By on August 5, 2014

Salesman With Customer

Business is booming on the lot, with the industry on pace to move some 16 million vehicles out onto the highway by the end of 2014. However, some Wall Street insiders are growing bearish with this bull market, blaming easy credit for the surge in demand.

Reuters reports the insiders believe the demand is artificial, and should begin to drop once the U.S. Federal Reserve raises interest rates next year. Morgan Stanley auto analyst Adam Jonas is among those insiders, and has gone as far as to proclaim the demand “peak auto”:

We have little doubt that we’re in bubble territory. We’ve blown through prior (sales) peaks in terms of value, the amount of money people are spending on automobiles. We’re in uncharted territory right now.

Jonas posits demand will actually hit its peak in 2017, when a record 18 million units are expected to leave the showroom floor, before dropping to just 14 million in 2019.

Easy credit is claimed to be fueling the current demand, which, in turn, is also fueling record transaction prices, the current average being more than $30,000 per vehicle. The U.S. Office of the Comptroller of the Currency goes as far as to claim in a June report that “signs of risk in auto lending are beginning to emerge” as automakers and their financing partners go after subprime consumers with ever-lengthening long-term loans.

However, most industry insiders believe pent-up customer demand is driving the ongoing sales boom, with incentives remaining stable compared to the run-up to the Great Recession six years ago. Inventories, too, are at “a healthy and manageable level,” with production capacity at near-peak, according to Ernst & Young lead analyst Anil Valsan. He expects sales to cool off and plateau in the coming years, rather than the bust Jones is forecasting.

That said, some vehicles are being moved with a much larger carrot than others, like the Cadillac ELR’s $20,000 discount and Chevrolet’s and Ford’s $10,000 discounts on their respective full-size pickup offerings. Jonas believes it’s only a matter of time before the market visits the ER for credit poisoning, warning the next decade in the auto industry will be “more brutal” than the current decade “in almost every way.”

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68 Comments on “Bubble Warnings Loom Large Over US Auto Sales Boom...”


  • avatar

    Your purpose as an American is to take on as much debt as possible – without capsizing. Have as many children as possible. Each one is a cash register…of work.

    And if you can’t handle it, the government will simply allow more illegals in.

    Afterall – they know how to have big families!

  • avatar
    Motorhead10

    Analyst name is Adam Jonas – not Jones

  • avatar
    hreardon

    I see the auto market cooling off in a managed way over the next two years – it’s housing, again, that is the big question mark. I have yet to read any serious, good analysis of how a spike in interest rates will affect the housing market, but my gut tells me that it will lead to another tumble in prices because ‘payment affordability’ seems to be the name of the game these days.

    As I’ve mentioned elsewhere, as in all things related to economic forecasting, the trend is your friend…until it isn’t. If employment and wages increase, even at a glacial pace and “all else remains constant”, things should be okay. Of course, that “all else remains constant” variable is the kicker, isn’t it? ;-)

    • 0 avatar
      sportyaccordy

      It’s amazing. I did a housing afforability calculation and Trulia says I can afford a home 5x my take household’s income. I mean technically we could make the payments, but we would be dead in the water if ANYTHING happened.

      Barring an elimination of the deficit I don’t see interest rates going up soon. The Fed will play more and more dangerous games to keep the music playing.

      • 0 avatar

        Tell that to one of my clients who is currently trying to buy a house in MiddleVillage, New York City.

        The houses there average $600,000.

        She’s a New York City public school teacher and he is a fireman.

        $3500/month

        Not including her children’s expenses.

        I’m trying to tell her she can’t afford it but she thinks I’m wrong.

        • 0 avatar
          hreardon

          bigtruck – are you talking $3500/month in total income or $3500/month in mortgage+interest+taxes on the $600k home?

          Either way, I just don’t get how people would even consider it to be reasonable, acceptable or prudent to engage in such a financial acquisition.

          Unreal.

        • 0 avatar
          skor

          NYC firemen can make over $100K per year after 7-8 years on the job. Fireman are on 3 days per week at the firehouse, and off 4 days. Many hold down side jobs or run businesses. They typically retire before they are 50 years old, with very lucrative pensions and benefits. Most move on to well paying second careers. NYC teachers can make $75K per year after only a few years on the job, likewise with excellent pension and benefit plans. I wouldn’t be surprised if your clients have a combined income of $200K, they could easily swing that $3,500 mortgage.

