The best thing about an old car is that it's paid for. To be frank, that's the only good thing about an old car, if it has an eternally glowing check-engine light and the window crank keeps falling off, like a certain 2000 Jetta TDI that I would be ashamed to show you.
Eleven years. That's the average age of an American car, and drivers are doing something about it: They're buying. Auto sales in August were their strongest since May 2007.
In this week's podcast:
- Jeremy Acevedo, analyst for Edmunds.com, describes the state of the auto market and explains why leases have been good deals lately.
- Bankrate editor Doug Whiteman tells about companies that help employees get training that offers college credit.
- David Nice, economist for Mesirow Financial, explains why he believes that interest rates have plateaued for a while.
- And Bankrate reporter Janna Herron gives a first-person account of what happened when she corrected a glitch in her credit report. You wouldn't believe how much the correction raised her score.
What's hot now that car sales are the best in years?
With cars and trucks selling briskly, can you still deal? And, what are the chances that interest rates are going to jump?
LISTEN TO AUDIO
Mark Hamrick: From Bankrate.com, this is "Your Money This Week." I'm Mark Hamrick reporting from Washington.
August was hot, but not like you might think. We're talking car sales. We'll check in with industry expert Jeremy Acevedo to learn why car buyers are on the move. Economist David Nice with Mesirow Financial gives us a sense about what's next with the U.S. economy. He suggests we could get caught flat-footed when interest rates really do start to move higher. Bankrate's Doug Whiteman tells us how workers are saving on tuition thanks to their employers, and our Janna Herron tells the story how a disputed bill threatened to stand in the way of her own home purchase. We will have all of that, and more for you on "Your Money This Week."
In our first segment, the market for new cars and trucks is revving up to be the best in half a decade. Its consumers, of course, providing the gas power or hybrid, or electric. Jeremy Acevedo is an analyst for Edmunds.com. I asked him to help put newly released August car sales figures in perspective.
Jeremy Acevedo: It was fantastic, in fact, one of the best we have seen in quite a while. Sales topped 1.5 million, which it has not done since prerecession, May 2007 actually.
Mark Hamrick: What is behind this renewed enthusiasm on the part of American car buyers?
Jeremy Acevedo: Well, I think that's part of the story. This is primarily done on the back of retail sales, so it's not really being buoyed by weak sales like we have seen in the past. This is actually consumers moving in to dealerships and actually purchasing cars. And I think there's a confluence of factors, but specifically credit availability, the availability of money, consumer confidence, and just some cars that are really bringing customers into the dealerships. And couple that with the fact that cars right now are some of the oldest on the road that we have ever seen, so as durable goods, they need some replacement and with consumer confidence rising, consumers are getting back into those dealerships and buying cars.
Mark Hamrick: OK, so I guess sedans are doing very well. I guess we are also seeing some renewed interest in SUVs and trucks. So break that down for us about what kind of vehicles people are buying.
Jeremy Acevedo: Absolutely, trucks, I think have been the big story. Through the recession, there was a bit of a lull in large truck sales, but now with the housing recovery, large truck sales have seen a big boom, so they are sitting at 12 percent of the market right now, which is really strong; stronger than we have seen in the past, definitely. Sedans, definitely. In fact, interestingly this month with compacts ... compacts are actually taking the top spot from midsized cars, which is fairly rare, but between compacts and midsized cars, definitely the most popular cars out there.
Mark Hamrick: That's interesting, so on the part of the large trucks, this is essentially construction workers who may be either going back to work after the housing market was flat lining it. I can imagine some people are buying them for every day needs, but it sounds like a lot of this is industry related.
Jeremy Acevedo: Absolutely, with the housing, a lot of those purchases are need-based and the actual construction of homes and housing starts. But additionally, it's just one of those things that goes along with the consumer confidence of owning a home. It's the home purchases and homeownership, also lead to truck sales.
Mark Hamrick: So when it comes to either vehicles or manufacturers, what's doing well out there?
Jeremy Acevedo: Interesting again, this an across-the-board boom for the industry, but specifically, the Japanese automakers made out particularly strong in August. Toyota had their best month since May 2008, so we are stretching back to those prerecession dates. Lexus actually, in a pretty rare twist, is the best-selling luxury make this month, so that's usually a spot occupied by Mercedes or BMW, those two have been kind of running back and forth, but Lexus has actually moved into the top spot. It was a big month for Camry, as far as Toyota goes. Honda and Nissan, they had similar success as far as sales.
Mark Hamrick: OK, and I notice also that you folks are saying there at Edmunds that leases are doing pretty well.
Jeremy Acevedo: Leasing has been strong, certainly driving a lot of sales in the market right now. Right now we are seeing right about a quarter of all sales are leases, and that's the highest we have seen certainly in the last decade.
Mark Hamrick: So, how do the manufacturers figure out the pricing on that? I know just watching commercials, I've seen some lease offers that seem like, "Hey, that's a pretty good deal" for somebody who wants to have a relatively low payment for a pretty nice vehicle in many cases. How do the manufacturers price that relative to where someone wants to buy a vehicle outright?
