Competition

Part of how we all got into this over-extended mess has something to do with the classic struggle for scarce resources.

Consider two couples, the Brokemeisters and the Frugalles. (If you’ve read Strategic Eating, you’ve met them before!) The Frugalles have been models of virtue, eating beans and rice and rice and beans, mending their socks, and paying cash for everything they buy. They’ve put every penny they can into savings.

The Brokemeisters spend every dime pretty much as soon as it’s earned, and make regular payments on their credit cards every month.

Question: If these two couples end up in head-to-head competition for a car purchase, who is most likely to win?

Answer: The Brokemeisters, of course.

GM loves the Brokemeisters, and the millions of Americans just like them. That’s because GM rakes in more revenue from financing cars than actually making them. Read that last sentence again. I’m not joking.

The Frugalles, who save up and pay cash for their cars, are only going to garner a few hundred dollars in one-time profit. The Brokemeisters are a gift that keeps on giving. With any luck, the balance of this loan will be added to a new car loan in a few years’ time. The Brokemeisters are truly valuable customers. They will be wooed like royal offspring.

The Frugalles won’t be walking for long, though. In a couple of years, when the disaster-flirting Brokemeisters need to sell the car in a hurry, the Frugalles can wave their cash and get the greatly-depreciated vehicle for a garage-sale price.

The Moral: Don’t “cut in line” by trying to buy something you really can’t afford. Wait your turn. The anticipation is truly sweet. So is the ability to sleep at night.