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Auto-Loan Bubble Endgame - Used-Car Prices Have Stalled

Tyler Durden's picture




 

As auto-loan volumes explode (and terms are extended), many of the post-cash-for-clunkers herd are rapidly coming to the realization that the loan they are carrying (and increasingly not paying) is on a wasting asset. As Goldman Sachs notes, The Manheim Index measured 124.5 in March, essentially used-car prices flat yoy after four consecutive months of solid increases. On a sequential basis, the index posted a 0.5% decline in March, following a 0.2% decline in February, confirming Goldman's expectations for a correction in residual values going forward, driven by rising inventory in the off-lease channel... and this pricing pressure is likely to spill over into new car prices.

 

Non-revolving (auto loans dominate this cohort) spiked...

 

Just as Used Car prices start to roll over again... (for the first time since the financial crisis, 4-year price changes - average term then - are now negative)

 

Worse yet, the most popular compact car prices are down 5.2% YoY and mid-size down 1.9% YoY.

As Goldman notes,

We attribute March’s sequential decline to rising supply coming to market from growing off-lease volumes.

 

However, if there is further deterioration from here – either from a rapid used supply increase or waning retail demand – we could see pricing pressure spill over into new vehicles through a rise in incentives.

* * *

And of course, the subprimest of subprime are the new normal FICO score winners.

 

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Wed, 04/08/2015 - 21:59 | 5973766 RafterManFMJ
RafterManFMJ's picture

Sweet! I've been preparing for 4 years; knew there'd be a fire sale eventually.

Wed, 04/08/2015 - 22:02 | 5973776 Oldwood
Oldwood's picture

Maserati in your future?

Wed, 04/08/2015 - 22:27 | 5973834 NoDecaf
NoDecaf's picture

I thought zerohedge and zerodown were the same thing. How do I apply for an auto loan on this site? I'm looking for a 72 month 0 apr.

Thu, 04/09/2015 - 00:12 | 5974163 ILLILLILLI
ILLILLILLI's picture

You have a zero-hedge so people can see your new zero-down car when it's parked in the driveway in front of your house...

Wed, 04/08/2015 - 23:06 | 5973954 blowing winter
blowing winter's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com

Wed, 04/08/2015 - 23:15 | 5973989 NoDecaf
NoDecaf's picture

Most people who sell their ass don't do it full time either...but hey $7k a month for winter blow jobs sounds like you're doing pretty good. You give free samples?

Thu, 04/09/2015 - 01:52 | 5974307 Sudden Debt
Sudden Debt's picture

They don’t call it samples where he’s from, they call it a free nibble

 

Thu, 04/09/2015 - 07:51 | 5974608 Lone_Star
Lone_Star's picture

One question.

Who up votes these work from home D-Bags?

Thu, 04/09/2015 - 10:49 | 5975211 Chuck Walla
Chuck Walla's picture

 My 22 y/o nephew just bought new from Ford with little down, open ended terms. He said his FICO is low 800's. Ergo, I should own the world if a kid's FICO is that great.

 

FORWARD SOVIET!

Wed, 04/08/2015 - 22:17 | 5973807 LetThemEatRand
LetThemEatRand's picture

Holy shit.  This is the worst decrease (from a percentage standpoint) since the day before two days after Lehman, adjusted for other days, and superimposing an unrelated chart.

Wed, 04/08/2015 - 22:32 | 5973846 Oldwood
Oldwood's picture

I don't know but it looks bad, really bad and as soon as I can find my finely tuned measuring instrument I will verify it to you and everyone here.

very bad

Wed, 04/08/2015 - 22:19 | 5973814 Obamamerica
Obamamerica's picture

Fire sale in Treasury Debt before too long. China's got 2T in fiat to dump

Thu, 04/09/2015 - 03:57 | 5974398 ebworthen
ebworthen's picture

True story:  girlfriend's Son had three cars reposessed, had to file bankruptcy on the last one less than 4 months ago.

This week he was approved for a $15K loan to buy a used car.  Winning!

Thu, 04/09/2015 - 04:38 | 5974430 HardAssets
HardAssets's picture

I know someone who has been in the auto loan business with various financial institutions for years. Everything from dealer inventory flooring by Bank of America to consumer auto loans through a local credit union. The formerly conservative outfit she's working for now is starting to go big into sub-prime car loans. Theyre looking for yield and will dump them on someone else, probably to bundle into a " financial product ".

When she explained this to me, it was presented as if it all was 'reasonable'. Given how conservative she's always been, as was her employer, - I figure this is a damned good sign that this country is screwed.

Wed, 04/08/2015 - 21:59 | 5973770 spinone
spinone's picture

Bullish

Wed, 04/08/2015 - 22:01 | 5973771 NoDebt
NoDebt's picture

Cash for clunkers was the ultimate exercise in Keynesian policy- destroy existing assets so you can build new ones and boost GDP.  And where did it end up?  More bubbles ripe for the bursting.

