Used Car Prices Soon Dropping Many Will Have Loans More Then Car Worth

[Dex]

Originally Posted by YungBoba

And it amazes me how many people "took advantage" of those various freezes and used the money that they would normally be spending on housing/debt repayment to buy things that they don't really need. Eventually the freezes will lift and things will become due. If I had the money to continue to pay even with a freeze, I would keep on paying it anyway rather than buying a car or new toys. The only other sensible option for those who have some semblance of financial savvy and don't mind a bit of risk is investing it.

It doesn't help that you can pretty much buy ANYTHING online with a payment plan. Want these shoes? "buy now with 4 easy payments". There are a lot of people exercising that option for benign **** and not paying attention to how many things they've purchased, just keep stacking the payments.

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[thill]

Originally Posted by Pre

And thill has a point of the new new ways of mfr's. They are indeed holding back supply, to a degree, to keep their profit per vehicle sold, higher. I don't think it will stay that way however. They are too greedy. Even with the discounts, deals, etc, they make more money compared to today where less units are sold. In the end, greed always wins with corporations. They'll revert at some point. It may be in the middle compared to days past, but it will not remain this way.

Very true car companies especially seem to change on a dime especially as leadership changes.

I remember shopping brand new Corvettes and Chevy SS sedans that were 28-30% under MSRP not that long ago and wondering why would you ever buy a used one because that means even these models will be worth 10-15% less the second yiu drive it off the lot***8230;. I'm not sure if we will see those discounts again but you never know.

[dwf137]

Originally Posted by VarmintCong

The $600 (and $1200 and $1400) checks were like 10% of the stimulus. There was also a freeze on rent payments, freeze on student loan payments (the latter is still active), thousands in child care payments, plus the trillions in stimulus that went into the stock market, bitcoin, real estate etc.

It'll crash hard if the stimulus ends. Biden just announced an extension of the student loan moratorium to May, so we'll see.

The child care payments get me man... they're basically just advance "payment" of a tax credit. People are getting these payments and thinking that it's just free money, yet they're all going to be scrambling when mr IRS comes looking for all that money back because they already figured their child care tax credits into their W4's... They're setting millions of people up to financial ruin in April... We started getting them and I was like WTF? No thank you - thankfully it's easy to stop the payments, but I can only imagine that people are spending that **** on things like car loans...

[White out]

.....

[AVANTI R5]

https://www.roadandtrack.com/car-cul...et-will-crash/

The Used Car Market Will Crash

If you have a spare car sitting in your driveway, consider selling it as soon as possible.

It’s quite likely that we’re currently experiencing the used vehicle market’s weirdest time ever. Carvana, CarMax, Vroom, Shift, and maybe a hundred dozen other companies are striving to commoditize used inventories and move shopping online. Meanwhile, new car production is down, dealer inventories of all sorts are negligible, and demand has been goosed by COVID stimulus payouts that make tidy down payments. High-mileage husks have moved from the remainder bins of the buy-here/pay-here margins over to the front lines of fancy factory-backed dealerships. Will the madness ever end?

Of course it will. When? And what will the crash look like?

A new report from the KPMG consulting firm strives to put the current insanity in context and predict how it will end. Or if it will end. And, one way or another, what the “new normal” may be. The report can be downloaded here.

None of this was expected. “Just as the chip shortage began to take hold, automotive demand took off,” the report explains. “As vaccines rolled out and the second round of government stimulus checks arrived in early 2021, consumer confidence—and finances—rebounded. Some consumers used stimulus checks for down payments on new cars. Others were attracted by low-interest rates on car loans.

“By mid-2021, millions of consumers, businesses, fleet owners, and other customers were back in the market. With new vehicles in short supply, dealers were able to get sticker price and higher for new cars. Amended window stickers for new vehicles often reflected ‘market adjustments,’ far above the MSRP on the Monroney label.”

With new cars in short supply and more expensive, used cars became more valuable and precious. Manheim’s used car auction prices, for instance, were up 44 percent in November 2021 compared to November 2020. And this month (December 2021) JD Power predicted that the average used car will sell for more than $30,000. That’s unprecedented, and precisely how markets work. But slowly, surely and predictably, new car production is ramping back up towards pre-pandemic levels. That’s going to impact used vehicle values.

