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This bubble has been building for years now. Wholesalers and other exporters have been hiding the problem for a while now, and but somethings got to give. The p

by S_A_P 9y ago

This bubble has been building for years now. Wholesalers and other exporters have been hiding the problem for a while now, and but somethings got to give. The problem is multifaceted: 1) Lease rates arent necessarily in sync with the used car market 2) Buyers are keeping cars longer if they purchase 3) Subprime loans and buy here/pay here dealers are multiplying. THIS IS A BUBBLE. I wont call when its going to burst, and it wont be like the housing bubble, but the fallout will be great...

gnicholas 9y ago
Any predictions on how the popping bubble will ripple through the economy? With the housing bubble, there was a huge pull-back in consumer purchasing, as people lost hundreds of thousands of dollars in home equity. That caused a drop in consumer confidence and purchasing, which led employers to cut back on wages/hours, which led to further drops in consumer purchasing. Do you think we'll see the same domino effect here, but just at a lower magnitude? Or is there a different path for this bubble to ripple out through? Perhaps when people lose cars they lose jobs that they can no longer commute to?
- S_A_P 9y ago
  I don't think that it will be as severe. The big banks are largely insulated from this. I do think that it will be a buyers market for late model used cars for cash buyers. I'm already seeing signs of this. It's just not quite there yet but I bet I can get a car at 50% traditional market price soon.
  - bluGill 9y ago
    I think the banks as in the car manufacture's finance arms will be hit the most: when it hit they are the ones who are suddenly owners of a car that they owe more on than it is worth. They will have to sell these cars at a loss. If they try to make up for that loss by raising lease rates those who turned their car in will be forced buy a used car at greatly reduced rates (few have the ability to afford much larger payments) Those who buy their car have a known payment, they might owe far more than the car is worth but that payment won't chance and other than an accident they eventually have a paid off car. They might not be able to trade their car in as soon as they would like, but they at least have a car.
    - S_A_P 9y ago
      Agreed. All the credit arms of the manufacturers will be hit hard. I didn't mention this in my parent comment but you alluded to another great point. 60+ month loans can mean that those who drive more than 20k miles can use their car up before it's even paid for.
neilwilson 9y ago
But it is a bubble with a feedback loop. (i) car manufacturers are big enough parts of the market that they can buy up used cars and scrap them/export them, putting the cost of that onto new cars (ii) they can lobby government to introduce environmental standards. Japan exports a good part of its used cars because of the cost of maintaining a used model. The difference with cars over houses, is that cars are mobile. So the issue, if there is one, is just the usual one of over-lending via agency originators and securitising those bad loans onto muppet pension funds searching for yield. But that's not unique to the car market.

by S_A_P 9y ago

gnicholas 9y ago

Any predictions on how the popping bubble will ripple through the economy? With the housing bubble, there was a huge pull-back in consumer purchasing, as people lost hundreds of thousands of dollars in home equity. That caused a drop in consumer confidence and purchasing, which led employers to cut back on wages/hours, which led to further drops in consumer purchasing. Do you think we'll see the same domino effect here, but just at a lower magnitude? Or is there a different path for this bubble to ripple out through? Perhaps when people lose cars they lose jobs that they can no longer commute to?

S_A_P 9y ago
I don't think that it will be as severe. The big banks are largely insulated from this. I do think that it will be a buyers market for late model used cars for cash buyers. I'm already seeing signs of this. It's just not quite there yet but I bet I can get a car at 50% traditional market price soon.
- bluGill 9y ago
  I think the banks as in the car manufacture's finance arms will be hit the most: when it hit they are the ones who are suddenly owners of a car that they owe more on than it is worth. They will have to sell these cars at a loss. If they try to make up for that loss by raising lease rates those who turned their car in will be forced buy a used car at greatly reduced rates (few have the ability to afford much larger payments) Those who buy their car have a known payment, they might owe far more than the car is worth but that payment won't chance and other than an accident they eventually have a paid off car. They might not be able to trade their car in as soon as they would like, but they at least have a car.
  - S_A_P 9y ago
    Agreed. All the credit arms of the manufacturers will be hit hard. I didn't mention this in my parent comment but you alluded to another great point. 60+ month loans can mean that those who drive more than 20k miles can use their car up before it's even paid for.

neilwilson 9y ago

But it is a bubble with a feedback loop. (i) car manufacturers are big enough parts of the market that they can buy up used cars and scrap them/export them, putting the cost of that onto new cars (ii) they can lobby government to introduce environmental standards. Japan exports a good part of its used cars because of the cost of maintaining a used model. The difference with cars over houses, is that cars are mobile. So the issue, if there is one, is just the usual one of over-lending via agency originators and securitising those bad loans onto muppet pension funds searching for yield. But that's not unique to the car market.