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The Downside Domino Effect Of The Auto "Recovery"'s Potemkin Village On Wheels
Authored by Eric Peters (h/t The Burning Platform),
When most people can’t afford to buy things outright, the cost of money – interest – becomes even more important than the cost of the things themselves.
For the past eight years, interest rates have been held down to 3 or 4 percent (or even less, in some cases) such that it costs almost nothing to borrow money. The private banking cartel that controls interest rates – the (ahem) “Federal” Reserve – did this to “stimulate” the economy – which is built on debt and people’s ability and willingness to assume it – after the cratering of Wall Street (and with it, everything else) back in ’08.
In particular, two areas of the economy: real estate and the car business. Both have “recovered” – somewhat – as a result of this. But it’s a shaky recovery, not based on underlying strength – which would be characterized by people’s increased ability to afford the things they’re buying. Instead, this is a “recovery” based on the fiction of affordability made possible via the Fed’s policy of effectively “free” loans.
In the case of the car business, longer loans have been the key to maintaining the facade of this Potemkin village on wheels.
By spreading out the payment over six or seven years as opposed to four or five (which was the usual not so very long ago) the cost of buying a new car has been made to seem more manageable. You pay less each month – even though you pay for more months.
But this dodge only works when the cost of the loan – interest – is low.
If it’s high, then the payment is going to be, too.
And with cars – unlike houses – there is a built-in limit to how far out the loan can be stretched as way to tamp down the month-to-month costs down. Eight or nine years is probably the absolute maximum, because cars – unlike houses – always decrease in value over time and because unlike houses, cars are fundamentally throw-aways. Probably 95 percent of all cars made during the 1980s are in junkyards now.
Axiom: The longer you own a car, the less it is worth The mileage goes up – the value goes down. A car’s value lies chiefly in its newness, which inevitably wanes no matter how little it’s driven or how well cared-for it may be (there are some exceptions, such as exotic and collectible cars; but these are just that – exceptions.)
Let’s run some numbers.
A car you purchased for $30,000 (the average priced paid last year for a new car) will cost you about $416 each month on a 72 month loan, assuming zero percent financing.
But what happens when you’re paying 6 percent interest on the $30k loan? Your payment swells to almost $500 a month. In addition to the $30,000 principle, you’re also paying another $5,797 in interest (see here for actual calculator).
Put another way, the $30,000 car is now a $35,797 car … plus taxes and tags.
In the past, the payments could be made more manageable by adding another year to the loan. Why can’t it be be done again? See that point above about the built-in time limit for car loans.
You can push a house loan out to 40 years (from the formerly usual 30) because the house stands a decent chance of at least maintaining most of its original value – and a good chance, despite the crappy economy, of appreciating in value. Because it is a durable asset, not a throw-away.
It is extremely rare for any car to retain even half its original value after as little as six or seven years from new. And cars almost never appreciate in value unless they are very rare, exotics or otherwise collectible. Your Camry is not going to be worth more than what you paid for it for ten years from now. You’ll be lucky if it’s still worth a third what you paid for it a decade from now.
And that’s why no lender’s going to push the payment schedule out much farther than the current outer limit of seven years (84 months). Because there is the risk – the probability – that the borrower will find himself owing more on the car than it’s worth long before it’s paid off. That he will be under water.
The temptation – an act of financial self-preservation – will be to cut bait and walk away. Just as so many people did from their homes during the real estate crash.
This is why – I believe – we are going to see a car industry crash as a result of the Fed’s decision to begin raising interest rates. Like one of those domino chain-reaction things you see sometimes at the shopping mall, once the first domino (the cost of money) is set in motion, the rest of them falling is just a matter of time.
Car prices are not going to go down.
As a guy who writes reviews about new cars – and so keeps track of what they cost – I will affirm to you that even when a new car is what they call in the business a carryover (i.e., exactly the same car as last year, just a new model year) the price is almost always at least a couple hundred bucks higher, due to inflation mostly. But even if the price of the car remained exactly the same – even if it went down a little – if interest rates go up significantly, the car is going to cost more.
Since no one has yet figured out a way to keeps cars from losing value the moment they are driven off the dealer’s lot, lenders aren’t going to go stupid and write loans for eight or nine years that put them in certain danger of being left holding the bag when the person decides to let them repo the damned thing rather than keep making payments on it.
You can perhaps see where this is going… .
When new car sales slow, the pressure to make more profit off each sale will increase. Which will drive costs higher.
Or, the car companies could do what Mitsubishi did (zero down, zero percent financing and no payments for a year!) and sell cars at a loss, just to keep the production lines moving. You remember what happened to Mitsubishi…?
It will be like the physical jerks of a corpse subjected to electrical shocks.
It moves, but it’s not really alive.
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Financing a car, or anything beyond its economic life, is only because of the theft of the future brought to you by ZIRP.
Most new cars are made of the poorest quality materials possible and are sold for large prices only because of the financing offered.
