Just how much of a disaster in the making is the auto bubble? Try these shocking new stats from JD Power on for size:
Market Roundup
More than 31% of auto borrowers have negative equity in their vehicles – meaning they owe more on their loans than their cars are worth. That’s up from 23% five years ago, and a record high.
 A whopping 29% of car loans now stretch out as long as six to seven years. That’s triple the level in 2010, and also a record high.
 But even giving borrowers 84-month loans isn’t enough, apparently. So car makers are increasingly using leases to get people into cars they can’t really afford. Leasing now accounts for a record 33.6% of purchases, up from around 24% a half-decade ago.
 To top it all off, dealers are now offering around 9.3% of sticker price in incentives to move metal. You guessed it – that’s another record.
If those numbers aren’t enough to concern you, then consider that overall auto loan debt just topped $1 trillion in the first quarter, according to Experian. That was up 10% year-over-year. Lease volume surged 27% to a record $76.9 billion.
So to sum up, we have more auto loan debt outstanding than ever before. Those loans sport the longest maturities ever. Auto borrowers are the most upside down they’ve ever been. And since even that isn’t enough to keep sales humming, dealers and manufacturers are offering the most incentives ever and the most aggressive leasing deals ever.
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| Dealers are now offering around 9.3% of sticker price in incentives to move metal. |
What could possibly go wrong? How about a huge wave of delinquencies, defaults, personal bankruptcies, and lender losses?
Delinquency rates are already starting to rise, albeit from low levels. The 30-day late-payment rate climbed to 2.1% in the first quarter from 2.02% a year earlier, according to Experian.
That’s not high (yet). But a separate report from the credit ratings agency Transunion found that the serious delinquency rate on car loans, meaning those at least 60 days late, just hit 1.12%. That’s the highest in five years.
If I’m right about the worsening prospects for the economy and the job market, this is only the beginning. A potentially major day of reckoning is headed our way. So my advice is to continue to avoid shares of auto manufacturers, auto dealers, auto parts companies, and anyone else with exposure to an industry whose best days for this credit and economic cycle are behind it.
[Read More – The Consequences of Reckless Lending – Mike Larson]
What do you think? Is my analysis too pessimistic? Too optimistic? Right on target? Any companies you would sell or buy in the auto sector here? What about delinquencies and losses down the road? Should we be worried, or do you think car companies will come out of this okay? Use the comment section to discuss.
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It’s been a volatile several days for the stock market, and a lively few days at the website. Several of you weighed in on topics my colleagues and I covered, as well as where markets are headed and which kinds of investments make the most sense in this topsy-turvy environment.
Reader Wayne shared this opinion on stock buybacks: “The problem is not buybacks per se, but companies which either:
1) Over-leverage the company by using borrowed funds to buy stock, which can create a disaster if interest rates rise later; or
2) Use buybacks to appear to decrease share ownership … then grant options to the executive suite in share amounts equal to, or more than, the shares purchased, thus effecting a wealth transfer from outside to inside shareholders (a tactic which the SEC should outlaw as fraud).”
With regard to interest rates, Reader Howard said: “It is so easy to lower interest rates, but much harder to raise them. During more normal times, folks have an appreciation of the true value of money. Now with years of questionable investments at current rates, there are so many more debt bombs to be concerned about.
“Black swans can come from many directions, but I suspect money will sputter to regain some value before many people realize what has been going on and how little it is really worth. Trying to recover 3% interest rates over time will expose the most wasteful extravagance, beginning with governments.”
So where will markets head? Reader Stu offered this prognostication: “My three-month forecast calls for stocks to test last August’s lows, the dollar index to test its highs, and surprisingly, even with a strong greenback forecast, gold to reach $1,460 an ounce on a dire economic/political environment. We’ll see what happens.”
Reader John F. singled out one investment vehicle he’s using right now to profit: “I watched the market with greater and greater confusion. So I am now in municipal tax-free bonds earning 4.75%, and watching the interest come in each month on a laddered portfolio. Right now the stock market is not an investment place. It’s a gambling place.”