          • 0 avatar
            Joebaldheadedgranny

            Concur skor- the private sector American is unaware that the civil servants will enjoy vastly greater pensions at qualifying ages far younger, all guaranteed by taxpayers. Even Ralph Nadar admits they have perma-rigged the system for their own short term gain. Hey, at least they have good taste in cars- I see more high-end rides with fire helmet decals than ever before.

          • 0 avatar
            skor

            @Joebaldhead,

            In the NYC area, which includes Northern New Jersey, cops and teachers are quite well paid. NJ public school teacher has to be the best part-time job in the world…work 180 days per year, hours 9-3. It common now to see suburban Jersey cops retire in their 40s with six figure pensions and 100% medical, dental and vision for life.

      • 0 avatar
        IHateCars

        What the bank will pre-approve you for and what you can comfortably afford are entirely two different things. Unfortunately, a lot of people don’t see the distinction.

        Credit can be a great tool if you’re not stupid with it…again, too many people don’t understand that either.

      • 0 avatar
        FormerFF

        Five times income is nuts. Is there someone at Trulia that will help you make your payments when you get in trouble? I suppose it’s easy enough to tell someone else to go into debt when your business benefits from it.

        At some point in the not too distant future, interest rates will have to go up, but modestly.

      • 0 avatar
        hreardon

        If not this autumn, early next year is when the Fed will abandon the zero interest rate policy. How fast will depend on a whole host of factors, but it’s only a few months away for sure.

        I’m far from an inflationista, but again all things (geopolitical) held constant, price levels are rising and rates will go up to help combat that.

      • 0 avatar
        Kendahl

        You can afford a house that costs five times your annual income? When I was younger, the recommended limit was two to three times your income. Little wonder people are losing their homes. My wife and I had a hard time talking ourselves into a house that cost twice our income. The house is now paid off. I guess that’s why we are enjoying a comfortable retirement while many others are wondering how to get by on nothing but Social Security.

        • 0 avatar
          28-Cars-Later

          That was before the money printing.

        • 0 avatar
          TheyBeRollin

          You can’t actually afford a house that is 5x your annual income. The only way you can deceive yourself into believing that you can afford it is to believe that these low interest rates are normal.

          Many people are going to go upside-down again when interest rates return to normal levels…

        • 0 avatar
          krhodes1

          A lot depends on what your income is. As one who has been lucky enough to see my income nearly triple in the past 10 years, I can say my actual cost of living has not really changed. It costs the same to feed and cloth me, and all the other non-house expenses have not gone up anywhere near as much. So where it felt like a major stretch to buy a $125K house when I was making $40k (and I needed two roommates to make it comfortable), buying a $550K house now would not be THAT big of a deal financially. Not that I have ANY intention of doing so! I still live in my $125K house, and I still have a roommate who pays 1/2 the house bills plus some rent.

          The difference in interest rates also makes a HUGE difference in what you can afford. My original mortgage in ’01 was at 8.75% for 30 years, which was a great rate for a first time buyer with only 3% down at that time. Currently 2.75% for 15 years. Even with having taken out $40K for renovations years back, the current mortgage payment is about the same as the original! Difference being ~$1000/mo goes to principal vs. ~$50 those first years.

          I have a plan to spend $10-15K (in cash) a year on upgrading this house over the next 4 years rather than selling and buying a nicer house. Makes far more sense than moving.

      • 0 avatar
        markf

        Concur, interest will not be going up, ever. Well not until the entire thing collapses. The FED has painted themselves into a corner with 0% interest rates, the GOV gets to “borrow” money at near 0% interest rates (really just printing and devaluing the dollar) thus the spending and borrowing by the federal government continues unabated.

        No nation in history has ever owed this much money. Imagine how much that debt will rise if interest go from .5% to 5-5.5% the historical norm.

        Rates will never rise……

        • 0 avatar
          28-Cars-Later

          Only when the music stops would such a thing occur.

          The future is one of five things in my opinion.

          1. Significant conventional world warfare as the Petrodollar dies and is not fully replaced (which is already starting to occur).

          2. A new US currency is introduced (a blue dollar let’s say), and current US dollars are exchanged at a ratio (say 3:1). This is followed by significant conventional and possibly nuclear warfare as global dollar holders take a haircut.