The KPMG report lays out four scenarios for the near-term future of the used car market, all four variations of low supply, high supply, low demand and high demand. All lead, eventually, to the same place where equilibrium returns to the market between supply and demand. That too is the essence of markets.

Low supply and high demand scenarios see prices still rising up all through most of 2022 with equilibrium returning by late 2023. High supply and low demand scenarios have the market peaking in early 2022 and hitting equilibrium before the year is out. The KPMG report has recommendations for automakers, dealers, suppliers and lenders. After all, KPMG is in the business of advising businesses.

What consumers should do is less clear. But, hey, let’s see if R&T can give it a shot.

If there’s, say, a low mileage 2006 Toyota Tundra Double Cab in your driveway, it’s likely as valuable as it’s ever going to be. So if it’s a spare vehicle, now is the time to sell. If it’s needed, it will be tough to replace it. Hold it and sit tight.

If you need a vehicle to replace one that’s been wrecked or otherwise lost, the best strategy could be to seek out the cheapest viable machine and hold onto it for the next year or so. Think of it as a bridge, a way to keep your capital expenditure low before spending money on a new or barely-used vehicle later when prices aren’t so lunatic. Now is not the time to pay the $50,000-over-sticker prices dealers are asking for high-demand vehicles like the Ram 1500 TRX or Porsche 911 GT3. Actually, $50,000 over sticker for a GT3 could almost be considered a bargain in the current market.

The KPMG report includes this passage: “Consumers who financed vehicles at 30 to 40 percent over pre-shortage values and find themselves in financial straits could walk away from an underwater car loan, the way homeowners did in the housing crisis. While this is unlikely now—default rates have actually fallen—a scenario like ‘stagflation stall’ could raise loss exposure.”

Right now it’s a seller’s market. So if you can, sell. If you must buy, think about keeping expenditures low in anticipation of more favorable conditions in a few months. Used car prices could drop 40 percent by the end of 2023.

As always, the best advice is “don’t panic.”

[RODSCALIP5]

There are so many Civic Type R's for sale, I'm not sure if they are broken from being modded or the previous owner was so underwater from paying a Market Adjustment that when used car prices went up they unloaded their CTR's

[heavyD]

Originally Posted by RODSCALIP5

There are so many Civic Type R's for sale, I'm not sure if they are broken from being modded or the previous owner was so underwater from paying a Market Adjustment that when used car prices went up they unloaded their CTR's

CTR's have always been aplenty on the used market. A lot of people purchasing them thinking they are the holy grail but once the new car smell is gone many are disappointed by poor quality and FWD even in a great car like the Type R just isn't as fun as RWD or a good AWD setup.

[thill]

Originally Posted by AVANTI R5

https://www.roadandtrack.com/car-cul...et-will-crash/

This is why I don't see an immediate crash. They are talking about late 2023 before we really see new car production and demand being fully met. And here we are with another huge Covid variant that will likely continue to cause disruptions to the global supply change and manufacturing shutdowns/slowdowns. 2023 could easily push out to 2024 or even 2025 and by then many of these used vehicles will be ready for the crusher. I doubt we are done with the Covid variants, I am hearing 2024, but nobody knows.

So yeah if you have vehicles sitting around sell them but most people don't just have vehicles sitting around not being used and if you sell it now don't expect to find a bargain anytime soon. I feel the opposite. If you have a vehicle you like right now and it is under warranty or reliable/dependable (and especially paid off) keep it because new vehicle prices are crazy and getting crazier.

[VarmintCong]

Originally Posted by heavyD

CTR's have always been aplenty on the used market. A lot of people purchasing them thinking they are the holy grail but once the new car smell is gone many are disappointed by poor quality and FWD even in a great car like the Type R just isn't as fun as RWD or a good AWD setup.

I think it's more likely they can get the same or higher than what they paid, so when the new car thrill is gone, they try to sell it.

Doesn't matter what car it is, the excitement tends to wane after a year.

