Defour Group estimates that 220,000 jobs may be gone by 2025 as the auto industry struggles to meet the new standards. In this era in which job creation -- not destruction -- is so important, the probability that the standards will cost jobs is a key reason why the House is taking a long look at the proposed standards.