Repairs and maintenance costs will far exceed car payments in the latter half of this contrived financing.
Robbing future demand. Nothing can go wrong here.
Have you seen all the recall notices lately? Every week there's something new. Big fines declared by the gubmint, too. The auto industry is a dead dinosaur; it just doesn't know it yet. Tyranny eventually kills all good industry, even the ones full of unionized workers.
Buy a reliable used car, and keep a low profile. Avoiding the appearance of wealth will serve you well before 2016 is over. Plus, your excess cash can be invested in physical.
When Mitsubishi was doing the 1 year no payment, my ex-roommate took advantage of that and had a brand new car free for a year. Then he returned it, cashed out some credit cards (about $50K) and moved back to Europe.
He was one of very few that was able to take advantage of the system and screw the banksters :)
There's a lot near where I live that is FULL of unsold new cars. I haven't seen that since 2009. Unsold and unsaleable?
If anybody is curious and live in the LA area the lot is on Orangthorpe Ave where it crosses the 5 freeway in Buena Park.
Americans build only the most 'exceptional' cars:
Ford Recalls 450,000 More Cars Over Fuel Leak Issue (Nov 23, 2015)http://time.com/4124466/ford-recall-450000-fusion/
this nonsense has also made decent used cars a lot more expensive. Back in 08 I bought a 4 year old Z71 tahoe with about 65k on it for around 14k or so. Put half down and financed it for 2 years. Had it paid of for a long time and still driving it. A 4 year old tahoe or suburban fully loaded with that amount of miles is now around 25k if you are lucky. (I know, I know, I hate ven thinking about buying another Government Motors, but nissan, toyota, and honda don't really make a suburban equivilent, and that what I want). The cost of essentially the same used vehicle has almost doubled since 08.
So maybe this will be taken to its conclusion ... Car access sold as a monthly service, kind of like Microsoft Office became a service instead of a product. Then since you cant keep most jobs without daily transportation, government will have to subsidize it like education and health care, and it will cost a thousand dollars a month unless you're poor enough to qualify for an Obamacar or get it subsidized through your employer. As a bonus, the gov will get to control what vehicle most people drive too ... Googlecars that monitor you wherever you go and when for the masses, private Audis and Lexuses for the elite.
It is more likely that car ownership will become a luxury. Here in Europe, you can buy a membership in a company and you pay only for the time you use the car. When you are done with it, you park it in a designated place and leave it for the next guy. No parking, no insurance, no monthly payments. It is much more efficient. Most of the time cars are parked either in your garage, at your place of employment or at the mall or super market. When you add up all the monthly costs and divide by the actual number of hours per month you drive it, it is indeed a luxury.
We have similar plans over here: ZipCar and its competitors. They do well in dense metropolitan areas where one does not need a car every single day.
The ridesharing services like Uber and Lyft will probably leapfrog over ZipCar. Basically, the only reason to use ZipCar now is if one wants to visit many different locations in a short period of time or if one wants to haul stuff like a trunk full of groceries or goods.
In Phoenix there is a lot of new cars i see on the roads and dealerships are everywhere. Granted, you need a car in Phoenix to get around, but the addiction to cars is crazy. $50,000 car/truck. Average 20,000 miles at 40 mph. Without interest, insurance, tabs andmaintenance the vehicle cost $100/hr to operate.
Put that way, owning a motor vehicle is expensive. That's the price one pays for the freedom to go where one wants when one wants. Consider how expensive rifle ammo is for a contrast. A decent round (something bigger than a .223) may cost around $1. Shooting at 200 yards may result in a flight time of 1/4 second (based on a distance of 600 feet at 2500 fps velocity). That comes out - I hope my math is correct, so please do the math yourself - at around $1 for 1/14400 of an hour. Or $14400 per hour per round. I call that also the price of freedom.
If you want something that's "worth the price", watch over-the-air TV.
He was one of very few that was able to take advantage of the system and screw the banksters :)
These are the same kind of people who become snitches in a police state.
Do you have any documentation on that claim?
Amoral thuggery is not new.
See The Big Short.
No. Strictly conjecture. But I bet I'm right. I have seen snitches and I have seen cheats. They look to me to be cut from the same cloth.
Good catch on basic human nature there glee - you are 100% correct, despite the down-votes.
This is the 'Costco Superbowl' syndrome as I like to call it.
People who knowingly do this sort of thing are only Skrewing themselves in the long run, because despite their 'cleverness' they double-down on their character flaws every single time they do such acts, until ultimately they meet their fate - poverty or early 'retirement'...
He should have taken the car to Mexico and sold it
http://thesaker.is/russian-humor-for-december-27th-by-scott/
Aren't car loans full recourse? A person can only discharge the debt by filing bankruptcy.
It's a state- by - state thing. In Florida they take the car, sell it, bill you the balance, which you can safely ignore for a few months, then when they offer to settle for pennies on the dollar they take the deal. This will be off your credit report in two years or less, due to desperation of the industry to generate good lenders.
