Why Sally can't buy a new car

[unit731]

Jesse Snyder
Automotive News
March 17, 2014 - 12:01 am ET

 

The oldest child of a loyal customer is five years past college graduation with a steady, high-paying job. Sally's a prime prospect to buy a new car, right?

 

Nope, she's already carrying a car-sized note, $25,000 in student loan debt. If she comes by the dealership at all, she's likely shopping beaters, not new rides.

 

And Sally has company, in a trend that has chilling implications for the U.S. auto industry.

 

As of early 2012, 37 million Americans carried student-loan debt.

 

By the Consumer Financial Protection Bureau's count, that's $1 trillion they can't spend on cars. It's persistent debt that can drain personal budgets for decades.

 

America's outstanding student-loan debt is now greater than all auto loans, more than credit card debt.

 

How will it play out? We don't know because student debts this huge are new. But people with big debt tend to wait, to put off major decisions.

 

We're building a nation of educated debtors.

 

Let's run a scenario for our hypothetical Sally. Because of her student debt, she may live at home a year or two longer before getting her own place, may drive a hand-me-down car two or three years before buying a used one, may not buy her first new car until after she's 30. She may marry later, may not have a first child until her mid-30s, may have two children instead of three, and she and her husband may delay or even skip buying a second car.

 

If Sally's parents also are carrying student loans to help Sally, they may buy less expensive cars or keep them an extra year before replacement.

 

Let's imagine you're the dealer at the store where Sally and her brand-loyal family shop. Over her lifetime, Sally is going to buy at least one, maybe several, fewer cars from you. Her parents, too.

 

If you're, say, a Ford dealer, you're selling fewer and cheaper vehicles, Fiestas and Focuses instead of Fusions and Tauruses, Escapes instead of Explorers, and you're getting fewer trade-ins to resell.

 

The U.S auto market has 37 million Sallys. More if we count the rest of their households.

But here's the real bite: It's getting worse quickly.

 

About 60 percent of the 20 million current college students borrow. Total U.S. student loan debt increased sixfold between 1999 and 2011, the Bureau of Economic Analysis says. Yes, up 500 percent in 12 years.

 

And that $1 trillion national total? Old data. Finaid.org says student loan debt hit $1 trillion on May 8, 2012, but the Web site's debt clock stood at $1.17 trillion last week. That's an extra $170 billion in student debt in just 22 months.

 

Skyrocketing U.S. student-loan debt is more than a crisis. It's unsustainable.

 

Students and their families cannot continue to assume more and more of the financial burden for higher education without crippling the economy.

 

The general economic damage from student-loan debtors is bad enough, showing up in lower personal consumption and delayed household formation.

 

And the auto industry gets whacked more than most other sectors. College-educated people are the most likely to make enough to buy a new vehicle.

 

But most of the auto industry's best future prospects are debt-impaired. The College Board says more than half of four-year graduates leave college with student loans. The average tab for these new grads: about $30,000.

 

If selling cars to Sally is tough, and we don't corral this beast, how are our prospects when her younger brother graduates?

[j-ten-ner]

I've got news for the car makers.

 

Hire the highly educated people and let them design affordable cars.

 

so long

j-ten-ner

[dirtfan21]

This is exactly why I do not have a new truck, paying off a 10 year student loan of 350 a month. I worked 20-30 hours a week and lived at home while going to school but the cost of higher education is insane. Hell I remember a couple of my construction management books being $500, for a damn book. I'm currently renting the second farm house from my grandparents for pretty cheap, help him in the field and take care of the grounds outside of my day job, in turn I pay pretty minimal. Trying to put money away to buy a ring, get married, help the future wife with her mortgage, and then maybe down the road a new vehicle.

 

Long story short, most college grads my age (mid to late 20's) are just trying to tread water after graduation. I'll pay down my student debt way before I buy a brand new vehicle.

[music]

$25k in debt for a degree is a heck of a better deal than $25k of debt on a depreciating vehicle.

[dirtfan21]

Sad thing is 25k is one year at a state university with room and board...

[music]

Sad thing is 25k is one year at a state university with room and board...

 

Same here (TN). I have three to help through, and my oldest will start in 2015. I'll gladly do without to help them, if needed, so long as they're doing their part... but not if they start spending their money on new cars.

[dirtfan21]

 

Same here (TN). I have three to help through, and my oldest will start in 2015. I'll gladly do without to help them, if needed, so long as they're doing their part... but not if they start spending their money on new cars.

 

My parents couldn't help me a whole lot but looking back I'm glad they couldn't. It taught me so many things about myself and life working through college. It was tough and it still is now, but I wouldn't change a thing.

 

I wanted to knock the teeth out of kids who went to college and just partied mom and dad's money away. They had no idea how lucky they were and how much their parents gave up to give them that free ride. Still makes me fighting mad to think about it.

[Ianf]

Seems everyone today wants that degree! What a waste half of them may never use it. So many young kids I see want the degree when they really should be getting into a trade as our society is all based solely on the service industry the more we send manufacturing jobs offshore. Soon trades people will be in so much demand that they will far out earn the degree holders. I'm glad I will probably not be around when they have to borrow even more to support our non-saving seniors that want everything for free.