Finally, on the subject of retailers and the struggles they face, Reader Dan said: “As a retiree, I can tell you that I was one of the original mall rats. When I was 10, Eastland Mall opened in 1968. It was the first enclosed mall in our area and I thought it was the most wonderful place in the world.
“Today, it is largely vacant and while a JC Penney still anchors one end, the few retailers are not name brand but quirky independent locals who are only there for the bargain rent. I have seen this story repeated all across the country. Retail as we knew it when we were young is truly dead.”
And Reader Thomas suggested one group of companies is particularly vulnerable to the fallout: “What a disaster is waiting for the real estate owners and property developers. Soon the rental market for shopping space will collapse. Total oversupply, while the Internet ‘shops’ are displayed on every mobile phone. And this is just the beginning. How will it look 20 years from now?”
Thanks for weighing in on all of these topics. I believe a lot of money has been wasted on share buybacks at inflated prices, and that the ebbing of the buyback flood will weigh on the markets. I’m also on board with the idea that retailers and retail property owners are in trouble – not just because of the “Amazon-ing” of retail, but the unfolding slowdown in the economy as a whole.
Those are just a few of the topics I plan to cover in great detail during the 2016 Money, Metals, & Mining Cruise. You still have time to check out the details of the July 10-17 event here, or by calling 800-797-9519. My fellow financial experts and I are going to have a blast on board the Crystal Serenity, and we’d love to have you join us.
[Read More – Yet ANOTHER Billionaire Warns About Coming Chaos – Mike Larson]
And as always … whether you’re a cruiser or not … you can comment on the topics I’m covering right here on our website.
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 Will they or won’t they? We’re back to playing that game after the release of meeting minutes and speeches from Federal Reserve officials implying that we may get a rate hike at the June 14-15 policy meeting.
Investigators from several countries are searching for wreckage from EgyptAir Flight 804 in the Mediterranean, with some personal effects and airplane parts reportedly found already. The flight had 66 passengers and crew on board, and dropped out of the sky around 2:30 a.m. local time not far from Cairo. Terrorism is suspected, but not yet confirmed.
An insider trading scandal resulted in Securities and Exchange Commission charges against former investment banker Thomas C. Davis and sports bettor William T. Walters. It also led to professional golfer Phil Mickelson coughing up around $1 million in profits. Davis allegedly fed insider tips to Walters as chairman of Dean Foods, a move designed to help him get out from under crushing gambling debts.
So do you think the Fed will pull the trigger again next month? Will the EgyptAir crash turn out to be terrorism? And what do you think of the SEC’s insider trading charges? Is the agency finally cracking down on all the shenanigans out there, in a way that might build confidence in markets among individual investors? Let me know what you think in the comment section below.
Until next time,
Mike Larson
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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No technical date to talk about. Just wondering when are we going to crash again. Ours… the Central Banks and the government just don’t have the balls to do the right thing. Bite the bullet now before it kills us later.
That train left the station long ago. RAISE those rates, and watch us crumble. 2 years plus too late.
I do expect the car market to crash. However, used cars will plummet in price making it more affordable with fewer buyers of new cars. Also, I can see the auto parts companies more profitable as we drive our cars longer, thus in need of more repairs.
amen–you took my post
I think the SEC is still hammering the small fries, ala Martha Stewart, and ignoring anything of significance.
Mike I think you hit the nail on the head. They always pick the low hanging fruit. Even Uncle Bernie fell into the low hanging fruit category. Its amazing that they every caught him ooops they did not catch him he confessed. Bernie’s case really shows how incompetent the SEC is. They had so many warnings about this guy and they were to stupid to catch him. There are a lot of shenanigans going on in the market the most blatant being gold manipulation which I think the Fed has a hand in as well as Central banks are loading up on gold and want a cheap price. Its all interlinked with the SEC coughing up a bone once in a while to make it look like their doing something.
