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Old 12-22-2021, 06:26 AM   #1
AVANTI R5
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Default Used Car Prices Soon Dropping Many Will Have Loans More Then Car Worth

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Used car prices have spiked for months because of low new car inventories, itself because of the chip shortage that has gripped the industry. This is not news, though the accounting firm KPMG said in a new report that prices have gotten so far out of whack that negative equity is now an issue, and likely will be in the future, too. Basically, if you took out a loan to buy a used car in the past year or so, you might owe more than your car is worth.


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Used Car Values Poised For Big Drop - News Concerns


Used car prices have spiked for months because of low new car inventories, itself because of the chip shortage that has gripped the industry. This is not news, though the accounting firm KPMG said in a new report that prices have gotten so far out of whack that negative equity is now an issue, and likely will be in the future, too. Basically, if you took out a loan to buy a used car in the past year or so, you might owe more than your car is worth.

From Automotive News:

The used-car market has historically been closely correlated with the new-car market, KPMG global head of automotive Gary Silberg told Automotive News on Monday. But used-vehicle prices are up 42 percent over January 2020 levels, while new-vehicle prices have only risen about 12 percent, KPMG said in a white paper released Tuesday.

ďWhatever path the new-car market takes to a Ďnew normal,í used-car prices will eventually return to the traditional relationship with new-vehicle prices,Ē KPMG wrote in the white paper. ďIn other words, a 20 to 30 percent plunge in used-vehicle prices is in the cards.Ē

KPMG estimated vehicle supply and demand would achieve equilibrium sometime between October 2022 and 2023, but used-vehicle prices would begin to fall before that point.

ďIn every scenario, we expect the market to anticipate the turnaround in the new-car supply situation ahead of time and begin repricing used cars before new-car lots are full and used-car demand returns to normal,Ē KPMG wrote.

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This is all a bit worrying, to be honest, as most people in this country donít take out loans to buy used cars because they want to, but because they need to.

Too sharp a decline could leave lenders and others ďstuck with overvalued assets,Ē according to KPMG.

Citing Edmunds data, KPMG said 44 percent of trade-ins carried negative equity in April 2020, more than double the proportion seen a decade earlier. The average customer with negative equity was underwater by $5,571 last April.

Though the average amount of negative equity had fallen more than $1,000 by April 2021, the proportion of trade-ins with negative equity held relatively constant, according to KPMG.

ďEven with used-car values soaring, a large percentage of pre-COVID-19 vehicle loans remain underwater,Ē KPMG wrote.

Those of us of a certain age might remember a similar phenomenon happening during the housing crisis a decade ago, when a lot of people found themselves underwater with their mortgages. That was a little bit different, as homes are usually appreciating assets, whereas cars are usually depreciating. Still, there is a similar reliance on credit in America for both.
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Old 12-22-2021, 07:54 AM   #2
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I can't believe the stupid money used cars are demanding right now, if we could find what we want new for MSRP, I'd trade/sell my wife's car; it's worth more than we paid for it new four years ago.... That is crazy...
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Old 12-22-2021, 08:38 AM   #3
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I HOPE prices go down soon. i'm still commuting 102 miles round trip in my 97 civic. i want something new but the prices for what i want are ridiculous.
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Old 12-22-2021, 08:56 AM   #4
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Roses are red.
The used car market is hot.
Don't low ball me buddy,
I know what I got.
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Old 12-22-2021, 09:39 AM   #5
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Will revisit this thread in a year to laugh at this prediction.
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Old 12-22-2021, 12:43 PM   #6
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I don't see prices dropping this next year unless magically millions of extra new cars are built or a massive economic collapse occurs.
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Old 12-22-2021, 01:14 PM   #7
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Originally Posted by Kostamojen View Post
I don't see prices dropping this next year unless magically millions of extra new cars are built or a massive economic collapse occurs.
Right, we'll put this on the list of hopefuls along with GPU and home prices/availability.
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Old 12-22-2021, 01:28 PM   #8
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I've been having some issues with my truck and being the used car market the way it is, I owe substantially less than its worth

but the 2500HD AT4 I want to replace it with is stupid priced. MSRP on them was 72k but used ones with 21k miles are on dealer lots for 85 to 90k.
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Old 12-22-2021, 02:45 PM   #9
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Originally Posted by VarmintCong View Post
Will revisit this thread in a year to laugh at this prediction.
And you need to take a break from your gloom and doom talk.

Author states end of 2022, early 2023, and this about correct, for new car supply.

