Nuts & Bolts Update on Used Vehicles, Who Pays Sticker, and Why Subprime Customers are Vulnerable to Getting Ripped Off

Wolf Richter with Jim Goddard on This Week in Money:

We also discuss what’s still holding back EVs, the iffy future of Tesla, and how a trade war might disrupt the global supply chains of the auto industry.

And here’s the second segment of the interview. The Price of Easy Money, Low Interest Rates, and Debt Bubbles. Read… How People Turn into “Debt Slaves?” 
 

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  13 comments for “Nuts & Bolts Update on Used Vehicles, Who Pays Sticker, and Why Subprime Customers are Vulnerable to Getting Ripped Off

  1. John M
    May 13, 2018 at 10:17 am

    I’m currently in the market for a “New to me” Toyota Tacoma truck. Its well understood that the used market for a used Tacoma is ridiculously strong.

    Yet I’ve been running a query against http://www.autotrader.com ‘s website to truly figure out what is going on. In the last 6 weeks since I’ve started I’ve seen the total of used and new Toyota 4WD Tacoma offerings rise from 20,004 to 23412 vehicles offered.

    I’ve been running the same query yet only for used vehicles and the numbers from 7654 to 7740 yesterday.

    So the new offers are up 15 % with the used offers barely increasing. The sticker shock of a $35-40,000 is IMO slowing down buyers for new Tacoma trucks but even as ridiculous as the used prices for a Tacoma is they seem to be selling thru (Just in my perception).

    Toyota dealers usually don’t discount Tacoma trucks, but I sense there will come a point where if the current supply continues to increase that the dealers will be asking upstream for better discounts from Toyota as the manufacturer perceives this new form of “Channel stuffing”

    • May 13, 2018 at 11:41 am

      I recently bought a used PU, and had to look long and hard to find what I wanted (8′ bed, ext cab,1/4 ton) and KBB seemed the best to me. There are websites which track inventory in the entire country, and you pay to have the used vehicle delivered. (caveat emptor?) In the end I found my vehicle on local craigslist. ‘Hot’ vehicles sell about as quickly as existing housing. Part of the problem is the automakers sold a lot of inventory which consumers don’t really need or want. Sometimes the common design is just better made, (Subaru Outbacks are premium as well), but who wants a PU with a 5′ bed?
      At the end of the day you are confronted with paying more for what you want, or making a compromise on either quality or design.

    • williethetaper
      May 19, 2018 at 11:23 pm

      the frames rust through quickly in this region of inclement weather and chemical road treatment. despite this, 10 months ago did a search and destroy mission on Craigslist for 3 days running. Results: 1400 ads viewed; 30 used toyotas –
      I purchased a cream puff ’98 Honda Civic w/ 34,000 mi and a ’07 Chev Colorado (2.9L) w/ 173,000 mi, a fleet truck. $6,000 invested.
      The lowest priced Toyota came in a $7,500. Most had over 150,000 mi —- Mpls ps: my goal is to get 2 years out of the Chev. The Civic is the last four door family sedan I’ll buy in my lifetime.

  2. Agnostic
    May 13, 2018 at 10:41 am

    In our area of flyover country, the subprime auto loans have become utterly ridiculous. Poor folks who don’t have two nickels to rub together sign their name and walk out of dealerships with $30,000 debts. One of my clients recently got a bankruptcy discharge. She filled out an online application with a local dealer. The dealer showed up at her job with a new vehicle and tried to drop it off. Mind you, she had never visited the dealer or signed a contract. She had to threaten to call the police to get them to leave. How long before this blows up? One suspects that the Fed must be backstopping the subprime lenders like Santander, Exeter, etc. Otherwise how could they take the losses from the massive repos?

    • NoEasyDay
      May 14, 2018 at 4:11 pm

      I suspect that our entire economy has become dependent on easy credit and bail-outs. Ever wonder how much consumer vehicle prices are inflated due to the implicit government guarantees?

  3. Alex
    May 13, 2018 at 11:21 am

    If the subprime activity was not bailed out, the problem of that segment’s fleecing would not be a problem. I would prefer to move to an equity-based society and get rid of credit cards.

  4. Debt Free
    May 13, 2018 at 12:52 pm

    Tesla is the DeLorean of the 2010s.

  5. May 13, 2018 at 1:20 pm

    This is my first time listening to one of your podcasts, Wolf. Your analysis of markets is extremely detailed and refined. I feel that I got more out of listening than I usually do from reading, and perhaps it’s the opportunity to hear what you emphasize when you’re speaking. As a Canadian, I share your concern about Canadian debt and real estate (and floating rates — I locked my 3.9% mortgage in for 10 years, with zero encouragement from the bank!). I live in a remote rural area (26 years), and we have had no property booms, ever — until now. Even in 2018, there is almost no new construction, but you can’t hire a carpenter, because they’re either renovating, or building on the lake (Lake of the Woods, where demand from people outside the area is high). A condo project with “city” prices started about 8 years ago, and only one of the projected buildings ever got constructed. However, prices in the local market have doubled since 2010, and, with a small housing supply, there have been bidding wars — previously unheard of here. I’m also a gold investor, and listening to you on this subject, your fundamental analysis is correct. What I think is going to drive the gold/silver price is diminishing confidence in both currencies and assets, and here I would cite Mises’ analysis. Increasing the money supply is always inflationary. So there is a current driver for precious metals that you didn’t discuss, unless you believe that inflation in currencies and depreciation in assets is not likely. I would really like to see you write a column on precious metals, in fact!

    • Maximus Minimus
      May 13, 2018 at 4:13 pm

      This is a newsworthy but not too surprising development. The ripples of the fabulous Canadian housing bubble have reached the most distant shores, apparently.

  6. DK
    May 14, 2018 at 7:46 am

    Subprime is a desperation market. This group of borrowers are used to defaults and is usually broke. So just the fact that someone is willing to lend them something is enough for them to take the deal. Regardless of the terms. I had a number of rental homes to people in this catagory and the outcomes were very consistent. It’s a life style.

  7. Gershon
    May 14, 2018 at 4:02 pm

    Meanwhile, consumers are skipping more high rate auto payments than during the financial crisis.

    https://www.bloomberg.com/news/articles/2018-05-14/consumers-skip-more-high-rate-auto-payments-than-during-crisis

  8. Nate
    May 16, 2018 at 4:44 pm

    Wolf, what do you hear about flooring expense? If rates rise quicker than anticipated, could dealers get pinched between floorplan and consumers?

    • May 16, 2018 at 7:14 pm

      Higher floorplan rates will make inventory management an even higher priority. People have forgotten how floorplan can eat your lunch because rates have been so low for so long. So I think that’s where the battle will be — dealers will want to cut their inventories and order/stock fewer of the slower moving models, and manufacturers will put pressure on them not to do so. On the used vehicle side, dealers may also become more selective in terms of what they buy at the auction.

      But rates are rising very gradually, so everyone has years to adjust. I don’t see a sudden change.

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