[carsebuco]

I mean I was supposed to buy a 10k car and realized it was overpriced and wasn't worth it. Spent 3k on a beater and put 7k into crypto instead. 10/10 best choice

[thill]

Originally Posted by VarmintCong

I think it's more likely they can get the same or higher than what they paid, so when the new car thrill is gone, they try to sell it.

Doesn't matter what car it is, the excitement tends to wane after a year.

It is definitely this too. People drove them for a few years and now can make more than they paid brand new (or break even). Seeing the same thing with Supra owners, I am sure this is happening with many vehicles right now.

CTR shines on the track. If you buy one and don't track or auto-x I just don't see the big draw to this car. I drove one a few times and there are definitely things I liked, but being FWD you are very limited on traction and I felt like the car was bogged down trying to launch it.

[arghx7]

The thing this is missing out on is monetary policy. The Fed is going to keep interest rates low relative to inflation. They're going to let the economy run hot. So if general inflation is 4-5% a year, twice what's normal, why would used cars "crash" by the time new car production increases in a year or two? They may flatten out in terms of growth, but you either have a big economic downturn or you have high general inflation for the next few years. The inflated $40k used F150 today, does that really become a $20k or $25k vehicle in two years with wages and prices rising so fast? The only way that happens is if high interest rates tank the economy. Guess what, 2022 is an election year. It's highly likely that the Fed chair has an implicit understanding that he can't raise rates too much, since he just got re appointed.

[Angelus911]

Yeah, I figured that 2022 would be more of the same for used car prices, which is why I bit the bullet and bought the car I wanted at a decent price. The price I paid was just a little more than at the start of the pandemic when prices were really low. The only way to increase used cars is to make new ones that eventually become used cars

[VarmintCong]

Originally Posted by thill

It is definitely this too. People drove them for a few years and now can make more than they paid brand new (or break even). Seeing the same thing with Supra owners, I am sure this is happening with many vehicles right now.

CTR shines on the track. If you buy one and don't track or auto-x I just don't see the big draw to this car. I drove one a few times and there are definitely things I liked, but being FWD you are very limited on traction and I felt like the car was bogged down trying to launch it.

Yeah I wouldn’t track it, but it is still a very practical car with a nice interior, incredible shifter and you’ll probably sell it for above MSRP. I’m not real excited about it though, much more excited about the GR Corolla if it doesn’t disappoint.

[VarmintCong]

Originally Posted by arghx7

The thing this is missing out on is monetary policy. The Fed is going to keep interest rates low relative to inflation. They're going to let the economy run hot. So if general inflation is 4-5% a year, twice what's normal, why would used cars "crash" by the time new car production increases in a year or two? They may flatten out in terms of growth, but you either have a big economic downturn or you have high general inflation for the next few years. The inflated $40k used F150 today, does that really become a $20k or $25k vehicle in two years with wages and prices rising so fast? The only way that happens is if high interest rates tank the economy. Guess what, 2022 is an election year. It's highly likely that the Fed chair has an implicit understanding that he can't raise rates too much, since he just got re appointed.

Well said, and exactly why high car prices are here to stay.

[godfather2112]

Originally Posted by arghx7

The thing this is missing out on is monetary policy. The Fed is going to keep interest rates low relative to inflation. They're going to let the economy run hot. So if general inflation is 4-5% a year, twice what's normal, why would used cars "crash" by the time new car production increases in a year or two? They may flatten out in terms of growth, but you either have a big economic downturn or you have high general inflation for the next few years. The inflated $40k used F150 today, does that really become a $20k or $25k vehicle in two years with wages and prices rising so fast? The only way that happens is if high interest rates tank the economy. Guess what, 2022 is an election year. It's highly likely that the Fed chair has an implicit understanding that he can't raise rates too much, since he just got re appointed.

Go look at interest rates over the last 10 years. Keeping rates low does not directly or indirectly relate to used vehicles staying high. Yes, income has risen. You know what else has? Housing / rents, food, etc. When used car prices correct, which they will just like every market, it will take place over a few years. Once new car supply returns to healthy levels, dealers are going to offer significantly less for trade in and buyers, once able to buy a new car off the lot at msrp, will see little value in buying used if the price delta is too close.

