If folks say they see no inflation, they should look at industry reports now bragging about steep price increases. And consumers are willing to pay those prices – the sign of a sea change.
By Wolf Richter for WOLF STREET.
AutoNation, the largest chain of franchised auto dealerships in the US, reported fourth quarter earnings this morning – and even as the total number of new vehicles sold in the quarter fell from a year earlier, the company bragged about a number of records, all of them related to higher prices and stupendous growth in high profit margins, a sign that consumers are willing to pay those higher prices and that they have kissed their hopes for good deals goodbye.
That broad acceptance by consumers of higher prices that allowed for record fat profit margins for the seller is a mega-sign that inflation in new and used vehicles retail is making breath-taking headway.
And yes, now is a terrible time to buy a new or used vehicle. Get ready to pay an arm and a leg, and then watch the dealer and the automaker laugh all the way to the bank.
Inflation is a great thing for the companies on the other side, charging the higher prices. They get to boost their revenues and profits without having to sell more items. It’s not so great for consumers who have to pay a lot more.
New vehicles – a record that caused me to do a double take.
The number of new vehicles that AutoNation sold in Q4 fell by 2.7% year-over-year, to 72,404 vehicles. So no, the business is not booming.
But revenue per new vehicle retailed rose by 6.2% to $43,188, powered by a huge jump in profit margins.
Gross profit per new vehicle sold – the difference between the cost of the vehicle and the selling price – jumped by 50% or by $919 from Q4 2019 to a fabulous record of $2,775 per vehicle, up from $1,850 in Q4 2019, which had already been strong. This was such a huge jump that I did a double take. At first, I thought it was a typo.
The number of used vehicles sold rose by 4.2% year-over-year to 61,526 vehicles. But revenue per used vehicle rose by 7.3% to $22,998 per vehicle. And gross profit per used vehicle jumped by 9.6% to $1,567 per vehicle.
Finance and Insurance products (F&I) – another record:
Dealership F&I departments arrange loans between a customer and a lender or arrange a lease between a customer and a leasing company, and get a commission for doing so. In addition, the F&I department gets paid a commission for selling extended warranties, credit life insurance, and similar products. These commissions all combined form the gross profit of F&I.
And F&I gross profit per vehicle retailed jumped 11.1% year-over-year to a record $2,209 per vehicle sold.
Consumers’ astounding willingness to pay these big price increases.
Combined gross profit per vehicle sold, new and used vehicles and F&I altogether, soared by 21.2% to $4,429 per vehicle. In other words, on average across all brands and dealerships, AutoNation made $4,429 in gross profit per vehicle sold. This is an astounding number for a chain of dealerships with mass-market brands.
What is astounding, actually, is that the normally astute and tough American consumers were willing to lay down and pay those prices, that they allowed the company to get away with effectively raising prices like this across its 230-plus stores.
But it’s not booming demand that causes these price increases. This happened even as unit sales of new vehicles (-2.7%) and used vehicles (+4.2%) combined barely ticked up (+0.4%) from a year earlier.
But no big changes in the mix of segments.
In terms of the number of vehicles sold:
- The share of domestic brands – Ford, Lincoln, Chevrolet, Buick, Cadillac, GMC, Chrysler, Dodge, Jeep, Ram – ticked up to 31.3% of total sales (from a share of 30.0% in Q4 2019).
- The share of import brands ticked down to 42.6% of total sales (from 43.9% in Q4 2019).
- The share of luxury brands remained flat at 26.1% of total sales (v. 26.1% in Q4 2019).
What we’re seeing here is pricing power. AutoNation was able to charge higher prices, even with essentially no growth in unit sales, and its profit margins ballooned to records. The normally astute and price-conscious American consumers went along with it.
This is the sign of substantive consumer price inflation – when consumers no longer resist, when they accept the higher prices, when they accept to pay a whole lot more to fatten the profit margins of the sellers, in this case AutoNation, and further up the line, for the automakers, and ultimately their suppliers.
The Consumer Price Index for used vehicles picked up some of the price increases: it jumped 10% in January compared to a year earlier.
But the Consumer Price Index for new vehicles still refused to pick up the increases in prices that consumers are paying and that are now being reported across in the auto industry. The average transaction price in the US for new vehicle sales in January jumped by 11% year-over-year, according to J.D. Power. But the CPI for new vehicles for January ticked up only 1.3%.
So if folks out there say that they cannot see the inflation, I would encourage them to look at industry data, and those industries are now bragging about and reveling in steep price increases leading to big gross margin increases – until their own costs are rising. This phenomenon is now cropping up everywhere.
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My lease went from 400 to 650 this time around. I’m feeling
a little of the can’t take it with you right about now. As well
the extra funds we would normally have spent on travel etc are
available to us so feeling no pressure .
So, in other words, you’re one of the debt junkies driving prices up. Thanks. Appreciate it.
No Debt Junkie Left Behind ;)
I just bought 5 year old vehicle
felt like surgery
of course I paid CASH for it – living within our means
still $50k for USED vehicle
Ford F350 diesel
keeping work vehicle 2001 F250
Young-ish people who came of age during the last crisis and living within their means don’t have CASH for a car!
