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Old 04-19-2020, 07:34 AM   #1
AVANTI R5
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Default Fear of an Impending Car-Price Collapse Grips Auto Industry







Quote:
Bloomberg) -- The auto industry -- already fretting lengthy factory shutdowns and depressed new-vehicle demand -- is starting to sound the alarm about a potential used-car price collapse that could have far-reaching consequences for manufacturers, lenders and rental companies.

Used-vehicle auctions are for now virtually paralyzed, much like the rest of the economy. The grave concern market watchers have is that vehicles already are starting to pile up at places where buyers and sellers make and take bids on cars and trucks -- and that this imbalance will last for months.

If that fear is realized and prices plummet, it will be detrimental to automakers and their in-house lending units, which likely will have to write down the value of lease contracts that had assumed vehicles would retain greater value. Rental-car companies also will get less money from selling down their fleet of vehicles, which are sitting idle amid a global pandemic that’s been catastrophic for travel.

“Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market,” Dale Pollak, an executive vice president of Cox Automotive, which owns North America’s largest auto-auction company, wrote in an open letter to auto dealers last week. “Cars are coming in, but they aren’t selling. Today’s huge supply of wholesale inventory suggests supplies will be even larger in the months ahead.”

Lease Extensions

Automakers are doing what they can to limit the damage. General Motors Co. and Ford Motor Co.’s finance units already are offering customers one-month lease extensions. In addition to relieving pressure on consumers wary of going into showrooms, this will delay some of the influx of off-lease vehicles headed to auctions that are for now operating only virtually.

But these measures are unlikely to go nearly far enough to address the asymmetry between the supply of used vehicles and demand that is unlikely to rebound anytime soon given that almost 17 million Americans sought jobless benefits in just the last three weeks.

There aren’t a lot of people in gloves and masks running out to buy cars,” said Maryann Keller, a former Wall Street analyst who’s now an auto-industry consultant in Stamford, Connecticut. “Auctions are mostly shut down and they’re filled with cars that have no buyers.”

Residual Risk

Used-car sales fell 64% in the last week of March, according to Manheim. The Cox Automotive-owned auction company estimates that prices have fallen about 10% in recent weeks, though that figure is based on unusually low volume at auctions.

If that level of decline lasts or worsens, it could have huge implications for GM, whose General Motors Financial unit had $30.4 billion worth of vehicles leased to customers at the end of last year. If GM Financial needs to boost its estimate of how much those vehicles are going to depreciate in value, each percentage point increase raises the firm’s expenses by $304 million, according to a regulatory filing.

GM assumed a 4% decline in residual values this year. If the 10% drop Manheim has seen recently persists, depreciation expense could counter the $1.9 billion that GM Financial earned in pretax profit last year, said Joel Levington, a credit analyst with Bloomberg Intelligence. Ford Motor Credit faces similar risk, he said.

Ford said Monday it’s considering additional actions to raise cash after reporting a preliminary $600 million first-quarter loss. One option could be for Ford Credit to take advantage of thawing in the asset-backed securities market, Levington said in a report.

Read more: Ford’s finance arm generates more profit than ever before

Rental-car companies that appealed to the Treasury Department and Federal Reserve as a group last month for loans, tax breaks and other forms of support await a similar fate. Hertz Global Holdings Inc., Avis Budget Group Inc. and Enterprise Holdings Inc. all are trying to find ways to unload some cars without taking too big of a hit, said Keller, a former Dollar Thrifty Automotive Group Inc. board member.

If Avis and Hertz have to sell cars at lower values, it will add to the costs of maintaining their fleets. A big drop in residual values comes straight out of the bottom line and can create liquidity problems, said Hamzah Mazari, a Jefferies analyst.

For Hertz and Avis, every 1% increase in fleet costs saps about $20 million from earnings before interest, taxes, depreciation and amortization, Mazari said.

Motivated Sellers

Hertz hasn’t cleared out as many cars so far as Avis has, meaning it’s holding more vehicles with few customers to whom it can rent them.

But rental companies that sold aggressively in late March as Covid-19 was spreading did so at a cost, said Jonathan Smoke, Cox Automotive’s chief economist.

“Rental companies are motivated sellers,” Smoke said. “They moved cars quickly but saw the impact on price.”

Dealers also are looking to tap the used-car inventory sitting on their lots into whatever money they can muster. One of Manheim’s biggest tasks now, Cox Automotive’s Pollak wrote in his letter last week, is finding places to park the stream of vehicles headed for auctions.

