09.25.23 The UAW Strike - Vehicle Market Update / Points Taken: The Devaluation Of Frequent Flyer Programs

I'm so glad to welcome you here at the Clark Howard Show where our mission is to serve you with knowledge so you're empowered to make better financial decisions in your life. Today, there's two molt going on in the automotive industry. There's also a big problem going on in the country with people who are over-obligated with a crazy term to use with monthly payments on both new and used vehicles. We've got to talk about this with this is going to mean for you and me and the vehicle market going forward. You may have heard Delta has been much in the news for a massive devaluation of its frequent flyer program and I want to tell you what this trend is and why the changes at Delta, American and United with their frequent flyer programs, that trend actually could be a big time friend to your wallet. Speaking of your wallet, the vehicle market has been going through a slow, steady, healing process. The number of vehicles available on dealer lots has gone from basically nothing for some vehicles extreme over inventory. The dealers used to go there and they had these giant empty parking lots. You could set up sandlot basketball courts all over the place if you wanted to for a few years at dealers. Now you look and both their used vehicle lots and especially the new vehicle lots repopulating. The prices of the average new vehicle though have stayed extremely high because the automakers and the dealers got addicted to selling the most expensive models and the most expensive versions of models from when there was extreme short supply and they've not been willing to adjust the product mix to more affordable vehicles. So the new vehicle market, even though inventory has rebuilt for a lot of miles, even beyond what would be healthy for the automakers, the buyers are reluctant, resistant or just on strike because the effective cost of what cost by those vehicles is just too high. Now you add in the additional uncertainty from the strikes going on its selective auto plants of what used to be called the Detroit Big Three GM Ford and the European owned Stellantis formally Chrysler and the workers want a four day week instead of a five day week and they want a 40% raise. Now it's when the strikes eventually settled whenever that is could be even while I'm speaking, the reality is the workers are going to get less than what they've asked for but the automakers are going to be paying out more effectively for the work going on on the factory four and as far as what that means to you and me with the prices we pay for vehicles, it makes no difference because the marketplace sets the prices, not the manufacturers. The auto market is hyper competitive and when one goes away or one becomes less relevant, others step forward. So you'll hear a lot of commentary about how it's going to cost you and me in the wallet more for vehicles because of whatever large settlement GM Ford and Stellantis reach with the workers, but the reality is all that's about is what happens to the stockholders of those companies because if the brands that you may love right now, if it's one of the three Detroit automakers, those brands, if they're not cost competitive, the market is so, so hyper competitive, the people will just go buy a different brand. Now the effect of the strike though, if it goes on from long, long, long number of weeks even into months, that will at least temporarily do something about the trend that's been you are my friend, the increasing supply of vehicles on lots, that will reverse and temporarily it will bump up prices. But ultimately, the labor costs mean nothing to what you and I pay because the free market will set the value that you and I will place on different brands, different models. And so let the headline writers have their say, but all that really matters is what you and I say as customers. Now let me tell you something, you and I have been doing though that has been unhealthy for our own wallets. A lot of people have been buying vehicles at what are astronomical monthly payments for both new and used and you've been finding yourself with a payment that you're wheezing on. There are cases where maybe your vehicle was totaled in an accident or your vehicle finally reached the end of it's useful life and croaked and you had to buy something else. And with the higher interest rates today and the higher cost of both new and used vehicles that exist today versus four years ago, you may be paying an effective monthly payment that you cannot handle well. And if it's a circumstance, you just had no other choice, that's one thing. But if the price signals you're getting, that your cost to buying a vehicle, your monthly carry for that vehicle is way outside your traditional comfort zone, listen to that signal, listen to what's good for your wallet and keep driving what you're driving. Because the reality, we almost always tire out of the vehicle way before it's tired out. This is a time for your wallet and your life that being happy with what you got is a better idea than getting something new or new to you used because of the pricing cost of both the purchase and the money you finance, you borrow to buy that vehicle that will eat up your monthly budget. Okay, this first question is from Jamie and Kentucky. Jamie says, my husband now comes to me for financial advice. He says, what does your guy Clark say about it? My query, I attended a private school for my graduate degree and like many, I was in over my head with student loans before I realized it. Fast forward several years after graduation and my loan is more than I can pay. I have a solid income of about $120,000 a year. But my interest alone is over $2,000 a month. Wow, wow. I wish I had a time machine so I could go back and change my decision. But alas, I can't afford that in my loan payment. Anyway, I'm looking at the new save loan repayment and I'm afraid it's too good to be true. Is it true it caps my interest to the amount I pay? Does this mean I can make extra payments each month and make headway? I have spent