Actually there is something subtle in your comment that needs exposure: Not allowed to travel so paying more for other things.
Like everyone else we are being stockaded into not spending our discretionary money on what we want, but on what someone else want’s us to spend it on. Foreign travel transfers money to other countries, domestic spending at higher prices transfers money to large US corporations.
Isn’t a conspiracy, collusion, or at least paranoia, everyone working against you?
I hear your point, but no one put a gun to anyone’s head and made them use their extra money from NOT traveling or eating out, to buy fancy new cars, Pelotons, iPhones, Bitcoin, overpriced stonks, or flat screen TVs.
Most of those people could have (and SHOULD have) saved the money for a rainy day.
But they did put a legal force to your head to keep you from traveling. I’m old but I had a few more driving trips left in me – Chengdu to Lhasa, Warsaw to Athens, Spain – and I doubt I will be able to do them in 1-2 years when it may open up again.
And save your money for a rainy day at 8% real inflation in what?
Boomers have no idea what it’s like for young people in this economy. What difference does it make if we travel a little? A little savings here and there and maybe we can buy a decent house with good schools by the time our kids turn 18…
LD, I don’t follow.
The idea that anybody forces people to spend is just LAZY.
I spent $23k TOTAL in 2020, right about the average expense of the American retiree on Housing and Utilities ALONE.
Americans consume like drunken sailors and expect somebody else to bail them out. Same old, same old.
I guess you don’t get sick. I spent over $23K on health insurance alone under Obamacare. It eased up under Trump.
A few details on your budget magic and government subsidies would be illuminating to the rest of us. I have heard these claims before, but seems no one gives any substantiating details.
An afterthought. Where do you live? Actually I could do that in Cambodia and possibly Thailand – except for the healthcare part and the beer part.
My brother recently signed a 8-years lease on a Model 3. Even with a generous government gift (from the public coffers) to subsidize EV purchase, the monthly is still pretty high.
Meanwhile, I’m still driving my 16-year-old Acura (one of the last models still made in Japan). Oil change, gas and tires changes are the only expense for it. Paid the car off a decade ago. One of the best financial decision I’ve made.
Tax credits for Tesla expire 2 years ago.
Not in Canada.
Soon to be renewed.
The FED see absolutely no inflation for the last 10 years :-)
Only average 6 pack Joe are feeling the inflation.
More people are buying trucks and SUVs than they are buying cars, and average truck profits are somewhere north of $17,000 per vehicle. Cars, not so much.
Also, Americans are addicted to debt. It’s not uncommon for someone to pay off his truck in three years, and trade it in on a truck costing twice as much, as long as his payment amount stays the same. It could, however, take him as long as eight years to pay off that new truck, rather than three years. And yes, on top of that there is inflation from the sinking value of the dollar.
“as long as his payment amount stays the same.”
This is the key link (made possible by 20 yrs of ZIRP).
And…the ability of dealerships to offload dubious car loans (carrying huge balances) onto the public mkts via asset based securities.
The ABS buyers eat the risk because they are yield starved (ZIRP again).
So ZIRP manages to screw both car buyers (much higher principal in loans) and the saver/creditors who ultimately fund these loans (at low to no loans)
back in the early 90’s Ford sold a large SUV called the Centurian
10k gross profit, the salesman loved them. only sold a couple
at the dealer i worked for.
> Also, Americans are addicted to debt.
EXACTLY. We are in the era in which the average RETIREE wastes more than $22k per year on HOUSING AND UTILITIES ALONE!
They are not even trying to retire debt-free.
Crazy people indeed. Then somebody else is supposed to pay for the diseases that their self-imposed high-stress levels cause. To another guy with that BS, not me.
I used to have a neighbor who I assume was insane.
I asked him about his corvette once (because I like cool cars) and he said “I buy a new one and trade it in every 3 years.”
Talk about horrible decisions!
I also drive an old Acura (20 yrs old)… super reliable, decent on gas, cheap to buy, cheap parts and if somebody scratches/dents it…..who cares?!
When I see somebody driving an overly fancy car, I assume they’re over-compensating for something. I guess lots of shallow folks judge others on clothes/cars. Gotta keep up w/the Jones!!
Beyond the money printing (benefiting to few of us), the unavailability of certain services shift the purchasing focus for many of us to the residual products and services, thus creating an imbalance of offer and demand and pushing the prices higher.
What the Fed will show you is the rate of change chart.
Flat…..1%, 1.5%, 2%, 1.5%……boring.
But, cummulative and compounded, it is REAL.
Taking into account the poor metrics used by the BLS and others, add up the inflation for the period that the Fed said there was none.
in 2011 CPI was 211
in 2021 CPI is 255
and the Fed said all the way along…no inflation…deflation was the “fear”
20% in ten years……
Do Wolf or anyone in the comments have a sense whether the extra profit per car sale is coming because loans are being spread out to keep the monthly payments the same? People will often buy based on the monthly payment with little recognition of the total cost, including interest.
You would see the extra profits from loans in the F&I category. Loan terms have already been very long for years, and I don’t think they lengthened materially over the past few months.