          3. The basket of currencies model orchestrated by IMF or UN is introduced, possibly followed by conventional warfare.

          4. Some sort of return to a Bretton Woods system is orchestrated by the East or the BRICS as a result of de-Dollarization polices currently being put into effect, possibly followed by conventional warfare

          5. Preemptive nuclear strike by Washington/NATO/Israel against Soviet/Iranian/Other MENA targets followed by counterstrike partially intercepted by the “missile shield” but still resulting in significant hits in the West. Whatever is left of the West declares victory and survivors struggle to subside in the famine and pestilence that follow. China is the elephant in the room I can’t decide their fate in such a move.

          • 0 avatar
            SaulTigh

            Those are all possibilities, and the main reason that I don’t keep all my eggs in one basket in any aspect of my life. Diversification and a little planning go a long way. I’m also far more scared of the people local to me than any foreign enemy. I don’t think they’ll handle privation nearly as well as say my grandparents did (they were all born 1914 to 1921).

          • 0 avatar
            28-Cars-Later

            I agree SaulTigh, today’s ordinary folks (myself included) are a shadow of their ancestors a hundred years hence.

  • avatar
    Land Ark

    As my ability to pay higher costs increases, my willingness to do so is not following the same trend. The thought of paying $30k for a car gives me panic attacks. I don’t understand how people are able to do it. I mean, I realize a lot of people buy and then can’t keep up, but there is a large part of the population that is able to make the payments until trade-in time and then move on to another one.
    But I completely agree, the end times are coming for these ridiculously low interest rates. And frankly, I am looking forward to it. Higher interest rates *should* equate higher savings rates, thus increasing the incentive to put money in a savings account instead of spending it on car payments.

    • 0 avatar
      FormerFF

      The savings rate is actually fairly high – for very high net worth individuals and large corporations. It’s only low among the middle class. It’s very low for the lower middle class and close to zero for people living in poverty.

      • 0 avatar
        Kendahl

        The problem with the savings rate among the middle class (of which my wife and I are members) is that their wants (as opposed to needs) exceed their earnings. Recently, I read that the average cable TV bill is $200 per month. The cheapest smart phone plan we found is $90 per month. Brown bagging your lunch at work will save $100 to $300 per month. Added together, that’s at least $5,000 per year you could put into an IRA for your retirement.

        • 0 avatar
          kvndoom

          Amen, dude. I buy a loaf of bread every week and keep a large jar of peanut butter at my desk. PBJ for breakfast and lunch, 5 days a week. Some days I splurge and microwave some ramen. Food is overrated anyway.

          Shop at Walmart and dollar stores almost exclusively for groceries.

          Got rid of 2 car payments. Fiancee bought a 2005 van with cash, I bought a 2007 sedan with cash. We had a combined $900/month in car payments when we first started living together in 2011. I have proudly been cured of new car smell. Just took a long time.

          Dumped cable once our 2 years was up. We pay $60 for internet, and $8 apiece for Netflix and Hulu. I don’t care how much the kids whine, as soon as I tell them they can have cable if they pay for it, they STFU.

          Went to T-Mobile, from Verizon for cell phones (5 lines, but the kids pay me their portion). Would have been nearly 300/mo on VZ, now about $220 and will drop as they pay off their phones.

          Our combined yearly gross? Probably about 110k. We definitely live more frugally than many households bringing in half of what we do. Or less.

          We have streamlined the living sh1t out of our finances…. And we STILL feel the pinch some months (cost of living just keeps going up). I don’t know how other people do it and still keep their heads above water. Heck, maybe they just are good at faking it.

          Long run I know it’ll pay off, so long as we keep paying extra on the mortgage and do some renovations as we can. I’ve been able to put $$ into securities too.

          • 0 avatar
            Land Ark

            Wow, good to see you’re actually making changes despite the economy coming back. Keep it up.

            I cut satellite back in January. I was paying ~$140/mo just for that, plus my wife paid $60 for internet. Now, just so she can watch her stories on HBO we have one standard def tv with cable in the house and I think she pays an extra $30 a month on top of the internet.
            Keep in mind, I have a room dedicated to watching tv. And this time last year if you told me I would be able to live without it, I would have laughed at you. Now? I won’t be going back. I have an antenna for football and there’s usually something on when I want to have background noise. Plus we have Netflix (I’m half way through season 1 of Initial D at the moment).