“It’s critical for dealers to recognize what may be an unpleasant truth,” Pollak said. “It might take all the cash you can gather to sustain your business today and put it in a position to be viable when the market comes back.”

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Old 04-19-2020, 08:03 AM   #2
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Cars, and especially trucks, are astronomically priced and they should correct. $60,000 for a Jeep? It’s insane.
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Old 04-19-2020, 08:30 AM   #3
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Originally Posted by JP Chestnut View Post
Cars, and especially trucks, are astronomically priced and they should correct. $60,000 for a Jeep? It’s insane.
Agreed, especially about trucks. Jeep seems to be the worst offender. We paid 28K for our 2 door JK Rubicon back in 2011. Both my wife & I love the Gladiator, but there's no way in hell I'm going to spend 60K on one. Gimme a break. I suspect we'll see the market flooded with once expensive trucks that people can no longer afford.
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Old 04-19-2020, 10:43 AM   #4
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We are supposed to care about rental car companies and their lack of savings? All these companies running to the government for handouts. It’s been a month. I’m definitely keeping notes. A lot of companies I’m never going to do business with again.
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Old 04-19-2020, 12:37 PM   #5
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Used car prices have been heavily inflated in this country for WAY too long... Cars selling for $5000 here go for like $500 in most of the rest of the world.
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Old 04-19-2020, 12:45 PM   #6
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Good. Maybe the gypsies/car-flippers can eat ****.
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Old 04-19-2020, 01:06 PM   #7
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Good. Maybe the gypsies/car-flippers can eat ****.
Facebook Market place has already corrected +$1200 on everything that has seats and a steering wheel in the last week.
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Old 04-19-2020, 01:59 PM   #8
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This is just the beginning.

Millions of unemployed people will have an impact... The auto industry is just a blip compared to the rest of the toll this will take.

It's time to lock the boomers up at home and let the rest of the country show what they're made of.
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Old 04-20-2020, 10:36 AM   #9
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This is just the beginning.

Millions of unemployed people will have an impact... The auto industry is just a blip compared to the rest of the toll this will take.

It's time to lock the boomers up at home and let the rest of the country show what they're made of.
Just talked to my ER DR neighbor and he said the group with the most admissions was obesity related. Go figure.

Peter
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Old 04-20-2020, 11:45 AM   #10
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I'm not sad to see price corrections in the market. You can't sustain what we were seeing forever without people getting pay raises to match. I'm also not sad to see businesses that completely lacked a BCDR plan having issues (the ones big enough to really have one like...ford, chevy, hertz, avis, etc).

Maybe instead of lining the CEO and BOD pockets with metric **** tons of money companies should pay them reasonable salaries, invest in their workforce, and bring general costs back in line for production. I know it's easier said than done and I'm totally arm chairing this, but damn, it really doesn't seem that hard to figure out.
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Old 04-21-2020, 06:44 AM   #11
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Originally Posted by JP Chestnut View Post
Cars, and especially trucks, are astronomically priced and they should correct. $60,000 for a Jeep? It’s insane.
Yes, I read articles people do not have 500 dollars (cash) for an emergency repair I look around at the light their all in German High End cars or top line suv trucks. I’m talking about coal country North East TaxUvania. Anyway, Talking about 60K Jeeps, check this out..


J
Quote:



Its Six Figure Asking Price Is More Than Double The Original MSRP

The Jeep Gladiator has entered the midsize truck space with a mixed take rate. Despite worthy work truck capabilities, the Gladiator hasn’t seen the kind of take rate on the low end compared its mass appeal rivals from Ford, Chevrolet, and Toyota. This has led to cash on the hood of entry-level trim levels already. That said, when you look at the 2020 Gladiator Rubicon, it’s a different story. The off-road lifestyle-oriented pickup truck is loaded to the brim with 4×4 kit, commands an MSRP of over $43,000 before options, and continues to be allergic to the discounts that the rest of the Gladiator stable currently observes. In fact, they’re subject to price gouging.

In short – one could make the argument that the Jeep Gladiator may have aimed a little below the target. More evidence of this is how quickly the aftermarket moved to extract the Pentastar V6 it comes with, and shoehorn in something with more strength and snarl: a Hemi V8.