But the interest rates from lenders (buy rates for the dealer) are very low, and the interest rates dealers are able to write into the loan contracts haven’t fallen as quickly, so the spread has widened which means higher profits for the dealer.
Our Chinese Fed says we have 1% inflation, when everyone knows it’s 8-9% minimum. Our Peking predators tell us we have 4% unemployment- when the labor participation rate says it’s closer to 18-20%.
The other Chinese government ( the one next to North Korea) says they have 6% GDP growth, when it’s really about 3%. So who would you say lies the best to its serfs?
Our government is much better at propaganda.
Of course we have an advantage: The Chinese People have been lied to by governments for 3,000 years, and it is quite hard to get them to just believe the lies.
That is and ingenious way to say it! Mark!
I think it is symptomatic and temporary. A similar thing is happening in the U.K. All restaurants are shut, pubs are shut, non food shops are shut, gyms are shut, non essential travel forbidden. People who are in work or on furlough can afford to spend more on other items. Cars you can buy online from showrooms.
I guess I just don’t understand this mindset. I probably had $15-$20k more this year from NOT spending money on restaurants, entertainment, and travel, but I didn’t take this as an excuse to blow it on other stuff.
DC’s model of how the economy should run (“optimized GDP”) heavily relies upon a citizenry bred to react as Pavlovian meth addicts when it comes to spending.
Private savings are a disruptor (slack) in the DC centric, Keynesian world of (theoretically) tightly sync’d economic pulleys and gvt policy levers.
DC is filled with Rube Goldbergs who think they are Albert Einstein, Fredo Corleones acting like Benito Mussolini.
We are not all smart and intelligent like you are, RightNYer. I’d have thought you’d have learnt this already.
Yeah, you can include me among the dumber ones….possibly also lazy and envious (Those two might even put me in lake of fire, so they say). I still can’t figure out why landlord Saba’s $50K F350 isn’t his work truck, although I do grasp the paying cash as being better part.
> I guess I just don’t understand this mindset. I probably had $15-$20k more this year from NOT spending money on restaurants, entertainment, and travel, but I didn’t take this as an excuse to blow it on other stuff.
$20k is enough for me to take a very well-deserved sabbatical year.
Buying my time is much more appetizing than consuming stuff at this point in my life.
I can’t stand how there is this mindset that if you were to take 6mo -1yr off work because you’re not a “credit criminal” and can actually afford to you’re seen as a huge red flag when being hired. Why can’t someone be responsible and take some time off for themselves or to learn something, try a business etc. and not be seen in some negative light!?
Yes, that could be a factor here – despite the pandemic, there are a lot of people who still have their jobs and are doing pretty well financially (or retired people who still have their savings). And those people can’t spend money on things like restaurants and travel that they normally would, so instead they’re buying big ticket items, like cars and giant TVs.
Electronics retailers like Best Buy also did very well last year.
I did buy a 65 inch TV but was only $400 thanks to Walmart.
I still manage to live very well in 2020 spending a grand total of under $24k, including the cost of moving from an HCOL to an LCOL thanks to being a remote worker.
Good for you. There are a lot of us around. I did five years at $75,000 total. I am getting a little sloppy with money now, but still at about your number.
Glad I was conservative as I didn’t know interest rates would be pegged at zero so long.
I don’t see real inflation, let me explain, sure people in the US see inflation, other countries too, but not like the US, first the Dollar got slammed by shorters to a all time high record short position, that was a 15% decline, just to keep stock from crashing, secondly they did a good job of driving people into a frenzy speculation on commodities, every analyst right now is pumping commodities, they spiked, double to quadrupled, all that pushed the CPI to 1.37%. People do not believe in the CPI which is understandable, inflation is there right now, as these numbers are baked in now watch inflation turn to deflation, this is why the inflation camp fight with the deflation camp, in a sense they are both right, but from now on reality will dawn, the whole world is in the grip of deflation, in the UK inflation topped out at 3.5 a few years ago as the GBP got slammed, now as the Dollar rockets up the US will see the deflation. People shouldn’t forget the US policies at the moment, throwing money at people, up to 7 trillion in stimulus, debt holidays, the spoilt nature of people have to seek gratification in depressing times & the free money allows them to pay higher prices, it’s possible for businesses to push up prices, today the 10 yr yield hit 1.3, people will say a sign of inflation, personally I think it’s bond holders getting fed up of the Fed, when your hit with a 15% loss from Dollar shorting & 15% loss in capitol from rising yields they sell, plus those who believe in inflation will sell also, I do not believe it is possible to have real inflation, from a booming economy & rising wages, the real inflation that shows in a good economy. The Fed is now in panic mode, well they should be, they lost control of the yields, the economy is in the gutter, it should be risk off, sell stocks buy bonds & yields fall, now ya have a hyper bubble, rising yields, massive speculation, falling Dollar, commodities in a bubble & property, the Fed is in real trouble, they have two choices, let stocks crash & yields collapse or collapse the economy further from all this corruption & stocks will crash anyway. Look inflation, we’ll let it run hot, silly mistake, you say that at hit bond holders with a 30% loss of course they will flee & probably go into stocks thinking the Fed will protect them there, they are on the verge of destroying the golden goose, without the Dollar & the safe bonds the US is well & truly finished, China is probably laughing right now & collecting all that stimulus money too. So nothing but deflation ahead, they’ll compare q2 2020 (lockdown) to q2 2021 & see we see 10% GDP growth, funny, of course the masses will be fooled as always, comparing a 80% closed economy to one open & thinking 11% is great. There is no recovery, 20 million claiming benefits.