            I went with Virgin Mobile after being with Verizon for about 10 years. My unlimited* data plan and limited voice (300/mo) costs $35/mo. No regrets there either. But I am by no means a data user. I turn data off 99% of the time to save the battery and I am not a social networker/mobile internet user.

            I pack my lunch 4 days a week and go out with the guys on Fridays.

            And while we’re both doing quite well, I just never want to be saddled with debt. If I can make extra payments on whatever cars I buy, I will. That meant I paid off my Legacy and GTO in a combined 3.5 years.
            I realize not everyone is as fortunate as we are, but like Kendhal said, weighing the wants versus actual needs would save a lot of people a lot of money right now.

          • 0 avatar
            koshchei

            Amen to this. We apply this approach as well. No cell phone plan (went cellular iPad instead for a scaling $5.99/mo fee), no cable, and $50/mo internet with bundled VOIP phone that works out to about $2/mo. We’ll have our 25 year mortgage paid off in about 10 weeks (9 years total), just in time for our first baby, and their university fund.

          • 0 avatar
            28-Cars-Later

            “cellular iPad instead for a scaling $5.99/mo fee”

            How does this work exactly?

          • 0 avatar
            koshchei

            ‘“cellular iPad instead for a scaling $5.99/mo fee”
            How does this work exactly?’

            I pay $5.99/mo as a base rate for 250MB/month from Rogers. As my usage scales, the pricing scales up as well, capping at $34.99 for 6 gig or thereabouts. On average, I’d say our monthly bill works out to around $13. Also, because it’s not a contract, we can chuck the SIM card whenever we want, i.e. Rogers changes their pricing.

            The key to taking advantage of this is to buy an iPad up-front with a decent amount of space, and then download any movies or music at home over wireless. Restrict cellular use to low bandwidth things like directions, web browsing, and iMessage when travelling.

          • 0 avatar
            28-Cars-Later

            Thx for the reply.

    • 0 avatar
      cwallace

      “As my ability to pay higher costs increases, my willingness to do so is not following the same trend.”

      Very well said.

    • 0 avatar
      krhodes1

      Ultimately it is all what you can afford, not what the payment number or the bottom line price is. Cars are my primary hobby, I’m willing to spend up to about 15% of my take home pay on that hobby. At the moment, that means a 3yo BMW (that I plan to keep forever), a 1.5yo Abarth that was bought completely as a toy with the expectation of keeping it 2-3 years, an old Range Rover I paid cash for, and the Triumph I have owned most of my adult life. $1000 a month in car payments is no hardship at this point in my life. I’m middle-aged, single, no kids, small mortgage, small student loan debt (at 1.75%)and I still have a roommate who gives me almost that much a month in bills and rent – I figure that is about the equivalent of having a spouse who makes 1/2 what I do.

      You still have to be smart about it though – I make sure to put enough down that I will never, ever be upside down on any car I am making payments on, and I won’t make payments on a car with no warranty. Payments or repairs, never both. I have enough in liquid assets that I could pay off the notes at any time. If I got sick or lost my job, the extra cars would GO! Pay them off, then on the block they go.

      I do agree on keeping the other costs well under control though. I have a pretty cheap cell plan, and minimal sat TV.

  • avatar
    Zackman

    Same old, same old…

    I have heard – but cannot prove – that the reason for GM’s sales increase was because of all the recalls – the owners of recalled vehicles are simply trading them in on new cars. Hearsay?

    If that’s true, then so far, I’m not one of them, as my VIN is not on the list!

    • 0 avatar
      Motorhead10

      as I understand it from contacts at GM – there are incentives for people that bring in vehicles on recall. I thought they mentioned up to $1500. Waiting to see the “take rate” data from them.

  • avatar
    sirwired

    How high is the price of a car these days vs. how much use you can get out of it? Yes, prices are higher than ever, but as far as inflation-adjusted price vs. years of useful life, I expect things have stayed pretty constant, at worst. Just like I don’t pay any attention to commenters here that fret that consumers now take longer than 4 years to pay off a car, even though when that “rule of thumb” was written, cars were lucky to hit 100k before going off to the rust heap. Now a 200k car is a complete non-event.

    • 0 avatar
      Car Ramrod

      This is a great point– the majority of what’s out there can easily make it 200k. If I needed to, I would feel better about a 6 year loan on today’s cars than a 4 year loan on what was for sale 20 years ago.
      Tying into what krhodes said though, payments on a car with no warranty are dangerous for people with little or no cash cushion. Cars start to need major maintenence at some point. To pay $800+ to change a timing belt on a car that still has a payment is too much to ask of many folks.