Those who finance their vehicles for eight or nine years will likely be living in those vehicles eight or nine years from now, so in many cases they could be considered short term home mortgages.
I flipped three used cars this year, and made money on all of them. I have a BMW convertible now, I'm into it for about $3300, and should make a profit.
If it wasn't for that, I'd be really financially screwed.
That's smart. I've driven everything from junk to cash purchased new BMW's, and I've really gotten to the point where I love reliable used cars at the flat ends of their depreciation curves. They won't "impress" anyone, but who gives a fuck?
The prices for so many new vehicles are LUDICROUS.
It's the new car taxes that get me. A high fee for the priviledge of buying and owning a new car.
Very smart. I havent borrowed for a car since 2002. Got to be at least seven or eight years old for us to consider a purchase.
I quite often joke that the next new car I'll be riding in will require me to lay flat;). Quite possibly not far from the truth.
Mmmmm. I was considering using the name "Anal Prober" but I never imagined it would be allowed. BTW, I'm just kidding.
I last borrowed for a new car in 1986. Now I'm driving a 20 year old Volvo 850R (very gangsta) and an older Subaru. They run like champs and get decent mileage.
A wise woman once told me: Only take loans for investments, never borrow money for an expense item...
I took her advice,,,
Spoctor Din
Since the car won't impress anyone it will probably be passed up by thieves as well. If I could just find another old Accord in mint condition....
Check the auto theft stats. The cars most stolen are in fact the least-flashy and more-reliable, like the Accord, etc. The reason? Tons of them are sold all over the world and when the whole batch gets old enough, there is a huge market for stolen parts because they are reliable enough to fix up and keep driving (rather than junk them).
Not just reliable, but repairable. It's amazing how different late 90s v. current cars are on repairability and parts costs.
So much easier for a mechanic (home, indpendent or dealer) to keep an older car on the road. I can only assume the autmakers are aware of the long term outlook and are building increasing hours of service time into their financials.
It is getting a lot more difficult to work on them. I had a 96 grand cherokee with the cast iron 4 L inline 6 that had almost 300 k on it when I got rid of it. It was supoer easy to work on, and those engines were bullet proof. I did literally stupid thing you could do to a vehicle(mostly involving offroading) in that thing and it just wouldn't quit. Cant even tell you how many time I drove it through water up over the hood(I was young...). But there was tons of room under the hood, and everything was uncomplicated.
I think a lot of the reasons why cars are getting so complicated is that they keep having to add more and more shit to the engines to squeeze a little more MPG out of them to comply with increasingly absurd govt mandated fuel economy averages. A small gas engine car like a honda civic(non hybrid) gets essentially the same MPGs as one from the 80s, which is ridiculous considering the advances in engine technology. The reason: they now weigh twice as much, due to the government enforced safety standards. My mom drove oneofthose in high school, and my dad and a few of his friends used to pick her car up and move it to weird places around campus as a prank. Try doing that with a new one. Eric Peters has actually written pretty extensively on this subject. And its not like the automakers really object, they love it: the governmnt mandates that people must now buy more shit from them.
While it is incontestable that it has gotten more difficult to work on cars over the decades, it is also true that modern engines typically require a lot less work. I had cars that needed new points, plugs, etc. every year, and now they go 100,000 miles before a tuneup is recommended. Similarly, engines have gotten much more efficient. Both my 1968 RoadRunner (383 cubic inches) and my recent Genesis (232 cubic inces) were rated at 335 HP. But guess which one got 15 MPG on the highway and which gets 30? The computerization of engine management has resulted in phenominal increases in performance while rendering them beyond the ken of most drivers. Personally, I'm glad for the changes. Once upon a time someone (me) wishing to go faster would build his own; nowadays, with 700 HP factory cars available, very few can match that number on their own.
Perhaps it was initiated by the proliferation of government mandates, but once manufacturers figured how to achieve better performance within those mandates (think of the 1980s for the nadir of performance) engines have only gotten better.
Used to do that but HARDER in Georgia now. State created a 5 year ad valorem payable up front. So when I buy a care from a guy, I pay 5 years of advalorem tax up front to the state for the new tag. When I sell it in 6 months after fixing it up, the new buyer must pay another 5 years up front for his new tag. INFURIATING. An older car may not run for 5 years. Oh and if you move into our state, get ready to pay 5 years up front on every vehicle you own.
Yeah, there's a 4 car limit here. I'm actually thinking I'm done, the biz model doesn't seem to be working as well. I turned down $4k, but am wondering if I should have taken it.
I'm working another fulltime job with lots of upside, and need to do more Uber driving.
Well fuck that state. Of course most other states will follow until they are out of business
You HAVE TO pay that 5 year advalorem up front now? I didn't know that. I left GA and moved to florida a few years ago, that must be relatively new.