You know, that gives me an idea.  How about we burn down all the houses that are more than 25 years old so we can build new ones?  Now THAT would wake up the struggling housing market bigtime!

 

Wed, 04/08/2015 - 22:05 | 5973782 Oldwood
Oldwood's picture

Something they picked up from FDR, dumping milk, destroying crops to push costs higher in the belief that economic problems were caused by low prices...meanwhile people went hungry. More minimum wage, Keynesian claptrap.

Wed, 04/08/2015 - 22:25 | 5973828 LetThemEatRand
LetThemEatRand's picture

FDR was pandering to farmers (voters).  Like now, the poor didn't vote much back then.  Now farmers are large agri business.  See the CA water issue in which agri business now has to "record water usage," while the average guy gets to stop using water.  The politicians are still pandering, but no longer to voters and instead to those who will fund TV time.  Either way, it was never about incorrect beliefs.  FDR was a whore like the rest of them.

Wed, 04/08/2015 - 22:34 | 5973852 Oldwood
Oldwood's picture

There are whores who will sell their bodies and principles, but there are pimps that will sell everyone elses. We got a lot of pimps out there, even if it's hard out there for a pimp.

Wed, 04/08/2015 - 23:13 | 5973932 sun tzu
sun tzu's picture

The average dunsky uses thousands of gallons a year to keep his lawn green during a drought. There are hundreds of thousands of homes in the Inland Empire with green lawns. It's a freaking desert. The worst part is without a winter, they water all year long.

http://www.marketwatch.com/story/half-of-urban-californias-water-is-used...

Thu, 04/09/2015 - 00:09 | 5974155 OldPhart
OldPhart's picture

First thing I did when I bought my house was to remove all grass.  Next was to remove the watering system.  If the trees didn't survive then they didn't belong in the desert or they didn't put roots down deep enough.  Lost three, the rest haven't had a drop of water from anything but rain since 1998.  The front yard remains plain sand.  The backyard is split between local gravel and sand.  The aboveground pool lasted until it needed draining (at that point it was filled with poliwogs).  Having it blow out provided the trees with a water dump.

I grew up in the desert near here in a town of 2,000 people spread out over 250 square miles.  Most at that time had windmills pumping water into wooden or metal elevated tanks (actual school bus stop back then had 'fourth joshua tree from Midway Road' and 'in front of tipped over water tank on Rabbit Springs Road').  Some of the wells had been hand dug to extreme depths.  Kids here learned that you DID NOT waste water.  We used greywater to direct to trees and garden, and leach lines to put sewage water back into the ground.  Sinks and tubs went to the greywater lines.  Toilets to the leach lines.  Now, I'm nearing 60 and I still have those habits; hell, I don't even wash our vehicles unless the water gets recycled.

What gripes me is that the water company pleads with us to conserve water, which many of us have done in this town, only to see water rates go up because they aren't selling enough acre feet.

http://www.ora.ca.gov/apple-valley-ranchos.aspx

Thu, 04/09/2015 - 04:46 | 5974434 HardAssets
HardAssets's picture

Some think its about 'politics' and 'economics' -

but its really about robbery.

Robbery and the thrills that some sick freaks get from getting over on others, ordering them around, and hurting them

Wed, 04/08/2015 - 22:14 | 5973799 plane jain
plane jain's picture

Hell just tear down the ones that are decaying in place. Scrap and salvage that way, and a jobs programs to boot. 

Detroit is tearing them down quick as they can, actually may run out of money for the project. Right now they have funding through August.

http://www.freep.com/story/news/2015/02/26/detroit-blight-removal-money/...

Wed, 04/08/2015 - 22:18 | 5973813 NoDebt
NoDebt's picture

1600 Pennsylvania Avenue is decaying in place.  What if we started there?  We'll call it a "pilot program".  I bet it's wildly successful and the economy improves dramatically not long after.

 

Thu, 04/09/2015 - 06:59 | 5974555 Arnold
Arnold's picture

Hey, I'm still making payments on that pig, and as of the middle of the month , still current.

Wed, 04/08/2015 - 22:14 | 5973801 Obamamerica
Obamamerica's picture

Its easier to just pay a few million peeps $15/hr to dig holes 40 hours a week (with Obamacare of course) and then pay few other million peeps $15/hr to come behind them and fill up the aforementioned holes for 40 hours a week (again with Obamacare of course)

Wed, 04/08/2015 - 22:17 | 5973810 NoDebt
NoDebt's picture

But then we would miss the opportunity to blow another asset bubble.  You might want to think that through a little more.

Wed, 04/08/2015 - 22:59 | 5973933 sun tzu
sun tzu's picture

Pay people to work? HAHAHAHAHA

Thu, 04/09/2015 - 02:51 | 5974330 Hamsterfist
Hamsterfist's picture

.