  • avatar
    KixStart

    In terms of broader market healthy, the price adjustment on the ELR is meaningless, as the ELR was stupidly overpriced.

    I’m not sure what to make of pickup adjustments, though. GM has increased their sticker prices with the latest generation and the adjustments on their vehicles may be necessary to bring them back to what the market will actually bear. This probably wouldn’t apply to FCA and Ford at this time.

  • avatar
    Dan

    I went out to lunch by dealership row last week and read some of the stickers.

    GMC Sierra 1500, extended cab, cloth seats, Z71 equivalent, V6 (!), half sized screen in the dash with black plastic filler on both sides. $46,250. Which is to say, MORE THAN THE 6.2L DENALI CREW CAB STICKERED FOR IN 2007, 2008, 2009, OR 2010 AND $400 SHORT OF 2011.

    Buick Enclave, looking pretty much indistinguishable from the one that I lost interest in in 2007 because it was gutless. Still two cylinders short of worth buying. $38,000 on the sticker then. A few more buttons and bigger screens on the dash and it’s now $55,000.

    2015 Hyundai Sonata Ltd. Didn’t even have the turbo motor, skinny tires on little wheels, all the dash gimmicks, $32,700. I bought a Sonata once. I could have bought two of them for $32,700, and I’d have 12 cylinders outside and a year’s phone bill left in my pocket after I did it.

    Hyundai CRV equivalent, turbo I4, FWD, big double sunroof, shiny oversized wheels. $36,300.

    I understand that people don’t pay sticker. I understand that people are financing for 6 or 7 years. I also understand that these cars are something I would rent when I didn’t have a better choice and someone is still going to be paying down a $5-600 a month note in 2020.

    If boom is another word for fscking insane then I believe that we’re here.

    • 0 avatar
      Andy

      Tend to agree. Went to trade up our 2005 Yukon XL. We paid around $32K “employee pricing” because of whichever crisis was happening at GM then. It was an SLT, with only a few options missing. Liked it, got 9 years out of it, wanted another. Hooooooly cow! $60K for the new one you actually want.

      So, we’re really digging our new $34K Pathfinder (we never really towed anything, just liked the space).

      My prediction is, if rates go up and monthly payments with them, the market will cool but not crash, and people will simply buy less expensive vehicles. Hyundai/Kia will make a killing as people who love leather and gadgets lose their brand loyalty and turn to them for the most features for the money.

      Speaking of Hyundai/Kia – their 100K warranty is another reason why the 6-year car note is stupid but not catastrophic.

    • 0 avatar
      hreardon

      Dan,

      Can’t speak to trucks, but friends took me car shopping last week and were looking at a new 2014 Enclave that stickered at $43k. Wife’s CRV-EX AWD stickered for something close to $26.

      Prices are indeed up, but keep in mind that most people aren’t buying the top-spec models that are loaded to the gills.

    • 0 avatar
      28-Cars-Later

      +infinity Dan, well said.

  • avatar
    CapVandal

    Let’s see. You have Wall Street insiders, “Morgan Stanley auto analyst Adam Jones is among those insiders” He is a stock analyst. Not an insider in any meaningful sense of the word. There are good reasons for being bearish — starting with global auto manufacturing overcapacity.

    “demand is artificial, and should begin to drop once the U.S. Federal Reserve raises interest rates next year.”
    Is that a fact or a theory? People have been holding their breath waiting for interest rates to increase for the last 6 years. Easy enough to encourage others to bet their money on a theory.

    Comptroller of the Currency goes as far as to claim in a June report that “signs of risk in auto lending are beginning to emerge” What is the relationship between ‘signs of risk’ and a bubble? Lenders have been too risk averse since 2008. Prices and underwriting standards are too high. Profits are too high. More competition is needed. If the new entrants overshoot, then we will see a minor credit cycle, which happen all time – have always happened, and just the way competition works. And … households are deleveraging. http://www.marketoracle.co.uk/images/2012/Mar/debt-deleveraging-lie-8.gif

    Whatever everyone worries about isn’t going to be a problem. Whatever is going to be the next problem isn’t going to be a major concern in advance.

