March 2008 - Posts - The Dollar Stretcher
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The Dollar Stretcher blog will explore people and money.

March 2008 - Posts

  • Gas Boycott

    This just in: 

    Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50 - $1.75, we need to take aggressive action to teach them that BUYERS control the marketplace..not sellers.

    With the price of gasoline going up more each day, we consumers need to take action. The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas! And, we can do that WITHOUT hurting ourselves. How? Since we all rely on our cars, we can't just stop buying gas. But we CAN have an impact on gas prices if we all act together to force a price war.

    Here's the idea: For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit.

    I received this email just recently. The sender had included me on a list of people that they thought should see this message. Presumably to encourage me to join the fight. Maybe they even hoped that I'd put it in the newsletter. I'm not going to do that. And, I'll tell you why. There are a number of good reasons.

    First, variations on this idea are sent around via email every time gas prices spike upward. If the idea was workable, it would have done it's magic years ago.

    Second, it will do nothing to change the economics of gasoline. Ultimately, what we pay for gasoline is most affected by the amount of gasoline available and the total amount of gasoline produced.

    We can stop buying from Exxon. But if we buy from Hess, Texaco or anyone else we haven't changed the total demand for gasoline or the total amount produced.

    Now if the email suggested that everyone drive 10% less or that they encourage the oil companies to build additional refineries that would change the supply and/or demand for gasoline. (if I recall correctly no new refineries have been built in the last 20 years - every one is basically running at full capacity now) I know that means some inconvenience (driving less) or doing something that we might not want to do (allow oil refineries to be built).

    Third, Exxon won't be hurt, Mom and Pop Smith who own the local gas station will be. There is very little retail mark-up on gasoline.

    "Most gas stations today double as convenience stores, and although they generate more than two-thirds of sales from gas, two-thirds of profit comes from in-store sales of cigarettes, drinks and food, according to the convenience store association." ">Wall St. Journal

    Yes, some stations are owned by the big oil companies. And, if you quit buying gas from them you might force them to lower their price. But the mom and pop stations that compete with them won't be ABLE to drop their price. Right now with oil prices going up they have a very small mark-up on gasoline. They can't afford to lose money on gasoline to bring you to their convenience store.

    In fact, if they did drop their price the result will be to drive them out of business. That means LESS competition. And according to my old college economics textbook, less competition means higher prices. Not a winning strategy for the consumer.

    So to the extent the strategy causes a 'gas war' it only does so temporarily and then makes the problem worse.

    Fourth, none of this has any effect on the real problem. Demand has increased. Supply hasn't kept pace and could be interrupted by political events.

    "With real gross domestic product growing at a rate of 8-10% a year, China's need for energy is projected to increase by 150 percent by 2020. to sustain its growth China requires increasing amounts of oil. Its oil consumption grows by 7.5% per year, seven times faster than the U.S." Institute for the Analysis of Global Security

    "Worldwide oil consumption increased by a cumulative 11.4 percent from 2001 to 2006 (2.3 percent per annum). The United States is the world’s largest petroleum consumer, at 20.6 million barrels per day (mbd). But while U.S. oil consumption has increased by 1 percent annually over the past five years, consumption in other nations, particularly China and India, has grown much faster due to their rapid output growth. Over the past 25 years, China’s annual GDP growth—about 9.5 percent—has averaged more than three times that of the United States, while India’s has averaged almost 6 percent, nearly double that of the United States. Federal Reserve Bank of St. Louis

    In other words, China and Indea are consuming more and more oil. And, they will continue to do so.

    OK, so what can the poor consumer do to fight higher gasoline prices? First, recognize that we can make a difference.

    We can start by using less gasoline. Check your tire's air pressure once a month. Replace your air filter on schedule. Drive slower. Don't buy a bigger vehicle than you really need. Carpool if you can. Group trips to reduce the amount of miles you drive.

    We can recognize that gasoline is only one part of a bigger problem. Even with conservation, worldwide demand for energy is going to continue to increase. Unless we expect millions of people worldwide to continue to live in abject poverty, we're going to have to make affordable energy available to them.

    So we need to get busy exploring ALL possible ways of producing clean, cost-efficient energy. I won't get into specifics. No need to set off a political firestorm on a blog devoted to personal finances. But I admit to getting fed up with some of the politicians and political activists. It seems that there's no type of energy that acceptable to some of them. Not oil, not natural gas, not coal, not nuclear, not solar, not windpower, not...well, you get the idea.

    If we continue to block all types of energy production we can expect higher prices for energy. It's really that simple. Maybe they're right. Maybe none of those methods are acceptable. Maybe some amazing new technology will save us. But, if it doesn't let's not pretend to be shocked when prices increase. Let's be honest enough to admit that we made choices that caused them to go up.

    Keep on Stretching those dollars!