hours reading about it and sadly information is limited. This could be life changing for me and other professional borrowers who are upside down at the cost of a private college. So the save program has a lot of very, very borrower friendly elements to it and also has a piece to it that I find very interesting when I really think about the underlying structure of the save program for, besides favorable for people who you said advanced degree, right? Correct. Vulnerable for an advanced degree is for a bachelor's, but still very favorable with how it calculates your required monthly payment and the very generous formula for that. And then also what happens with the interest that you're not paying because of the fact that it said you're required monthly payment is lower. Basically that interest month by month is essentially forgiven. And the second thing is that you are eligible depending on your circumstance, in your case 25 years of payments leads to loan forgiveness, others it's 10 or 20 years, 10 is for people who are in public service jobs, police officer, firefighter, teacher, that sort of thing. So the program is designed to get people to pay on their loans. We've had an enormous problem culturally and I would say morally and ethically in the United States that people took out these federal student loans and are like, yeah, I'm just not going to pay those. So the idea of the save program is within the four walls of your family budget and your income to get you into regular payments, get you honoring paying on those bills. It takes people who felt like it was hopeless, you'd never be able to pay off your student loan debt ever now to be on a trend and a track to pay for again 10, 20 or 25 years. And then whatever remaining balance, then after that period of time is at that point forgiven. There's something that someone came up to me and said, why do you never say this? So I talk a lot about the public service loan forgiveness that after 10 years of payments, if you're working in those jobs, police, fire, teacher, other public service jobs, you've got loan forgiveness that's tax free. But there are states that politically don't like that forgiveness for people in public service jobs. So they will tax you if there's a state income tax in their state. They will tax you on that forgiveness. The big money is not having to pay the federal tax. That is something that I apologize I have never said before. Leslie and Oklahoma says, I'm continually torturing my children listening to your podcast. It's really cruel to your children. But all three have wrought IRAs from jobs they've done and winnings from riding miniature bulls. What? Isn't that cool? They will love you when they retire. Now my question, I've been hearing about a company and then she lists the company name. They make engines ran by different cleaner fuels such as hydrogen and have already become profitable as of this year. They have won some government contracts as well. They offer a chance to invest in their company, but require a minimum of $1,000 and 50 cents to invest. I know you suggest index funds because they're safe and their growth is time-tested and they do perform. How do you go about looking into investing into a company like this and make the decision to invest or not? So is this the one we talked about before that's the reverse wankle rotary that liquid piston? So people that are really gear heads are really familiar with the promise it's never fully been realized of the wankle engine. It was something Mazda has put in some of their vehicles that burns fuel much more efficiently. I don't understand engineering at all, but this is referred to as reverse wankle technology that burns fuel much more efficiently in the chambers. Supposedly is able to be much more flexible at burning different kinds of fuels. This is a company has been at this a long time and remains a highly speculative investment. So you would do this if you were willing to take a certain amount of your money and I wouldn't say a lot and speculate on the potential of this reverse wankle of actually being successful. Now it means that this goes back to Charles Schwab's original investment philosophy core and explore that you do your main stuff through widely diversified funds index funds. And then if on the side you want to play a little with a speculative holding, then you could do it knowing that yeah, it's possible you can a big score. It's also very possible you could lose the money you invest. So you believe in what they're trying to do. The thing is it's more efficient as a fuel burner than a traditional gas engine. But an electric vehicle gets four to six times the effective fuel economy of a traditional gas engine. This would only incrementally be more efficient. Would you ever invest an individual company like this? So again, as a speculative holding, if you really believe in it, I mean, I haven't talked in a long time. Remember, I had the three wheel car I had invested in right back in 1979 or 80. And I thought it was a really cool idea and of course, it went eventually went bust. The car was called the freeway. It was the only car I drove, the re wheels, 16 horsepower, believe it or not. It was really a fun time in my life. But you generally don't buy individual stocks, well, I don't since I became a broadcaster, I don't buy any individual stocks at all. And I only buy index funds because I never want even the hint of suspicion that I was talking about something because I might benefit from the company moving up and down. Okay. So it's not about you not wanting to buy individual companies. It's fine to buy them outside once you've done the core. Right. ZM Washington says our 10 year old son has an annuity from a court settlement. My husband and I had agreed not to give our son access to this money. Oh, he's 19. Sorry. Our 19 year old son has an annuity from a court settlement so they agreed not to give him access. When I was out of town, he took him to Schwab to learn to invest. Now our son has taken over the account and he is being targeted by scammers. He is not using it for education, but cars. I am