The new GA law also requires sales tax to be paid on private sales. They did a slick sales job selling that new law, but then it was passed and people are feeling the fine print in their backsides (the dealers love it, of course).
Back in the 90's Florida also used to require new resident vehicle sales tax within one year of purchase. I'd leased a vehicle in GA, paying sales tax, then moved to FL, and they ALSO wanted ~$900 sales tax. Legalized theft...
All debt is illusion and the illusion of wealth through debt is deluded!
The agenda rolls on unabated......
http://beforeitsnews.com/conspiracy-theories/2015/12/as-events-spiral-ou...
All debt is illusion and the illusion of wealth through debt is deluded!
The agenda rolls on unabated......
It's not that debt is an illusion of wealth ... it's that so many are discovering they can get away with defaulting on it.
When you grasp the obvious, that debt is just an in-process promise to complete a trade, you see that we're wollering in broken promises ... not wealth illusions.
And how do you deal with broken promises? The same way you deal with escalating insurance claims. With insurance you raise premiums. With the MOE you increase interest collections. In short time, the bad risks and the deadbeat traders are driven from the marketplace in very natural fashion.
Right after the car loan collapse homes collapse. Ah the Amerikan Dream and then the divorce and the kids will be screwed up . What a great Society Amerikan Society has become. More fun on its way.
I am going thru a divorce now and its not fun. I am less stressed believe it or not. No bitch fuckin with me.
I am pretty sure the sarc tag got lost in the ether...
Just do what Japan does. Outlaw old cars. Or maybe a self destruct system?
I was in Japan recently and saw a lot of old cars
Japan's used cars arrive everyday on South Americas Pacific Coast (the ones with the steering wheel on the wrong side)
Great article, however I don't buy the premise at the end that prices are going to go UP.
Lots down here are already stacking up, It's so bad that a dealer down here literally had a buy one get one free sale on cars, so I see a price collapse coming and possibly a cash for clunkers II
Where are you, I need a buy one get one
South Florida. The dealer was Sutherland Nissan in Fort Meyers
Maybe he could move his dealership next to a chemical plant that would explode and blow up his over supply, like what happened in China.
Does the article tell us something we didn't already know? Also, the loans are securitized so the banks don't give a fuck on the value of the underlying asset.
Sadly for many cars serve a dual purpose. Housing and transportation.
Electric cars with aluminum bodies could probably last for 50 years or more. The battery packs must be replaced after a few years so electric cars are designed for doing that. And an electric motor is generally less expensive and easier to replace than an internal combustion engine.
So I think that electric cars blend well with the tendency to push the payment schedule as far out as possible, provided that the cars get aluminum bodies.
those giant tesla batteries run about 20k a pop, today. gutting a house and updating....now I have to gut my car and update it too?
Scubapro:
“those giant tesla batteries run about 20k a pop, today. gutting a house and updating....now I have to gut my car and update it too?”
My comments:
Tesla is a luxury car producer and I think that you can expect a little bit more expensive batteries from a low-volume producer than from mass producer like Ford or Nissan. I found this (Tesla) battery price information on Wikipedia:
“The battery is guaranteed for eight years or 125,000 miles (200,000 km in metric countries) for the base model with the 60 kWh battery pack. The 85 kWh battery pack is guaranteed for eight years and unlimited miles.[76]
A separate battery replacement guarantee takes effect after the eighth year at a cost of US$10,000 for the 60 kWh battery and US$12,000 for the 85 kWh battery.”
Even though I suspect that the batteries will become less expensive in the future I think that you can expect that the battery pack can last 10 years and that the cost for a new battery pack will be about $10,000. That means $1000 per year or 12.5 miles per USD. That´s a very competitive figure in Europe, but perhaps not in the US where gasoline and diesel is so inexpensive. The market for mass produced electric vehicles in the US would probably benefit from a tax hike for gasoline and diesel.
Another problem is the electric grid. In order to reduce the time for charging the batteries sufficiently you need stronger currents and higher voltage. With the American Three Phase 480 Volt standard you need 1071.43 A in order to be able to charge a 60 kWh battery in 7 minutes [480 x 1071.43 x (7/60) ~
60 000 Wh ~
60 kWh]. But the main fuse in a normal home should be about 20 A. Existing cables in the ground would burn with a 1000 A current. Even though I assume that few vehicle owners need a 7 minute charging time at home I guess that charging stations should be able to provide charging times below the 10 minute mark. And that takes an improved electric grid. Residential areas would probably also need a significantly improved electric grid if electric vehicles would become significantly more popular and more people would charge their vehicles simultaneously.