Jeremy Acevedo: The great news is that those are some astute observations there because there are some great deals out there as far as leasing goes. What's really driving that is the residuals. The residuals of these vehicles ... cars have actually seen a great lift in quality and durability in resale value. So, consumers are actually benefitting from manufacturers being able to rely on the increased resale value in a subsidized lease.
Mark Hamrick: Very often, when sales are strong, it seems like the incentives the manufacturers are offering can be reduced. Now, if cars are the best they've been since the recession, if car sales are the best they've been since the recession, 2007, does that mean that dealers and manufacturers might be less willing to bargain, so to speak?
Jeremy Acevedo: It doesn't seem that way so far. What we are actually seeing is that it's becoming an increasingly competitive landscape, and so we see it looks like the incentives are staying just about the same.
Mark Hamrick: How should a consumer go armed, let's say to a dealer, with information in this, now that we have had the Internet around for a couple of decades, and I know Edmunds likes to help to give people information. What are the kinds of data points that people should have with them, whether it's their mobile device, or perhaps printed out, or even actually in their mind, when they are going to talk to a dealer? What kind of advice can we give them?
Jeremy Acevedo: Certainly one of the first things you want to look at is the actual list price of a car, and what cars are selling for in your area, which is available on Edmunds through the TMV program. So, we have a price that consumers are actually looking at that shows what cars are actually transacting at, and that's certainly a fair market price, and we encourage our users to use that number.
Mark Hamrick: What does TMV stand for?
Jeremy Acevedo: True Market Value. That is the true market value of vehicles and so that's a great starting point for negotiations for consumers.
Mark Hamrick: So that seems like that's really the bottom-line number that people need to be focused on.
Jeremy Acevedo: Exactly, and so having a number like that in mind is certainly very helpful. Additionally, you can research the incentives on, and not just our website, but any online source, incentives are made available so you can actually look at advertised leases like you've seen, and advertised finance deals as well.
Mark Hamrick: OK, that's great information there, Jeremy, and an exciting time to be in the market for a car, and perhaps even to be driving one, but we really appreciate you helping to break it all down for us.
Jeremy Acevedo: Absolutely, Mark. It was a pleasure.
Mark Hamrick: Jeremy Acevedo, an auto analyst with Edmunds.com, he spoke with us from his office in Santa Monica, Calif.
And don't forget to check out Bankrate.com for all kinds of useful information on auto ownership, including loan rates, insurance quotes and calculators. Just look for the auto tab at the top of the page.
There's no shortage of horror stories around about high levels of student loan debt. Bankrate's associate editor, Doug Whiteman, tells us there are other options, though, involving education, particularly for workers whose employers will foot the bill for their training.
Doug Whiteman: Working by day and hitting the books at night is a difficult balancing act, but your employer might help you advance your education by offering training that earns you college credits. Courses such as Starbucks' Barrista Basics, and a program offered to Jiffy Lube employees, allow workers to build skills they can use on the job, while also putting them on a path toward a college degree. Starbucks has a relationship in its hometown of Seattle with City University, which provides college credit for the company's training programs, and offers Starbucks employees a break on tuition and a waiver of the school's usual application fee.
One expert says a company once faced a backlash from a union that claimed one of these college training programs was being used to try and nonunion replacement workers in the event of a strike. But she also says affiliations between big business and higher education help improve access to higher learning for working adults. For "Your Money This Week," I'm Doug Whiteman.
Mark Hamrick: Next up, interest rates and the Federal Reserve; this is the bread and butter of what we cover here at Bankrate, guiding so much of our daily financial lives. For our next segment, we spoke with economist David Nice of Mesirow Financial. As we head into the autumn months, I asked him where the U.S. economy stands at the moment.
David Nice: The economy, it's not growing as fast as you would like it this far after a recession, but recent data in the housing market, new-home sales, took a major hit, but on the opposing side of that, existing-home sales did quite well. Durable goods came in very poorly, so I feel as though the economy is fighting for direction right now.
Mark Hamrick: OK, does that mean it's in risk of truly faltering to the point where we could even have a recession? Or it's really a case of 2 percent growth versus 1 percent or less?
David Nice: I don't think we are there yet. I think the subpar growth might stick around for longer than we'd like. I don't really see us as being at major risk for a proper recession yet, but like I said, growth is not as robust as you would like to see right now.
Mark Hamrick: Right, and generally, of course, we gauge things by how consumers are fairing and how workers, or prospective workers, are doing; and progress on both of those fronts has also been less than generally seen in a recovery. Is there any reason for hope there?
David Nice: There's always hope, but the numbers that have come in for wages have been slack for months and I don't really see that changing just yet. The stagnation that you see in wages is kind of putting a damper on people's disposable income and how much they can actually spend.
Mark Hamrick: Obviously, there's a link between what workers are doing and their ability to spend as consumers. Let's talk a little bit about interest rates. Those controlled by the Federal Reserve have remained at record-low levels for years now, but market-based interest rates have been rising this year. Should people be bracing themselves for further increases in interest rates?