China is the beneficiary of the stimulus money because they own the factories. It is too expensive to manufacture most things in America. any more. The jobs will not be coming back. Anybody who can use a spreadsheet can see that there is no way to make a profit or make affordable consumer goods in the States.
Well that’s besides the point, it’s not so cheap in China anymore as wages rise there, the point is the US is just handing China all this stimulus then complain about them overtaking them, corporate greed drove this trend not cheap goods, Apple do not have to make an Iphone for $100 & sell it for $1.5k just so Tim Cook can have a $150 million a year bonus, that’s just him, imagine all the execs, they can manufacture in the US for $300 & sell for $1.5k, people should start boycotting these parasites, this is why inequality is through the roof, they find ways to rip people off while they are asleep, imagine how nice a country would be if laws taxed imports to a sufficient rates that companies made more manufacturing in the country products are sold in, it isn’t about cheap or expensive, it’s about them making ever increasing profits, soon they will have no customers they are that poor, besides Iphones are not as good as Huawei phones & 5 times the price, China is no longer a laggard but a leader, all Apple sell is a brand, their products are now inferior.
}Well that’s besides the point, it’s not so cheap in China anymore as wages rise there”
The average salary in China is presently somewhere between $14,000 and $15,000. The average salary in the U.S. is over $56,000. Chinese labor is still cheap, especially when compared to the cost of U.S. labor.
118k average salary sorry, that’s the point, if people are not paid they can’t buy, short term theft for CEO & Execs is their game, they couldn’t care less about consequences, this is why people are mad as hell, soon they will be rioting & looting, oh, that’s already the case :)
And that’s why price insensitive Americans are dumb. They are expecting inflation so they are willing to pay high prices assuming that the money will come back to them. The inflation in wages has been and will be much lower for most people.
If you look in the historical data, you will see an uncanny correlation over the last 40 years between median wage growth of specific job categories and the official cpi. They don’t want people to think they’re getting poorer to what extent cpi is understated! While the economy may have grown, it’s only because of population growth and the creation of additional technology jobs that pay better. Baumol’s cost disease is a load of horseshit when it comes to the American economy, it does not apply.
No one has yet factored in what happens when bond yields are higher than inflation. Call it stimulus checks for those with savings. Deb slaves need not apply.
If you’d like to see a fascinating film that largely focuses on Chinese workers, check out the fantastic documentary “Manufactured Landscapes” by Edward Burtynsky.
We have an unofficial industrial policy of supporting finance, education, for profit healthcare in this country. If it can work for that,
it likely could work for factory jobs.
We just have to choose to make it happen.
Those jobs can come back. We will we choose that?….Is the question.
I am one of those who can choose, and it hurts my psyche. One company makes quality home audio powered subwoofers in the USA. Every other company, and I mean every other, makes their subs in China.
My dilemma is how do I proceed to get the best two-channel sound below 80Hz to go with my Magnepan MG 12s. (I use a Washington state made AudioControl active crossover)
Currently, my subs are home assembled from four twelve inch Kenwood car stereo subs (sealed @ 1.5 cu ft per sub) which are made in Vietnam. They were inexpensive and quite good down to 36 Hz, but lacking below.
Option 1) Get high-end U S made subs and build furniture grade cabinets. This will take time and effort. Eventually, I’ll have very good, but not the absolute best subs. I would take satisfaction from designing and making them, and yeah, I’ve done the designing already. (down firing 15 ” with pentagonal cabinets to eliminate internal standing wave resonance)
Option 2) Get UK designed, but assembled in China S/812 subs from REL for $3,000 per. These are the most accurate subs for not crazy prices one can find on planet earth IMO.
Option 3) Get JL Audio subs made in Miramar, FL. The e112 Ash model is very good for two-channel hi-fi and great for home theater @ $2,100 per. Made in USA!
I have not decided, but I’m leaning towards the REL. Either way, a compromise will be made. That hurts my psyche.
Since the article is about cars, and since I’m thinking about subs, my ’16 M4 has a sub built into the seat cushion sub-frame of driver & passenger. Clever, eh?
Saturday, 2 May 2020 was the perfect time to buy her it looks from what I see and read. Not to break my arm patting myself on the back, or anything.
Interesting. I don’t know what all that means, but…
I have a pretty good 7.1 channel audio and 4K setup. On my base or LFE, I’ve never been able to get an explanation that I understand, of what the “frequency” nob does (you can place the frequency dial between 40 and 120) and “phase” nob does (between 180 and 0).
The explanations I’ve found on the internet end being a lot of gobbledegook I can’t make heads or tails of.