Leon, I think you’re right, but now we have access to Cuban expertise, so that might also play a role. I’m also thinking that individual skills will be making a huge comeback, like machining and brilliant resourcefulness.
Just a different form of the housing market collapse .
This to is created by the Fed and easy money !!!
I think auto repair parts manufacturing companies should do well during a poor economy. ageing cars need repairs and replacement parts. lg
I am not terribly worried about the the “auto lending bubble disaster”. After 2007 is it really possible all these washed up no income verification real estate salesmen found a new area in which to be unethical? I think with interest rates so low, both Auto manufacturers and consumers stretched to make more sales and purchases than might have been prudent. What’s the backlash? A couple of years of repo. inventory to work off? With wage a job growth still on the plus side, I don’t think this natural overindulgence merits the headline “Bubble Disaster”. That headline however did get me to read this post!
I just bought an Escape from Ford 21% off sticker and paid Cash. Probably only one of a few that do that anymore. We were offered zero% interest for 60 months. No thanks
just kind of curious’ what kind of interest rates are charged to people w/poor
credit when they purchased these newer vehicles
I think its over 20% tom. Banks are setting up subsiduaries to get a piece of this slavery business its so lucrative.
can you say Car-Max? ( buying)
Some people are asking, “When are we going to crash again?” I only ask you, by what measures have we ever fully recovered? Therein lies your answer.
Run like hell from DDAIY. Daimler stock will not do well and hasn’t for the last year. I has steadily gone down from $98 to 65. What can make it go up with a headwind?
Last year, Americans bought 15 million cars. . .a record. Sixty percent of those were foreign-made. . .another record. The absurd part of that equation is that the Federal Reserve provided the funds to American banks to make the loans to ship that money to foreign companies employing foreign workers. Now American companies are expanding their overseas manufacturing in order to protect their profit margins with cheap labor. That could draw Mexicans back to Mexico for better wages and America becomes a Third World Nation.
Just bought a new Hyundai and during the finance phase of the deal, I was told me that their sub-prime guy could get anybody into a car. So as long as the $ is there, they’ll keep putting people into their terrible loans.
So the stats say we are looking at “sub-prime” motor vehicle debt! Wall Street will package these loans in bundles the same way the housing debt were converted into CDO’s and sell it into the markets. Who will create the similar “credit default swaps” instruments by going ‘short’ on this bubble and what will the leverage be? De-Ja-Vu all over again with another bail-out for the car manufacturers, they got it in 2008, why will they not get it again?
Sounds familiar, doesn’t it??
Can somebody out there help me. Wife and I lost everything in the 08 debacle. We are doing much better now paying 3 house notes a month on a house that I had already paid for once before. Wife’s car, 1999 G20 is all but gone. Should I be looking at a new or used car for her. Should I wait till it all hits the fan.
There are 2 of you seems you could take a risk in a used car from a dealer first research the callback history for that make and test consumer reports have your mechanic look at it etc. I’d buy the cheapest I could find . Technology is moving so fast car of today obsolete tomorrow. Just my thoughts. I’m stuck with new car purchase no choice have to commute to work and wondering what I can do
I have read that Phil Mickelson is expected to “return” the money he made. I would like to know how this works. Will his “return” of the money make it back to whoever lost money through these dealings, or will it go to into government coffers (through some government agency) instead?
Gee Phil no penalty or jail time? You deserve it.
At 76.75 years I have seen 3 things prominently; Democracies become Dictatorships (watch out USA); after market auto parts do well in economic down times; lastly, market manipulation has become rampant and the SEC changed the rules to make it LEGAL: How the INTERNET will affect everything is not foreseeable but I am guessing some good (where unknown) and most definitely a lot of bad. And the SEC will always be understaffed to investigate everything unless the market people stop influencing rules changes, this applies to other big corporations.