    It took the depression generation 20 to 40 years to buy stocks again. Mortgage backed securities were big in the 1920’s. It took the 80’s gold bugs 20 years to repeat the cycle. As long as car guys worry about debt bubbles, it is an indication that everyone is concerned about them. If anyone is 100% confident about the auto bubble — search out short sale opportunities. No reason to not profit from your insight.

    It is human nature to prepare for the last war. Not the next one.

    • 0 avatar
      hreardon

      “It is human nature to prepare for the last war. Not the next one.”

      Quoted for truth. This is the primary reason why so few people can anticipate or prepare for financial shocks.

    • 0 avatar
      ThirdOwner

      An outstanding post. TTAC would do well to apply a critical thinking filter before quoting such analysts. The guy must have a direct line to Yellen to make the claim that the rates will go up.

      • 0 avatar
        krhodes1

        I think there is no safer bet to make than that interest rates will go up. They certainly can’t go DOWN when the bank cost of funds is effectively 0%. The questions are when, how much, and how fast will they go up?

        Mortgage rates are up considerably over the past couple years – if I were to refi right now, I would be at just about 1% higher. 1% doesn’t sound like much, but that is nearly a 25% increase in two years.

        • 0 avatar
          markf

          People have been saying rates can’t go down for 6 years now. They are also saying they can “only” go up for 6 years now. Interest rates will not rise, the Fed will bankrupt the government if rates rise. Forget the economy and Yellen’s moronic unemployment indicators (which she ha already readjusted) Rates won’t rise for 1 simple reason, the US Government could never afford to service it’s debt if rates rose to historical norms.

  • avatar
    thegamper

    I recently leased a 2014 Buick Enclave and came out of a Honda Odyssey lease. This is obviously not hard evidence, but I was able to lease the $44,000 Enclave for less than I was paying on my $38,000 2012 Odyssey. Things were a little different in 2011 and rich incentives were a bit harder to come by, particularly on Hondas. My point being, there were enough incentives on the Buick to make it happen. However, in my shopping I did contact my Honda dealer who was very willing to deal on an Odyssey lease offering a significant discount over what I paid in 2011 for the 2012 to the tune of $50 to $60 per month less for the exact same vehicle. So incentives are up everywhere, probably more than is advertised.

    The automakers are very much back at the volume game, everybody is playing, some more than others. Even the former resale champs Toyota and Honda seem to have thrown caution to the wind. Thus, I conclude that history will repeat itself to some extent with incentives pulling forward demand and creating demand that would not exist in a healthy selling environment, eventually the bubble will burst unless automakers pair back incentives and try to sell strictly on demand.

    • 0 avatar
      Andy

      So, a burst bubble for new cars is a good thing for lessees, right? Used car residual values increase, lease payments go down. I wonder why the lease deals today are so good when new car sales are gangbusters.

      We just started our first lease, and I know Dave Ramsey disapproves, but oh well. I didn’t do it because I can’t afford to buy. I did it because I just like new cars and, realizing we were in no danger of exceeding mileage limitations, figured why not just have a cheap payment and enjoy a new car and all its benefits? I am doing fine on my retirement planning and savings and debt. Just living a little. Some people would get more satisfaction from another $300 in the bank each month. Others gotta have some fun.

  • avatar
    87 Morgan

    I am not convinced. We sold a lot of cars in the US from 1995-2005. I see a lot of these cars still on the road. A good lot of them are worse for the wear.

    These sleds are nearing the end of their useful life. A new car with a long loan is a better proposition for many. Reliable, far more fuel efficient etc. Crush the old v8 Explorer/Expedition/Tahoe, which seem to be the bulk of the old units seem like.

    If you drive 1500 miles a month at 15 mpg (insert name of your early 00’s SUV) at $3.5 per gal and go to a 30 mpg new car (insert the one your prefer: Camry, Cruze, 6, Sonata, Accord, Civic, CRV) you save $175 a month.

    30k loan at 75 months, 5% is $466. Less the $175 gas savings you have $291 net increase in monthly cash output. Assuming the old car was PIF. When I was selling cars in the late 90’s almost everyone told me they wanted a $250 payment. But, they traded one gas hog for another.

    Yes, loans are longer. But todays new or late model used offer a far better ownership proposition than what could had 15 years ago in terms of long term ownership costs.

    I respectively submit that bubble mania is a bit overblown.

