Argentine Car Savings Plan Lottery

[Gringoboy]

Showing my ignorance here, but when we were driving in the wilderness in our little Honda Fit, we realised that we probably needed a car with better ground clearance, say a small 4x4 or crossover.
Anyway, Adri mentioned that our cleaner was in a plan for a Ford Ecosport and she was having difficulty with the payments blah de blah. So I said that it must be a cheap plan as she and her hubby don't earn very much and I hope they like their nice new Ecosport, then we moved onto other topics like the size of cactus and how many more miles is it to Salta.
So I asked our cleaner this morning how she liked her shiny new Ecosport (me being a petrolhead) and she says, oh no, I haven't got it yet.
I say, when do you get it? She says, if my number comes up next month. I say, what the f**k are you talking about?
She then goes on to tell me that she's 42 months into an 84 month closed circle scheme, her payments have shot up each month from 900 to 3500 and she refused the last two lottery wins where her name came up (to get her car) because she couldn't afford the 10,000 admin fees (registration etc), but she either has to take the next one and get the car or ask for her money back or something. I got a bit lost at this point not being an economics wizard.
Also, when she takes the car if her number comes up, she has to pay around 6500 per month which includes mandatory car insurance with Ford Argentina.
According to her, it's the inflation that's killed the deal as the payments aren't fixed, which is alien to me.
Has anyone else had experience with this type of scheme?
Who are the winners anyway?

 

[syngirl]

Showing my ignorance here, but when we were driving in the wilderness in our little Honda Fit, we realised that we probably needed a car with better ground clearance, say a small 4x4 or crossover.
Anyway, Adri mentioned that our cleaner was in a plan for a Ford Ecosport and she was having difficulty with the payments blah de blah. So I said that it must be a cheap plan as she and her hubby don't earn very much and I hope they like their nice new Ecosport, then we moved onto other topics like the size of cactus and how many more miles is it to Salta.
So I asked our cleaner this morning how she liked her shiny new Ecosport (me being a petrolhead) and she says, oh no, I haven't got it yet.
I say, when do you get it? She says, if my number comes up next month. I say, what the f**k are you talking about?
She then goes on to tell me that she's 42 months into an 84 month closed circle scheme, her payments have shot up each month from 900 to 3500 and she refused the last two lottery wins where her name came up (to get her car) because she couldn't afford the 10,000 admin fees (registration etc), but she either has to take the next one and get the car or ask for her money back or something. I got a bit lost at this point not being an economics wizard.
Also, when she takes the car if her number comes up, she has to pay around 6500 per month which includes mandatory car insurance with Ford Argentina.
According to her, it's the inflation that's killed the deal as the payments aren't fixed, which is alien to me.
Has anyone else had experience with this type of scheme?
Who are the winners anyway?

Yes my husband's cousin did it for a bloody Ford Ka! He paid for like years and years and then finally his name came up and yes, you have to spend a whole bunch of money then to get all of the paper work through and in the end he got a Ka. I guess the thing is it is a 0km instead of saving up money and buying a used car? It seemed kind of ridiculous for his first car -- he could have just paid the money into a short term interest acct and then bought himself a used something or other. Maybe I just don't find getting a Ka after about 3 years of payments to be that much of a reward! An Ecosport at least is a decent car, but if you don't have the money to buy these things except for in 84(?!!) cuotas, maybe it's a sign that you shouldn't be buying one in the first place.

 

[Gringoboy]

Good points Syngirl.
My first reaction was, if I pay into a finance scheme, I want the keys to the car right away and make the payments just like in any other credit deal, bit I suppose what I haven't grasped properly is that this type of scheme is maybe for people who can't get credit, not sure.
Adri's interpretation was that, say you have 80 people in the circle paying say $1000 per month and the rules of the game are that two cars are available every month in the lottery and if your number comes up you get the car having only laid out $1000 in the first month.

 

[thorsten]

Adri's interpretation was that, say you have 80 people in the circle paying say $1000 per month and the rules of the game are that two cars are available every month in the lottery and if your number comes up you get the car having only laid out $1000 in the first month.

It sounds like a ponzi scheme...

 

[syngirl]

Good points Syngirl.
My first reaction was, if I pay into a finance scheme, I want the keys to the car right away and make the payments just like in any other credit deal, bit I suppose what I haven't grasped properly is that this type of scheme is maybe for people who can't get credit, not sure.
Adri's interpretation was that, say you have 80 people in the circle paying say $1000 per month and the rules of the game are that two cars are available every month in the lottery and if your number comes up you get the car having only laid out $1000 in the first month.

So if I remember correctly, the one that the cousin was in they actually had to go and sign up for it somewhere down near Plaza de Mayo, and there were hundreds of people there. Both cousin;s signed up, but then one doesn`t even have his license so he dropped out. The deal was you had to pay 50% of the payments before you were eligible to receive a car, and then they gave away X amount of cars per month until everyone had received (or at least I hope until everyone had received theirs!) So he had something like 3 years of payments before he was even eligible to get the car.

