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Bernanke Goes Car Shopping

Posted By Barry Ritholtz On February 25, 2013 @ 7:24 am In Consumer Spending,Credit,Economy,Federal Reserve,Fixed Income/Interest Rates | Comments Disabled

Have you been shopping for an automobile recently?

If you want to understand the impact the Federal Reserve is having on the real economy, I suggest you do a little online homework and then go hit the auto dealers. You will be astonished at what you find.

Whether you are buying a car or leasing one, the financing component is a very large part of what is typically the 2nd largest purchase the average American family makes (homes being the largest).

Regular readers know I am fan of the automotive arts, from the $15k Fiat 500 [1] to exotics [2] that cost [3] 50X [4] as much [5]. I always have a good sense of what’s available, what’s coming out, and their prices. One of my marketable few skills is the ability to figure out the ideal car for a person within 15 minutes of meeting them (its true).

Take this background, and add in my daily awareness of where interest rates are, and one would imagine that I would not be surprised at the cost of buying or leasing a new car today.

As it turns out, I was stunned at the bargains available across all price points.

We lease our cars through the office. By dumb luck, I have two cars coming up within 30 days of each other. I am the spendthrift, while Mrs. Big Picture is the one who reins in my attempt at single-handedly reviving the American economy.

To give you an idea of how things have changed — nearly all due to interest rates — the same monthly payments for leases now buys you about 25%-33% more car for your buck. Financed purchasing power gives you almost as much gains for your buy relative to 3-4 years ago.

A car I suggested to the missus as her daily driver in 2009 was dismissed out of hand as “way too expensive.” It was about $18k more (almost $200 more on a monthly lease) than what we ended up with. The same car leased today cost $20 more per month than our current ride. Several cars I didn’t even dare suggest last time (lest I get yelled out) we actually test drove and made offers on.

The cost of any given car is a function of its MSRP, programs the dealers are running, what is hot or not, and many other factors. But the key factor today is ZIRP — the near zero percent rates that the Fed is running.

If you have half decent credit rating and are even remotely thinking about replacing an automobile, I strongly urge you to go do some shopping. You will be very pleasantly surprised by what you find.

This is the entire purpose of QE/ZIRP. To stimulate the economy, move houses and cars and other financed goods. You might pay the cost for it in higher inflation (eventually) and much worse income if you live on a fixed income, but during the mean time, listen to what your Uncle Ben has been suggesting to you — go make some financed purchases.


I’ll get some details up on the various car prices we have seen and what the negotiations were like later this week.

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/02/fed-car-shopping/

URLs in this post:

[1] Fiat 500: http://www.ritholtz.com/blog/2010/08/coming-soon-fiat-500/

[2] exotics: http://www.ritholtz.com/blog/2012/02/ferrari-f12-berlinetta/

[3] cost: http://www.ritholtz.com/blog/2012/11/ferrari-california-30/

[4] 50X: http://www.ritholtz.com/blog/2012/10/mclaren-mp4-12c-spider/

[5] much: http://www.ritholtz.com/blog/2012/10/gorgeous-new-aston-martin-vanquish/

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