
Fear of an impending car-price collapse grips auto industry - JumpCrisscross
https://www.bloomberg.com/news/articles/2020-04-13/fear-of-an-impending-car-price-collapse-grips-the-auto-industry
======
sandworm101
I bought new snow tires a couple weeks ago (long story, relocation has since
been cancelled). The shop was empty. Regardless of the decrease in travel,
when times are hard people put off general maintenance. Nobody is buying new
tires atm. But what about the flip side of COVID? Air and bus travel is not
going to come back anytime soon. Even taking a taxi/uber driven by a stranger
will remain an issue. I think car use might increase in certain sectors.
Prices may take a hit overall but I see a coming push towards private vehicle
ownership.

~~~
bobthepanda
The main issue with more car ownership, at least in the US, is financing.
People cannot afford to take on new auto loans.

Even before this subprime auto loans were a bubble starting to burst:
[https://wolfstreet.com/2020/02/11/subprime-auto-loans-
explod...](https://wolfstreet.com/2020/02/11/subprime-auto-loans-explode-
serious-delinquencies-spike-to-record-but-theres-no-jobs-crisis-these-are-the-
good-times/)

~~~
barney54
I have received offers of 0% financing from Jeep and Ford for 84 months. They
are desperate to sell cars and trucks.

~~~
sandworm101
Be afraid of those deals. In the US, there is an entire industry based on
people defaulting on car loans. It is very possible for a lender to make
substantial profit a loan they know is going to fail. The money comes from
repossession and resale of the car (a conveniently mobile asset as opposed to
houses) combined with penalty charges. So they might push 0% loans onto people
who they know are likely to default. The inclusion of GPS trackers on cars has
made this all the simpler.

Remember the adage: If you aren't paying, you are the product.

84 months is also ridiculous for a car loan. That means you will very quickly
owe more than the car is worth, a dangerous situation for a lender. They would
only offer such a loan if they had alternative contingency plans such as
massive penalties.

~~~
chrisseaton
> That means you will very quickly owe more than the car is worth

Well duh that happens the second you drove the car off the lot. On day two of
your ownership you still owe the full cost of a brand new car but can only
sell someone a second hand car.

That’s just a truism of buying a new car. The length of the finance agreement
is irrelevant.

~~~
gbronner
This is generally not true. Most loans were structured to have a down payment
(meaning that you still had equity in the deal) and to amortize faster than
the car depreciated, so you were never underwater.

Only recently have we started financing cars the way we financed houses in the
2000s, and mobile homes in the 1990s etc etc.

------
chiph
The article is focused on the rental agencies dumping their older fleet cars
onto the market in about 6 months. But there's no way I'd buy a former rental
car - I know how people treat those cars. The buyers will be people who are
fine with a not-so-gently used car in a lower trim spec. They're going to
negotiate _hard_ , driving the prices down even further.

And like others have said - I have very little sympathy for car dealers. I
helped mom buy a new CUV recently, and one dealer had it sewn up .. until they
swapped the vehicle we had been talking about for a different one when we got
to the "We're buying today - how much will you come down on price?" part.

~~~
sq_
> I have very little sympathy for car dealers. I helped mom buy a new CUV
> recently, and one dealer had it sewn up .. until they swapped the vehicle we
> had been talking about for a different one when we got to the "We're buying
> today - how much will you come down on price?" part.

Helped my parents buy a car recently and had a very similar experience. The
guys at the first dealership we went to kept switching the car and trim they
were talking about, then promising deals that magically disappeared a few
minutes later. They really don't help themselves if they actually care about
rehabilitating their reputation for being shady.

~~~
mywittyname
This is probably an unpopular opinion, but I don't think honest dealerships
can really survive the cut-throat car sales industry. You have to figure that
these dealerships often get stuck selling whatever the manufacture sends them.
So to get that nice, $70,000 truck they are required to accept a few shitty,
stripper economy cars that sit on the lot for months, collecting interest
payments.

Shit rolls down hill, so when the the manufactures screw over the dealerships,
the dealerships find ways to screw over the customers. It doesn't help that
the owners of dealerships tend to be politically connected locally, which
gives them a staggering amount of leverage to combat any consumer protection
legislation.

~~~
apta
You point out the conflicts of interest involved, this just means that dealers
(at least for new cars) need to be completely cut out, and the car
manufacturer itself should be responsible for selling (like Tesla). This would
solve so many issues.

~~~
sq_
From my uninformed perspective, it's hard to disagree with this. Tesla seems
to have the whole manufacturer direct thing figured out pretty well.
Anecdotally, no one I know who's bought a Tesla has had a major complaint
about the purchase and pickup process.

------
war1025
I'm on the other end of this. I've been monitoring Craigslist the past couple
weeks to see if people start trying to dump vehicles.

Sort of terrible, but also I've been hearing that we're in a vehicle financing
bubble for several years now.

