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.
“Then ya might as well take the city bus tex, that way you don’t have to pay for registration, insurance, gas, the high price of your Apple computer car etc”
LOL. That shows how little you know. You click an app and one shows up in your driveway.
NO REGISTRATION, NO INSURANCE, NO GAS ...
If you would get off the floor and out into the world more, you might gain some sense.
“Didn’t mean to ring your bell so hard tex...I just couldn’t resist.”
Sorry to bust your bubble but you have never rung my bell. I just feel sorry for someone that has hit his peak in rolling around on the floor.
“Didn’t mean to ring your bell so hard tex...I just couldn’t resist.”
Sorry to bust your bubble but you have never rung my bell. I just feel sorry for someone that has hit his peak in rolling around on the floor.
Interesting that you say the future self-driving computerized cars will be safer than human drivers!
“Don’t go away butt hurt tex... “
You admit that you are almost 70 years old but you post like a 10 year old.
LOL! Still tyring to find out what I drive, how old I am etc...The thread is not about me Tex, no matter how much ya want to make is so.
Enjoy your plastic computerized driverless smart car tex.
See ya!
“LOL! Still tyring to find out what I drive, how old I am etc...The thread is not about me Tex, no matter how much ya want to make is so.”
You said you would say what you drove yesterday. I have made no enquiries since. As for your age I just posted from what you said.
You made the thread about you with all your inane posts.
“Wow...Wrong again......I’d sold that bike many years ago...But I wished I still had it!”
Why do you bring up your 1941 Harley 90 that we know never existed?
It's arrogant and rude.
That was the firest time I asked.
But you can still sit on the back seat of your driverless Toshiba smart car and wear your racing helmet and fire-suit tex. So all is not lost.☺
Yes. 600 hp does put one back I to their seat.
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