Is the Automobile Bubble Bursting?

[REWahoo]

^ Hang in there, I think patience is key.

Saw a EweTube yesterday of a used car dealer trying to buy cars at an auction. Many of the cars and trucks were from new car dealerships who had taken the cars as a trade in on a new car purchase, and had evidently given up on trying to sell them on their lots. They were trying to salvage what they considered the wholesale value of the vehicles by sending them to auction but bid prices were coming in several thousand less than the reserve. Some had been at the auction yard for 3 to 5 weeks and still hadn't sold.

The expectation is that auction sellers will soon have to face reality and throw in the towel, accepting the fact these used vehicles are now only worth 75% or so of what they paid for them.

 

[freedomatlast]

^ Hang in there, I think patience is key.

Saw a EweTube yesterday of a used car dealer trying to buy cars at an auction. Many of the cars and trucks were from new car dealerships who had taken the cars as a trade in on a new car purchase, and had evidently given up on trying to sell them on their lots. They were trying to salvage what they considered the wholesale value of the vehicles by sending them to auction but bid prices were coming in several thousand less than the reserve. Some had been at the auction yard for 3 to 5 weeks and still hadn't sold.

The expectation is that auction sellers will soon have to face reality and throw in the towel, accepting the fact these used vehicles are now only worth 75% or so of what they paid for them.

Even Carvana is having "sales" now and accepting that they have to lower prices to move inventory as they creep closer to bankruptcy.

 

[CaptTom]

Captain, what brand?

The used car lots are definitely filling...

This happened to be a Ford dealer, but they've always had a large inventory of used cars on the lot. I think that's mostly what was filling up the lot the other day.

...What I am watching for is the RV bubble burst. Maybe I can get a gently used class B for cheap. Heh heh heh...

Yeah, I'd love to see that, too!

 

[Midpack]

The used car lots are definitely filling. A lot of new car dealers fill their lots with used so it doesn't look weird. One year ago, they had nothing on nothing (no used or new) so some lots literally were growing weeds.

And of course that means trade-in or sales to used car lots have plummeted. So I looked up my car out of curiosity and it’s dropped like a rock. From over $40K to about $27K now. Good thing I don’t really want to sell it…

 

[JoeWras]

And of course that means trade-in or sales to used car lots have plummeted. So I looked up my car out of curiosity and it’s dropped like a rock. From over $40K to about $27K now. Good thing I don’t really want to sell it…

Wow! So we can expect insurance to drop too, right? Ha ha.

 

[Christine]

This guy is an interesting follow on twitter for where prices are currently and where they are headed.

https://twitter.com/x/status/1612814732179771392

He did have one interesting tweet today:

https://twitter.com/x/status/1616121341635166208

Used car prices are STILL 43% higher vs. Dec '19. Let that sink in.

 

[Z3Dreamer]

My gauge has been: "How many new cars do the local dealers have in-stock?" Over the last two years the Honda, Subaru and Toyota folks have had around 8-16. Recently, each had 24 or so new cars in-stock. They are still the higher end, higher margin vehicles.

And yes, a drive-by shows they fill the empty spaces with used vehicles.

 

[Christine]

Reuters have an article about what various car makers have for margins:


"For most of this year, Tesla joined rivals in aggressively raising prices on its most popular vehicles, such as the Model Y SUV. Shortages of semiconductors and other materials kept auto industry production down, allowing companies across the industry to focus on higher-margin models and book strong profits, even as sales volumes fell."

PS! Looks like Gross and Net profit labels have been mixed up in this graphic.



https://www.reuters.com/business/au...ts-profits-weapon-an-ev-price-war-2023-01-19/


"Tesla earned $15,653 in gross profit per vehicle in the third quarter of 2022 - more than twice as much as Volkswagen AG (VOWG_p.DE), four times the comparable figure at Toyota Motor Corp (7203.T) and five times more than Ford Motor Co (F.N), according to a Reuters analysis."




My own amateur thoughts is that car prices cannot come much more down or several makers will get into problems. This is contradicted by the CarDealershipGuy's tweet a few posts back - but then makers are still complaining about chip shortages even if other costs have come down.

 

[braumeister]

Reuters have an article about what various car makers have for margins

Most interesting numbers, thanks for posting that. Hard to imagine Ford actually losing money on every car sold, but these are strange times.

 

[JoeWras]

From the Q3 report from F: " $827 million net loss, a result of special items"

So the net loss is due to something else which the fine print describes as pension adjustments and other CPA stuff that is a one time shot.

When supply chain relaxes, supply prices will relax.

Although the corporate officers will be obliged to report improvements in supply chain, you can be sure they will not share news of any improvements or reductions in cost until they are required to by corporate reporting rules. No salesperson gives away their advantage until they must.

 

[wrigley]

Most interesting numbers, thanks for posting that. Hard to imagine Ford actually losing money on every car sold, but these are strange times.

Especially since their F150's are 60, 70, 80, 90k.

