Youbet, regarding the dealer's handling of cash payments, please see the postscript in my earlier post.
Originally Posted by youbet
... A 50 yr old with a total net worth of $100k who goes out and buys a nice new luxury car for $65k probably is making a purchase he can't afford despite the fact he pays cash. A multi-millionaire who buys a $65k luxury car on credit and pays for it over 3 yrs obviously can afford it. We don't know why he bothered with the loan, but it doesn't matter...
Now, I agree with you that paying for something with cash does not necessarily mean that one can "afford" it. But usually, a person who has the cash to pay for a car tends not to be the type who has to call in to the Suze Orman show to ask if he can afford it.
But I submit to you that "affordability" is something that is not easily defined. In your example above, a guy with $100K to his name cannot really afford a $65K car, while a multi-millionaire could. Ah, but is it that simple? Please indulge me in the following philosophising from my personal experience.
As I mentioned, the first time I paid cash for a new car was some 25 years ago. It was for a Chrysler Villager, the first vehicle of its kind. As many of you remember, Chrysler invented the minivan, and that saved the company. I was a young engineer then, but having a graduate degree, my pay was fairly good. But my net worth was barely in the 6-figure (I couldn't tell exactly, as I did not yet get into the habit of checking my portfolio to the last dollar as frequently as I do now).
So, with a good job and plenty of cash on hand, I thought I could surely afford that minivan. And interest was high then, so I decided to pay cash. It was around $14K. That car was worth every dollar! It allowed my wife to go to the back of the vehicle on long road trips to check on the children while I drove. It let us carry all the knick knack for tending to little kids.
Fast forward to today. I am 25 years older. Can I afford the $65K car in your example?
My income the last time I worked full-time in 2003 was a higher multiple of the $65K car, compared to the multiple of my past income relative to that old common minivan. But more importantly, my net worth at this point is a much higher multiple of the new and fancy car. In fact, in previous market downturns, the fluctuations of my portfolio approached 10x that $65K amount.
But do I want to buy that $65K car in your example? No!
Though I have said that I am not a car lover, and do not care about fancy cars, that is not 100% true. There are things I do not care to own, no matter how much money I have, for example a Prevost RV. Nice motorhome as it is, it does not allow me to go to places I want to be, and I do not want to stick to the interstates and commercial campgrounds.
In contrast, a reasonable luxury car is something that I wouldn't mind having, and would enjoy. I know and appreciate the difference between a $65K car and one half that price. But I just don't appreciate it enough to not mind seeing my Quicken total drop by that amount. I also do not enjoy buying and selling "stuff". So, when I buy something, I usually keep it until it has no residual value left. If I write a check for $65K, the whole amount is written off in my mind as "sunk cost", gone and never recovered.
There are emotional and psychological factors in the "affordability index", not just the financial one. Now that I know I enjoy RV'in, I would not mind paying $65K for a used RV if and when I want to upgrade to something newer than what I have. But a car for that price is out of the question.
My wife feels the same way I do regarding expensive cars. The few times that this subject came up, we agreed that we cannot "afford" a car in that price range. I think I would feel differently if and when I have significantly more money. I think I will need to be at the $5M networth mark. Of course I do not see how that can happen any time soon.
And as I posted earlier, now that I have free time to wait for bargains, I may even go back to buying used cars like I did in my 20s. So, it is even a step backwards for me.