  • Become an Inflation Fighter

    For the first time in years, inflation is back in the news. If you've studied economics, that's no surprise to you. In an attempt to make it easy for people to borrow money, the Federal Reserve has been lowering interest rates for years. When they do that, they reduce the value of the U.S. Dollar compared to other currencies. That has the effect of raising the price that you and I pay. Especially for foreign goods. (yes, you can argue that helps the American worker, but it does raise prices)

    Add to that increased demand for certain commodities (for instance, corn to make ethanol, oil and building materials in the far east) without an increase in the supply of those commodities and prices will go up. That's basic supply and demand.

    But you don't need to get into economics with the typical consumer. We already know that prices are going up. I bought gas and groceries in the last week. Enough said. What we need is a solution.

    Here at the Dollar Stretcher we can't lower prices for you. That's beyond our abilities. But we can show you how to substitute a cheaper product, use less of a product or find it for the best price possible. All those things will reduce the effect of inflation on your family.

    And, we're going to make every effort to do just that. We'll be calling them "Inflation Fighters" and you'll find them in our email newsletters, our Community Forum and on our website.  Just look for the words "Inflation Fighter" and you'll find articles to help you deal with the inflation that we're all facing.We're also starting a weekly email newsletter with articles specifically designed to help you become a Inflation Fighter. To subscribe send an email to subscribe-InflationFighters@hub.TheDollarStretcher.com.

    Here's to a less expensive tomorrow!

  • Mixed Messages

    Saw something fairly interesting yesterday. I was sitting waiting for a stoplight to change when a cab pulled into the lane next to me. I knew it was a cab because it had a sign painted on the door. The car was a little smaller and older than what you normally think of as a cab.

    Then the cab pulled forward a bit. Stenciled on its back window was "We Buy Junk Cars" and a phone number. I couldn't help but laugh. Talk about mixed messages! I didn't get a hance to see whether the phone number was the same as the one on the door. It could be that the ad was for a different company. But, even so, if I were running a cab company, the last thing I'd want customers to be thinking about is junk cars. Especially if my cars were a little older.

    Seemed kind of dumb, but then again, maybe I do something similar myself. I live a frugal lifestyle except when I choose a fast food lunch instead of the sandwich fixings I have waiting for me at work. I suspect that if I think about it for awhile, I'll come up with other mixed messages in my financial life.

    So maybe spending a little time looking for the mixed messages in our lives would be a good thing. Sure hope I don't find too many!

    Keep on Stretching those dollars! 


  • Trust Me

    This weekend while being snowed in, I watched an interesting infomercial and immediately thought of The Dollar Stretcher.  It was for a car loan place called "Open Check".  The website is opencheck.com.   Apparently according to the infomercial and website, in just 15 minutes you can get an open check to take to a car dealer and get a new car.  The  more I watched of the infomercial, the more red flags were going up.  I went to the website and couldn't find the real story about this.  Maybe you could check into this and explain the real story about this type of car loan.  I'm guessing it's a legitimate car loan, but at some ridiculously high interest rate for 10 years or maybe longer. 

    So you were snowed in and want to know whether the real snow job is outside or inside your home. Good question.

    If warning flags are going up, it's usually time to run away (and take your checkbook with you). You might miss some opportunities that way, but you'll avoid painful mistakes. You and I both know that "Open Check" is not loaning money because they think you're a nice person and they want to be your friend. They're loaning money to make even more money. And, that means that they need to get some money from you.

    Now it could be that they've found a way to make the loan process more efficient and that will save you money and make them a big profit. But, it could just be a web gimmick to keep borrowers from finding cheaper loans.

    I'd be very cautious. You're right. They're sending up caution flags. Their web application is very simple. But, it does ask for your social security number, birth date, address and mother's maiden name. If they were identity theives (and let's be clear I'm NOT saying that they are) that would be enough information to cause you some serious problems. Giving out that type of personal info should be done very, very cautiously. And only when you know that the company receiving the information is trustworthy. Let's assume that Open Check is an honest, above board company. The trouble is that we don't know that for sure. And, I don't see how a website can give you that confidence.

    A couple of other thoughts on the subject. If you have a good credit rating and are looking for a reasonable loan amount, there are plenty of places to shop for the best auto loan. Your bank or credit union. A dealer will have options. There's no reason to go to an unknown website that asks dangerous questions.

    On the other hand, suppose that you've gone to those places and they don't want to loan you the money you need for the car you want. Then what? You could try something like Open Check and hope for the best. But, it could be that the legitimate lenders have a message for you (if you're willing to listen). They may be saying that you can't afford the car that you're trying to buy. You can force the issue by finding a loan that you think you can repay. Of course, you'll be making car payments that will affect how much money you have for everything else in your life. (think of the people driving fairly new SUV's who are struggling to put gas in them now)

    If you have credit problems, you might need to invest some money into repairs for your current ride. Wait a few years until you've rebuilt your credit score. That's really not so bad an option either. It's almost always cheaper to put money into your existing car than to trade it for something newer/better. Instead of making payments, you'll have money earning interest.