David Nice: I think we will have more information on that after the Fed meeting this month, but I believe rates have plateaued. I think the market is priced at taper in September at this upcoming meeting, with regard to the 10-year and the 30-year mortgage; I think both have reacted to the perception that the Fed will start tapering this month.
Mark Hamrick: OK, so tapering involves this process of asset purchases that the Federal Reserve has been engaged in. Three rounds of so-called quantitative easing, and we know the Fed really wants to, if it can, sort of back out of that. So, you're referencing there the fact that the financial markets have been essentially discounting that, or anticipating that, and that gets to the notion that the Fed has been doing these extraordinary things since this extraordinary flame out for the economy. Of course, it was the housing market where problems have snowballed into the full-fledged financial crisis. With rates at least higher, will housing falter?
David Nice: I don't think it will falter, but I think you will see a bend in price appreciation downward. I think the housing market is on stable ground, and I think that the rising rates will obviously put a damper on how much of a house people can buy, but I still see the housing market growing pricewise.
Mark Hamrick: So in other words, we will see price increases for homes, but not quite at the rate that we have seen before.
David Nice: Exactly.
Mark Hamrick: OK, so there's been a lot of discussion lately about who heads the Federal Reserve. We know that Chairman Ben Bernanke is slated to leave at the end of January. It's President (Barack) Obama's decision to appoint someone, and there's been all kinds of discussion whether that might be the current vice chair, Janet Yellen. Larry Summers is somebody who seems to be gaining some favor. He's a former treasury secretary in the Clinton White House. From where you sit, how much does it matter who is the chairman of the Federal Reserve?
David Nice: It would depend most on consistency and the ability for the (Federal Open Market Committee) as a whole to be able to convey their message to the markets. If either candidate could do so, I think either selection would be fine.
Mark Hamrick: And obviously the president has to make his decision, and then the Senate needs to go along, so there's obviously a lot to watch there. David, when consumers or borrowers or investors are watching the activity and whether it's the markets or the economy, what do you think they are most at risk of sometimes missing? Maybe a disconnect between what economists see, and what the average person sees.
David Nice: With regard to interest rates, I would say consumers may miss how quickly markets could react to such activity. If you were in the market for a home back at the beginning of the year where you were able to get a rate as low as 3.4 percent, you might expect that rate to stay there for a longer period of time than it has. Rates have jumped up in the past few months over a 100 basis points, so I think the quickness in which interest rates could change, I think could sometimes surprise a consumer.
Mark Hamrick: Well, we certainly saw the markets react quickly during the financial crisis in a largely negative way and obviously, they can move the other way as well. David, we really appreciate your time. Thanks so much.
David Nice: Thank you.
Mark Hamrick: David Nice, associate economist from Mesirow Financial; he spoke with us from his office in Chicago.
How do you measure your reputation? Well, if we are talking about your financial track record, one gauge is your credit score. If you don't know about the information on your own credit report, it is worth looking into. Bankrate's credit card analyst, Janna Herron, knew that to be the case, but also recently was given a dramatic reminder herself.
Janna Herron: Do you know how much a collections account can hurt your credit score? Up to 100 points, FICO says. But I can tell you from personal experience, that the damage can be even worse, to the tune of a 150 points. Last year I received a credit score disclosure after I didn't qualify for the best interest rate on a credit card. My score, a lousy 651. To get the best rates on most loans, you need a score in the mid-700s. I had thought my score would have been higher because two old delinquencies had finally fallen off my credit report after seven years, and those were the only negative items still on my report. Or so I thought.
After pulling my credit reports, I found the culprit, a disputed dental bill that had gone into collections. It was time to bring out the big guns and settle the dispute. I wrote letters to the Better Business Bureau and the state attorney general's office pleading my case. I sent copies to the collection agency and dental office. Fast forward two months, and the collection item disappeared. The collection agency confirmed that the claim had been recalled in error. I had won; but what was my prize?
Well, last month, a mortgage lender pulled my credit score again. The result? 805. Lessons learned? Always get your free credit report. Every year, AnnualCreditReport.com so you're never blindsided by what's in it; and always put up a fight if you find an error. Take it from me; it will save you money. I'm Janna Herron, for "Your Money This Week."
Mark Hamrick: We began talking about cars and we'll end there, too, with a story about a dramatic ending.
It's our look at this week in business history. On Sept. 14, 1899, the U.S recorded its first known fatality involving an automobile. The victim was a man named Henry H. Bliss, who worked in real estate. The 13th of the month was unlucky for him, when he got off a New York City streetcar near Central Park West and was hit by a taxicab. According to The New York Times, Bliss was knocked to the ground and the car crushed him, and he died the next day. Pedestrians were to develop a greater sense of urgency, looking out for cars when crossing the road, as automobile traffic picked up in the 20th century.
You've been listening to "Your Money This Week." If you enjoyed the podcast please rate and subscribe to our program. We're hoping that you can help us to get the word out. For more on these and other personal finance issues, visit Bankrate.com, and you can follow us on Twitter @Bankrate. Our editor-in-chief is Julie Bandy; managing editor, Katie Doyle; assistant managing editor, Holden Lewis. And thanks to producer Lucas Wysocki for his work back in the studio. I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.