Posted on 06/11/2017 10:11:26 AM PDT by Lorianne
Almost every negative thing happening in the car business in particular, ludicrous technical complexity for the sake of electronic gimmickry and also to cope with diminishing returns federal safety and emissions mandates could be gotten under control by the simple expedient of cutting off the monopoly money/debt-financing that makes it all possible.
The seven year loan.
Free money (zero or very low interest).
Give-away leases.
The car industry is riding a bubble thats proportionately as large as the housing bubble of a decade ago. And it is going to pop. For the same reason that a wave has to crest and wash ashore, once set in motion.
Signs of trouble abound. They build them but no one comes. Not without inducements that amount to give-aways.
For several years now the car manufacturers have been resorting to truly desperate measures to prop up new car sales in air quotes because its a dubious proposition to describe as a sale a transaction that involves exchanging the item for a sum insufficient to cover the cost of its manufacture, plus a profit sufficient to make the exercise worthwhile.
Yet that is exactly what is going on.
As new car prices rise, the cash back offers, dodgy leases and other incentives necessary to move them off the lot also rise in frequency and inanity. Examples include the leasing of electric cars for less than the cost of a monthly cell phone contract (Fiat made just such an offer; see here) and below invoice transactions that rely on the manufacturer (e.g., Ford) paying a dealer to sell a car (e.g., manufacturer to dealer incentives) for the sake of getting rid of it, getting it off the books.
Or rather, onto someone elses books.
Give-away leases.
The car industry is riding a bubble thats proportionately as large as the housing bubble of a decade ago. And it is going to pop. For the same reason that a wave has to crest and wash ashore, once set in motion.
Signs of trouble abound. They build them but no one comes. Not without inducements that amount to give-aways.
For several years now the car manufacturers have been resorting to truly desperate measures to prop up new car sales in air quotes because its a dubious proposition to describe as a sale a transaction that involves exchanging the item for a sum insufficient to cover the cost of its manufacture, plus a profit sufficient to make the exercise worthwhile.
Yet that is exactly what is going on.
As new car prices rise, the cash back offers, dodgy leases and other incentives necessary to move them off the lot also rise in frequency and inanity. Examples include the leasing of electric cars for less than the cost of a monthly cell phone contract (Fiat made just such an offer; see here) and below invoice transactions that rely on the manufacturer (e.g., Ford) paying a dealer to sell a car (e.g., manufacturer to dealer incentives) for the sake of getting rid of it, getting it off the books.
Or rather, onto someone elses books.
Once the papers are signed and the car is driven away, it is no longer the dealers problem. He no longer has to worry about it. If the buyer fails to make the payments, it is now the lenders problem.
And that problem is written off, in its turn, when it becomes necessary to do so. The bank makes up the loss via interest and fees on other debt. Or by re-selling the repod vehicle at exorbitant interest to another debtor.
Rinse, repeat.
The dealer, meanwhile, has made a sale and it is so recorded and reported, adding another log to the swaying Jenga tower.
Sound familiar?
But wait theres more!
As the ever-more-desperate measures to prop up new car sales become ever-more-desperate and more and more people who really cant afford new cars buy them anyway, it depresses the used car market. Why buy a used car, after all, when you can buy a brand-new one for about the same monthly payment?
The used car market is cratering and that is a sure sign the fat lady is clearing her throat.
Remember: Interest rates on new cars are lower (even nonexistent) and the loan/debt can be extended over a preposterously long period seven years is now routine while the loan/debt on the used car must be of shorter duration because of the greater and faster depreciation on the used car. The typical three-year-old car is worth about 75 percent of what it was worth when new and will only be worth about 50 percent after another three years. Writing a loan/debt on an asset that will almost certainly be worth less than the balance due on the loan before the loan can be paid off is what you call a bad deal.
The loan/debt limit has probably already been reached. Seven years is a kind of Event Horizon for car loans because after seven years, almost every car regardless of make or model or what it sold for when it was new will be worth less than 50 percent of what it sold for when it was new. They cant keep pushing off the paid-for date in order to keep sales from wilting, permanently.
