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Started By
Message
Or... Used Car Prices to Drop Tremendously
Posted on 3/6/23 at 4:34 pm
Posted on 3/6/23 at 4:34 pm
LINK
To me, this is a sign that the real economic crunch everyone has been expecting is finally starting. When money gets so tight that it comes down to which bills to pay and which not to pay, car notes are often a front-runner in the "I'll catch it next month" category (the canary in the coal mine, if you will). This makes me think we are likely to see a jump in Unemployment for Feb when the numbers come out next week.
We're just starting to get into the changeover period from winter to summer blends of gasoline (which are more expensive), but oil has already been trending upward the entire year.
Rising fuel + rising food at the beginning of a serious economic downturn is not a good formula. This could get very messy over the rest of the year.
At least natural gas is back down to pre-COVID levels.
quote:
Car repossessions tumbled in the early days of the pandemic when the government sent $5 trillion in stimulus money to American homes and businesses. But they have progressively ticked higher as sky-high prices for used and new cars alike forced consumers to take out bigger loans.
In January, the percentage of auto borrowers who were at least 60 days late on their bills climbed 2% from December and 20.4% from a year ago, according to the latest data from Cox Automotive. The percentage of severe delinquencies surged to the highest level since 2006.
Although the high level of severe delinquencies has not led to equivalent growth in defaults, those are also on the rise: Loan defaults increased 6.2% over the course of January and were up 33.5% from a year ago.
To me, this is a sign that the real economic crunch everyone has been expecting is finally starting. When money gets so tight that it comes down to which bills to pay and which not to pay, car notes are often a front-runner in the "I'll catch it next month" category (the canary in the coal mine, if you will). This makes me think we are likely to see a jump in Unemployment for Feb when the numbers come out next week.
We're just starting to get into the changeover period from winter to summer blends of gasoline (which are more expensive), but oil has already been trending upward the entire year.
Rising fuel + rising food at the beginning of a serious economic downturn is not a good formula. This could get very messy over the rest of the year.
At least natural gas is back down to pre-COVID levels.
6
Posted on 3/6/23 at 4:45 pm to Bard
quote:
To me, this is a sign that the real economic crunch everyone has been expecting is finally starting.
Posted on 3/6/23 at 7:01 pm to thegreatboudini
While I agree this is going to happen, people stop paying credit cards and unsecured loans before cars.
Posted on 3/6/23 at 8:27 pm to bubbz
quote:
While I agree this is going to happen, people stop paying credit cards and unsecured loans before cars.
Consumers had saved quite a bit during COVID, but have not only run through a lot of that they've also quickly run up a historic amount of credit card debt.
Normally, I would agree with you but I can't think of any other reason within this economic environment as to why there would be such a rise in car loan defaults.
Posted on 3/6/23 at 8:45 pm to Bard
Self discipline is out of fashion…
Posted on 3/6/23 at 9:15 pm to Bard
quote:
At least natural gas is back down to pre-COVID levels
My bill isn't. It's fricking outrageous right now
Posted on 3/8/23 at 7:07 am to Bard
It's an interesting stat to look at, but I wonder how much weight you can put behind it because is it low income that overspent and have a ridiculous car payment relative to their salary?
It would be great if we could see the demographics behind the defaults. I saw an article the other day reporting that boomers are spending more and behind the robust consumer spending data we've seen in the last couple months. Meanwhile, younger generations are feeling the squeeze and have lowered their discretionary spending.
So we have 2021-2022 spending driven by younger generations and now boomers are taking over with their SS inflation adjustment coming into effect.
Where does this lead?
If boomers focus their spending on travel/leisure, that sector could prove resilient in any economic downturn. Then that leaves us with the obvious huge hit to consumer discretionary stocks from reduced spending by younger generations.
Maybe. Who knows. I'm leaning towards the labor market staying tight until something truly breaks in the economy. We'll wait and see if there is an uptick in zombie companies going bankrupt this year. I'm thinking the crypto space is the most likely to get blown up. Complete shitshow and crypto has never existed with higher interest rates.
It would be great if we could see the demographics behind the defaults. I saw an article the other day reporting that boomers are spending more and behind the robust consumer spending data we've seen in the last couple months. Meanwhile, younger generations are feeling the squeeze and have lowered their discretionary spending.
So we have 2021-2022 spending driven by younger generations and now boomers are taking over with their SS inflation adjustment coming into effect.
Where does this lead?
If boomers focus their spending on travel/leisure, that sector could prove resilient in any economic downturn. Then that leaves us with the obvious huge hit to consumer discretionary stocks from reduced spending by younger generations.
quote:
This makes me think we are likely to see a jump in Unemployment for Feb when the numbers come out next week.
Maybe. Who knows. I'm leaning towards the labor market staying tight until something truly breaks in the economy. We'll wait and see if there is an uptick in zombie companies going bankrupt this year. I'm thinking the crypto space is the most likely to get blown up. Complete shitshow and crypto has never existed with higher interest rates.
Posted on 3/8/23 at 7:26 am to Bard
I think it would be better for america to have Putin save us rather than what’s gonna happen where I get to bail out all the foreclosees
They’re gonna freeze car loans just like student loans
Cmon Putin we need you
They’re gonna freeze car loans just like student loans
Cmon Putin we need you
Posted on 3/8/23 at 7:34 am to Bard
Inventory already on the rise, once the repos hit in force lots will fill up pretty quick. Wholesale/auction lots are already packed.
I remember a call recently I heard where a kid (well, 19-20 year old in 2022) called in saying he worked for an Infiniti dealer last year and made just under $200k as a regular salesperson in 2022. Said commission on profit was crazy with all the markups on things they sold. Car salesmen can usually make roughly 25% commission on profit, if that profit for dealer is $4k they can be getting $1k per car which was pretty easy last year. Even things with bigger markups getting $6k-$8k of profit wasnt out of question which in turn is a $1500-$2000 commission check.
