Report Says Millennials Are Missing The Point By Focusing On Payments Rather Than Overall Cost

It's not JUST millennials. This ploys has been used for years on the mainstream to inspire them to part with their money. And it works! Here are just of the few examples that are decades old:

(1) You're not laying out $66,000 for that new car. You're just paying a low $900/month (financing it for 60 months, with interest charges... plus a $16,000 balloon payment at the end)

(2) You're not laying out $66,000 for that new car. You're leasing (renting) it for just $599 per month (paying the depreciation, plus interest, on the projected lease-end book value, always in the dealer's favor).

(3) You think #1 is a good deal? We've got a better one! Same car, but it's just $449 bi-weekly! $449 is a much smaller number than $900! Bargain.

This sort of stuff has been going on for decades! And remember the subprime fiasco that led to the collapse of numerous financial institutions?

Few people look at Total Cost of Ownership (TCO). Do the math on a hybrid and you'll discover that you almost never save money on TCO due to the better fuel economy. Yeah, it typically costs MORE (TCO) to have a hybrid over the lifetime of the vehicle compared to an otherwise identical ICE car.

Indeed. It is not just millennials at all. In car sales, the faster you can get the customer to talk monthly payment the faster the deal is concluded.

The balloon payment practice infuriates me. It's not dishonest but I question the ethics.

MDarringer: The balloon payments are all about lower monthly payments. It's all sales psychology. The consumer sees the immediate -- the monthly payment -- and focuses on that. They're not thinking TCO (Total Cost of Ownership), total debt load, total obligations from all sources, renting a lifestyle vs owning it, etc. These are all unfortunately byproducts of a "Consumer Capitalism" mindset.

See my post at http://www.autospies.com/news/Automakers-Are-Running-Out-Of-Options-To-Keep-Sales-Up-92037/ regarding Consumer Capitalism for more details.

The balloon payments are about lowering the payment? I didn't know that. OMG! Really??? Sales psychology??? Those salesmen are assholes! LOL :)

So I switched to leasing. Why? I derive pleasure from having a new car every few years that I can switch up and that is completely covered under warranty. So for me, yes the payment (including down payment) is what matters most for me. The moment I don't want to do that anymore, you can bet that I will be focusing on overall TCO.

Leases are smart money for people with the money to put out a payment indefinitely. The cost is far less than a purchase. The car you drive is always under warranty. With cars these days having so many recalls, you're never stuck with a recall queen for very long.

Leases are especially smart on EVs where the technology will be constantly advancing.

The fiscally sound approach for the car enthusiast:
1. Choose a 3 year old car, low mileage sporty car that's easy to repair, like a CPO 2014 VW GTI with 35K miles for $18,000.
2. Payments on this car are about $550 for 3 years
3. Plan to drive this car for at least 130,000 miles; at 15,000 miles per year, that's 6 more years of ownership
4. After the 3rd year, when payments are complete, the car is maintenance/repair costs only. Not including consumables like tires and brakes, you only keep track of unexpected repairs.
5. As long as your repairs are less than half of your payment ($270/month) every year, it makes no sense to replace this car - ever. That's about $3,200 per year in repairs. It's cheaper in the long run to continue to pay $3,200 per year in repairs for as long as you own this car than to replace it with a new car for $550/month. Even for a VW, $3,200 per year is very reasonable.
6. Now if your enthusiast car is something "more reliable" like a Civic Si, then you can even get away with annual repair costs of $2,000 per year and really save yourself some cash.

Personally, I'm willing to spend up to $4,000 per year in repairs to keep the 2017 BMW M240i I plan to buy in 3 years :) It will be about $30,000 in 2020. My payments would be $570 over 5 years (yes, I plan to hold on to this one until I die). In the sixth year after all warranties have expired, my budgeted repair costs will be $350/month (about $4,000 per year) forever. $350 per month is my planned monthly cost of ownership, and completely realistic for this BMW. I've done similar projections for a 911, and the monthly costs after 5 years are a bit too rich whereas the M240i is 90% of the experience for less than half the operating cost. As much as I love the 911, the manual shifting BMW is almost as magical (had a 2013 128i for two years, loved LOVED that car) with a better sounding exhaust to my ears.

Better question: why buy to own?

The theoretical advantage behind a lease vs buy scenario is that they money not spent on an upfront purchase will be earning money at rate higher than the % on the lease. The reality for the majority of the people out there, however, is that money you invest is money you don't have to begin with, so you can't invest it. As for those that do have the money that they choose not to buy the car, many choose to spend it on different things like a new phone, a vacation, stereos, clothes, etc. so it doesn't get invested. At the end of the 3 year period, they don't have a car, and the money that should have been earning money had been spent on worthless personal things that are going to be thrown away or donated. Even for those that do invest it, is there guarantee that you make money over a 3 year period? The true and guaranteed advantage for those that lease vs buy are the financing people.

Old-school, boilerplate, bullshit reasoning.