    • 0 avatar
      Andy

      I agree with the sentiment, but few people can realistically go from 15 mpg to 30. They may go from 15 to low 20’s, which is nothing to sneeze at. But, aside from some people who just liked trucks, if the big SUV was a family vehicle, they’re probably not going any smaller than a midsize SUV.

  • avatar
    SCE to AUX

    I wouldn’t lump the ELR’s discounts in with GM’s truck discounts. The ELR would be a sales dog at any price. But what they have in common is GM’s desperation to move them.

  • avatar
    RogerB34

    As long as Government doesn’t bail borrowers or lenders, bubble as much as they can stand.

  • avatar
    CoreyDL

    “However, most industry insiders believe pent-up customer demand”

    I don’t get this. There are always cars available, and they do sales every year to get rid of the current MY. If you need a car you’ll buy, and otherwise you won’t. It’s not pent-up.

    • 0 avatar
      TheyBeRollin

      Car production is elastic. If a model is selling fast, dealers are ordering more. If it isn’t selling, the dealer is stuck with the inventory. Demand drops for the current (last) model year toward the end of the year, so anything left on the lot (less desirable models, presumably) needs to be sold to create space for the next model year vehicles that they’re required to stock as part of their franchise agreement with the manufacturer.

      I wouldn’t call it “pent-up demand”. Demand appears to be very steady. Proof that demand hasn’t dropped or gained is that the trend in the age of automobiles on the road is very steady. In 2007-2010, the trend was that cars were slightly newer, while they were older in 2001-2004. They’re back to being a bit on the newer side, but not much.

      Based on 1995-2014, assuming a linear trend (will eventually be clearly logarithmic), we should see:
      2015 ~11.5
      2016 ~11.6
      2017 ~11.8
      2018 ~12.0
      2019 ~12.1
      2020 ~12.3
      2025 ~13.1
      2030 ~13.9

  • avatar
    CoreyDL

    “We’re offering a discount on this van here ma’am. It’s a base Sienna, but somebody stole the badges off it. I haven’t sold a car since 2004, which is the same time I purchased my last suit.”

  • avatar
    don1967

    Ever since 2008 there has been a bubble in declaring bubbles. These Wall Street geniuses… always viewing the world with perfect hindsight wisdom.

    In 2014 we’re not talking about millions of 2-year old creampuffs being traded in an orgy of negative-equity decadence. We’re talking about millions of 10+ year old clunkers needing replacement at a time when 2-year-old creampuffs are trading at absurdly high prices. It is only logical – even prudent – for consumers to take advantage of low interest rates and get that new set of wheels now.

  • avatar
    05lgt

    Today’s episode of “creepy stock photography improv”
    Her: Sign the divorce papers Ron.
    Ron: Sure hon, but wait a sec. See those handprints on the inside of the windshield where I banged your sister? I think I see where her face hit a few times…
    Her: She has Downs you pig. I can’t … Just sign. Please?
    Ron: OK, OK. I’ll sign. Oh hey, remember when I showed that Odessy over there to your mom?

  • avatar
    nrd515

    I think a lot of people were getting close to the end of the time they were going to keep their vehicles in 2008-9 when the economy took a shit, so they kept them “until the end”. A…frugal friend of mine drove his old rustbuckets until they got issues that made no sense to repair, so they went. He inherited his stepdad’s car when he got to the point he couldn’t drive anymore, but finally, last year, his 20 year old Crown Vic put a rod through the block, after more than a year of making some very bad noises, and that was it, he went out and bought his first new vehicle, a 2013 Grand Caravan, the lowest optioned one I’ve ever seen. He put so much down on it, his payment for 24 months was like $110. He paid if off early, and is now trying to keep from buying his wife a new car. The old Taurus she’s driving now has a lot of problems, and is 15 years old. He “let” her drive the Caravan a couple of weeks ago, and I have to laugh at his struggles to keep her out of the car lots. “Uhhh, I have to go honey, and you know I can only go at home!” isn’t working anymore.

  • avatar

    https://www.linkedin.com/groupItem?view=&item=5902506371844182018&type=member&gid=2021503&trk=eml-b2_anet_digest-hero-1-hero-disc-disc-0&midToken=AQGBSAeDQgOmvg&fromEmail=fromEmail&ut=35bgrqGh53Wmk1

  • avatar

    http://www.marketwatch.com/story/why-the-auto-loan-bubble-is-just-hype-2014-08-05


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