In normal times new car sales they dont make much on at all, sometimes almost nothing if you get the car at or below invoice.
Going to be a tough wake up call for dealers.
I remember a call recently I heard where a kid (well, 19-20 year old in 2022) called in saying he worked for an Infiniti dealer last year and made just under $200k as a regular salesperson in 2022. Said commission on profit was crazy with all the markups on things they sold. Car salesmen can usually make roughly 25% commission on profit, if that profit for dealer is $4k they can be getting $1k per car which was pretty easy last year. Even things with bigger markups getting $6k-$8k of profit wasnt out of question which in turn is a $1500-$2000 commission check.
In normal times new car sales they dont make much on at all, sometimes almost nothing if you get the car at or below invoice.
Going to be a tough wake up call for dealers.
This post was edited on 3/8/23 at 7:40 am
Posted on 3/8/23 at 8:06 am to thunderbird1100
quote:
Going to be a tough wake up call for dealers.
Good friend of mine is sales manager at a Lexus dealership. They have already had meetings with sales staff telling them the gravy train is about to come to an end (cars selling at or above MSRP) and to prepare to have significantly less income in rest of 2023 and 2024 and to plan accordingly for their personal finances and not keep spending like drunken sailors. He said most won't listen but they have tried to get the point across to staff to help them understand what is ahead.
This post was edited on 3/8/23 at 9:40 am
Posted on 3/8/23 at 8:17 am to ronricks
Let me know when I can get a F150 crewcab Lariat or XLT for 40k. Then I will think about buying.
Posted on 3/8/23 at 8:26 am to GREENHEAD22
quote:
Let me know when I can get a F150 crewcab Lariat or XLT for 40k.
I don't think they will ever get this low again.
Posted on 3/8/23 at 12:26 pm to boogiewoogie1978
quote:
I don't think they will ever get this low again.
Interesting comment. What does the board think a realistic drop in car prices is going to be? 20%? Is that an unrealistic number.
I'm in the sitting and waiting corner. Don't NEED a new vehicle, but will in the next couple of years. If prices get right, I'd get one, but not buying a $75k truck while I don't absolutely need it (wanting a newer Ram 2500 Laramie). If that truck drops down into the $50s somewhere, maybe/probably.
Posted on 3/8/23 at 1:01 pm to GREENHEAD22
quote:
Let me know when I can get a F150 crewcab Lariat or XLT for 40k. Then I will think about buying.
A 2023 XLT crew cab starts at $50k MSRP, you're never seeing anywhere close to $40k again.
Truecar says average transaction price recently for a no option Crew cab XLT 2WD is $48k right now. Over $2k off MSRP. I dont think you'll be seeing $10k off MSRP
Inflation has just driven prices way up. I bought a 2014 brand new Honda Accord Sport for $25k out the door (with tax) back in 2014 with an MSRP + destination of $25,305.
The MSRP on a new 2023 Accord EX (most equivalent trim today) is $30,705 now with destination. Not getting much if any off MSRP and with tax out the door price there would be around $33k.
That's a 32% real world increase in price over a 9 year period and some price hikes have been way worse than that for other vehicles.
1 interesting thing to note is the destination charge on my Accord was $790, today Honda charges $1,095 for destination, that alone is a nearly 40% increase just to get the car from manufacturer to dealer. There are a number of vehicles in the $1,800-$2,000 range now for destination charge being a large vehicle (Truck, large SUV). Honestly if I lived within a days drive of where they were produced I'd ask to pickup to avoid destination if I could
This post was edited on 3/8/23 at 1:13 pm
Posted on 3/8/23 at 2:07 pm to WhiskeyThrottle
I dont think car prices really "come down" more-so than they rate if increase just falls off.
As long as there is over 6% (rolls eyes) inflation, these prices are the prices.
As long as there is over 6% (rolls eyes) inflation, these prices are the prices.
This post was edited on 3/8/23 at 2:08 pm
Posted on 3/8/23 at 9:49 pm to JayDeerTay84
quote:
I dont think car prices really "come down" more-so than they rate if increase just falls off.
As long as there is over 6% (rolls eyes) inflation, these prices are the prices.
It won't matter when the market is flooded with all the repo inventory over the next year or so.
Posted on 3/8/23 at 11:16 pm to thunderbird1100
quote:
A 2023 XLT crew cab starts at $50k MSRP, you're never seeing anywhere close to $40k again.
https://www.5starford.com/inventory/f-150/
Posted on 3/9/23 at 5:22 pm to LSU2a
I will not be surprised at all to see 10-12k off of MSRP again. It use to be common place and when the recession finally gets here full swing you will see it again.
In a year from now interest rates will be 200 basis points higher than right now.
In a year from now interest rates will be 200 basis points higher than right now.
Posted on 3/9/23 at 8:48 pm to LSU2a
I own that exact truck, 2021 Model, bought in April of 2021 for 41k out the door. Just for reference.
Posted on 3/9/23 at 10:32 pm to JimMorrison
quote:
It's an interesting stat to look at, but I wonder how much weight you can put behind it because is it low income that overspent and have a ridiculous car payment relative to their salary?
It would be great if we could see the demographics behind the defaults.
The largest rise in delinquencies has been in the sub-prime market (and it's yuuuuge, whereas other delinquencies rose as well, but not nearly on such a scale), so that is likely the case. As long as interest rates and prices for necessities keep rising (or just remain high) enough to keep outpacing wage increases, I don't see a way for defaults of other loan types to not increase as well.
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