Mike

 

[NW-Bound]

^^^ Good info on various car makers' profit margin. The price cut made by Tesla will severely hurt its earnings. I don't see how it can suddenly make its cars so much cheaper, unless the world slides into a bad recession and raw materials become so plentiful and dirt cheap.

I wonder if the car prices dropping is because people have apprehension about their financial future and stop buying, and not because the manufacturers have been able to lower production costs.

If the former, it's not good news on many fronts. Again, I care more about the world economy stalling than being able to buy a new car cheaper, which I am not looking to do.

 

[audreyh1]

My own amateur thoughts is that car prices cannot come much more down or several makers will get into problems. This is contradicted by the CarDealershipGuy's tweet a few posts back - but then makers are still complaining about chip shortages even if other costs have come down.

Notice that CarDealershipGuy was talking about used car prices. Different ballgame.

 

[Christine]

Notice that CarDealershipGuy was talking about used car prices. Different ballgame.

Good point! Thanks.

 

[Out of Steam]

You can get 0% financing for three years from Ford.

About the only real-world application of that financing (~$1000 a month on the most modest vehicles) is to spread the impact of a retirement account draw to pay for the car over several years.

Of course, this site has a lot of people for which that is useful.

 

[ProspectiveBum]

About the only real-world application of that financing (~$1000 a month on the most modest vehicles) is to spread the impact of a retirement account draw to pay for the car over several years.

Of course, this site has a lot of people for which that is useful.

The other obvious application is for folks who would otherwise be cash buyers, but can earn a bit of interest on their cash while paying down the 0% note.

 

[explanade]

^^^ Good info on various car makers' profit margin. The price cut made by Tesla will severely hurt its earnings. I don't see how it can suddenly make its cars so much cheaper, unless the world slides into a bad recession and raw materials become so plentiful and dirt cheap.

I wonder if the car prices dropping is because people have apprehension about their financial future and stop buying, and not because the manufacturers have been able to lower production costs.

If the former, it's not good news on many fronts. Again, I care more about the world economy stalling than being able to buy a new car cheaper, which I am not looking to do.

That and higher interest rates, though maybe the manufacturers are still offering zero or low-interest financing.

I just checked, my credit union is offering 4.69% for 5-year car loans for those with excellent credit.

 

[Out of Steam]

Since my car has high mileage and I'm not in a position to replace it new, I'm beginning to follow the used car market more closely. Unless my car fails or a manual transmission Honda Accord lands in my lap at an attractive price, actually buying is about 18 months away

The online search I've been using of under $20,000 and under 70,000 miles, 2015 or later, still excludes most popular vehicles. No Hondas except Fits and lower-trim Civics, no Toyotas except Corollas, no Subarus except Imprezas or lower-trim Foresters, no pickups at all, and few Dodge minivans. A few VW Tiguans of the older body style also come up.

VW Jettas and Ford Escapes are common in the listings. Lots of Chevy Trax and Buick Encores (just no).

Not comfortable with paying much more than 50% of what the car would cost new with this mileage and age. Availability at such pricing is really spotty, and includes many vehicles I would consider undesirable.

 

[ExFlyBoy5]

I looked up what my 2012 Accord would bring in on Carvana. I have added about 2,000 miles onto it since the offer in Feb of 2022.

Feb 22: $ 13,124
Jan 23: $ 9,791

That's a drop of nearly 30%. Of course, Carvana is having some issues (to say the least) so it's possible I could get more for it at CarMax or selling to a private party.

 

[NameTaken2]

Edmunds provides this tool to track used car trade-in values.
Enter details for the vehicle to see a graph for the trade-in value past 12mos.
https://www.edmunds.com/appraisal/history/


I've been tracking a specific car using this tool.
It's a great tool -shows the lowering trend discussed.

 

[JoeWras]

This market is just NUTS.

It looked like the used bubble was bursting, but then things started flipping back in February.

Early spring fever (east coast)? Tax refunds? New cars still in short supply, and now more expensive to finance? All of the above?

I don't know, but I capitulated and bought a used car yesterday. I've needed something for 2 years and have been sitting on my hands waiting for the dust to clear. Every time it looks like it is clearing, it goes in reverse. I finally decided to give up on going new, and started looking used, taking my time.

I could see supply building and prices dropping until a few weeks ago, then it just got nuts in my region.

So I joined the nut parade and probably paid too much. My life is getting shorter, and what the hell, I'm not going to wait forever to blow that dough.

 

[freedomatlast]

Same around here. In hindsight, December and January seemed like the time to buy.

 

[REWahoo]

So I joined the nut parade and probably paid too much. My life is getting shorter, and what the hell, I'm not going to wait forever to blow that dough.

There of a lot of us marching in that parade and one more is always welcome!

 

[audreyh1]

Ha ha. Tesla dropped the price of the Model X again and now it’s only $10K more than the price I got almost 2 years ago. When I took delivery last June it had gone up to around $30K more (I had the original price locked in).

But Tesla has been adjusting prices up and down recently, so you never know.