Fatherly Wisdom

I had a nice phone conversation with my father this evening.  He ran a GM dealership for just over twenty years, and he can remember a time when they moved 146 cars in one month…     The reason for the conversation though was to get some advice for a friend of mine.  My friend just took a teaching job, bought a new car and suddenly finds himself out of a car and out of twenty or so thousand dollars.  I decided to call my father up and ask him about it.  The following story from him is definitely interesting.

My father explains:  A dealer can go into a state called “out of trust”.  He explained that it happens, and anymore is probably happening a lot.   Being “out of trust” means that the dealer cannot pay the bank or GMAC or sometimes another financing company for the car he just sold.  What happens is really problematic.  In the case of my friend and many other Americans, they cannot get the title to the vehicle they just bought because technically the dealer doesn’t own it and the bank hasn’t received money from the dealer.  The dealer may be owe the bank a million or so dollars even.  This is caused because the banks may not audit often enough (he said they most banks used to audit a car lot every week, now it could be much longer).  If the car is sold, the bank may not necessarily know it, and the dealer may spend the money received for the car elsewhere.  Eventually the bank does an audit, sees the car is gone, and sees that it received no money.  Next, the bank reposes the car from the unlucky buyer, and the dealer tells the buyer they’re out of luck.  The only recourse is to sue the dealer, and for a lot of people, that is too expensive.

So why is this story interesting?  It has two really important implications.  One is that disreputable dealers may have just hoodwinked a great deal of Americans in the “Cash for Clunkers” scam the government was pushing.   This means that in a few months, some Americans may be without their new car, their cash, and their clunker, and probably without the financial means for legal recourse.

The second implication is really important.  During the course of my father’s story, I asked him: Why isn’t this illegal?  Why do banks only check every so often?  Why can dealers do this?   His response was troubling.  He simply said, there is no difference between what is happening with these “out of trust” dealerships and what Bernie Madoff did.  So I extrapolated it even further.  Congress, especially under Democratic control has a habit of borrowing against nothing, and worse yet, raiding the Social Security fund and Medicare for extra cash.  In essence the U.S. government could be considered being “out of trust”.

I found this all interesting and thought I would share it with you all.  I think, though, the “out of trust” label would be a neat and catchy political slogan to push against the Democrats and out of control spending.   Just a thought.