I bought a VW beetle 1972 about $ 2000today I see them at > $25k. Middle class workers salaries did not go up 10x since . Car Are generally 50 % over priced . Used cars are barely affordable
Unfair comparison. A ’72 beetle @ $2K was a cheap, entry level car. I bought a basic Dodge with AC in ’72, and it was $3.2K. Today’s entry level Ford for around $15K has more features than either of those ’72 cars. Quality has also greatly improved since ’72.
Phil if you keep the car long enough and all those features “go haywire” be prepared to pay through the nose. I think they put all those “features” on new cars so when they go haywire your forced to another vehicle. My daughter had to replace some “sensors” on her car and it was unbelievable the cost. For the sake of disclosure I don’t have a car and don’t want one.
You see a lot of folks driving new cars from third world countries.Now how’s this possible;welcome to t he land of everlasting credit.Ask the bankers who lend the Uncle Ben Bernake bucks to the car dealerships.
Gary I live in an Asian country and 9 out of 10 cars are brand spanking new mostly 4 door pickups, 4 wheel drives with all the bells and whistles. This country went from bicycles to cars in almost one leap. You can tell by the number of road deaths. They are financed to the hilt and government here is encouraging them to borrow yet more money to boost the economy. Besides exporting jobs we exported debt as well. The debt here makes Americans look like pikers.
Ever since Mike Larson got his $100 + hysterical oil-call so horribly wrong (repeatedly) he’s been jumping up&down about an imminent disaster..So many times he’s tried to scare us about interest-rate-rise bloodbaths that don’t eventuate, then it was bond markets and lately an impending auto-loans crisis..
Give it a little time and all he says will come to pass. Of course if you think that financials are normal then dream on !!!!
Yes Peter we are an impatient bunch. I am beginning to think Larry E was right about gold. Its hard though to separate the manipulation in gold from reality. Manipulation as it exists today in the gold market really makes it a hard vehicle to invest in. The gold market is so small that it can easily be manipulated most by the Fed yinging and yanging
The strong suit of the Weiss Group is helping investors avoid potential danger. They do a very good job of this. They help me keep my money “safe”. Like me, they believe the key to long term investing success is to avoid big losses. Even if he misses the damage is minimal. Jim
being in repair for 40 years, new cars are over engineered and ecm, can bus and dozens of modules make them obsolete beyond warranty. so complex factories cannot get out manuals under 10,000 pages. most time is not working on car but doing research on systems. rockauto is my parts source. my best advice is find a pre 1975 model and enjoy it! stop buying new cars!
john
These loans will not creat a crisis.. The dealers will just re-sell the repossessed autos and as normal make very fat profits. Usually more than when they sold the autos when they were brand new. The used car lots of new car dealers are gold mines, with big fat profits. These loans are not guaranteed by the federal government so what is all the fuss about? If I owned a new car dealership, I would hope that there was a crash, since it results in plenty of late model low mileage used car inventory to sell at FAT profits. Also I strongly disagree. Older pre EPA compliant automobiles are more reliable and less expensive to operate than the late model junk produced by even foreign manufactures. Flunk emission inspection and find out the hard way how unreliable and excessively expensive maintenance is on these new wonder cars.
The real problem for the auto companies will prove to be China. They are up to 30 million sales rate, double the U S. China is a complete debt bubble and car sales will collapse when the banking system hits the wall. I like the idea of short auto stocks.
I have always bought decent used cars. One is a solid 30 year old Mercedes sedan that still gives good service after 14 years and still is a better, simpler, and safer piece of machinery than the tinny gadget-loaded junk made today. Nothing is built to last anymore. I would rather pay for repairs than participate in the planned obsolescence marketing crap that is barely keeping the global auto industry on life support. Remember they make more on selling the financing than the car. Negative equity is no surprise. That happens as soon as you drive it off the lot. So what’s new…a reality check?
Frank,
That is correct for the older MBs, but not the newer models with overly complex computer systems that if they malfunction the MB auto now requires very expensive components and electronic control modules that only MB dealers support. Also I do not recall the cut off… but MB has discontinued manufacture of replacement parts and modules for their older models. Like important parts such as suspension control arms. If you needed one to pass safety inspection, the only source is new old stock, if the dealer can locate a supplier who might still have old stock lying around his warehouse..