So I end up placing them in the middle. The LFE does rock on my system, regardless (or because) of my settings choices, and that can a whole lot to viewing enjoyment and impact.
The dial between 40 and 120 should control the frequency that the sub goes up to. An LFE input, typically RCA connection, is for the sub output of your receiver to feed the subwoofer’s input with a dedicated low frequency signal. That’s the 1 in the 7.1 surround.
Phase is basically polarity. In a perfect world, all the sound from speakers originates at the same point and time; therefore the same direction. If the sub is behind the main speaker, and firing backwards, set it to 180. That way, the cones move in the same direction at the same time. Otherwise the sub pushes back while the main speaker pushes forward. Without a phase control, just switch the red and black connections from the wires to either all main speakers or the sub(s) depending on the sub.
The new technology at the top end equipment is smart and effective. 1) put a microphone where you are when you listen, and @ head level. 2) The powered ‘smart’ (my term) sub(s) put out a testing signal of equal amplitude over a wide range of lower frequencies. 3) The microphone connects back to the brains of the sub’s amp and control center so that the sub adjusts its output to get the sound at the microphone to be as close to flat as possible.
The room’s acoustics, which are based on its size and reflections of sound, the position of the listener(s) and the position of the subs all affect each other.
“The dial between 40 and 120 should control the frequency that the sub goes up to. An LFE input,”….. I guess want for is an evaluation, a judgement, of HOW to control the frequency. I want to know, at what frequency should I want to control the sub at? 40? 120? Or anything in between? What qualities in output do these different settings produce? What is the best frequency? What makes the best frequency the best? Do low frequency produce better bigger rumbling, than higher frequency? Do they kick in and same time regardless the setting? Oh and yes my audio set up has a “MACS” that measures a rooms acustics and adjusts outputs.
“If the sub is behind the main speaker, and firing backwards…” How do I know what direction my subs fires? It’s a box like structure, facing forward, a few inches behind center channel speaker, off to the side. Is it firing forward or backwards?
“I have a pretty good 7.1 channel audio and 4K setup…”
God help us all, I think we have stumbled onto a topic more encrusted with personal anecdota than old cars…stereo design.
Wolf, for the love of God, please do not start posting economic data tracking “personal listening systems”.
My anecdotal stereo story is a lot simpler. When it came out early ’70s, I thought, “I enjoyed music just fine on my transistor for 10+ years or so”.
End stereo story.
It was more profitable for recording studios that sound engineers calibrate the sound according to whatever average sound reproduction equipment (players) was available for the regular folk – average hearing sensibility considered also.
Modern high end audiophile equipment cannot reproduce sensibly better those old comercial recordings. That is, if you like 70’s rock then find reproducing equipment produced in the 70’s.
“… That is, if you like 70’s rock then find reproducing equipment produced in the 70’s…”
More practical to just add an EQ to simulate it. At least that you’re not forever stuck with crappy sound in case you want to play something else.
Oil at $60 plus, no planes fly really, no cruise ships, driving is down 60% plus at least in most countries, it’s all speculation, wont last, a collapse is coming, stocks, commodities & property, it’s all fake, fake might have short term momentum but in the end truth conquers all, it’s just disturbing 20 million in the US claiming benefits & they say 6.3% unemployment, same with prices, recovery & inflation, they wish it was real, it’s all lies. You can’t tell a US citizen there is no inflation cuz they see it, pay it, but it’s not gonna last, all their policies were designed to create fear from inflation, force up short term inflation to get people to spend, can the US spend 2 trillion a quarter for a 1.37% inflation print, no way, what they did do is shoot themselves in the foot & pissed off the bond buyers, they are fleeing, what a disaster, once ya reputation is lost it’s lost for good.
‘Rich it’s still cheaper, not much though, average salaries in the US are skewed by the big earners, look up median salary in the US,”
Here you go.
The median household income in the United States is $56,516, according to 2015 data from the U.S. Census. But that rises and falls depending on close you are to peak earning age, which is typically around age 49 for men and 40 for women. How does your salary compare?Aug 24, 2017”
It was my understanding that median income in the US is $30-35k
For instance on inflation, oil is a good subject. Motor oil that is. During the Bush W years, everything oil jacked in price and no one really knew what hit with that, they just paid it.
Of course, motor oil for cars doubled in price (at least) and has yet to come down significantly especially the quart size containers. Even Double Eagle oil is still near $2, name brands almost $4.
It’s all about the science of marketing, not supply and demand. Get Em used to paying the price, they will shell it out. $1200 mo car payments? Bring it on, they’re already seasoned and standing in line for the 2022 models.
Try to insert paragraph breaks into your text. This is really tough to read.
Sure Wolf, always rushing not enough attention to detail, advice noted, thank you.
interesting read but hard to read because its all run together like a stream of consciousness rant but thats ok cause theres some good stuff in there if you can find it wouldnt want to have to read stuff like this too often as it hurts my eyes but dont stop as I found some reasonable ideas just not very well laid out and arranged for easy reading what the heck there are a lot of people that didnt learn in school and still have some common sense its just that they dont know how to express themselves to other people politely.
