4 ms·

Car sales are in the toilet. Cars are sitting on dealer lots because they are too expensive and now banks are pulling floorplans. Car dealerships finance their

by AmVess 4y ago

Car sales are in the toilet. Cars are sitting on dealer lots because they are too expensive and now banks are pulling floorplans. Car dealerships finance their inventory through banks, and these are called floorplans, in case anyone was wondering what a floorplan is. Housing market in the last two states I lived in still see strong sales, but the transaction prices are down 10-11% from last fall. I don't know what Nvidia's sales figures are like, but I can't imagine they are very good. Here, a base model RTX is $515 with tax. Base model cards like this were less than $200 4 years ago. What used to be a mid-range performance card now costs $1200.

bryanlarsen 4y ago
Recently I came up with a list of 15 reasons why gasoline car sales are going to plummet in the next few years. I'm sure that I'll be wrong on a few of the fifteen, but even so it's hard to see anything but doom for anybody selling gasoline cars. Electric cars are only partially going to make up the difference, and that's only if you can make them at a profit in a time of rapidly falling prices and constrained material supply.... https://news.ycombinator.com/item?id=35371171 https://news.ycombinator.com/item?id=35371171
CoastalCoder 4y ago
Thanks for explaining what floorplans are. What does it mean for a bank to "pull" a floorplan?
- AmVess 4y ago
  In this case, it means either stopping financing floorplans altogether or greatly curtailing how much they will finance.
- _huayra_ 4y ago
  It just means they're not going to pay to float the cost of the car from the manufacturer. iirc the dealers "buy" the cars from the manufacturer, then resell them to the customers. In the interim, they must carry this floating debt while the unsold cars sit on the lot. This is often why you can cut great deals on cars they want to get out of their inventory: it's often better for them to take the principle hit instead of letting the car rack up more interest payments on the floorplan or take a sizable principle hit in a wholesale auction.
  - pradn 4y ago
    Does this mean that rising Fed benchmark interest rates affect car dealers in a few ways? 1) The economy is in an iffy position, so customers don't want to make big purchases. 2) Even if customers are willing to buy, car financing rates are higher so they'd be reluctant to pay a higher interest rate. 3) Cars stay longer on the lot, meaning a longer duration of interest payments. 4) The interest rates the dealer pays to the bank increase, too.
    - _huayra_ 4y ago
      You got it, but also add: likely dealer bankruptcies because the overhead is absolutely bonkers (and is often required by brands to set up a dealership; every brand wants a bunch of air-conditioned space to show off their new models!). This is also why you should never take your car to the dealer service center if possible. They try to rip you off so hard (and underpay their service techs) because they truly don't make that much money off each car (at least before the covid boom season, but as we see that is reverting HARD).
wil421 4y ago
People say housing prices are down but the lack of inventory is driving it back up. No one wants to sell and get a mortgage that could be double or almost triple their existing rate. 2 houses in my neighborhood sold for around $50k over asking. My neighbors are moving to another state and had 5 bids. Both were almost $75-100k over Zillows estimate, which was quickly updated almost immediately based on the asking price.
- vanilla_nut 4y ago
  In some markets, the last 2-3 years of price increases put a LOT of folks over the $250,000 (x2 for married couples) gains deduction. I wonder how many folks are hesitant to sell at a price that'll cost a serious amount of taxes if they're going to end up buying a new overpriced house anyway. Folks in major metro areas could see some serious costs due to those taxes.
  - wil421 4y ago
    I would bet most people across the US are not going to hit the 250k or 500k mark. How much more is it 5%? I’m not sure, 5% of 500k is only $25k more in taxes. I don’t have enough time to parse this data but it is very interesting to me that my state’s home prices has increased 2% more than California since 1991. https://advisor.visualcapitalist.com/growth-in-u-s-house-prices-by-state/ https://advisor.visualcapitalist.com/growth-in-u-s-house-pri...
- somewhereoutth 4y ago
  I'm not convinced by this argument - presumably the people sitting on houses are also not buying houses, so unless they mostly would be downsizing, the lack of supply should be matched by a lack of demand. Though this does mean a lack of liquidity in the market (in the general sense of lack of trading), so maybe prices are 'sticky' or find their correct supply vs demand level in jolts.
A4ET8a8uTh0 4y ago
There are conflicting signals. On the one hand, the rates are climbing so it is genuinely easier to park your money in something tangible if you think inflation is not going to be tamed easily. If that is a prevailing view, then some rush to pick any remaining inventory for non-perishable goods will be strong and keep the prices stable or rising ( housing in metro areas is a good example, where sales indicate stubborn price rigidity ). Agreed on cars ( I just financed one ). I clearly could have pushed more just based on that. I am mildly annoyed with myself.
xnx 4y ago
Used car prices have stopped increasing, but are very elevated from pre-covid: https://publish.manheim.com/content/dam/consulting/ManheimUsedVehicleValueIndex-LineGraph.png https://publish.manheim.com/content/dam/consulting/ManheimUs...
foobiekr 4y ago
If car sales are so bad why are prices so crazy? I’ve been putting off buying a new car for two+ years and everything is completely insane or impossible to buy.
- red-iron-pine 4y ago
  Materials costs are high. Transport costs were high. Loans and rents that underscore the business are high. And because they can afford to sit on cars for 3-6-12 months; it's not like apples where they'll rot. Eventually they'll have to make space for next year's model but keep the price high and then negotiate.
  - HeyLaughingBoy 4y ago
    > And because they can afford to sit on cars for 3-6-12 months That's the question though. Can they? There's a carrying cost to all that inventory on the lot.
Patrol8394 4y ago
Prices are driven up by people’s inability to be financial savvy. People keep overpaying for things like cars and houses. Any drop in prices by few % makes it look like a great deal, and people fomo into it; when in fact prices are still insanely high and completely disconnected from the real economy. More and more people will be house poor. Many ex-FAANG bought into $8k mortgage depleting a good chunk of their saving for insane downpayment, thinking their income would go on for the next 30y. I believe we will start see the effect of this in the coming years. There is no way around it, people must stop buying and stop paying $5 for a coffe.
- raincom 4y ago
  What if the neutral state of affairs has full of people who are not financially savvy? Maybe, we are in that state.