Mr. Lee,
I really think you are grossly unfair with your comments about Mike. If you do not like the message, do not kill the messenger. Mike has never made the claim that he is a Prophet, nor did he ever warranted that his analysis of certain complex fundamental and technical data will always be correct on a specific date. As an Economist, I have found his advice and reading of the markets reasonable and mostly backed-op with hard cold facts! If you think that you can do better, let us hear your version of analyzing the complexities of economic data available in these volatile markets that we have today!
I absolutely agree with reader Wayne. Companies buy shares of their own stock on the open market in order to acquire shares to hand over to their executives via the stock options they are given as part of their outrageous compensation! They are transferring money that belongs to the shareholders to executives inside the company. This is a from of outright theft and fraud!
Investors will pile in wherever they can get returns, and sub-prime autos have become the latest venue for the Fed’s EZ money policy. This will cause a bubble in vehicle prices caused by EZ financing similar to what we saw in the housing bubble. How many times do these games need to play out before the Fed realizes that doing the same thing over again and again and expecting different results is the definition of STUPID!?
Lee you sound like a sensible person. One day you will see that all the Fed speak is hot air. If you follow hard numbers like the Baltic Dry Index and the declining transport of goods in America you will get a truer picture of what is happening. The bear is still waiting in the bushes ready to pounce. Retail is down in general. Walmart is a good example of the fudging going on. A couple months ago all was negative for this stock and 2016 earnings was decidedly negative now bang out of nowhere things have changed and the stock climbs. Investors clutching at straws. The holy grail today is gold give it time.
This country does not address, besides not even identify the underlying issues at cause of the US economy now being in the toilet. Because of a few shallow liberal politicians as well as some greedy too, this going back before 1913 before WWI to date, people with so called superior wisdom, – with no foresight,- or we will worry about it tomorrow when it happens (which is now) denying the reasons why the – US use to be basically closed to be involved in global politics, – the lofty liberals and greedy have gone about $$$ undoing what the US was, the US PURPOSELY being basically a closed economy and CLOSED BOARDERS (to avoid today’s problems, actually being old existing problems) the liberals and greedy self serving have undone all that the foundering fathers had put together for the US to avoid these problems, that the US has today, none of these problems are knew, only thing new is the technology. THEN, prior to 1913, the US was independent of Europe and the ways of the world, to NOT be dragged down by the world, by not being a part of the world mess, to which now the US has contributed to that mess.. So when the US superior liberals decided to go global, they caused the exporting of the jobs by their anti business attitude and it has been an anti- labor attitude too, that labor is now experiencing not knowing why so and or denying why so. So now, simply, labor (general population) does not have the money to spend and thus businesses are hurting for business needing people to spend money, Now, labor or the general public do not have money to spend. Now US labor is competing with lower paid foreign labor, this to cause the continual lowering of US standard of living dramatically, this being the disappearing of the middle class gradually pushed into poverty, for the remaining middle class, while times are good for them they say it (poverty) will not happen to them. This all based in the government (politicians) not bringing for balance in the laws to bring balance between business and labor in the US 1945 to late 1970s. We the people have allowed self severing politicians and greedy people in labor and business to lead, who are too self focu$ed to consider HONESTLY the overall big picture to then sincerely attempt to do the right thing and bring balance. If the US continues in its current ways US is going down, if the US remains in global politics, and self serving.
Well that’s just one more pin to prick the myriad of debt baloons that are smothering us and our economy.. From the point of view of the debtor-car-owners if they can just hold out long enough,the dollar will become so worthless that the Bank’s equity will practically disappear, and it will become disadvantageous to hire the reclaiming of the cars. Will the debtor-owners become volunteer car-sitters? I could imagine worse happening, but the Banks if they become too big to fail might get bailed out by the government, then one can pay for their car through their taxes. Wow! What a thought! I better quit, the next one might strike me dead!