7 minutes to charge a battery pack in a Tesla? HAHAHAHAHA!!! It's obvious you're not familiar at all with the Li-Ion batteries they use and the extreme degredation done to them by fast charging. Tesla knows this, which is why they take so long to charge, which is why these cars as they stand today are mere toys for the rich and smug to drive on down to Trader Joe's pretending they are somehow "saving the environment." As for your comments on raising our fuel taxes so that we can be poorer and drive electric cars that force us to wait around for hours to charge? Yeah, stay in Sweden.
kbohip's:
“7 minutes to charge a battery pack in a Tesla? HAHAHAHAHA!!! It's obvious you're not familiar at all with the Li-Ion batteries they use and the extreme degredation done to them by fast charging. Tesla knows this, which is why they take so long to charge, which is why these cars as they stand today are mere toys for the rich and smug to drive on down to Trader Joe's pretending they are somehow "saving the environment." As for your comments on raising our fuel taxes so that we can be poorer and drive electric cars that force us to wait around for hours to charge? Yeah, stay in Sweden.”
My comments:
It seems as if Nissan says that fast charging once a day is OK:
“Using DC fast charging, the battery pack can be charged from fully discharged to 80% capacity in about 30 minutes.[93] Nissan developed its own 500-volt DC fast charger that went on sale in Japan for ¥1,470,000 (around US$16,800) in May 2010 and plans to install 200 at dealers in Japan.[94][95] Nissan warns that if fast charging is the primary way of recharging, then the normal and gradual battery capacity loss is about 10% more than regular 220-volt charging over a 10-year period.”
https://en.wikipedia.org/wiki/Nissan_Leaf
The 500 Volt option seems to be the 500 Volt/125 amp CHAdeMO standard, see
https://en.wikipedia.org/wiki/CHAdeMO
Losing 10 % of the battery capacity over 10 years is not so bad. That should make the CHAdeMO fast charging standard a viable option for the Nissan Leaf.
But if you raise the current to about 1000 amp I guess that you will get additional amounts of heat when charging that can increase the degradation of the battery pack. Charging stations and the electric vehicles should probably have devices that could absorb excessive heat inside the battery packs if you increase the current to about 1000 amp.
However, I´m not sure that people will need 1000 amp for the Nissan Leaf which has a 30 kWh lithium-ion battery rather than the 70 and 85 kWh options available for the Tesla Model S. 500 amp. will probably be enough to cut the charging time sufficiently for cars like the Nissan Leaf. With 500 amp and 500 Volt you will be able to recharge a 30 kWh battery from 0 to 100 % in 8 minutes and 20 seconds. Recharging from 20 % to 100 % will take 6 minutes and 40 seconds.
Perhaps fast recharging will be an easier problem to solve for light cars with smaller battery packs and less powerful motors which don´t need as strong currents as vehicles with larger battery packs.
It also seems as if electric vehicles is a better option for countries where commuturs travel shorter distances and the consumers prefer light vehicles that require smaller batteries. So the US is probably not the most suitable market for electric vehicles in the near future. Low gasoline and diesel prices in the US is another problem for electric vehicles. Densely populated areas like Japan, Britain and Continental Western Europe are probably the most suitable markets for electric vehicles. Sparsely populated, cold countries with long average commuter diatances where people are used to big vehicles are probably not perfect markets for electric vehicles in the near future.
A charger that has 500 volts output is still bound by Ohm's law. It either has limited amperage on the output or the lights are going to go out in Sweden.
Take a course in electricity- if you raise the Voltage, the amperage must drop. The energy from your plug-in is all you have. All the rest is magic or bullshit.
K
Kayman :
"A charger that has 500 volts output is still bound by Ohm's law. It either has limited amperage on the output or the lights are going to go out in Sweden.
Take a course in electricity- if you raise the Voltage, the amperage must drop. The energy from your plug-in is all you have. All the rest is magic or bullshit.
K"
My comments:
My impression is that you pretend not to understand what I´m saying above. Of course you can´t increase the current (amperage) if your fuses and hardware aren´t built for heavier currents. I´m talking about the need for a new standard that would allow more than the 125 amp in the CHAdeMO fast charging standard. You would probably also need a substantially upgraded charger if you increase the current just like you need thicker cables in the ground if you increase the current. Remember that I was talking about the need for an improved electric grid above.
(I have studied the science of electricity for about a month at a university and I passed the examination. So I got basic understanding in this field.)
People are always lured into buying what they can't aford today on credit, and the banks and auto companies figure out more ways to skim the spread or stay in business. The problem with QE and ZIRP is people also counted on being able to earn interest on their assets to retire; as people are now realizing they won't earn much if anything on their savings, and in most cases will be forced to spend principal until they have nothing left. This is why consumers are not spending as they would if there were a real recovery; they are saving because they realize the Central Banks will not allow them to earn interest. The Fed and the other Central Banks in their infinite wisdom have created an environment where people hoard their savings and don't consume. Let's look at a retiree in 2005 having 1,000,000 in lifetime savings able to earn 7% on their savings; they could have earned $70,000 per year and spent some of the principal and had a happy retirement even spending little principle each year. Now that same $1,000,000 earns $10,000 or less per year and the difference is made up by spending principle. People now fear they will outlive their savings if they have retired, and people saving for retirement realize with rates at close to zero they will have to save everything they earn and NOT consume.