beyond upset. Do you have any advice or do I need a divorce attorney? Hopefully that was just rhetorical what you said at the end. And I hope it's not leading to the kind of disorder and unhappiness in the marriage. And I hope that you've expressed at a time you're not furious to your husband that you are not happy at all with what he did, but try not out of anger to express that. As far as a teenager, teenagers will do things that are very short-vision kind of things. And they will end up a lot of times, yeah, being scammed out of their money. I've been reading story after story about how particularly people in their 20s are having their money just vanish because they're getting into whatever the latest hype is with what pretends to be investing. So it may be necessary as important as this money was for your son's future. It may be necessary at 19 for him to learn an ugly lesson because at 19 he's young enough to learn what may be a valuable life lesson and do it right the rest of his adult life. And that is what we just talked about that good investing is simple blocking and tackling, on less than what you make and widely diversifying the money that you have. So I'm very sorry, I know this totally took this money a completely different direction to near zero, maybe or zero eventually, and messed up the whole purpose of it. But there are times the lesson may come from that disaster and may in fact set your son up for a better financial future eventually. I'm looking for the bright side, and he did take him to Schwab, which would be a good place to go. Well, all that happens at Schwab is that you have an account that you have control over. Right. But maybe he could use the size or now. You know, I don't know at this point because I don't know how much other money there is. So I'm really sorry about everything that happened and what it's doing in the family dynamic as well. Coming up ahead, I want to talk about the favor, big favor that Delta, American and United are doing for the American people is going to save you a lot of money in your wallet. It's been fascinating the rage around the land of people who travel. If you're not into travel, you're being like, come on, people get a life now. If you are really into travel, this kind of stuff, people really got hooked into Delta American and United, the three full fair airlines have all been very actively devaluing their frequent flyer programs. And Delta was the latest and did the most dramatic changes with their program. And people have gone, I mean, just into such upset, I had no idea how much the more of these points or miles or whatever you want to call them, Delta's case, sky miles, how much they were psychological hook with people in spite of all the devaluations that have already happened with redemptions. And it seems like everywhere I go, people are wanting to talk to me about the Delta changes. So the thing is, what Delta American and United are doing is doing your wallet a gigantic favor. But let me first summarize what Delta did. Delta was really dumb by doing something really smart for them business wise and not just being straight out about it instead doing all kinds of corporate double speak. But what Delta did is they've completely aligned their sky miles program and the airline with the interests of profits. That's all this is about raw dollars because Delta's program and just like United and American as the triumphant of the three full fair airlines have already moved this way and Delta just totally jumped in the pool where you only earn value in their program of note. If you are what they call a high value customer, meaning you buy last minute tickets, you buy front of the plane tickets, you charge massive amounts of dollars into, you ready for this? According to the many hundreds of thousands of dollars a year on a Delta branded sky miles American Express card, the program went from having credits you earn based on how much you flew to that being irrelevant that it's all about the dollars that you spend either directly with Delta to buy a ticket or that you spend on the Delta co branded American Express. There's also a little throw in with some measly value you can earn from hotel stays and car rentals, but that's, I mean, it's so puny for that, it means really zip. So why is this a real advantage? A lot of people have gotten into this psychological fixation tying in with one of these three full fare airlines and so you end up paying huge amounts more for air fare by limiting yourself to a single airline. If all you ever search is flights on American, if you had been hooked in with American's advantage program or United Mileage Plus or Delta sky miles. So you're so into earning those points and whatever and whatever privileges come with whatever level of points you have, then what you're doing to yourself is you're spending massively more money, ginormous, extra dollars for every flight because you're not playing the market. You're not being a free agent. The reality is American United and Delta have fortress hubs. So in the case of Delta and Detroit, Minneapolis, Salt Lake, Atlanta, they are in a position where they have so much of the air travel, they feel like that you're captive of them. And in American's case, Dallas is their largest United Chicago, United Denver, United New Work. Oh, and I forgot Charlotte for American. They're thinking they've got you and there's nowhere for you to go. Well, the funny thing is in those captive hub cities of the three full fare airlines, airlines other than the one that has the dominant market share are weak competitors and tend to offer much lower prices, even like in an American hub, United and Delta offer much, much lower fares than you have on them. And then we've got all the discounters and the mid prices like JetBlue, Southwest, Alaska. And so if you can break that fixation of trying to earn loyalty points on that one airline and now you understand, you're never going to get anywhere of any value on American United and Delta anymore, any way, then become a free agent. And the big reward you're getting is much cheaper airline prices every time