[Rocky5000100]

 

 

Same here (TN). I have three to help through, and my oldest will start in 2015. I'll gladly do without to help them, if needed, so long as they're doing their part... but not if they start spending their money on new cars.

 

 

 

My parents couldn't help me a whole lot but looking back I'm glad they couldn't. It taught me so many things about myself and life working through college. It was tough and it still is now, but I wouldn't change a thing.

 

I wanted to knock the teeth out of kids who went to college and just partied mom and dad's money away. They had now idea how lucky they were and how much their parents gave up to give them that free ride. Still makes me fighting mad to think about it.

 

Yes! I hated seeing my fellow classmates waste their parents money away.

 

I had to pay for all of my schooling myself. Paying for your own school teaches you not to waste the investment of time and money.

 

I'm a recent graduate. December 2012. Finished in 3.5 years with a BBA in information technology with a networking emphasis. I finished with ~$25,000 in loans to pay off @$267 a month over 10 years

 

I applied and interviewed for a IT job at the utilities company I interned at. I started almost immediately after graduation. I'm lucky amd fortunate to work in a field i love and enjoy.

 

I've been doubling or tripling up on payments and should have Student loans paid off in a few years. I have money going to a 401k and other savings. I also do motorcycle track days and racing.

 

I will be able to afford a new vehicle by next year. Its all about good financial planning, and budgeting wisely.

 

[RyanbabZ71]

The reason Sally can't afford a new car is because she did not take economics in high school before heading to college.

 

+1

 

 

 

 

Ryan

[Daryl LBZ]

The reason Sally can't afford a new car is because she did not take economics in high school before heading to college.

 

Can't necessarily get a good job anymore even if you go to college because the job market is so bad. Took my one buddy almost two years to get a job after graduating, and he went to be an I.T. guy. As much as everything today uses electronics a job like that should be in high demand. Tells me things aren't all as good as they should be.

 

Sent from my Droid Ultra

 

 

[KARNUT]

Move to a more conservative state, there are jobs and low taxes. Go to local college for the first two years, than a major if you have to and work when you can. Seen a few in the family do that and no loans.

[kstruckcountry]

This is exactly why I do not have a new truck, paying off a 10 year student loan of 350 a month. I worked 20-30 hours a week and lived at home while going to school but the cost of higher education is insane. Hell I remember a couple of my construction management books being $500, for a damn book. I'm currently renting the second farm house from my grandparents for pretty cheap, help him in the field and take care of the grounds outside of my day job, in turn I pay pretty minimal. Trying to put money away to buy a ring, get married, help the future wife with her mortgage, and then maybe down the road a new vehicle.

 

Long story short, most college grads my age (mid to late 20's) are just trying to tread water after graduation. I'll pay down my student debt way before I buy a brand new vehicle.

Didn't know you were CSM, cool. Who do you work for?

 

In all honesty going to a state school all four years is stupid. It's around $19k a year according to KSU, I do it cheaper than that living off campus and eating out once or twice a week. If I had gone to a CC or Hays I would have made money going to school. But going to school here was a dream for me.

[dirtfan21]

Didn't know you were CSM, cool. Who do you work for? In all honesty going to a state school all four years is stupid. It's around $19k a year according to KSU, I do it cheaper than that living off campus and eating out once or twice a week. If I had gone to a CC or Hays I would have made money going to school. But going to school here was a dream for me.

 

Yeah buddy, love what I do. I work for the Engineering department of the City of Valparaiso, been here seven years now. Started part time in college and they hired me on full time directly after I graduated. I manage most all our stormwater, sanitary sewer, and water main projects, and we have a pile of them.

 

I went to Indiana State on a partial high jump scholarship my freshman year. I went under the knife for the third time and three years and decided to call it quits while I was there. Came home to a satellite Purdue University campus and changed my major from IT to construction management. I think with scholarship I was paying like $8,500 at ISU and the Purdue tuition was around $5000 not including books. Problem is I had to go 4 and a half years at PNC to finish my degree. They added classes while I was there and I only took about 15 credit hours a semester so I could work.

 

I had a bunch of buddies at Purdue main campus and Indiana University, I couldn't believe what they were spending to live on campus. Ridiculous! I just went to a cheaper school then went and partied with them on the weekends haha!

[kstruckcountry]

Yeah I was mechanical engineering, turns out the only reason I ever did good in math was good math teachers, in college there aren't good math teachers. On the ACT my lowest score was math, no bueno for engineering. Got through engineering physics and Calc 2 and just hit a wall.

 

So far I like the construction side of things a lot more. All the teachers are nice and honestly it's looking like it'll be easier to land a job. Not to mention starting salaries are similar from what I've seen. I'm already Solid Works certified and have some experience with CAD, have to take the full class next semester.

 

I do live smarter than some students. Dorms are $7500 a year here, for crappy ones, really crazy IMO. I have that much space in my bedroom alone, and I live for less. Also have an actual kitchen, appliances, and off the street parking. Don't have to go down an elevator to do laundry or walk a quarter mile to my pickup.