Did you all catch that short nicely condensed well thought out rant I got the point thanks.
> stocks will crash anyway.
I agree with everything you wrote including that the Fed is in panic mode.
What they don’t understand is that a GIANT positive externality of high income and asset inequality is that for an increasingly higher % of the total population, a massive stock mkt crash is completely irrelevant to their lives.
That’s a great thing!
Paragraphs covey a message much more effectively. Please note the writings of our host. Just sayin’…
I have an excel sheet where I enter every item, the price, date, location and “size” on the grocery receipts going back to Q4 2017. It includes non-food stuff like cleaning supplies, bathroom type stuff, batteries, non prescription medications, etc.
Comparing same-store, same-item, keeping careful track of size (ie, the “31 ounce jar of Marinara Sauce”) to be on guard for hedonic pricing games.
There’s 438 line items from 12 different stores. The overall price increase (note: rising prices are not the same thing as inflation) has been 1.2% annualized rate.
Maybe that will change, but I haven’t seen the high inflation in my grocery basket yet in the San Jose area stores I shop at.
12oz -> 11.5oz beer bottle. 16oz -> 14oz pint of ice cream. 6oz -> 5oz tin of tuna. etc.
My son is a rural electrician and runs a one-man shop — his own. He showed me last week a notice he received from one of the wholesalers he buys much of his supplies from. Across the board the wholesaler was showing price increases, some of them over 10% (one item was +13%!)
Of course, he has to pass this on to his customers.
Does his labor rate stay the same, or does it also go up 10 – 20%?
His rates are holding steady.
How can he contribute to GDP growth if he keeps his labor rates the same? Hyperinflation won’t just happen all by itself. The early bird gets the worm.
I believe you, short term as explained prices did rise, once stimulus runs out it will reverse, this is why you cannot deny the inflation, but it’s a short term trend in a deflationary environment, I’ll tell you right now everything I have bought in the last year has been over 50% cheaper, but I’m in the UK, the GBP has risen close to 25% on the Dollar, soon people will stop buying wake up & prices will fall, that trend will reverse as the Dollar rises 25% plus as the markets crash & burn, blame the Fed who bail out hedge funds and they short the Dollar with hundreds of billions & huge leverage, the Dollar is artificially low & it will rise substantially as these hedge funds experience a short squeeze. But sure if the Dollar is down 15-20% and prices rose 10% you can see how powerful the deflation is, if the Dollar stayed the same prices would be down 10%.
Interesting observation Jack.
We’ll see. But as you point out, the issues is a bit more complex.
Your son’s social credit score may soon be impaired. Statements like his are not helpful to our glorious benefactors.
Jay and Janet from the Central Politburo have decreed that we have 1% inflation.
I’m an HVAC manager in Boston. All parts/equipment/materials are up 7% or more. One of my apprentices was telling me about a biomed stock he got a tip on that was up 156%, on in a week, was pissed when he lost it all on pot stocks the next day. Feeling a lot of 1999 vibes. This should end well.
“But revenue per used vehicle rose by 7.3% to $22,998 per vehicle.”
Sounds like these are newer vehicles. Anyone know how old the typical vehicles average people trade in are?
I’m wondering when my cars will become assets that appreciate every year.
I heard that most sales are lease, all it takes is a stimulus cheque & sign a contract to lease, then they can charge extra for the car, who looks at the total cost of a vehicle when it’s a lease, they just look at the monthly cost & deposit, then add the laws stating no negative rating applied to missed payment, peoples rating are up even if they didn’t pay rent, mortgage, credit cards, loans & whatever else, so easy for dealers to pump up a price no one looks at.
The sick amount of profit these companies make on new vehicles is a great reason not to buy them! It’s the principal. Back to my old Acura….$30K brand new, I buy it used for $5K and the car is in great shape.
I remember hearing years ago that a new car lost something like 25-30% of it’s value as you drove off the lot with it. I always get a good laugh at the guys with the Humvees. I guess they look “tough” to each other but myself and my friends find them hysterically funny.
They spend thousands of dollars to play/pretend they are big strong soldier men. Hey, whatever floats your boat buddy, but it looks like a huge waste of $ compensating for a fragile ego to a lot of folks.
If I see you driving a $60K vehicle, I feel sorry for you…..
I was actively shopping for a new or used vehicle (sedans and crossovers) when the pandemic set in during last March and continue to do so nearly a year later, but with little motivation as it has been easy for my wife and I to share a car. I have gotten daily price alerts and have done searches throughout this time and I have to say the prices have not really moved.
I have also been looking at houses in suburban SE areas for the past 2 years or so. Same thing. They do go pending quickly, but most of the listings do have some kind of price cut and generally feel much like what I’ve seen since before the pandemic.
I do see plenty of inflation at the grocery store, take out places and random goods. I feel some of that is temporary bottle necks and such, but with cars and houses I feel like much of it is the FOMO/hype thing.
I am a believer that the inflation has already happened over long time with credit expansion and will not panic unless there is real broad wage inflation. There is no doubt inflation on the institutional level for assets, but that will clearly fall as support crumbles or is taken away.