I guess some of you just want to have this never end situation, it gives you something to cry about.
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Old 12-22-2021, 02:52 PM   #10
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Originally Posted by Kostamojen View Post
I don't see prices dropping this next year unless magically millions of extra new cars are built or a massive economic collapse occurs.
Yeah supply will be limited through 2022. Used prices may reduce due to no stimulus checks for the lower end used market, but wants for newer rigs will keep prices relatively high.
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Old 12-22-2021, 04:20 PM   #11
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Originally Posted by Pre View Post
And you need to take a break from your gloom and doom talk.

Author states end of 2022, early 2023, and this about correct, for new car supply.

I guess some of you just want to have this never end situation, it gives you something to cry about.
Nothing gloomy about it, it's just the new reality under inflation. Student loan moratorium just got extended, more stimulus baby.
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Old 12-22-2021, 04:43 PM   #12
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Originally Posted by Karlot View Post
I HOPE prices go down soon. i'm still commuting 102 miles round trip in my 97 civic. i want something new but the prices for what i want are ridiculous.
Your car is worth $32k tho. It's all relative.
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Old 12-22-2021, 04:55 PM   #13
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Yeah supply will be limited through 2022. Used prices may reduce due to no stimulus checks for the lower end used market, but wants for newer rigs will keep prices relatively high.
Wait what?

You think used car prices increased because people received a $600 stimulus check?

Just lol

Can't wait til this crashes, and it'll crash hard. People asking if they should pay $5k MSRP on a 2018 WRX with 60k miles is just lol
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Old 12-22-2021, 07:09 PM   #14
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Originally Posted by carsebuco View Post
Wait what?

You think used car prices increased because people received a $600 stimulus check?

Just lol

Can't wait til this crashes, and it'll crash hard. People asking if they should pay $5k MSRP on a 2018 WRX with 60k miles is just lol
And the people who are patient, and can think, with their brains, will make out. Itís amazing to see all the super consumers who just arenít happy unless they can spend, incessantly, their hard earned money. There are so many of them, with bird sized brains, who should have flipped the finger at these prices, etc, but just canít help themselves, kind of like crack addicts. ďIíve had this car 2 whole years, I want something new! I deserve it! I donít care if itís an extra 5k, Iíll just roll it into the payments. YOLO MAFKís!!!!!!!Ē

Then they will fall out of the ugly tree and hit every brand on the way down when itís time to offload said thing. If anyone can use some brain, and can remember the housing collapseÖ. Well they have been predicting an automotive market collapse for years, and saying itís not if, but when. Nostradamus is on his way and he wants to visit many people.
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Old 12-22-2021, 07:50 PM   #15
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Originally Posted by Pre View Post
And the people who are patient, and can think, with their brains, will make out. Itís amazing to see all the super consumers who just arenít happy unless they can spend, incessantly, their hard earned money. There are so many of them, with bird sized brains, who should have flipped the finger at these prices, etc, but just canít help themselves, kind of like crack addicts. ďIíve had this car 2 whole years, I want something new! I deserve it! I donít care if itís an extra 5k, Iíll just roll it into the payments. YOLO MAFKís!!!!!!!Ē

Then they will fall out of the ugly tree and hit every brand on the way down when itís time to offload said thing. If anyone can use some brain, and can remember the housing collapseÖ. Well they have been predicting an automotive market collapse for years, and saying itís not if, but when. Nostradamus is on his way and he wants to visit many people.
You're missing the key component here: LEASES

People don't want to buy out their lease and keep a car that's already obsolete requiring more and more big dollar maintenance with an expired warranty and the cliff falling depreciation that follows.
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Old 12-22-2021, 08:16 PM   #16
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Originally Posted by carsebuco View Post
Wait what?

You think used car prices increased because people received a $600 stimulus check?

Just lol

Can't wait til this crashes, and it'll crash hard. People asking if they should pay $5k MSRP on a 2018 WRX with 60k miles is just lol
Not the general used car market, but the low end used car market and toy(dirt bike, 4 wheeler) seemed to get bumped by stimulus. Combine the $1800 stimulus with money saved during Covid and you get beat NA Miataís selling for 8kÖ..

Sold my beat 95 Miata with a bad paint job, body damage, a leaking main seal and other issues for $7500. The car was bought by a person that saved during Covid and comfortable blowing some money.

There are different sub markets within the used car market.
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Old 12-22-2021, 08:44 PM   #17
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Originally Posted by carsebuco View Post
Wait what?

You think used car prices increased because people received a $600 stimulus check?

Just lol

Can't wait til this crashes, and it'll crash hard. People asking if they should pay $5k MSRP on a 2018 WRX with 60k miles is just lol
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.
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Old 12-22-2021, 08:55 PM   #18
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Stimulus had far less of an impact than closing the borders and cancellations of tons of vacations/trips/cruises/etc. I bought a tow dolly mid 2020 and the RV guys there were all saying everyone was coming in to buy because they couldn't do anything else other than travel locally.