This is why the bums rush to ride-sharing; to the rent-by-the-hour (via an app) business model that GM (Maven) and Ford (the firing of Mark Fields) and pretty much the entire car industry have embraced as their only possible savior. The people running major companies are many things but idiots they are not some superficial evidence to the contrary notwithstanding.
Poltroons and greedheads, certainly. But not dummies.
They know that they cant keep pushing out loans indefinitely to sell cars. It is not tenable, both because of the debt load (unsupportable) and depreciation, which imposes a physical limit on loan duration. Hence the new rent-by-the-app (and hour) business model. It is the only way the business can continue without going out of business.
Either that or economic sanity returns.
The government stops mandating diminishing returns emissions rigmarole, for instance. And heres a real whopper of an idea: We get scientists, not politicians and regulators to prove that harm (real harm, not some ugsome bureaucrats hypothetical) would result from dialing back the current rigmarole to, say, model year 2000 standards.
Consider: Were new cars dirty in 2000? Were the skies suffused with smog? People choking and coughing, falling comatose into gutters? No, to all of the above. The fact is the cars and the air have been clean for decades but the EPA continues to pretend otherwise, to maintain the fiction of the need for its continued existence.
Same for the presence or absence of back-up cameras and anti-whiplash head rests and whether the car can do an egg-beater roll without its roof crushing. The fact that some people want to be parented doesnt mean the government has the right to parent the rest of us. Let those who want and need adult diapers go ahead and wear them, if they like.
So, the good news out of all this bad news is that it must soon come to an end. The cost-no-objecting and mandating; the noxious, suffocating parenting.
It is going to end because it cannot continue.
“You don’t need a 5 computers to turn your radio up and down, flash your turn signals, regulate alternator output, check your tire pressure, operate the heater/AC, regulate your braking, and shift the transmission.”
But it is nice to have the radio mute when making hands-free phone calls and tire air pressure monitoring is VERY nice.
Anti-lock, anti-skid and stability control are where it is at now. Most old pickups were accidents waiting to happen.
I have a manual shift but the new 10-speed computer controlled transmission is a jewel. I haven’t driven one but they say it is into the right gear before you could decide which gear to go into.
“(and the styling is based on a “vintage” vehicle) ‘
Does that mean that you like it and would not turn it down if given to you?
With keyless start, backup camera, collision avoidance, laser cruise control, rain sensing wipers and Bluetooth connectivity?
Sorry but I need these things.
I don't know what you're laughing about. I've sold more than a few of those vari-cam drives, and a boat-load of COP coils. Then there's the old broken-off-spark-plug-in-the-head trick.
It will screw up, and hard.
“Sorry but I need these things.”
That is what my brother said before he bought his new truck a few months ago.
He rode in my car and the light flickered. He test drove his truck and said ‘I like it’.
Now he really loves all the new features.
I live in Florida. Rain-sensing wipers are really nice.
No, and no, but I'd immediately take it to another state and sell it, as I refuse to pay the sales tax and the perpetual excise tax of $600 or more, per year.
If I wanted a sports car, I'd build myself a Porsche.
“I don’t know what you’re laughing about. I’ve sold more than a few of those vari-cam drives, and a boat-load of COP coils. Then there’s the old broken-off-spark-plug-in-the-head trick. It will screw up, and hard.”
LOL. I can bump up the output of my stock engine over 300 hp with a supercharger and still get a three year total drive-train warranty ...
“and the perpetual excise tax of $600 or more, per year’
My registration is about $42 a year. For my car in Maine it would start at about $700 and be about $170 in year six.
We don’t have an income tax either!
Oh yeah, I sell a lot of VDO TPMS sensors, they have to work, and some have to be changed whenever you dismount the tire.
CHA-CHING!!!!!
Another one of the ten stupidest things I ever heard of in my life. (mandated by Congressional morons)
The article which is the basis for this thread is talking about why the auto industry is tanking. Many people are out of work, living on a fixed income and can't afford the bloated price tags on new vehicles. I, and many others, simply refuse to play the game.
You can buy an awful lot of parts for $36,000.