When people who normally can’t assemble a down payment get a free check, magic happens. I bet the loans are also stretched out to 60months on the used cars. YOLO!!
endeavor, Wow I said a similar thing before I even seen your comment, what does that tell you, but sure there are a lot fake prosperity going on.
Or there’s gonna be a lot of repossessions.
Well at the moment the repossession man/women are getting sacked cuz they are not allowed to repossess, it’s clear though that denial is the name of the game, it beggars belief the desperation. A society & Gov that doesn’t want any pain, ever, only to cause untold amount of pain when it all collapses.
No. Mfg* do not want their iron back.
*esp on leases.
20 major lenders finance 80% of cars sales.
Similar to creative accounting during the housing meltdown
as long the banks did not take possession, though the owner
surrendered the house, the loan was kept on the books as revenue producing. No loss, no problemo.
Some states (Example OH) have the ex owner on the hook for all taxes, muni services, insurance as the bank would not record name the name change post foreclosure.
The Devil IS in the details…..
In rural TN, where I lived very briefly, when the feller gets behind on his payments…the vehicle gets “Stolen” and goes over a cliff off the side of a mountain.
There was a massive fire destroying hundreds of cars down near Naples, FL a few months ago. I thought: “They can’t sell ’em, so they torched ’em.”
84 months is avg. lenght.
You probably mean “maximum” length not “average” length?
The “average” length of new vehicle loans was 68 months in Q3 (latest data available), per Fed Board of Governors. 68 months “average” is still HUGE. But it hasn’t changed much since 2017 (67 months).
You are far more plugged in to what the powers that be regarding the aggregate/median numbers.
You know (given your journey at a dealership) that Joe six pack/Jane wine cooler financial assessment distills down to “How much a month (ie how little do i have to pay)”.
My reference point was based upon a sales mgr. contact at a mega Dodge store. I’ve seen their F&I war room with the chalk board (no white board) describing the loan rates. From AAA grade to below subprime.
The higher the interest rate the applicant is ‘shoehorned’ (term from a F&I member) into, the greater the spiff for the store.
Given the levels of cash seeking a home, even a dead person can obtain a car loan. Variations of subprime financing is promoted via the dealership’s own acceptance group (comprised of the store’s owner’s wealthy friends).
The 84 month “average” I referenced was the medium at this Dodge store on higher end units ( trucks).
120 month financing is avail on super premium trucks for those who really “need it badly”. Ouch!
Noted that a Dodge store is different than most dealerships as its primary product is trucks (with a smattering of performance cars) sales.
H L Mencken figured out the American consumer long ago…..
Thank You for all you do & provide on Wolfstreet.
Isn’t this attributable to real world economic factors that are only present during COVID (other than the omnipresent stimulus checks)-
(1) people have cut waaay down on spending on services – so they have more money to spend on goods,
(2) fear of using mass transit for fear of COVID has resulted in people spending more on vehicles, and
(3) people are less likely to bargain, haggle in order to spend less time at the dealership – thus lower prices due to lack of negotiation.
I expect a price drop when people are using more discretionary income on services, taking the subway, and willing to visit multiple dealerships and haggle.
Reminds me of a guy that continued to run out of control down a hill instead of sitting down to stop his ever accelerating running-fall. He was severely hurt when the gravity-fed acceleration out paced his ability to stay up right, and he became a flailing rock gathering no moss.
He said later that he kept running because he didn’t want to “fall down.” Thing is, he didn’t recognize that he was already falling, and that by running instead of sitting down he was only making the inevitable crash worse.
My country, America, is still running in the ever accelerating direction of their fall to avoid falling down.
I visualised what you described and I burst out laughing….does that make me a bad person???
Yes Rich it’s still cheaper, not much though, average salaries in the US are skewed by the big earners, look up median salary in the US, again my point is the profit margins corporations demand & yet still need the US consumer to buy, well there won’t be a US consumer if they don’t have jobs, same in all Western countries, or developed countries, I doubt the US median salary is anywhere near $56,000 but when you get 9 people earning 20k and one earning a million that totals an average salary of 198k, the point though is stop complaining about China overtaking the US when they hand it to them on a plate just for the extra money they do not need or will never spend. I guess immorality & greed rules, when China becomes number 1 what will the Western corporations do then?? China will tell them to get lost, China actually demands corporations to be loyal & they control them, in the US & west the corporations demand & control the Gov. Soon western corporations will have no one to sell to, they are already begging China to let them in & China says are rules or get lost. I couldn’t click on reply on ya comment cuz no reply option.
$49,764 per year
The median average salary for workers in the United States in the first three months of 2020 was $49,764 per year. Any amount above that should theoretically be considered a good salary; however, it is not as easy as that.
That’s the latest from Policy Advice.net. Beats the heck out of the median Chinese salary of between $14,000 and $15,000
Definitely we are seeing a round of auto inflation, but will we see a second round. Will the dealers pay more for trade ins to stock their inventory, and will the consumer be able to pay for another round of 10% increases either from their increased wages, stimulus incentives, or better terms to buy/lease. The Fed says no, the price increases will be temporary.
