A close twin to mine (but I can't see under the hood):
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 that’s 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 it’s 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 else’s books.
Give-away leases.
The car industry is riding a bubble that’s 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 it’s 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 else’s books.
Once the papers are signed and the car is driven away, it is no longer the dealer’s problem. He no longer has to worry about it. If the “buyer” fails to make the payments, it is now the lender’s 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 repo’d 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 – there’s more!
As the ever-more-desperate measures to prop up new car sales become ever-more-desperate and more and more people who really can’t 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 can’t keep pushing off the paid-for date in order to keep “sales” from wilting, permanently.
This is why the bum’s 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 can’t 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 here’s a real whopper of an idea: We get scientists, not politicians and regulators – to prove that harm (real harm, not some ugsome bureaucrat’s 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 doesn’t 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.
Your post makes no sense.
It’s almost as if you stick your head in the sand when someone tells ya something.
Once again, just for you:
>>>It came off the Harley showroom in 1941 a stock 80 ci V twin. When I got it it went to 90 ci.<<<
The reason why luxury, sports,pony and race cars are all RWD is because RWD cars handle better, tend to overseer, more balanced and are just more enjoyable to drive. That is why the Mustang is RWD. If it was FWD it would lose its personality.
“Only marginally so.”
‘Margins’ are important when you are making millions of units and have to meet CAFE standards.
“So why don’t you drive a FWD?”
Price, weight and mileage are not my priorities.
“Why is every luxury, exotic, sport,pony and race car rear wheel drive?”
Most people cannot affort luxury or exotic cars and the others you mentioned are don’t have room for three kids and two dogs.
A close twin to mine (but I can't see under the hood):
Sure they do. All Benz's and BMW's are RWD many of them large sedans. The proletariat are stuck with FWD shoved down our throats. Cookie cutter sedans suck. A rear wheel drive Honda Accord would be maybe $100.00/per car more to produce, if that.
Let us go back to my post and examine it.
Most people cannot affort luxury or exotic cars
Benz's and BMW's fall under this part.
and the others you mentioned are don’t have room for three kids and two dogs. This refers to the others you mentioned. Sport, Exotic, Pony.
“I recall when most every vehicle was rear wheel, even the lower end vehicles...”
That was back in the days of the solid rear axle.
“Now one must buy a, “Luxury” vehicle to obtain the same thing. It’s like everything else”
No one makes solid rear axles for cars anymore.
I remember the belt line of cars was about 4 inches lower than the cars of today. It seemed like overnight ALL cars had this really ugly high belt line and tiny windows.
Quality durable parts have declined? What a surprise!
You don’t know what you are talking about. The typical sedan has independent rear suspension now. To make it RWD would require very little engineering; the differential would be bolted to the frame and the half shafts would go to the rear wheels. Most cars with 4WD option have that set up already. The only additional equipment needed would be the drive shaft adding only a small cost to the car.
Reduce the clown wheels down a little and lower the belt line 3 inches and you have a work of art.
“You don’t know what you are talking about. The typical sedan has independent rear suspension now. To make it RWD would require very little engineering; the differential would be bolted to the frame and the half shafts would go to the rear wheels. Most cars with 4WD option have that set up already. The only additional equipment needed would be the drive shaft adding only a small cost to the car.”
Try reading my post before posting.
“Quality durable parts have declined? What a surprise!”
I am not sure what you mean.
Yep...Just last week, while in traffic we were commenting on how most all the affordable stuff looks the same with few variations. To me, they all look like plastic shoes with wheels ...lol
Even the new SUVs look like cheet. For example, check out the style of a late 90s Toyota 4Runners, to their new stuff. I don’t know what the designers were thinking.
Doncha ya think the government meddling in both cars and housing artificially created the cookie cutter shoes and shoeboxes that we see? My dad was a builder after WWII. By the time he died in late 90’s, he told me the profits were eaten away by regulations and paperwork. Which is why housing is squished together and monocolored. Very sad that creativity and individuality die when government controls every tiny thing we say and do!!
“Quality durable parts have declined? What a surprise!”
Absolutely NOT! Parts are of much higher quality and much more durable now than at anytime before.
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