Friday, August 7, 2009

GM slight of hand...0% becomes 7.2%

Recently I got a letter from GM/Saturn offering me a deal on a new Saturn Astra. I was sent the letter because I was a long-time GM owner. I was later told that this was GM's way of saying thank you. It turns out that a thank you from GM is as bankrupt as the company itself.

I visited the Saturn showroom and got a quote for a new Astra XR with 0% financing for six years. With all calculaltions completed, the car would cost $26,456.35. A lot of money for a soon to be orphaned car. If I paid cash, I could have the car for $4000 less but then I would be paying interest to the bank. The salesperson assured me that borrowing from the bank in order to pay cash for the car or simply paying more up front and taking the no interest loan from GM would amount to about the same monthly payment.

Today, I saw an Saturn Astra ad in my paper. $13,990 gets you a 2009 XE with air, it said in large red type. Of course to get that price you must be a "current Saturn" owner. The price is actually $14,990 for most folk as most folk are not current Saturn owners. Oh wait, the published price also includes a credit of $4000 for paying cash. So, if like most people, you don't fork over cash for your new car, the price is more like $18,990.

You must add $1400 to cover freight, and there are still the taxes and the registration fee with which to contend. By the time you walk away with your new $13,990 car, you will be out about $21,500. With 0% financing, and $500 down, you will pay about $291.67 per month for your new car.

This works out to be about a 7.2% effective interest rate. Remember, this vehicle sells to others for about $17,500 cash, but you paid $21,500 to be rewarded with a no interest loan. It is no surprise that in the fine print GM admits the effective interest rate is higher than 0%. All pretty cheesy, eh?


I googled "0% scam" and found "The Zero-Percent Financing Scam" by Joseph Ganem. He has a calculator that compares the claimed 0% rate with the rate offered by banks for car purchases. I checked it out and it appears to work. Take a look and have fun. It is an eye-opener. If you're looking to buy a car, this calculator is quite handy.


Why the MSM does not report this scam.


When I worked for a local daily, I tried to interest the paper in doing a 0% interest rate story. The editor I approached readily admitted that they were not going to attack the car companies; they were simply too important to the paper with their many full page ads.

We essentially published press releases from the car companies when it came to their pricing claims. We were, and are, not alone. Read the following from a recent CNN Money story.

"For customers financing $30,000 on a new vehicle purchase, 0% financing would be worth almost $8,000 compared to current rates, said Jesse Toprak, an analyst with the automotive Web site Edmunds.com. . .

. . . Customers trading in a GM car or truck they now own who forgo the financing offer may be eligible for cash incentives that could total as much $7,000. . . "

Did you catch that? 0% financing supposedly saves you almost $8000 in interest charges but if you had paid cash you could have bought the vehicle for almost $7000 less. Think effective interest rate. In this case a vehicle that sells to others for about $23,000 was sold to you for $30,000. the 0% financing is about a 9.18% effective rate!

Not only do things like this make me suspicious of the car companies but the manner in which they are covered by the press makes me question today's media.

I went to a retirement breakfast for print media folk Wednesday. One of the fellows recalled an incident from his days at the paper. A woman, who felt she had been shafted by a local Chrysler dealer, had taken to the street to picket the dealership. The paper took pictures and interviewed the woman. Soon the dealer was at the paper, first talking with the editorial department and then with advertising. Four decades ago when this happened, the editorial department ignored the pleading of the advertiser and the ad department. The paper ran both the story and the picture. Back then it was an easy decision; it was news.

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