by AmVess 4y ago

bryanlarsen 4y ago

Recently I came up with a list of 15 reasons why gasoline car sales are going to plummet in the next few years. I'm sure that I'll be wrong on a few of the fifteen, but even so it's hard to see anything but doom for anybody selling gasoline cars. Electric cars are only partially going to make up the difference, and that's only if you can make them at a profit in a time of rapidly falling prices and constrained material supply.... https://news.ycombinator.com/item?id=35371171 https://news.ycombinator.com/item?id=35371171

CoastalCoder 4y ago

Thanks for explaining what floorplans are. What does it mean for a bank to "pull" a floorplan?

AmVess 4y ago
In this case, it means either stopping financing floorplans altogether or greatly curtailing how much they will finance.
_huayra_ 4y ago
It just means they're not going to pay to float the cost of the car from the manufacturer. iirc the dealers "buy" the cars from the manufacturer, then resell them to the customers. In the interim, they must carry this floating debt while the unsold cars sit on the lot. This is often why you can cut great deals on cars they want to get out of their inventory: it's often better for them to take the principle hit instead of letting the car rack up more interest payments on the floorplan or take a sizable principle hit in a wholesale auction.
- pradn 4y ago
  Does this mean that rising Fed benchmark interest rates affect car dealers in a few ways? 1) The economy is in an iffy position, so customers don't want to make big purchases. 2) Even if customers are willing to buy, car financing rates are higher so they'd be reluctant to pay a higher interest rate. 3) Cars stay longer on the lot, meaning a longer duration of interest payments. 4) The interest rates the dealer pays to the bank increase, too.
  - _huayra_ 4y ago
    You got it, but also add: likely dealer bankruptcies because the overhead is absolutely bonkers (and is often required by brands to set up a dealership; every brand wants a bunch of air-conditioned space to show off their new models!). This is also why you should never take your car to the dealer service center if possible. They try to rip you off so hard (and underpay their service techs) because they truly don't make that much money off each car (at least before the covid boom season, but as we see that is reverting HARD).