you fly. All right. And this is. See, nobody said that perspective on this. True. This is from Melvin in South Carolina. I'd love to travel and have followed your advice on reshopping rates. This works even when redeeming points or miles. I recently rebooked a flight with the same itinerary and 33,000 Delta Skymiles were re-deposited into my account with airlines and hotels deviowing points and miles. This is a great way to save the three tickets were $11,000 each. 11,000 points each. No fee. 11,000 dollars. That would be an expensive. I love the thousand points each. No fee. Melvin, I appreciate that so much is I talk a lot about reshopping hotels and car rentals before you go on your trip. And I should be saying now with the airline industry adopting the Southwest model that there's no penalty for change or cancellation, just a re-deposite that this is an opportunity to reshop both tickets you're paying for with dollars and tickets you're paying for with points. Barbara in Michigan says I don't remember ever hearing this topic addressed on your show. My walk behind Moe or died a few days ago. I've been cutting my one and a third acres myself for many years now. Great exercise, but the neighbors think I'm crazy. I'm planning to wait until spring to buy replacement. I will use a lawn service to cut my grass for the remaining of the season. What are your thoughts about self-moving versus hiring a lawn service? I am with you that this is a great opportunity for exercise and it's a mistake for you to use a lawn service till you would wait till next spring. I mean, like six months from now to buy a new more. I would go ahead and buy one now. You know, it's clearance season on moors right now because lawns, so many lawns are going dormant depending on where you are in the country. So there's lack of demand and you could do a compromise. You could get a self-propelled more. There's a type that's popular now where you have basically like a joystick and you just are with lawn moors, it does stuff you don't have to hold the lawn more. There are the robotic lawn moors. There are any of a number, but if you want a simple one that you just push, that's fine too. But with an acre and a third, I would consider an electric lawn more. Much lower maintenance, the generations we're at now with them are much higher quality. You're going to protect your hearing a whole lot better. And so that would be something I would consider, but I wouldn't wait because you know what will happen? You get the lawn service, you get used to it, spring comes and you forget all about buying that new lawn more because you'll be hooked on the lawn service. Craig in California says, my son was recently diagnosed with OCD, which requires specialized behavioral therapy. Even though I live in a large metro area, there were no child therapists available in network to treat his condition, except virtually, which doesn't work well with a nine-year-old. We have found a great therapist, but they are out of network and charge $250 per session. We've been paying this out of pocket while appeal our insurance for an exception to allow this as an in-network cost since there aren't any other options. My appeal was recently denied. Do I have any options or do I need to suck it up and pay? The good news is that the therapy is really helping and my son is doing great, but it would be nice to not have to pay this cost out of pocket. Sure, and if you can afford to push through and pay with someone who you know is actually having a clear benefit for your son, you got to keep paying that $250 if you can afford it. But there's something else too, insurers try to wear you down on appeals. And I don't know if you've been through the full formal appeal process or the first level appeal, which is more referred to as the informal appeal, find out what additional appeal rights you have under the insurance contract you're in that may be provided by an employer or whatever. And if you have real insurance, contact your state insurance department. They don't get involved with employer reimbursement plans that we think are insurance, but aren't. But if you have real insurance, then that's what the state insurance departments for. And you can file an appeal of this denial with them. The fact that there's no one at all available in your market territory to be able to get this service for your child is a very reasonable reason for appeal because the network is obviously too small for this behavioral therapy that your child needs. And that is on its face a reason that your appeal should be granted and not denied. What happens with appeals is that insurers are very cynical about this. And usually when you appeal, it's automatically denied with nobody evaluating it, probably no one ever even looking at the appeal. So that's why you have to be persistent and push every button you can to try to get that appeal heard. And I'm really glad that the therapy your kid is receiving is working because that's the most important thing. But there are a lot of people who the choice when when your appeal is denied is suddenly the therapy is no longer given. And a family member suffers or you suffer. And that's why the appeal process needs to be a real one. And right now in the insurance industry, it's not. One of the things we're about here is the message and I say it up front, the message of empowerment. We deal with very large many times, impersonal organizations that lack an ethical core. So it's up to you to make them care. And whatever situation is, whatever organization it is that no does not mean no, that you keep moving that no to a maybe and ultimately to a yes, if right is on your side. And we are all about giving you power up front with knowledge that you can put to work in your life. And that's why we have our daily newsletters. Check them out at Clark.com slash newsletters. I'm very, very proud of what we give you in the newsletters. What we give you and the information is provided to you at Clark.com. What we're about is that you learn ways to save more at ClarkDeals.com how to spend less and always avoid ripoffs. Have a great day.