    So until you're very sure about "Open Check" I'd steer clear of them. There's just too many ways that this offer could go wrong for you.

    Keep on stretching those dollars!


  • The Car You Know

    Recently this post appeared in The Dollar Stretcher Community: 

    Thanks to you who have suggestions and encouraging words about this pregnancy. I am pleased to have a baby come to my family, as I am one who will love, nurture, and care for it. All the members of our family want the baby Smile. I am prone to excessive worry but do feel this will work out.

    We do not qualify for WIC or other types of financial assistance. I am going to put faith into the garage sale/ebay/craig's list/freecycle/put the word out route for baby stuff. In addition to selling and paring down (which we need to do to make room for the baby anyway), I'm considering trying to do something with selling a car and buying something else in its place to cover medical costs and keep us in the black. But I wonder...is that a penny-wise, pound foolish choice? We are not mechanical and don't have the ability to fix a clunker to keep it going.

    Since we "paid off" our cars through our home mortgage refi, we own them free and clear. They are both dependable, trustworthy cars. One is a nicer family-size car and the other is a small fuel-efficient economy car. They are both 2003 models. On the one hand, we would like to keep the two cars because one is fuel efficient and can get me to and from my doctor's appointments (70 miles round trip each visit) while we will need another one when the baby comes for any family travel. Is it possible to get a dependable family car for about $7500? We could sell the smaller one, with the intent to repurchase in a year or two, but this doesn't seem like a good idea, since we have maintained it and know its history.

    Would you do this? If so, what type of used car would you purchase at the 5-7500K price point? Just another thought..


    I'll keep my comments largely to the auto question (after all, I am a 'car guy'). I doubt that trading a known good used car for an unknown used car is going to be a good financial decision. 

    Let's see what happens if she does sell her car. I looked at kbb.com (Kelley Blue Book). She didn't say what they had, so we'll use a 2003 Honda Accord as being a common model. I chose the base model with 55,000 miles in good condition. Private party price was $9,480.  

    She'll need to replace it. So I priced a 1998 Honda Accord (same base model in good condition). This time with 110,000 miles (about 11k per year). Kelley valued it a $4,050.

    At first glance the swap would net about $5,400. Not bad. But look at the risks she's taking. She's going from a known, well-cared for car that's not giving her any trouble to an unknown vehicle.

    Take for instance the timing belt. Honda suggests replacement at 105,000 miles or 7 years. Would her '98 purchase have had the job done? It's not a small question. It's an expensive job. My local Honda dealer quoted $700 for the job. If she doesn't know for sure, she'll probably need to have it done. Because if she gambles and is wrong, when the belt does go it will do major (read thousands of dollars) damage to the engine.

    There will be other similar questions. Think transmissions, electrical, brakes, prior accidents. Today's cars are pretty complicated. That means that they're expensive to repair. Repairs that require $500 to $1,000 are common. Our soon-to-be mom could spend much of the $5,000 in repairs without being too surprised.

    One other thought about the car. A 2003 model should last her for a number of years. Conceivably they won't need to look to replace either vehicle for 3 or more years. That's a very good thing. A 1998 model is running on borrowed time. They could find themselves facing the choice between an expensive repair bill or buying a car at any time. Adding a car payment at this time would be a serious financial mis-step. 

    What are the alternatives? Our mom-to-be has already solved most of the problem by deciding to find used baby equipment. A little scrounging and some paint-up/fix-up can save lots of money. Finding willing helpers won't be hard. Everyone wants to help an expectant mom! If she's missing one or two major items as she approaches her due date, let the word out prior to a baby shower. Guests would be glad to pitch in for a bigger gift.

    The other major expense are the medical bills. Unfortunately you can't buy them used! But you can talk with your medical provider about payment plans. They understand that many young parents don't have the resources to just write a check for the whole amount. As long as your talk with them before incurring the charges many will work with you.

    Also, another poster suggested checking again with government programs. It can't hurt to ask. Check, too, with local churches. Many are glad to help expectant mothers as part of their ministry.  

    Having a baby is a major event in any family. And, usually when you have one big thing going on it's wise not to make any quick financial decisions. Our mom-to-be is smart to seek guidance before trading one of their cars. And The Dollar Stretcher advice would be to keep the good cars they have and rather look for savings on baby items and a payment plan for the medical bills. 

    Keep on Stretching those Dollars!



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Gary is a former financial planner and purchasing manager who edits The Dollar Stretcher website <www.stretcher.com> and newsletters. You can follow Gary on Twitter.com/gary_foreman
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