Thu, 04/09/2015 - 02:27 | 5974331 Hamsterfist
Hamsterfist's picture

What is the exact difference between paying people to dig holes, and paying another people to fill holes; as compared to paying people to do neither?

Thu, 04/09/2015 - 06:39 | 5974530 de3de8
de3de8's picture

Just pay people

Thu, 04/09/2015 - 04:53 | 5974446 HardAssets
HardAssets's picture

Ahhhh . . . the ole' Broken Window Fallacy from economics.

I don't imagine they allow an explanation of that in most econ textbooks today.

Thu, 04/09/2015 - 04:54 | 5974449 HardAssets
HardAssets's picture

double post deleted

Wed, 04/08/2015 - 22:03 | 5973777 keremetski
keremetski's picture

what about used yachts?

Wed, 04/08/2015 - 22:07 | 5973790 NoDebt
NoDebt's picture

You know what they say.  A rising tide lifts all yachts.

Wed, 04/08/2015 - 22:05 | 5973780 FieldingMellish
FieldingMellish's picture

Taking a breather before the next leg up.

Wed, 04/08/2015 - 22:05 | 5973783 Oldwood
Oldwood's picture

BTFD?

Wed, 04/08/2015 - 22:19 | 5973818 Ness.
Ness.'s picture

The only 'Dips' left are these guys..

dip someone that is stupid or does something stupid; retarded, another way of saying retarded; short for dipshit
Wed, 04/08/2015 - 22:05 | 5973785 csmith
csmith's picture

Repo is laughably easy these days...shut it down remotely and go get it. Used car inventory is set to soar.

Wed, 04/08/2015 - 22:31 | 5973835 Bob
Bob's picture

That's right.  Digital is gonna send e'rybody back to the plantation by text messaging. Followed by loss-of-cell-service message. 

Been waiting for them used car prices to fall like a rock.  There's a price to pay for pulling future demand forward with C4C and free Fed money for financiers. 

Mobile homes are gonna go the same way.  A whole lotta things will.

Fire sale economy straight ahead. 

Wed, 04/08/2015 - 22:37 | 5973860 Oldwood
Oldwood's picture

I'm beginning to wonder. Everyone wants to believe everything will be cheap and our gold will be expensive, yet here we still wait as everything we really want seems further away than ever.

Thu, 04/09/2015 - 02:26 | 5974328 Hamsterfist
Hamsterfist's picture

Never forget.  Things are until they aren't.  Trends last until they end.  On a long enough timeline, everyone's survival rate is zero.

Wed, 04/08/2015 - 22:58 | 5973914 hairball48
hairball48's picture

I need a new (used) truck. Mine is 20 years old and  has over 250,000 miles on it. A crash in mobile home prices would also be really nice. I could "fix" my shelter cost and not worry about rent increases.

Yessir, shit is coming together for me.Hot diggity damn!!

Fuck the car dealers, banks and real estate fuckers...Bring on that collapse.!!

hairball :)

Wed, 04/08/2015 - 23:03 | 5973941 sun tzu
sun tzu's picture

The angry deadbeat takes a crowbar or brick and goes to town on the car. He says he doesn't know who did it. He was driving and the car stopped working. He got out to call for a ride. Some vandals must have done it. Lender takes the repo to a junkyard and gets $300 on a $50,000 loan.

Wed, 04/08/2015 - 22:18 | 5973809 Obamamerica
Obamamerica's picture

I feel stupid paying off all my debt. I should have gone completely the opposite direction, taken out a $400K 30 year mortgage, maxed out $50K in CC's, and taken out a 7 year loan on a Hummer....hey what can I say, I like expensive hookers

Wed, 04/08/2015 - 22:56 | 5973925 RafterManFMJ
RafterManFMJ's picture

All my classy whores wear merkins. Highly recommend; you haven't lived 'til you're jerkin' on her merkin.

Wed, 04/08/2015 - 22:18 | 5973812 Everyman
Everyman's picture

Don't forget that "Cash for Clunkers" program had made 690,000 transactions in 2009, and all told there is no longer that reduction in used car inventory.  Remember that those cars had to be destroyed.  NOW the used cars have replaced and have not been removed from the inventory.

So it is not ony the bubble in car loans, and with the C for C program there is a build up in used cars.  Normality with a bubble influence.

Wed, 04/08/2015 - 22:19 | 5973820 kowalli
kowalli's picture

goodnews

Wed, 04/08/2015 - 22:20 | 5973823 Obamamerica
Obamamerica's picture

The answer is obvious. We need Obamacars. The govt should pass a law requiring everyone to buy a new car or get a penalty. 