People are always lured into buying what they can't aford today on credit, and the banks and auto companies figure out more ways to skim the spread or stay in business.
Inflation makes that a winning strategy in real estate. That's why they can't let inflation be zero ... which is where it obviously should be.
Eight or nine years is probably the absolute maximum, because cars – unlike houses – always decrease in value over time and because unlike houses, cars are fundamentally throw-aways.
The only real difference between houses and cars is that houses sit on land which doesn't depreciate ... in this case meaning it doesn't wear out. Other than that, houses just wear out a little slower than cars (which last much longer now than they used to).
The entire real estate industry depends on inflation for survival. Guarantee zero inflation and poof ... it all comes down like a house of cards because the leverage (small down payment controls large inflation appreciation) component no longer exists.
Land can be over priced. Look at any boomtown. Look at where the oil industry just was. That land is now worthless.
It's worth less, but not worthless.
That land is now worthless.
That's why I was careful to define depreciation as "wearing out" in this context. In a more strict sense, land does wear out. Ask any tobacco farmer. What I was calling attention to is a "major" destinction between a house and a car ... that being the land under the house.
A lot of houses are throw aways as well. Plenty of over priced shitty houses out there.
Who invented 30 year mortgages on "assets" made of perishable wood? They're not much more durable than a hut on the Serengeti.
The land on which they stand is pretty durable and unless you live in a Democrat controlled city or a boom town is usually an appreciating asset.
"You remember what happened to Mitsubishi…?"
Actually, no. What happened to Mitsubishi?
Last dealings anyone in my family had with them, they had a flying machine nicknamed the 'Zero.'
Ahh, the Zero.
The favorite flying machine of Roosevelt who wanted an excuse to get into WW2. Remember, the Zero couldn't have been so bad. If it was, Roosevelt would have been ready for them since he knew in advance that they were coming.
I could afford almost any car built, brand new and off the lot and yet I never buy new cars. I buy only certified pre-owned, 2 year old cars coming off lease, and then only for my wife and that's because I want her to drive a reliable car. Cars are basically a transportation method to me. My only considerations is the need for sometimes 4 wheel low, towing capabilities, enough room to haul full sheets of plywood and to occasionally take all 5 grandkids to a movie. Currently it's a 12 year old Trail Blazer. Beyond this you are attempting to make a statement about yourself, that I am rich, or I am sporty, or I am rugged. I care to keep these types of statements to myself. Driving a Bentley today paints a target on your back. Tap someone from behind in a Bentley at a stop light and watch the whole car load call for an ambulance. Pull into a Mall lot in an S-class Mercedes and see who garners the most attention from the purse snatchers.
I drive a beater with 200k miles and I love flying under the radar. Increasingly in a country of diminishing expectations I think that makes a whole lot of sense.
"I care to keep these types of statements to myself. "
And yet you make such a statement above about how wealthy you are. Mark. Milwaukee.
And you are exactly the sort of idiot that would be piling into the ambulance I described. Do you get the difference between a relatively anonymous post and driving it around for everyone to see? No. I suppose not.
Ah, new cars are far from reliable. Just go to the dealer and ger your routine maintenance done. And I am so proud you can afford any new car built. Who gives a shit. Anybody walking into a dealership can get a new car. Last new truck I bought was a dodge 2500 diesel when Bush allowed businesses to depreciate the vehicle in one year. Basically saved 30% on it. Paid it off in less than two years.
I keep using my friend's current predicament as a new car salesman at a Ford dealer as a metaphor for how bad things are in the industry.
Today we met to play some pool and drink a few. His phone rings, and it's someone from the dealership. Turns out a truck somebody had ordered will be coming in two weeks early, instead of after the first of the year.
This tells me that truck sales are way down. Sales of all types of vehicles at the Ford dealer are way down, YoY.
Edit:
Oh and he was telling me that most of what Ford sells is garbage. Maybe two or three decent models. Said that many come to the dealer with the wrong interiors, sometines a Ford will come through with seats from a Mercury model that was last sold 3 or 4 years ago. Mismatched stripes are common.
This consumer debt is voluntary. Government writing debt in our names is the problem.
I sure as HELL can't afford a NEW pickup: http://denver.craigslist.org/ctd/5364251111.html
Almost 70 G's.
Looked at your link. I could never quite believe someone would shell out more for a pick up truck than an E class Mercedes. It defies logic. A truck is to perform work. $70k is luxury territory. It's like wearing work boots with a tuxedo. What gives?
That's a pretty nicely outfitted truck. It isn't for work as much as comfort. Some people prefer to drive a truck and can afford it in luxury. There is no difference between a car and a truck when it comes to the owner preferring more comfort.
How could any agree to pay out an 8-year loan without an 8-year warranty on the car?
" A car’s value lies chiefly in its newness,"
Depends on what you call value.
