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.
Btw, I’m not into flashy cars tex...Been there done that.
Btw, ya know what’s ironic? Many years ago in So. CA ya saw was young people building and working on hot rods, custom cars of every description. S. CA was the center of the universe for this. It was a great time in the car world.
Fast forward to 2017. Ya mostly see senile gray haired old men driving hot rods that they paid big $$$ for and other high end cars. I think it’s an end of life thing with these guys. And the younger people today? They’re priced out. They could never afford any of this. They’re lucky if they own a plastic beater shoe car.
Been jonesing for a pickup truck so I just went to my local Ford dealer’s web site. Put in New, F-150, and told it to sort by price.
The cheapest has these specs:
Oxford White 2017 Ford F-150 RWD 6-Speed Automatic Electronic 3.5L V6 Ti-VCT 2D Standard Cab, 3.5L V6 Ti-VCT, 6-Speed Automatic Electronic, RWD, Medium Earth Gray w/Cloth 40/20/40 Front Seat.
So about as basic as you can get. Includes only an AM/FM radio.
They want $28,700 for it. $5740 down and with 2.99% APR your payments are only $366 per month for 72 months.
Living in New Mexico I need 4 wheel drive, so the cheapest they have of that is: $33,345.00
As basic as the other one, only with 4 wheel drive.
Ridiculous
“Btw, Im not into flashy cars tex...Been there done that.”
Then the car that looks like a shoe fits you well ...
Nope, wrong again. Not into plastic computerized cars shaped like shoes or flashy cars over priced (see me) vehicles...But thanks for the interest tex!
“So about as basic as you can get. Includes only an AM/FM radio. They want $28,700 for it.”
Whoa! You can get that plus towing, CD, SYNC and power windows for $21,500 here!
“Nope, wrong again. Not into plastic computerized cars shaped like shoes or flashy cars “
I ask again, what are you into? What do you drive?
“And the younger people today? Theyre priced out. “
At 85 cents per hour I was priced out too!
I’m sorry, but I don’t discuss private things on the Internet, such as what model of vehicle I drive. You understand.
I was referring to long ago in S.CA. Hot rods and high end custom cars were the realm of young people and teens. Not like today, where the only ones who can afford to buy them or build them are all these gray haired old guys attempting to regain their youth...Trust me, no way most of the young folks today could afford to play in that game.
No I did not, I said that it SOUNDED LIKE the government’s version. That is definitely NOT the same as saying the government figure was 60 percent.
It’s like flying in today’s America. GA or General Aviation has basically priced middle America out of that game too. Not happening for them.
” Hot rods and high end custom cars were the realm of young people and teens. “
And I repeat, 85 cent per hour bought you a date in your daddy’s family sedan.
“No I did not, I said that it SOUNDED LIKE the governments version. That is definitely NOT the same as saying the government figure was 60 percent.”
LOL! If it quacks like duck ...
“Its like flying in todays America. GA or General Aviation has basically priced middle America out of that game too. Not happening for them.”
Most families have two or more cars. We only had one when I was younger.
It all depends on what you value. We didn’t even have a phone, you had one but lived on a quarter of an acre, had we lived on a quarter acre I would have really felt poor. What would the average person have now if not for government redistribution schemes? This nation as a whole has twenty trillion dollars of debt that we did not have back then. I don’t dispute that we are better off in some ways but we are far worse off in many ways. I won’t bother to list them all, you either understand or you don’t.
“Man, you clearly did not live in S. CA in the 60s/70s era.”
No. But the hot rod era started in the 50’s.
“My first car was a 1941 Harley 90” Flathead side valve, featuring a ridged frame, no rear suspension. It was in 4 boxes and I got it dirt cheap back then. “
So you were priced out of the market also.
You keep making my points for me.
Few even needed 2 cars back then because only 1 parent had to work. Generally, those times were so great, Mom could stay home and actually raise the kids. Try to keep up tex☺.
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