Suppliers of parts for vehicles, once manufacturing is back at capacity, will become competitive and offer lower prices which in turn, manufacturers will return to incentives and discounting again, driving down used prices.

Thinking a correction won’t happen in a depreciating asset class is kind of silly.

[arghx7]

The last 20 years had very little inflation above the normal 1.5 to 2.5% range except for when oil prices were high before the 2008 crash.

New cars aren't direct substitutes for used cars. Just like new houses aren't substitutes for existing home stock. Of course that's not a 100% black or white statement, there is some gray area, but it's a different market. Look at the average prices for a new passenger vehicle: mid 40s now. Average price for used vehicle: high 20s. Do you really think the automakers are going to flood the market with more affordable cars like GM made discounted Cobalts 15 years ago? No way. It will take years for natural new car depreciation to refresh the stock of 2-5 year old used cars.

A "correction" to the used market? Sure. I just think people people are getting their hopes up as to what that means. It doesn't mean car prices overall drop like housing prices did from the foreclosure crisis, unless there's a big time recession caused by high interest rates like in the early 1980s. There may be some segments that drop though.

It's like when my cousin's house was sold in 2017 with the intention to buy after the next bubble burst. 5 years later, it still hasn't burst, and if it does, would it really be better than just biting the bullet and buying.

[thill]

I have been hearing from "experts" that the used car market is going to drop any day now..

For like a year or longer.

It's supply and demand driven. The US population continues to increase and people continue to live/drive longer and then the whole supply chain/manufacturing/inflation mess.

Argh7x mentions an important point. New car prices. New car prices are rising far faster than average income. Consumer Reports just reported the average new car price is $46K. Almost $6 more than last year and about $16K more than just a few short years ago.

The used market is not going anywhere unless car dealers flood the market with sub $20K vehicles and I don't see that happening.

That's not to say there won't be some correction but I think we are talking years here and that is assuming in 2-3 years new car production is 100% back to normal and also assuming car manufacturers go back to the old model of having lots of inventory and big rebates. Ford and GM say they are not going back to that model again (to keep prices up) but time will tell.

[AVANTI R5]

Originally Posted by arghx7

The last 20 years had very little inflation above the normal 1.5 to 2.5% range except for when oil prices were high before the 2008 crash.

New cars aren't direct substitutes for used cars. Just like new houses aren't substitutes for existing home stock. Of course that's not a 100% black or white statement, there is some gray area, but it's a different market. Look at the average prices for a new passenger vehicle: mid 40s now. Average price for used vehicle: high 20s. Do you really think the automakers are going to flood the market with more affordable cars like GM made discounted Cobalts 15 years ago? No way. It will take years for natural new car depreciation to refresh the stock of 2-5 year old used cars.

A "correction" to the used market? Sure. I just think people people are getting their hopes up as to what that means. It doesn't mean car prices overall drop like housing prices did from the foreclosure crisis, unless there's a big time recession caused by high interest rates like in the early 1980s. There may be some segments that drop though.

It's like when my cousin's house was sold in 2017 with the intention to buy after the next bubble burst. 5 years later, it still hasn't burst, and if it does, would it really be better than just biting the bullet and buying.

This was good Article yesterday.
https://www.politico.com/news/magazi...reserve-526177

The Fed’s Doomsday Prophet Has a Dire Warning About Where We’re Headed

[VarmintCong]

Originally Posted by godfather2112

Thinking a correction won’t happen in a depreciating asset class is kind of silly.

The dollar is the faster depreciating asset.

[godfather2112]

Originally Posted by VarmintCong

The dollar is the faster depreciating asset.

Thanks captain obvious.

[JC]

Originally Posted by AVANTI R5

This was good Article yesterday.
https://www.politico.com/news/magazi...reserve-526177

The Fed’s Doomsday Prophet Has a Dire Warning About Where We’re Headed

Depends on your definition of good. Lol I will say supply chain shortages are still hammering heavy manufacturing right now and there is money looking for a home abound. Im sure it won’t be pretty when this all comes to a head. I’m not convinced that’s next year though.