~~~
arkanciscan
I'm on yet another end; trying to get all my old bicycles listed on CL while
everyone is avoiding mass transit.

~~~
Scoundreller
And put parts on Ebay. People will prefer mail-order rather than a retail
store.

I've sold a few things that I've been trying to sell for over a year. E.g.
inkjet printer cartridges. I guess a lot of people suddenly can't print at
work anymore!

------
moandcompany
A relevant read: [https://www.coxautoinc.com/an-open-letter-to-dealers-from-
da...](https://www.coxautoinc.com/an-open-letter-to-dealers-from-dale-pollak/)

By Dale Pollak, Executive Vice President, Cox Automotive and Founder, vAuto

"Author’s note: We are in a crisis that challenges everyone in the automotive
ecosystem. OEMs. Financial institutions. Dealers. Suppliers. We are all in
uncharted waters where there are more questions than answers. In the weeks
ahead, I’ll be writing and speaking about the challenges and opportunities the
current crisis brings to all parts of the car business. This letter, however,
focuses on the challenges and concerns franchise and independent dealers are
facing as the crisis disrupts their businesses."

~~~
intopieces
The body of the letter starts out with the author offering his sympathy to car
dealerships, saying his heart goes out to them. Well, my heart does not go out
to them. They have spent the better part of the last decade refusing to
innovate, and in fact have spent millions on lobbyists to keep their vaunted
position as the government-mandated middle men between manufacturers and
customers. Every time I have had the misfortune to spend a day (because that’s
how long it takes to do anything with them) at a dealership I’ve left wanting
to take a shower.

If they all go under because of this I’ll consider it a brilliant upside.

~~~
wolfspider
Thank You! I've been waiting for a golden opportunity myself for years and
even now nothing seems that different. I've been cycling through one clunker
after another and each time I just buy something of equal or slightly more
than equal value waiting to catch a break. It's been so long now I am highly
skeptical of anything coming close to news of that magic moment. If the
average consumer wants to pay 500$ a month for a questionable vehicle what can
an informed consumer really hope to do? I went to a dealer hoping to make a
deal as if I could get the better of them and found something really rare-
someone who was honest to a fault. I urged the salesman to sort of open up the
books and described the vehicle I wanted: inline 6 or turbo 4 or V6 or V8 with
RWD in a sedan. He sighed and said "We really don't sell to people like you,
look you see all of these people here? They wouldn't even know what your
talking about and they'll agree to just about anything. The cars you see on
our page here priced with the even numbers...that's not the real price. The
ones that end with a 7 we don't actually have. Those with the 5 in the middle-
we have those but look at the interest you wouldn't get that one would you?
They all come out to about that much and that's why your probably going to
leave- right?" I gave my sincerest thanks and walked out of there like it was
an episode of the twilight zone wondering if I was still here on earth. I look
at auctions all the time too and I have never seen such cooperation to hide
the good used cars as today's car market.

------
mrfusion
Maybe this is their PR firms gearing up for a cash for clunkers deal.

~~~
mywittyname
Doubtful. C4C was too small to do much of anything, and is probably the most
politically expensive piece of legislation in my lifetime. Plus, I think a lot
of businesses ended up getting paid very late, or not at all for various
reasons (such as not understanding the requirements).

Though, it did make for a good scapegoat when used car prices spiked in the
years following the recession. The popular narrative is that it was this
massive scheme to crush perfectly good cars. When the reality is, the scheme
was capped to just 700k cars, most of which were already barely operable. And
while 700k sounds like a lot, there was something like a quarter of a billion
registered vehicles in the USA at the time.

If you plot monthly car sales during that time, and you know what you're
looking for, you can kind of see small bump, then subsequent dip of C4C. But
what is plainly obvious is the fact that new car sales dropped from 15 million
vehicles per year to around 8 the next.

~~~
Scoundreller
> most of which were already barely operable.

It really depends on the vehicle. A lot of older used cars are worth more as
parts than as barely operable.

Cash for clunkers helped take off the market the older used cars that weren't
worth anything as parts either. They would've kept driving (barely), but the
scrap value wasn't worth deregistering them.

------
Havoc
More interested in the housing market. There is an entire generation out there
that has little hope of ever owning a place at current prices

------
xhkkffbf
I've been shopping around because my lease is up. There's no collapse that I
can see. Nor should there be. The auto plants are shut down. There's no new
product being built. While most people aren't driving as much, some folks
(delivery drivers, nurses) are driving more. Those cars will wear out.