I have a 1998 Buick Regal. Looks new,,, Runs new,,, even smells new inside. Been paid off for 15 years. Trade in / Book Value == $0- $500. In this case Eric is correct. When you live a debtors life this is the value that concerns you and that is the way they want you to think.
When you live a non debtor life values are different. In my case the car returns $6 - $7000 per year or $95 - 100,000 since paid off. How, you may ask. Well, a average payment for a car equipped like this Regal is $4 - $500 on a 4-5 year loan. Collision insurance would cost us approximately $150 per month This total of $550 - $600 goes into my pocket. Yes I pay for maintenance but I do my own until I can't. Taking your car to a dealer is one of the worst things you can do. Having oil changes at dealers or these scam 30 minute oil change businesses is another mistake. You have no idea what they are using for oil even though they appear to be pumping from a major oil drum. They just fill the drum with junk oil and use the cheapest filters on the market. I have paid about $5000 for all maintenance so I am still way ahead.
I have just purchased a new vehicle, paid cash. And yes, the dealer was basically telling me how stupid I was. Using the aforementioned numbers I am now pocketing $11-$1200 per month rather than paying a loan plus interest and insurance to keep the bankster who created the loan happy. That banker also "creates" the money from "thin air" to make the loan as a book entry which is the scam of the millennium.Didn't cost him a cent. If the bank becomes insolvent, they'll just do a Bail In and take your money anyhow (LOL)
So,,, value is in the eyes of the beholder. I prefer my earnings in my pocket, stay in my pocket. Keeps me warm at night.
Lenders won't be left holding anything but the money of the greater fools who purchased the asset backed securities generated from the auto loans. It reminds me of the housing bubble.
its already popping. used car lots 'wnat your car' so that the new car lot can finance you and get incentives from the manufacturer. that money will run out too.
but the first money to run out, shortly before the manufacturers is the financing. SC and CACC are two companies that deal in subprime and pure autoloan finanicing. in 2007 subprime locked up over a weekend in february. this very well may be the big pin....lock up financing for used and super supbprime and auto sales will instnatly drop by 30%. it wouldnt be one month before shifts are cut back dramatically with layoffs soon thereafter. Santander credit stock is already off 25%. I would think it should go poof. CACC actually holds and services loans, so their death will be mcuh slower, as people stop paying. both stocks are shortable and optionalbe. SC is only 16/share, but CACC is 200. at the epicenter of a crash, 90% declines is what one sees.
Seeing that I own a Toyota truck I had assumed the "want your car" thing was an effort to resupply ISIS now that Russia is dropping bombs on them.
Another point I think the article missed: Longer loans, while maintaining an above water value, is pushing future purchases even further out since the buyers will likely hold onto the about the same amount of time before trading in. The longer loan term means it will be that much longer until the buyers replace. All this a really low rates.
'Kaboom'
Over 40% of the cost to produce a new car is to meet government regulations. 40%. If .gov would stay out of it, and let the market (ie the people actually paying for it) decide what "safety features" they want on their cars, the cars would cost a lot less to produce, purchase, and maintain.
As usual, "regulations" are made by people that aren't paying for them.
Even used car prices are through the roof, because of cheap credit. A 3 year old truck with 50k miles on it is only about $5k asking price cheaper than a new one, and interest rates on a "used" car loan are higher than on new cars. I've been watching a few trucks on dealer's inventory for the last 3 months, and they haven't moved at all. So much for the Christmas sale prices. Test drove one the other day, they would not budge on the price. Told them to keep it.
I'm waiting until they are desperate enough to actually want to sell it.
The reason it's inflated is because people will just come and pay the asking price w/o haggle...
Welcome to the Grand Illusion in your band new motor car...https://www.youtube.com/watch?v=nO62scTZ7Qk
Sometimes I actually find myself feeling sorry for people who have to drive new cars. My good freind was recently complaining that his 2 year old, $50,000 Dodge Ram Cummins diesel flashed a warning message across the lcd screen telling him that if he didn't get the emissions system serviced within 200 miles the truck would enter a 5mph "limp home mode." It has a whopping 29k miles on it.
I have a 2002 Nissan Maxima with 153k miles that's never flashed a check engine light the entire 10 years I've now owned it. All repairs have been done by me and total under $1,000. I hear people talking about having to buy a new car that's dependable all the time and I have to laugh.
Likely low on urea, main reason will go into limp mode.
I bought a front ended 2001 " loaded" Subaru Legacy Wagon. As a former owner of an auto repair shop, I had and intuitive desire for the car I wanted. Paid $250 cash. 140,000 miles.
Belt jumped in the crash, and bent the valves. That bummed me out. I thought about it, no economic sense in a valve job. So... I made it a hobby project. Sourced all the parts on the net, pulled the heads and had them rebuilt. Replaced rollers, tensioners and timing belt. New hoses and belts. Maintenance tune up. Sourced body parts at salvage yards, some new.
