Sunday Times - Money Comment - February 6

Posted by Jill Kerby on February 06 2011 @ 09:00

Don’t be driven to despair when seeking car finance

As anyone who needs a line of credit knows, Irish banks are keeping their cash drawers closed, especially as depositors keep emptying their accounts for safer destinations.  

The drying up of normal credit hasn’t gone unnoticed by the finance banks operated by the big car manufacturers like Volkswagon and BMW, who now extend, via their dealers, much of the credit to buy these cars that are selling due to the car scrappage scheme.

Now the SIMI, the society of the Irish motor industry has decided that something has to be done for their members who sell used cars; their business continues to contract as the scrappage scheme hoovers up much of the buyers.

In conjunction with the country’s credit unions, they’ve launched a funding scheme that allows buyers direct access to credit unions (DACU), even if the buyer is not yet a member of a credit union. To avail of any loan offer from a credit union in their ‘common bond’ area – their geographic community or employment that has a credit union - the car buyer will then have to join that credit union.

With credit union loans as cheap as 6% or 7% this is pretty good offer both parties, by-passing for the dealers the credit freeze that has paralyzed the banks and for the credit unions, the shrinking of lending (and members) because of he downturn of the economy and the propensity for everyone these days to save, not spend.

Since the banking crisis began, many credit unions have unwittingly turned themselves into savings banks, not lenders. This was never their primary purpose; credit unions are there to extend modest amounts of affordable credit to ordinary people.   A good selling point of this arrangement is that the credit union member gets a straightforward loan with interest payable only on the diminishing balance and not the usual, hire-purchase terms that constitute typical car dealer finance packages.

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A hunger for change

The Egyptian uprising that, like in Tunisia, was sparked by rising food costs among other problems. In a country where the average person will spend half their daily wages on food, it doesn’t take much price inflation to light the revolutionary fuse.

Here in the West an adult will typically spend between 10% and 15% of their income on food. Historically, the ratio has never been so favourable. Tell that to someone who is out of work and trying to feed himself on €188 unemployment benefit, not to mention the pay the rent or mortgage, electricity and fuel bills, insurance and all the other trappings of a once comfortable western lifestyle.

Fifteen percent of a €30,000 gross income for food works out at €87 a week, but just €28 a week on a jobseeker’s gross annual benefit of €9,776.  Spending a modest €87 a week for groceries now represents 45% of his weekly income.

It is any wonder that there are now families in Ireland, in which parents are unemployed (or underemployed), where eating three square meals a day can only happen if you skip paying the rent, heat and light bills regularly?

The price of staple food is rising here, just like it is in Cairo and Tunis.  It may be some time before food price inflation means we can no long absorb the higher cost or adjust our meal plans, but there’s no room for complacency.

If Cairo’s revolution was trigged by higher food prices because there simply was no more give in their meagre budgets.  How high do food and fuel prices have to go before 450,000 in Ireland with no work and subsistence incomes, decide it’s time to at least express their displeasure?

The general election is a sort of circuit breaker after months of high tension, but whoever wins the poisoned chalice in three weeks time had better come up with some immediate, practical policies to deal with the hardship of rising prices here, as well as all their lofty fiscal and political reforms.  

Maybe we have more in common with Egyptians than we think.


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Tax evasion

Meanwhile, I can’t wait to grill a few canvassers.  None of them really have a clue about the big issues, so I’ve decided to amuse myself by having at least one minor question that they might think they can answer.  This week it is, “Your party’s long term property tax policy is…?”

The consensus seems to be that we will get a property tax of some kind.

The National Recovery Plan, that masterpiece of fiction for the benefit of our friends in the IMF, claims that the interim charge will be just €100 in 2012 and €200 in 2013, but let’s stop kidding ourselves: property/ poll/ council tax in every bloated, socialised western economy inevitably comes with three zeros after the first digit. 

The prospect of a party canvasser – any canvasser - spending a few minutes vehemently insisting that no such tax will ever happen on their watch, is definitely be worth answering the door for. 

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