Dodge 392 Hemi V8

Take this Hemi-swapped Jeep Gladiator Rubicon, for example. It’s for sale by La Porte Chrysler Dodge Jeep Ram, and as it turns out, the dealership has its own in-house tuning division, dubbed Magnuson Performance. The name apparently comes from dealership’s founder, and not to be confused with the aftermarket company of the same name that makes superchargers. Anyway, the dealership routinely swaps the factory engines of the Jeep Wrangler and Gladiator with the 5.7L Eagle Hemi, 6.4L Apache 392 Hemi, the Hellcat supercharged V8, and even the 840 horsepower Demon V8. And they’re not exactly what you’d consider to be cheap.

While not possessing a Demon engine, this Jeep Gladiator listed features a 6.4L Apache 392 Hemi V8. A service that starts at $34,995. Throw in some aftermarket wheels and tires, some eight-lug DANA 60 Axles, and likely some unspecified kit, and you’ve got a Jeep Gladiator that will make all of the other off-road pickup trucks blush. Yes, even you, Ford F-150 Raptor. Then again, for what this thing costs, one could own two Raptors.

This truck is listed for a whopping $129,995, which is more than double the MSRP of the Jeep Gladiator before it went under the knife. According to the window sticker, this one in particular came in at a well-optioned $54,840, before modifications. Is another $75,000 worth it to earn the respect of the local Scat Pack crew? That’s a decision you have to make yourself.

I know it’s not really Stock, but that’s still a lot for a Gladiator, touches subject
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Old 04-21-2020, 08:23 AM   #12
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Will MSRP on vehicles actually correct though?
I don’t think it will. It never did during 2008. It just kept trucking up while the economy imploded. Never skipped a beat.
Will this be any different? Will an STI MSRP suddenly be $3K lower, all else equal?
Will a Honda Civic MSRP be $2,500 low all else being equal?
Will a Porsche Turbo S @$220K MSRP suddenly drop to $190K?
I highly doubt it. I’ve never seen this happen, ever. Many in product marketing would say that’s a good way to devalue your product and screw past buyers.

Prices have gotten beyond stupid, along with 6-7-8yr car loans, but I don’t see it changing. I hope I’m wrong.
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Old 04-21-2020, 11:10 AM   #13
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"Good way to devalue your product and screw past buyers" I suppose they could keep prices the same and just languish in sales instead. Either way, they're going to lose a ton of money. If this goes on long enough, no one is going to have the disposable income to even entertain the idea of buying a car at today's prices. If the current OEMs don't reduce price to fill the needs of a much poorer world, someone else will step in and do it.
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Old 04-21-2020, 11:24 AM   #14
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Waiting for the existing manu's to create a new sub-brand (or resurrect an old brand) to be the bargain basement only type vehicles; stripped of unnecessary tech and more expensive options or trims; the return of "the peoples car" in a way.

The only problem is that it would potentially cannibalize their own sales. Imagine a corolla or civic, devoid of electronic nannies that aren't required by law. Cloth seats in one color, less expensive interior materials, less sound deadening and care given to NVH. One powertrain option, one drive configuration option, limited color options, one wheel & tire combo, no packages etc.; it's just a car that rolls off the line, the only difference being one of a select few colors.

I honestly wonder how much fat can they cut from the margins on those cars, and how much tech/nannies/safety can they remove while maintaining legality, crash worthiness and profitability. If they re-purpose a chassis crash worthiness doesn't get reduced, but then it leaves the other stuff to contend with.

Wait, it's a Nissan, you get a Nissan...
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Old 04-21-2020, 11:34 AM   #15
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*Looks at Mazda promo for 60 months 0%... God damn, that RF is looking tempting.
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Old 04-21-2020, 12:07 PM   #16
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Quote:
Originally Posted by JP Chestnut View Post
Cars, and especially trucks, are astronomically priced and they should correct. $60,000 for a Jeep? It’s insane.
They've been charging as much as the market could sustain, unsurpsingly, I guess.

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Originally Posted by Sid03SVT View Post
Waiting for the existing manu's to create a new sub-brand (or resurrect an old brand) to be the bargain basement only type vehicles; stripped of unnecessary tech and more expensive options or trims; the return of "the peoples car" in a way.

The only problem is that it would potentially cannibalize their own sales. Imagine a corolla or civic, devoid of electronic nannies that aren't required by law. Cloth seats in one color, less expensive interior materials, less sound deadening and care given to NVH. One powertrain option, one drive configuration option, limited color options, one wheel & tire combo, no packages etc.; it's just a car that rolls off the line, the only difference being one of a select few colors.

