The Coming Collapse

 

This is an automobile centered posting. Selling cars, trucks, and utility trailers put a roof over our heads and food on the table for many years. Although retired, I keep up with the trends and with friends still in the business.

REPOSESSIONS

This 15 minute video gives us a clear picture of the present state of our economy, IMO. Information straight from the horse’s mouth, so to speak.

https://www.youtube.com/watch?v=gPfnkhLvjn4&ab_channel=CarQuestionsAnswered

Circa 2003 the average repossession loss, to the lender, was estimated to be $4,000. The number one cause was a major repair. The owner couldn’t afford both the repair and the monthly payment. Since they couldn’t use the vehicle, they let it go to repossession. The lender was on the hook for the repairs or selling for a huge loss.

During the time I worked for Steve Lance’s Cowboy Corral Kia, his operation was the first in the country to sell 1,000 Kias, earning him a $1,000,000 bonus.

Kia’s 5year/60,000 bumper to bumper warranty was the key to getting people with marginal credit financed. The lenders knew should they need to repossess the vehicle; repairs would likely be covered by Kia. Further, the borrower wouldn’t be faced with the repair or payment decision. We found financing for many people who would never have qualified for  used car financing.

Fix and Keep

Another YouTube channel I watch. Here, Car Wizard explains the merits of keeping and maintaining an older (and paid for) car.

https://www.youtube.com/watch?v=eXYKGcutI6A&ab_channel=CarWizard

This channel is worth watching as he lays it on the line. His rants about cheap plastic parts are epic. For example, $4,000 in labor to replace a $50 part. He then takes apart the $50 part and shows the cheap plastic gears that failed.

He often explains what vehicles he recommends buying and those he won’t recommend, including some Toyota models.

Damn Fools

I’ve mentioned several times that, in my mortgage collection job, the number of expensive vehicles and toys I see at the homes of people who are behind on their mortgage may explain why they are behind.

One stands out as a “shining” example. A $700,000 house with a three car garage has parked, outside, a King Ranch Ford pickup, a Lincoln Navigator, and a late model Audi A4. An unanswered question is, “What is inside the garages”.

This one sticks in my memory as one of the nastier couple I’ve encountered. In general, the more expensive the house, the bigger the chance of encountering an asshole.

“How dare you question me?” demands Mr/Ms Entitled.

Bore and Stroke

The amount of information on “how to buy a car” amuses me. From decades of selling them, usually the decision is, “How much to drive it away (bore) and how much a month to keep driving it (stroke)”.

Up in the tower, the managers are not plotting on how to shaft you. Rather, they are trying to structure a deal some lender will approve. Unless you are paying cash you are not the primary buyer.

But, but WSF, I have my own financing! Wonderful, I’m still looking at the deal because your “own financer” will use the same criteria as any lender to approve the loan when you present them with the final numbers.

What collapsed the car biz circa 2005-06 was financing. For whatever reason, lenders outside captive lenders (Ford Motor Credit, GMAC, etc.) quit financing even people with great credit and decent down payments. Will history repeat?

 Stellantis

A European conglomerate that acquired Chrysler has done little to improve the quality, IMO, of any brand under their ownership. Their website.  MORE

Of the ten slowest selling new vehicle models in this country, six are from Stellantis with the worse, Jeep Compass, with a 710+ days in inventory. The Compass, under the body, is a Fiat.

There isn’t a single Stellantis vehicle with a decent Consumer Reports rating.

So who will buy their cars? If the price is right, rental car companies.

Floor Plans

New car dealers receive inventory at no initial cost, in general. Every 30 days, they pay the manufacturer 10% of the invoice (curtailment). Usually, after 90-120 days, the entire amount becomes due. In the biz this is referred to as, “having a birthday”. From experience I can say great effort, and incentives to the sales force, is made to sell older inventory. Aging inventory eats up the dealer’s credit lines. Given the slow sales of many models, I foresee a lot of dealers going out of business.

Buy Here, Pay Here

The riskiest business. Rarely are the cars ever paid off. Many are repossessed several times until someone wrecks one. A lot of the current glut of repossessed vehicles will end up at one of these lots.

The reality of this business is a very expensive way to rent a vehicle. For people with horrible credit, but can come up with a down payment and full coverage insurance, it is a way to have transportation.

One Trillion Dollars

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A collapse of the automobile industry isn’t enough, by itself, to collapse the overall economy. It would have serious repercussions.

As always, YMMV