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.
“Which is why housing is squished together”
Housing is squished together to get more units per land area.
Besides, most people don’t want a lawn to maintain. The kids play in the bonus room and they watch movies in the media room.
If you go to the dealer and pay a premium.
Mid line belt line.
Windows are not undersized.
Wheels are not clownish.
Flat hood and flat grill.
A beauty.
You missed the point. Lots are smaller for only one reason: to offset the cost of government tax and regulation in the planning and buidling of housing developments. In states with property taxes, the state and counties will try to maximize their tax revenue, too, by increasing the units in apts. or homes. If the government reverted back to 1920’s control of producers, our world would once again be populated with variety and color.
Nicer:
It’s nice but it is trying to hard. It is not elegant and a tad bloated.
“You missed the point. Lots are smaller for only one reason: to offset the cost of government tax and regulation in the planning and buidling of housing developments. “
You would be surprised at how many request only a minimal yard for their house. Just big enough for the dog to go poop in.
” It is not elegant “
It is not meant to be elegant. Neither was the Z28.
OTOH, I am equipped with a list of options that were not even available in any car in the 1960’s.
“our world would once again be populated with variety and color.”
Our neighborhood used to have different colored houses. Yellows, greens, pinks.
Now we have different shades of brown and grey.
Pretty soon tex you'll be talking up driverless cars and how perfect they are.
Remember what started this conversation? You're butt hurt because I called these new vehicles that look like shoes, "Plastic encased computers on wheels".
Guess what? They're here in a big way. Eventually an Apple computer car, or maybe a Toshiba, will be driving you to McWhopper tex. You can sit in back and wave to people. How cool is that?
“ since they don’t want you touching anything with the motor anyway, doing so might be illegal, so they have little need for aftermarket parts.”
LOL. I can get after-market tunes, cams, manifolds and more and they are 50 state legal.
Many even have warranties.
Forgot to mention a 670 up supercharger with a three year full drivetrain warranty.
Is that what they do to these soccer mom vehicles shaped like shoes? Really? Try reading the words, I said, “little need”.
” I said, “little need”.”
Correct. When the family SUV has the performance of yesterday’s muscle cars, there is little need for performance mods.
“You’ll love it tex when you’re ridding around by your computerized Apple car...On the way to the hearing aid store, you can sit in back seat and wave at all the people.... “
You joke but it will be great to still be independent even after I can no longer drive.
And you can thank all these plastic encased computers with wheels!
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