Folks in the collector car market were also talking about how the high end folks were buying like mad because thats all they could do with their money. Add that to the supply crunch then positive market gains and pretty much every class level had incentive to buy a car.

The $600 checks didn't cause as big of an impact on that as you think. Thats maybe a month payment for folks nothing more. There were far bigger reasons supply dropped and demand skyrocketed.
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Old 12-22-2021, 09:23 PM   #19
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Guess I'll just get a re-manufactured engine and/or transmission if need it.
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Old 12-22-2021, 09:50 PM   #20
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Originally Posted by 4S-TURBO View Post
You're missing the key component here: LEASES

People don't want to buy out their lease and keep a car that's already obsolete requiring more and more big dollar maintenance with an expired warranty and the cliff falling depreciation that follows.
Then they will learn something valuable about leases. Donít always count on a cheap or affordable lease because some times thatís not going to be there. New new, all the time, some times will come at a steep price.

And you should acquire vehicles with reliability in mind in case you do need or want to keep it post warranty. If post warranty is such a massive deal, you chose wrong son.
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Old 12-23-2021, 01:03 AM   #21
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I don't really follow.

People being forced to buy out their leases because new car inventory is low isn't hurting them. They are getting an insanely good deal on a nearly new used car. No, this article is talking about all those people who are buying the lease return cars at crazy marked up bubble prices who are going to get ****ed when the market stabilizes. And those bubble prices are not going to go down so long as more and more people are choosing to keep their leased vehicle rather than hand them back. Whether inventory of new sucks, or ADM of new makes it less appealing. Yeah, of course people should be able to maintain their cars etc. That's not my point. My point is the supply chain relies on them NOT wanting to do that.
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Old 12-23-2021, 01:13 AM   #22
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It's not just about more chips and supply increasing. Ford and GM have both recently announced that they will be drastically reducing how many days of inventory dealers are allowed to have. This is their new. Keel going forward. Which means they will keep inventories tighter and prices up because they are making fewer vehicles right now but having higher profits. Which means the used market will stay higher than previous markets. That doesn't mean there won't be a market correction, but I'm not convinced it will be as big as some people think.

I suspect the days of them over producing and then offering 15-30% off MSRP are over.
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Old 12-23-2021, 01:21 AM   #23
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If that's the case, where is KPMG getting their info from?

Quote:
KPMG estimated vehicle supply and demand would achieve equilibrium sometime between October 2022 and 2023, but used-vehicle prices would begin to fall before that point.

ďIn every scenario, we expect the market to anticipate the turnaround in the new-car supply situation ahead of time and begin repricing used cars before new-car lots are full and used-car demand returns to normal,Ē KPMG wrote.
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Old 12-23-2021, 02:29 AM   #24
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Originally Posted by 4S-TURBO View Post
I don't really follow.

People being forced to buy out their leases because new car inventory is low isn't hurting them. They are getting an insanely good deal on a nearly new used car. No, this article is talking about all those people who are buying the lease return cars at crazy marked up bubble prices who are going to get ****ed when the market stabilizes. And those bubble prices are not going to go down so long as more and more people are choosing to keep their leased vehicle rather than hand them back. Whether inventory of new sucks, or ADM of new makes it less appealing. Yeah, of course people should be able to maintain their cars etc. That's not my point. My point is the supply chain relies on them NOT wanting to do that.
I see what you mean. My point was more about leasing in general but I see what you mean now about people in a lease being able to buy it out for a deal vs. someone trying to buy a turn in and getting raped. Agree about those buying lease returns for inflated amounts, but thatís on them. The problem isnít supply, itís people. People that pay ADM. People that pay inflated prices for consumer goods, etc. I get the person whose car is at 200k, 300k, or something and itís just too expensive to fix it any longer. What I donít get is the super consumer who just cannot curtail or stop spending money on things they donít NEED. People are paying these inflated prices because they want something new to them more than the inflated cost so they pay it. If they get ****ed thatís on them. Irresponsible financial decisions will hurt them, but nobody made them buy a vehicle at an inflated price. Wasnít much difference to people financing way more house than they could realistically afford, with an arm, then bang, world economy goes TU.

And thill has a point of the new new ways of mfrís. They are indeed holding back supply, to a degree, to keep their profit per vehicle sold, higher. I donít 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. Theyíll revert at some point. It may be in the middle compared to days past, but it will not remain this way.
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Old 12-23-2021, 03:04 AM   #25
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Originally Posted by VarmintCong View Post
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.
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.
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