The dollar isn’t depreciating fast enough for this to happen on a 7 year loan. If there is a crash, they will reclaim the cars, and probably sell then to the government.
Just look back at the heavy duty truck market around 2000. At one point there were multiple 100 acre fields across the county housing used quipment turned in off lease. If they had placed them on the market, the used market would have had absolutely zero value. This creative financing took down The Associates finance company. The Associates were the oldest and largest equipment finance company in America. Not sure how much leverage the car finance business has, but it will not be walk in the park.
No Mike, I do not believe the Fed will pull the trigger to raise interest rates before the election. Please note that the recent Fed statement was conditioned to “ifs”; making it another Fed “set up”. No way on Obama’s watch between now and the election.
Just for information, my last car ran for 35 years, regularly serviced and driven carefully and not at maximum speed. It is still running in the hands of a collector. My present car is 9 years old and running quite happily, and I see no reason to change it.
Cars are expensive right now and carmakers are making money. People are buying expensive cars. Just look at the number of SUV’s on the road. There is excess production capacity. The manufacturers can afford to cut prices. When the recession comes, one of the big automakers might go out of business.
The last time there was a recession, Obama killed the used car market by buying up and scrapping most of the old cars. That probably won’t happen next time, or will it? Desperate times call for desperate measures.
Nothing that good fiscal policy couldn’t fix. Purchasing power should equate to earning power while interest rates should be the same for all. It is interesting that when lending rates were closely regulated that there were many lawsuits against banks for discriminatory lending. The rule of 78 is the most deceptive and predatory practice of all. Interest is paid before a penny of principal. The longer the length of the loan, the more principal is paid. Thus if every person defaulted on a car loan, the banks in all likelihood have received more in interest than the original loan. Once the vehicle is repossessed and sold at auction, the cycle starts over. Lower tier auto dealer financing and sub-prime rule of 78 generates more interest income for the bank. And the government says banks must make those loans even if the only income is from welfare or alimony. For the income earner, motor vehicles are a necessity to earn income and income is a necessity for taxes and taxes are a necessity for a bloated government so while a downturn is in the offing, a major collapse will only punish those in the middle.
Just lost my 1997 chev regular long bed pickup in accident my insurance company “totaled” it because of being 19 years old not for repairable for $2700.00. Pasted by a dealer and went just to look but could not find a regular long bed pickup but they had lots of extended and 4 door trucks. Most were 4 wheel drive. One catch my eye so looked closer nice truck until seen price ” $52,000.00 ” ! ! ! Would not pay that even if I had the cash. Been watching for regular pickups and have not seen many at all.
—- In the past fed had been buying treasury bonds doing the QE thing, well if 10 year bonds are going to mature soon is it not a law when bonds mature FED is required to sent cash to Treasury Department ?? Like 1 Trillion $ in cash bonds soon .
I agree, long bed regular cab pickups are hard to find. And when you do find one, they cost a lot more than they did when you bought that 1997. Good luck! The market has moved to the 1/2 ton crew cab short beds since the majority of buyers haul kids/family instead of long cargo.
My suggestion is… order one without: Blue Tooth, leather seats, cell phone antenna, electric mirrors, rug flooring, bucket seats and console, auto transmission, macho fancy rims, fat noisy tires, select an un painted bumper, no tint, no Bose stereo, no bed liner, no king ranch options, no leather steering wheel, manual wipers, no tinted windows, fore go the towing package, Manual heating controls and A/C controls, no off road packages. Then that alone might knock off about 20,000.oo in options where the dealer makes a big profit. Also, forget the diesel engine since new FORDs are aluminum junk. Or wait for the collapse of the auto industry when oil returns to 100 dollars a barrel. It will happen once the majority of FRACERs go bust…
As Pogo once said ” We have met the enemy and it is us”. We have allowed the tail to wag the dog for far too long . An uninformed electorate have voted in incompetent leaders who along with their power hungry cronies have formed a governing elite. This dangerous combination has given us just what we deserve for not being more attentive and involved in the process. The auto industry is a prime example. How much of the cost of a new car is due to the overbearing governmental regulations. We just bought a new car and paid 5x the amount that we paid for our first house. yeah , I know. Apples to oranges.