I honestly wonder how much fat can they cut from the margins on those cars, and how much tech/nannies/safety can they remove while maintaining legality, crash worthiness and profitability. If they re-purpose a chassis crash worthiness doesn't get reduced, but then it leaves the other stuff to contend with.

Wait, it's a Nissan, you get a Nissan...
Bingo. As an American living abroad, I can tell you that all these companies make much cheaper and smaller models that aren't sold in the US because Americans want the biggest, highest seating capacity, highest towing, most rear legroom, most tech feature-packed vehicles possible, so the market reflects that. And Americans aren't generally aware of it since all that matters is cost in their home country, but cars are still dirt cheap in the US compared to a lot of the world.
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Old 04-21-2020, 01:07 PM   #17
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*Looks at Mazda promo for 60 months 0%... God damn, that RF is looking tempting.
Worth it. Loved mine. Would totally have one if I could park it for free.
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Old 04-21-2020, 02:00 PM   #18
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It's time to lock the boomers up at home and let the rest of the country show what they're made of.
Butter, extra soft butter.
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Old 04-21-2020, 02:06 PM   #19
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They've been charging as much as the market could sustain, unsurpsingly, I guess.
I’m not sure that ever increasing loan lengths and the huge majority of people living paycheck to paycheck is sustainable - as we’re now seeing.
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Old 04-21-2020, 02:11 PM   #20
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Was at the dealerships yesterday looking for cars for my mom, and I was checking out diesel trucks for fun.

fully loaded GMC 1500s were 70k, and mid tier silverados were 68-70k for a 2500HD. A fully loaded Blazer RS was 53k.

These prices are just insane. Of course, the dealerships were all offering 84 months 0% but who in their right mind wants to finance something for 7 years? 48 months is the max I want to pay on anything.
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Old 04-21-2020, 02:36 PM   #21
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We can only blame ourselves for prices not going down; prices are a just reflection of what people are willing to pay.
Instead of negotiating prices down we simply take on debt to buy stuff; and that's what manus are counting on. Hence the 84 month / 0% offers.
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Old 04-21-2020, 04:21 PM   #22
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These prices are just insane. Of course, the dealerships were all offering 84 months 0% but who in their right mind wants to finance something for 7 years? 48 months is the max I want to pay on anything.
Dealerships are very clearly attempting to rope people with no interest long term loans right now instead of having to actually drop prices. Hopefully everyone else sees it the way you do, because that is what will bring on the sweet deals!

Also hopefully people wise up and realize being locked into loans for terms that long is pretty unstable. "7 years? Pft, who knows, maybe the next plague is only 5 years away! I can't be on a loan fearing my car is gonna get repossessed when I get laid off NEXT time"

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We can only blame ourselves for prices not going down; prices are a just reflection of what people are willing to pay.
Instead of negotiating prices down we simply take on debt to buy stuff; and that's what manus are counting on. Hence the 84 month / 0% offers.
Exactly. If only people realized how easy it was to negotiate... And honestly, if you're looking at a new car, you can very easily walk away. People out here not playing hard to get because they really want the new car so bad they're willing to go as far as to pay ADM on something... silly i-product buyers
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Old 04-21-2020, 04:30 PM   #23
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Hoping it crashes after the new twins come out. Trying to pick up a BRZ for ~8-12k once I pay off my 1st mistake.
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Old 04-21-2020, 04:55 PM   #24
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*Looks at Mazda promo for 60 months 0%... God damn, that RF is looking tempting.
Awesome car, especially the ND2.
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Old 04-21-2020, 05:04 PM   #25
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Will MSRP on vehicles actually correct though?
I don’t think it will. It never did during 2008. It just kept trucking up while the economy imploded. Never skipped a beat.
Will this be any different? Will an STI MSRP suddenly be $3K lower, all else equal?
Will a Honda Civic MSRP be $2,500 low all else being equal?
Will a Porsche Turbo S @$220K MSRP suddenly drop to $190K?
I highly doubt it. I’ve never seen this happen, ever. Many in product marketing would say that’s a good way to devalue your product and screw past buyers.

Prices have gotten beyond stupid, along with 6-7-8yr car loans, but I don’t see it changing. I hope I’m wrong.
I think you're right.
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