Wed, 04/08/2015 - 22:41 | 5973873 Oldwood
Oldwood's picture

Obama can get his brother in law, GM, to make a special Obamachoomerwagen like Hitler created the Volkswagen for the folks. If we only had German engineers rather than art school/gender studies majors to design them.

Wed, 04/08/2015 - 23:03 | 5973945 Bruce Krasting
Bruce Krasting's picture

I had to flip a car six months ago. I brought in an 08 Infiniti and had appraised. Went to 4 different dealers. They looked at my car and all said "11k". So I asked, why all the same price?

 

Seems this car is/was on a list. There is a bid on it from smart guys who bring the cars in containers to Eastern Europe/Russia. My car was worth 20k in Moscow.

 

I wonder if the SHTF in Russia is not slowing the demand for our older cars. I doubt car sales are booming in the Ukraine or Crimea either.

 

It's a global world, someone farts 4000 miles away, and it creates a stink here.

Thu, 04/09/2015 - 04:31 | 5974428 Jano
Jano's picture

As u say there is a global market.

Feel free to offer your car in Moscow for sale.

Thu, 04/09/2015 - 09:30 | 5974894 yellowsub
yellowsub's picture
I find it hard to believe, you know most if not all use a price guide service from Galves unless they specifically state tehy will give you KBB value.   If you ever looked into the guide, for the most part it doesn't matter what options and trim you have for the most part.  It has some exceptions but most usually are priced by the year model and condition as well. KBB and Edmunds pushes ads and services thorugh their site so it's more geared towards consumers and to make them feel better with the inflated price.  It's like how inflating home values makes the mood better of owners...  It really does matter to people on their worth. Anyway, you're better off selling to the unknowing public who wouldn't have access to the price guides.
Thu, 04/09/2015 - 00:56 | 5974255 buzzsaw99
buzzsaw99's picture

just pretend they are making the payments and it's problem solved. it worked for houses.

Thu, 04/09/2015 - 05:31 | 5974463 dogismycopilot
dogismycopilot's picture

I think this is a poorly written article. The person who wrote it doesn't know the car business.

Used cars are a commodity - just like used cooking oil, used clothes, etc. Prices go up and they go down. Manheim is the largest used car auction house in the US so their data is second to none. However, the used car market is very different from the new car market and I think the author misses that. New car market pricing is set by the manufacturer and their inputs (materials, labor, PENSIONS, marketing, etc.)

What does impact used car prices are supply....cash for clunkers dried up the supply (used car prices went up); 72 month loans will dry up supply as people find they are going to GET BURIED in their car they are so upside down (Negative Equity) on a used car with a 72 month note. Many people will duke it out IF interest rates rise OR if they can no longer qualify for finance (hard to imagine, but true), but some will "roll over" that negative equity into a new car loan once their warranty runs out. Also some will lose their cars and most repoed cars get "rolled" through Manheim. 

In short, the price drivers for used cars are many and this article doesn't cover any of them well. If this were a school paper it would be an F.

Thu, 04/09/2015 - 06:05 | 5974486 enloe creek
enloe creek's picture

Needed a 203-7 Infiniti coupe for my hard working son. Serched around a few weeks online and eBay. Noticed more than a few wholesale car sites bypassing the auction lots for eBay etc... They have not been able to find homes for a lot of 8-10 yr old cars. Loans for newer cars are affordable and these cars are 6-10000 so beyond normal used car cash buyers.  Nice deals for these cars now. A 5-6 yr old car for 30% of new or less

Thu, 04/09/2015 - 08:36 | 5974724 DirtyHowi
DirtyHowi's picture

car dealers do not sell cars, they sell car loans (which then get cutup and sold a AAA+++ tranches regardless of how shitty it really is).

 

you just get a depreciating asset to break down on you 2 months into the payments at the end.

 

think i'm joking? try paying cash at a dealer, they become nearly apoplectic.

Thu, 04/09/2015 - 11:27 | 5975326 scubapro
scubapro's picture

 

yes its kind of entertaining, and then when you reflect on what it means for the greater society, kind of makes you sick.  bought one yr old car and had about half to put down (and then 48 mos loan).    once price was settled on we go back to the office to do the paperwork, and the guy just starts offering rate info and the sales receipt is for full on financing.   we said no we have cash to put down, by the look on his face, he must have thought we were speaking swahili.    'oh, let me reprint this. how much down do you have?'.  he runs it again, and then we say, were not getting a loan here, already set up with the credit union. (almost 2% lower rate)   we must have fkd up his day, missed his loan bogey and he had to reprint yet again.

basically No One pays cash, or even money down...its all financialized.  no one has money essentailly.

Thu, 04/09/2015 - 11:36 | 5975358 A Cruel Accountant
A Cruel Accountant's picture

2001 toyota seinna minivan. 189k miles on it. Have not had a car payment in 8 years. Plan to keep to 300k or more.

 

Oh yeh and it is a chick magnet!

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