~~~
arkanciscan
The article predicts a glut 6 months from now. Specifically in used car
auctions. Are you shopping at Copart or IAAI? That's where rental companies
liquidate their fleets.

------
damon_c
I just traded a 2006 miata for a 2005 Ford Ranger. It feels like truck times.

~~~
brookside
Trucks are wildly impractical. No way to secure your cargo from ne'er do
wells.

I am doing lots of volunteer work with my car - and a Prius hatchback seems to
be an ideal vessel for deliveries and transporting goods. If you need to haul
more, a minivan or cargo van could be the way to go.

~~~
chrisseaton
You aren't going to get far off-road in your Prius, are you? And isn't the
load capacity of a pick-up truck going to be 2-3x that of a Prius?

~~~
perl4ever
[https://www.tacomaworld.com/threads/rip-offroad-
prius-2017.4...](https://www.tacomaworld.com/threads/rip-offroad-
prius-2017.424427/)

------
modwest
Another aspect to consider is dealerships make much more money off used than
new. Sometimes they'll even cut a deal on a new car just to get the trade-in.

A used car price collapse will have big impacts on dealer franchises. I know
they're not necessarily a sympathetic group but it will definitely have an
impact on the economy in many ways. Tighter margins, consolidation of
territory as dealerships go out of business, and so on, means those
dealerships are spending less on contracts.

There will be some kind of auto dealer market in a year or two but, barring
massive government intervention to keep everything right where it is, it's
going to be different in ways that touch many parts of our economy.

~~~
zachshefska
I'd caution against the notion that dealers make much more money off of
selling used cars than new cars... At the end of the day car dealers make
their money from the Service department, not from sales:
[https://www.youtube.com/watch?v=B41twMsMW-Q](https://www.youtube.com/watch?v=B41twMsMW-Q)

~~~
modwest
I wouldn’t caution against it because I know for a fact what I said is 100%
true.

The piece about auto sale vs. service as proportions of total revenue is a
different data point.

------
mark_l_watson
I don’t know if this is important but I just listened to an hour interview
last week with an economist, retired from the Federal Reserve, who said if you
remove the statistics for cars sold to corporate fleets, rental companies, or
any other corporations, car sales to end consumers has been going down for
three or four years.

Our economy is driven by consumer spending and from my non-expert point of
view consumer spending will never come back to anywhere near old normals.

EDIT: the economist was Danielle DiMartino Booth who wrote the book “Fed Up:
An Insider's Take on Why the Federal Reserve is Bad for America”

~~~
mywittyname
Cars are a huge sink on the American economy, and honestly, we should be
buying fewer of them.

~~~
mark_l_watson
I totally agree. I gave my car to my granddaughter 10 months ago, and I never
replaced it. This decision is not financially motivated, I just don’t want a
car. I borrow my wife’s Car a couple times a week, or just let my friends
drive. I live 2+ hours from an airport, and I would rather use a shuttle
service so I can read or work instead of driving myself.

I also challenge the idea of owning large homes. My wife and I have not had a
mortgage for over 25 years but we “just” have a small beautiful house while
many friends with less assets have mega-homes.

I might be very wrong about this, but think more people will embrace a new
style of frugality and re-evaluate what they are willing to sell their time to
get.

------
HumblyTossed
Maybe they should (prices collapse). People are getting into 7 and 8 year
loans. That's just not a good place to be when they depreciate so quickly.

~~~
icelancer
They are if you are getting 0% APR on the 80 month term like a poster in this
thread has!

~~~
macintux
Unless you pick the right vehicle, you'll be underwater for some significant
chunk of that time period, which is fine if you keep it forever, but
problematic if you can't.

~~~
wrkronmiller
Assuming you were going to buy that particular car anyway, I don't think that
matters.

I suspect what the parent comments are hinting at is you can then pocket the
money you would have spent on a car anyway and put it in the bank or stocks
and earn interest on that money.

------
BadassFractal
Having let go of my car years ago and having never missed it, I feel that car
ownership is still not cheap enough to make sense, and we can do better.

I realize that if you live out in the countryside or in the suburbs, the car
is your lifeline. But for city folk cars are a luxury. You can walk everywhere
you need, you can use Instacart and Amazon to handle groceries and shopping,
and, if you're lucky, you can work on distributed teams. You never need to get
behind the wheel, and even then you're better off getting a Lyft.