 

[ElQueso]

This is the common way for people to get new cars here as I understand it, has been for many years. I wrote about this some 3-4 years ago (I think - maybe it's been 5). I was thinking about seeing what it would take to get a new car and was completely dumbfounded at the whole thing. Of course, I was explained that at the end of 12 or 24 months (don't remember now, probably 24 months) I'd get the car without the lottery and they didn't explain at all the fees involved to get the car at the end.

Thing with the lottery plan is,as I understand it, if you want to pay more in any given month, you have a better chance to win for that month (that's how the salesman explained it to me). You don't know how much your car costs until you've made the last payment. Your payments depend on the current value of the car and as the inflation goes up, your payments go up to meet the value. I remember asking the salesman how much the car I was looking at went up over the last year (it was a Ford 2 door, don't remember the model). It was worth something like 95K the previous year and was worth at the time of our discussion something like 105K (the next year). He told me "it only went up 10%!". Imagine now with inflation so high!

It's all about inflation. Even when the inflation was below 10% loans here had extremely high interest rates just in case there was inflation it seems.

Our oldest starts her first job today (she's been training the last two days) - she got a job in a call center in Microcentro. She will be selling loans for BBVA Frances for her first jaunt. She was going over the sales pitch with me night before last. I was role-playing all sorts of different people (happy, angry, stupid, etc) to try to get her used to what she'll probably face on the phone. I found it very easy to play the angry one - when I heard the terms of the loans, after asking some questions, I couldn't quite believe it. 59% interest!!!! That includes 20% interest for life insurance fees (to secure the loan), which is mandatory. They are offering their customers fixed-rate loans and you can't pay down the principle with bigger payments, although you can pay it off early (well, you can also pay down principle once to bring the amount of the loan and the payments down, after the first payment. They are actually told to suggest if they don't like the amount of the loan they are offered they can take the principle, make a payment and then take whatever they don't want and pay that part back) - for a 4% fee (though not if you have a caja de ahorro - seems that is protected by law)! For the phone offer, they won't allow you to change the amount of the loan they are offering (i.e., if they calculate you can get 30K pesos, you can't say "well, I'd like to only borrow 20K"). All sorts of crap.

She was excited about her job to begin with. Once I found out what the loan terms were, I told her I doubted that she'd make a sale. She has a base salary that's not much (net 6300 per month for 30 hours a week) and gets commissions on sales. She talked with her supervisor and her other "teammates" yesterday and they're of the same opinion. Who in their right mind would take out such a loan, among those who would be eligible for it? Her other possibility before she got assigned to sales would have been collections - she might have had a better chance at commissions with that!

Argentina really needs to learn how to do business. I understand why the loans have extremely high interest rates, but all things being equal, inflation shouldn't be such a huge item in your business plans, whether it's people loaning money or people selling groceries...or cars.

 

[Gringoboy]

The problem with a scheme like this is inflation as others have said.
It's not difficult to predict that inflation this year is going to be around 25+%, but who can guarantee that their income will increase above inflation, unless you're union affiliated?
And even then?
I mentioned to Adri (who's an accountant) that it was 2012/13 when our cleaner started the scheme and inflation was pretty rampant then. Think Willy Boy Moreno, if you can stomach it.
Not such a good idea then and seems like snake oil.

Mind you, there are plenty of vultures, not just in NY either. People buy these plans on the cheap, especially mature ones.

 

[gpop]

I think that people are lured in by what appears to be relatively affordable payments and the promise of a shiny new car. The small print is excessively complicated and from everything I've heard (and read in Argentine forums), many people get cheated out of their cash. These plans are akin to retail extended warranties.

I got my car "nearly new" by just saving up (in a surprisingly short few months). It was a floor model from a VW dealership in Cordoba. The price was far bellow new with only about 1800 Km on it. Still had the new car smell and 0 problems. The selling dealership also upholds the VW warranty. The downside is no choice in options, or colours.

 

[EJLarson]

I got my car "nearly new" by just saving up (in a surprisingly short few months). It was a floor model from a VW dealership in Cordoba. The price was far bellow new with only about 1800 Km on it. Still had the new car smell and 0 problems. The selling dealership also upholds the VW warranty. The downside is no choice in options, or colours.

My wife has a standard answer when a car salesperson asks "what color do you want?" She says, "the cheapest one." Seems to be your technique, too. Good on 'ya.

 

[semigoodlookin]

My brother in law is currently locked into a circle for a basic Fiat (forget which one, but!) and his payments have gone through the roof and he has been paying the best part of two years. He gets the car eventually regardless, but the money he has put into it is crazy. Circle jerk more like.