wil421 4y ago

People say housing prices are down but the lack of inventory is driving it back up. No one wants to sell and get a mortgage that could be double or almost triple their existing rate. 2 houses in my neighborhood sold for around $50k over asking. My neighbors are moving to another state and had 5 bids. Both were almost $75-100k over Zillows estimate, which was quickly updated almost immediately based on the asking price.

vanilla_nut 4y ago
In some markets, the last 2-3 years of price increases put a LOT of folks over the $250,000 (x2 for married couples) gains deduction. I wonder how many folks are hesitant to sell at a price that'll cost a serious amount of taxes if they're going to end up buying a new overpriced house anyway. Folks in major metro areas could see some serious costs due to those taxes.
- wil421 4y ago
  I would bet most people across the US are not going to hit the 250k or 500k mark. How much more is it 5%? I’m not sure, 5% of 500k is only $25k more in taxes. I don’t have enough time to parse this data but it is very interesting to me that my state’s home prices has increased 2% more than California since 1991. https://advisor.visualcapitalist.com/growth-in-u-s-house-prices-by-state/ https://advisor.visualcapitalist.com/growth-in-u-s-house-pri...
somewhereoutth 4y ago
I'm not convinced by this argument - presumably the people sitting on houses are also not buying houses, so unless they mostly would be downsizing, the lack of supply should be matched by a lack of demand. Though this does mean a lack of liquidity in the market (in the general sense of lack of trading), so maybe prices are 'sticky' or find their correct supply vs demand level in jolts.

A4ET8a8uTh0 4y ago

There are conflicting signals. On the one hand, the rates are climbing so it is genuinely easier to park your money in something tangible if you think inflation is not going to be tamed easily. If that is a prevailing view, then some rush to pick any remaining inventory for non-perishable goods will be strong and keep the prices stable or rising ( housing in metro areas is a good example, where sales indicate stubborn price rigidity ). Agreed on cars ( I just financed one ). I clearly could have pushed more just based on that. I am mildly annoyed with myself.

xnx 4y ago

Used car prices have stopped increasing, but are very elevated from pre-covid: https://publish.manheim.com/content/dam/consulting/ManheimUsedVehicleValueIndex-LineGraph.png https://publish.manheim.com/content/dam/consulting/ManheimUs...

foobiekr 4y ago

If car sales are so bad why are prices so crazy? I’ve been putting off buying a new car for two+ years and everything is completely insane or impossible to buy.

red-iron-pine 4y ago
Materials costs are high. Transport costs were high. Loans and rents that underscore the business are high. And because they can afford to sit on cars for 3-6-12 months; it's not like apples where they'll rot. Eventually they'll have to make space for next year's model but keep the price high and then negotiate.
- HeyLaughingBoy 4y ago
  > And because they can afford to sit on cars for 3-6-12 months That's the question though. Can they? There's a carrying cost to all that inventory on the lot.

Patrol8394 4y ago

Prices are driven up by people’s inability to be financial savvy. People keep overpaying for things like cars and houses. Any drop in prices by few % makes it look like a great deal, and people fomo into it; when in fact prices are still insanely high and completely disconnected from the real economy. More and more people will be house poor. Many ex-FAANG bought into $8k mortgage depleting a good chunk of their saving for insane downpayment, thinking their income would go on for the next 30y. I believe we will start see the effect of this in the coming years. There is no way around it, people must stop buying and stop paying $5 for a coffe.

raincom 4y ago
What if the neutral state of affairs has full of people who are not financially savvy? Maybe, we are in that state.