$250/mo for a parking spot where random people can still scratch up, dent or
break into your car. $100-200 for insurance, $x for gas, $300+ for financing
or leasing a car, $y for repairs and maintenance, $z for tickets and parking
meters.. This stuff adds up. If you only need the car occasionally, let's say
a couple of times a month on the weekends, then this system is horribly
inefficient.

Of course you end up paying more for living close to work in say.. downtown
Seattle, NYC, SF, LA etc... but the tradeoff is to move to the burbs, shave
off $1000 from your rent, and instead spend that same amount on your car, in
addition to now having to sit in traffic jams for an hour or two every day?
No, thanks.

I'm hoping networks of press-a-button-on-phone-receive-car systems like Zipcar
keep expanding. Seems like their growth has been sub-linear at best this last
few years.

~~~
ghaff
Many city folks I know do (normally) still go to visit friends and attend
events in the suburbs on a regular basis. And they head well outside the city
frequently--2-3 times a month on weekends. Even though it doesn't make direct
economic sense, if you can afford it, it may make sense in terms of
convenience given the hassle of renting a car on a regular basis. Especially
if you have specific vehicle requirements for sport activities. I know quite a
few people in that position.

The ZipCar model seemed like it was going to be a big deal at one point. But
it seems to have been too much of a niche between Uber and occasional
traditional rentals. (I know a couple of folks who use it and they find it a
bit of a hassle.)

~~~
BadassFractal
You're hitting the nail on the head here though: it's currently still
inconvenient to have access to the kind of vehicle you want on a moment's
notice. Getting a car through a traditional rental company is excruciating,
and services like Zipcar and Maven are still not snappy enough. Their
inventories tend to be limited in many places too, compounding the issue.

I'm hoping someone manages to make this as effortless as calling an Uber.
Otherwise the alternative is that $10k/y expense on a rapidly depreciating
asset you're not really using.

~~~
nomel
> $10k/y expense

$10k/y seems very high. Are parking fees $5k/year or something, or frequently
buying a new car for some reason?

~~~
Marsymars
Average cost of car ownership in the US is in the $10k/yr range:
[https://www.investopedia.com/articles/pf/08/cost-car-
ownersh...](https://www.investopedia.com/articles/pf/08/cost-car-
ownership.asp)

~~~
nomel
And the average sugar intake is 65 lbs/year. You don't have to eat that many
cookies, just as you don't have to spend that much on a car if you don't want
to.

They're including new cars (20-30% value gone in the first year) and large
vehicles like SUVs and trucks (Ford F series is the best selling vehicle in
America) in those statistics, along with average mileage (13k/y) numbers for
average fuel and maintenance costs, which would be much less for a minimal use
vehicle.

------
neonate
[https://archive.md/NjUyd](https://archive.md/NjUyd)

------
cgb223
I wonder if this will finally drove the price of a Tesla down enough that I
can afford it

~~~
Fjolsvith
They should fall to about $40k according to this analyst.

[https://youtu.be/N7sjJ4jOhGM](https://youtu.be/N7sjJ4jOhGM)

------
ninetyfurr
Consumer Reports coined the phrase decades ago. That purchasing a new car is
the worst financial decision anyone can possibly make.

~~~
ansible
Eh, people have lost much more money buying overpriced McMansions.

If you intend to own the car for a long time, it is less risky to buy a
reliable brand new car than a used one of the same brand. Unless you know the
owner.

~~~
kube-system
Knowing the owner doesn't affect the rate of random failures in the middle of
the bathtub curve. The only thing it gives you is maintenance data.

These days, it is extremely easy to get maintenance data for many late model
used vehicles. Many manufacturer websites will spit out all of their
maintenance records as soon as you register an account on their "owners"
portal and put in a VIN.

~~~
ansible
This is a good point. That will tell you if the car has been given regular oil
changes, which is super, super important.

It doesn't tell you how hard the car was driven. But if you're like me, and
mostly in the market for a hybrid, it probably wasn't driven that hard.

~~~
kube-system
You can get a good idea from maintenance records; hard driving wears
consumables faster. Compare a few vehicles of the same model and it'll be easy
to see which ones were driven harder.

I also like to take a peek at the tire date codes, to make sure they
corroborate with maintenance records: [https://images.tirebuyer.com/visual-
aids/pages/education/how...](https://images.tirebuyer.com/visual-
aids/pages/education/how-to-determine-the-age-of-your-tires/determine-age-of-
tires-2.webp)

The last car I bought had two original tires on it at 60k miles, and the
service history showed the other two were replaced due to nails in the tread.
I am confident the vehicle was not driven hard based on this.