To much cheap money for to long (8 years) has created to much bad expansion. To many over salted politically determined projects will default.
We have a generation of artificially low rate educated/entitlement consumers. They think 4-7% rates on a car loan is ridiculously high. Seas will be rough when rates from financial markets hit an economic generation that doesn’t know…. what they don’t know.
I agree with every thing you said, black swans may be coming, inflation is already here, the price of everything has gone UP. I can remember the recession of 69, and 89, and 08, It’s pretty scary, but people again get to over confident and buy stuff they can’t afford. the smart buyer is buying gold, and silver, So Solly
Keep your eye on commodities. USCI bottomed recently and climbed above the 200 day line, after a long downturn. ‘Should pull back to confirm a bottom, then could take off. No guarantees, but worth a look. ‘Don’t know what that says about the general markets, but certainly interesting. China does seem to be buying again. Larry thinks China fears are overblown. He could be right, and the Fed could be right if they raise rates. It would mean they think things are improving. They can’t always be wrong, can they?
My observations from within the automotive industry:
1) These longer loan terms are pushing out buying cycles. (Yes, there is inflation in new car prices, which certainly is a big part of the problem.) So dealers and manufacturers are trying to prop up sales but with the longer buying cycles, negative equity is a big problem with long loan terms (it takes longer to get into an equity position), so customers trade less often, thus fewer car sales. That leads to my next point.
2) GM (and some others) are selling a significant number of new cars as rentals which then get sold to the dealers as CPO cars. This gooses new car manufacturing and gives customers a lower cost alternative to a new car.
3) Manufacturers and dealers like leasing because the customer will probably lease again at the end of the lease, typically 24 or 39 months (GM). So leasing is being pushed more.
4) “Data mining” is in as dealers dig into their customer data trying to scratch out a few more deals. Thus more effort to contact service customers and prior customers with offers of “we’ll buy your car” with the idea in mind the customer will buy something else to drive home in.
So auto sales are not as healthy as is reported in the MSM due to these means of trying to keep things going.
To have 0% for 60 and even 72 months still shouts recession (the one the 99% are still in). Just because the economy has been expanding the last 7 years does not mean it is really expanding very much or very well. The middle class has not recovered and they are the biggest group of new car buyers.
They like you to be upside down on the loan, they aren’t making extra money when you get the discount and pay it off completely. Plus it’s probably a write off when you go delinquent on pmt.
Plus the mark up in is incredible if they can offer you 20-30 off sticker price. Do you think the back room think tanks don’t have it all figured out, think again.
They also know the market for used cars is high, they want your car to flip it to someone else.
Tangible items sell and a vehicle is just a tangible item. If they thought they could sell the shirt off your back with the car they would ask for that to!
The bottom line is, the car companies are doing very well, why else could they afford to let thousands of new vehicles sit on lots nation wide?
I can’t wait for self driving cars and electric cars to arrive on the market, the great thing about cars is they save time. Time is money as the saying goes.
One thing I see about the auto problem…Median incomes are now where they were in 2001, yet new auto prices keep going up. And a large part of the increase is due to having government restrictions inflicted upon the manufacturers, and ultimately, the auto buyers.
These restrictions result in sunk costs in the autos, and they are the items that depreciate in value the quickest. New cars are now being fitted with sophisticated items like back-up cameras…yet when the attached screen cracks, it really shows the true value of the item: an absolute zero. This is something that would be considered an option in the real world, but you can bet it will soon be mandatory. At that point, it will need to be replaced, for several hundred dollars. Yet it adds no real value to the vehicle! And that’s just one extreme example.