Painted it in the garage. 4 new tires.
Total investment... About $2300, plus my time.
Runs like a top. Insurance next to nothing. 27 mpg. 175,000
Driving an older, saved car, and no payments, gives me a satisfaction that others get from driving a new car.
I switch between the F250 diesel (202,000, I can work on it) when loads need to carried, and the wagon when commuting to the job.
My vehicles do not define me. Well, on second thought....maybe they do.
Edit; if I came into "stupid money" , I'd go plunk down cash for a new ride, just to experience some of the new tech. But until then, best to stay away from the car stores. Worked at a dealership. People get really stupid when they sit in a new car.
That is crazy. Should only cost him $600 for the service.
We have three cars. Of course I drive the "beater", a 1998 Honda CR-V that I bought in 2000. I keep track of all maintenance costs on the three cars. The most I've paid in maintenance in a year's time is $760. On average, I've spent $309 a year on maintenance. Understand, I've gone through three timing belts during that time. You find a reliable mechanic who won't gouge you. No way I would ever buy a new car, and certainly would never lease a car. They are no different than horses in that regard.
That diesel engine requires DEF (Diesel Emission Fluid) to be added to a separate tank periodically (maintenance item). If it gets low then thanks to the Federal Emissions Law the vehicle is effectively disabled by operating in the reduced power mode.
Thanks EPA, hope you have it happen the next time you ride in an ambulance.
The recovery that never was and never will be. It's all downhill from here. Next stop is the discovery of the D-word by the MSM. Good luck to all.
Automobiles are an "expense item" no matter how you look at it. When they get too expensive people will see an alternate method of transportation. For most it is necessary.
How much is a person on kidney dialysis willing to pay for electricity?
Need that.
The best used vehicle you can buy is a 1996-1999 Suburban, Tahoe, Yukon. Solid, powerful, reliable once the normal GM parts have been replaced, and they are about the cheapest parts out there. Autozone lifetime warranty parts. This is a vehicle for people who can wrench on their car themselves.
Pick one up for $3000, put about $500 to $1000 a year into it, drive it to 300,000 easily. A rebuilt engine is $1500, a tranny is $750.
The best thing about them is they were designed and made before gas got expensive, so there was always a little more metal in the parts than later on when gas hit $4. Nobody cared about MPG back in 1997 with $1 gas.
Sure, they only get 15 mpg, but since your insurance, maintenance, and tags are pennies, you can afford the gas. GM built somewhere around 3 million of these things in the '90s so they'll be available for decades. Find a nice rust-free one in Texas or Arizona.
Anecdotal data point:
I have many diverse businesses, some of them involve a lot of materials and equipment, eg fruit & vegetable & seed farm, customizing boats & RVs, specialized renovation & construction, etc, and these businesses need cargo-carrying vehicles, eg heavy-duty pickup trucks towing cargo trailers and large cargo vans.
Last year I surveyed the market with the intent of upgrading and expanding my fleet, chose Ford for F350 pickups and Transit cargo vans. I predicted that the vehicle market might be peaking soon and that if I was correct, the manufacturers would start implementing promotions to keep sales up, so I decided to wait till this year to see if my prediction would profit.
I hit the bullseye - I am getting more than $5K discount per vehicle due to promotions offered by Ford for end-of-year purchases.
Timing is one of the most important factors in earning and losing money.
We own a Toyota and a Lexus, both of which are about 11-12 years old; they're doing fine. We've had a couple high repair bills when the big things go wrong (as expected), and I'll be glad to repair them for as long as they run. Both are safe and reliable and will last another 10 years if cared for properly. Vehicles today are cheaply made and way too expensive. I'm surprised the auto industry continues to thrive as it does. I understand long-term loans have helped, and so has the inclination of younger generation buyers to walk away from payments without guilt. Still, how much longer can it go on?
92 Lexus, 248k, rides like its on rails, hums like a top.
98 Durango, 198k, runs smoothly, starts reliably, pulls with strength, but it has been skipping second gear for the last 40k miles.
Both of these cars cost less than $1,000 to maintain and register. No collision or comprehensive insurance required.
Oh, and I have concluded that second gear is highly overrated.
Time for another cash 4 clunkers .......
I'll tell you the top is in, most definitely. My sister has no job, was T-boned by a woman on her cell phone in an SUV. Her 2011 Corrolla got totaled. Got $7500 from the insurance to start with, then went into a VW stealership, and walked out with a brand new turbo VW Jetta ($24k and change). The dealership told her to make the 1st 3 payments....mind you she has no job, no income, and her husband did not co-sign for it (he was at work). Interest rate was 5.9% at $7500 down.
They literally will do anything to get you into a car nowadays.
With 30% down, even if your sister doesn't make payments for two years, VW Credit is still ahead. And they will have reposessed the vehicle long before then, meaning your sister will be out of the car and her $7500. Dealer definitely wins in this case.