All the hyper-tech may justify it, but I think another poster hit the nail right on the head when he stated that the big bucks are needed for union-thug auto workers wages, and their "Cadillac" pension plans.
You wouldn't even drive your car but half the year in Maine.
Otherwise, you'd kill yourself in the snow and black ice, and the salt would eat it in a few years, not to mention destroying all your vaunted and vulnerable electronics connections.
I'm sure the same would be true for many states in the "snow belt".
I went looking for a large SUV, and was hoping to find a basic model without all the electronic bells and whistles. NO GO. Every single one of them had all kinds of doo-dads and thingamajigs that I neither want nor need. For example, I do not need a car that speaks to me, I do not need an on-board GPS, I do not need a rear view camera. I do not need a “smart key” that opens the car when I just walk by it. I could go on.
Dear Lord, the crap they have loaded into those things makes the dashboard look like Mission Control!
You know what I need and want? A fly window, a cup holder, and an ashtray. Oh, and a front bench seat. HA! Good luck with that, Jenny.
And talk about sticker shock! $70-80K for a car (even a LARGE car)! No thanks.
Regards,
PS: Oh! And memo to the manufacturers: Not everybody likes boring colors. If I see one more black/silver/gray car, I may scream. For $70K you should be able to get your car in whatever dang color you want.
/rant
(WHEW! I feel better now.)
Wow, that’s really cheap compared to MN prices. Though it isn’t an extended cab and doesn’t have 4WD or ecoboost from what I can tell, the price is actually liveable. I’m surprised it has sync and the tow package for that price point.
This is a little closer to the sticker you’ll see on most dealer lots in MN: http://veteransfordtampa.com/ford-f-150-xlt-lifted-2017-tampa-fl-000th308
A typical truck like the one above with the 3.5 Ecoboost (I’m pretty sure that’s the main option you’d see in MN, not the smaller 2.6 Ecoboost listed on other stickers at veteran’s ford) will run 54-60K in MN.
I totaled my truck in January, I was looking at used pickups and they are way too expensive! A 2012 XLT with the 3.5 ecoboost, 4wd, sync and a few other items was 22K! It had 105K miles on it, the tailgate was dented, the bed was trashed and the engine sounded bad. The other options I looked at weren’t any cheaper, most had pretty dinged up beds, maybe a year newer, about the same mileage and options.
Unbelieveable the price jump since the last time I bought a vehicle. My 1999 F150 XLT (5.4L 4wd) that I bought used in 2004 was 16K and it had 66K miles on it. That same truck today would be about 30 - 32K in the same shape.
“Oh yeah, I sell a lot of VDO TPMS sensors, they have to work, and some have to be changed whenever you dismount the tire.”
Never had to change one.
“I can remember when you could get a fairly nice house for $40k to $60k.”
I can remember when newspaper real estate listings carried ads for houses from $4K to $6K! No, I’m not drunk, I’m just 73 years old. An uncle who lived in the house next to us died in 1959 and my parents turned down the chance to buy his 53 acres with house and barns etc. for $6K because it was too much money! My older brother bought the same property from our aunt in the early seventies for $10k. The myth of low inflation is just pure BS. In the sixties Farm & Ranch magazine ran an article deploring the fact that a young person needed thirty thousand dollars in capital to get started in farming. I think it would be at least one million now.
” the salt would eat it in a few years, not to mention destroying all your vaunted and vulnerable electronics connections.”
Same for any car or truck. No wonder your car dealer brings his used trucks in from the south.
“And yes, the options(very profitable) are mostly nonsense.”
That they are, who needs all that crap anyway?
“It costs more because our money has lost 60% of its value in the last 50 years.”
I think you are understating the case, I figure it’s far worse than that. Fifty years ago I was single, working for $110 a week, driving a new Mustang and partying like mad and still able to meet my obligations without problems. By my math sixty percent means you would need $275 a week to live that way now, not even remotely close to reality. Sixty percent sounds like the official version of events from the federal government which is disconnected from the real world. I would as soon believe figures quoted by Barack Obama.
Believing federal government figures on inflation is like believing that if you like your health care policy you can keep it!
Oh, one other thing, I only financed my new ‘67 Mustang for thirty six months.
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