And so it begins, car value crash...

Car values expected to drop in the next 6 months...

“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.”

https://finance.yahoo.com/news/fear-impending-car-price-collapse-110000556.html

 

This is about used cars "piling up" at auction lots and the implications of working off that excess supply. Yup, got it, a market dislocation caused by reduced near-term demand for used cars. But big picture, looking at all cars new and used, it doesn't seem as gloomy to me after this virus crisis resolves itself. Unlike restaurants, where the lost revenue is lost forever, the reduction in new car production and slow car sales is creating pent-up demand because our vehicles continue to age and wear out. Market will sort this out and get back to equilibrium.

 

Typical market demand has been far exceeding the real needs so far - people do not replace their cars only when they become too aged to offer a proper service.
So while a new balance will be found, the economic impact will certainly decrease the demand - lost revenue for people will decrease their buying power and make them reconsider how they spend the money left, and cars could be moved down the list of priorities.
People short in cash may also want to get money from the cars that are not mandatory for their lives - and it will put even more pressure on the market for cars that are more indulgence than tools.

 

I cant wait, I'm making room in my garage right now for 250 GTO.... Hee HAW!

 

in 3 years anyone with cash will have a field day with post 2012 models...

 

Come on in boys, the water is boiling

https://www.flexwealth.com

 

It's going to get worse before it gets better. Car manufacturers get to book sales when they SHIP to dealers. This means they're going to keep shipping, but what are the dealers going to do when they run out of space? My wife wants a new ugly Lexus. I'm going to wait until Lexus starts offering no interest loans. I could pay cash, but I won't because I'm a bottom feeder.

 

If anyone kept up with how highly leveraged car purchases have become, combined with how rapidly new car prices have increased, this news comes at no shock.

 

81% of the market (roughly 85M loans) are at prime and below rates.

It's insane. $568 a month average payment on a depreciating asset...

 

"Rates from 1.9% a Month!" - that's pretty expensive

 

I'm keeping an eye on new Jeep Grand Cherokee's on cars.com...(I gotta get one when I return to the USA at some point later this year)

The best deals 2 months ago when I started looking were about $9000 discount from MSRP of ~$50,000.

Now its $11,000 discount from MSRP for the same vehicle.

(this are only 1-2 dealers that seem to offer that large of discounts, but I am comparing that specific dealer's pricing now vs 2 months before)

 

IMF says 'Great Lockdown' global recession will be worst economic meltdown since Great Depression

https://www.businessinsider.com/imf-economic-outlook-great-lockdown-worst-recession-century-coronavirus-pandemic-2020-4

 

Time is also a variable. People selling a car now, need the money now usually. If that car doesnt sell because wholesales is flooded with cars, then seller will sell for less thus impacting the market.
Also, all these businesses that have lost revenue forever (hotel, restaurants, events, nightclubs, play centers etc), well these people will not be buying a new or used cars for a while.

On top of that, the market was already not looking good before Covid for many reasons (Cars were too expensive, people are not buying cars as frequently as before, uber model..). Now it will be even worse. How many people will learn to work from home and save time and $ on commute? How many companies will realize, hey, our work quality has not dropped with our staff working remotely, do we really need to spend $200k on rent?
It will be interesting to follow.

 

This for me will be the big move post Covid.

 

the idea of millions of people taking trains and busses every single day to sit in a communal office building is not going to be part of the new norm....in a year or 2 activist investors will target companies who have what will deemed to be too large of an office expenditure etc...

 

Agreed. And people have now learned they can do 90% of what they need to do from home. Was talking to an IB friend who started working from home bc of Covid, said he didnt before bc of private information from his clients/bank policy but bc of Covid, they obviously found a way or the red tape was cut.

 

yes this is a massive jihad on all things legacy stupid...going to the doc to get a z pack, signing your name after you use your credit card, etc...

 

Doesn't anyone think, prices will be somewhat supported by a migration of people from public transport back to cars? I'm some of those who used a lot of public transport will suddenly feel safer commuting in their own vehicle to work.

 

I don't think millions of NYC residents will suddenly buy cars and stop taking the subway.

 

Agreed, most people who currently don't drive cars either can't afford it and/or it's highly inconvenient (ie NY). Sure a few here and there will buy cars but I doubt most will.

 

I’m going to steal your quote.


Sent from my iPhone using FerrariChat

 

Take it a bit deeper though. If the new 'system' bucks the traditional "go to work at the office in the city", maybe the inconvenient part of owning a car changes for many people, especially if they decide that living, surrounded by millions, is not a choice they wish to continue with. CRE failure could push those people into surrounding suburbs, and then a car is necessary, and public transportation becomes less necessary. Obviously it's way to early to tell, but I have friends already saying they will never be back in Manhattan working. The juice isn't worth the squeeze to them anymore.

 

Nevada authorized electronic signatures by statute, even on court documents, like 15 years ago? But most court departments and some district court clerks refused to permit electronic signatures on certain documents and official orders. Needed both attorneys and the judge to wet sign one paper. I would get snippy about it since federal court went completely electronic by about 2008.

But as of March 17, 2020 they have relented to allow electronic signatures... more than a decade after it became the law!

 

We're all speculating on how human behavior will change which is a risky exercise. I'm reading everyone's opinions. As for everyday car sales, I think they are in real trouble. They were already trending lower. New construction has now stopped and will likely be lackluster for at least two years which will negatively impact pickup sales. Furthermore, car sales have been very high for a number of years now. Not many people will be wearing them out soon and a glut of used vehicles coming off leases will offer an alternative to cash strapped consumers. IMO, people aren't paying enough attention to job losses. It's expected that 10-20% won't be returning. That's a huge drag on the economy and consumer spending which will then affect companies thought to be safe. Businesses will be making less money. Capex will be non existent. A lot of high paying jobs are at more risk than many think. Counter arguments welcome.

Dave

 

yep exactly. all of these types of things will help in the future.