Car inflation is great news to the folks on the Fed because to them inflation creates jobs.
Now they just need to hedonic adjust it out of their reports.
Keep up the good ZIRP and QE. It’s working!
These guys have dreams of schemes they can concoct to make life more expensive and miserable for the masses. They’re economic terrorists.
Look for wage and price controls to be put into effect to combat the inflation that the Fed created.
Some political action coming, bully pulpit on price gouging, and threat of price controls. The Feds interest rate suppression is a pure price control mechanism.
The 10 year note just went up to nearly 1.35% in one day. If this keeps up and approaches 2% then you are looking at 30 year Mortgages approaching 4% when lender fees are rolled in. This could mark the end of the housing bubble.
That sure was fast!
Swamp, does it mean the mortgage interest rate could jump sometime this summer? I am glad that I haven’t signed my mortgage purchase…..yet.
My house building isn’t completed until Oct 2021. Hopefully the housing market would crash by then
This isn’t a bull market for anything, it’s a bullsh!t market. I heard the puppet in chief just extended the foreclosure moratorium until the end of June. And it wasn’t even set to expire until the end of March. This is nothing but free money for these people who aren’t paying. And I’m sure the rent moratorium will be extended as well. This will mean over a year of free shelter.
I don’t know about anybody else, but if somebody gave me a free roof over my head, that would be a financial windfall as it’s the most expensive monthly payment I have.
And then we have the extra $400 per week that the unemployed are getting in addition to their regular bennies. These people are rolling in the dough, especially since a lot of them are working under the table as well.
Beyond that, I’ve had contractors tell me their laborers are living high on the hog on the PUA right now, even though they’re still working.
The entire country has quickly turned into one big scam, and it seem poised to continue into perpetuity. What an absolutely disgusting, revolting way to destroy a country in short order. I’m nauseated.
From what I understand, the eviction moratorium was not included and is still set to expire on March 31. Did I get this right?
California has it already extended to end of June.
Yes, but if I was a betting man I’d put everything I own on them extending that, too. How could they overtly favor homedebtors over renters? They won’t.
OR’s moratorium extended to June 30.
PDX university study on moratorium impact:
Btw the article notation was for 3.3b, not 33b.
“Consumers’ astounding willingness to pay these big price increases.”
I’d call it a “willingness to borrow,” not “pay.” Going into the COVID whatever you want to call it, there were over 7 million delinquent borrowers. Now that’s all hidden due to “forbearance.”
This country used to be a decent place. Now it’s just a disgusting propaganda machine that would make North Korea or Baghdad Bob blush.
Yes. I’m so embarrassed by America at this point that not only would I not take up arms to defend it, but I actively want it to fail so that I can help rebuild while I’m still young enough to do so.
I’m not even sure what that many people would want a new car given the lack of mobility for so many people living in this “great reset” driven scamdemic.
In a way, this reminds me of the idiotic Cash for Clunkers program. The federal government gave $4,500 to trade in a “clunker” for a new car, but the dealers largely just raised their prices such that much of the benefit went to them, and not the customers. So the “stimulus” handed out by the sycophants in Congress didn’t stimulate the struggling restaurants or hotel operators, but they stimulated car dealerships, Amazon, Apple, Peloton, and god knows who else. And now, seeing how badly the stimulus worked in practice, Biden and his cohorts in Congress are intent on doing more of it! They’re either stupid or evil. There are no other choices.
They just straight up don’t care. So I guess that’s closer to evil than stupid. Politicians just want to look good to get re-elected so they can continue to get paid for not having to work.
Nowhere is it written that stupid and evil are exclusive. As you have noted – we have no choice.
My personal opinion is that in general when people pay out the nose they are either desperate for credit or spending money that was easy to get. Easy money would be more likely to buy a new vehicle.
I can tell you why gross profits are up. The author leaves out a crucial part of the puzzle. The reason gross profit per vehicle is up is bc the manufacturers have increased under the table money to the dealers. Most of those incentives are not advertised to the consumer,and thusly, do not get a whiff of that money. Manufacturers were and are in dire straits right now, and the way to move these cars is through these incentives to the dealers on top of the advertised rebates. Dealers are the only beneficiary, as seen in their SEC filing.
Incentive spending by manufacturers was DOWN year-over-year in December and prior months. From JD Power:
“The average incentive from manufacturers in December on new vehicles is on pace to be $4,014 per vehicle, a decrease of $585 from a year ago. Expressed as a percentage of the average vehicle MSRP, incentives will be at 9.2%, down two percentage points from a year ago, and the fifth consecutive month below 10%. For context, incentive spending per unit is 19% lower than when it peaked at $4,953 per unit in April 2020.”
Meanwhile, the local DMVs and tax authorities are raping the people who buy these overpriced electronic gadgets on wheels.
“Hi, I’d like to register my new car.”
“OK, that will be $1,400 for the year.”
Inflation is not confined to cars. CPG manufacturers are systematically reducing the size of their packaging and increasing prices or keeping them the same.
The 30 year Bond is plunging off a cliff. Inflation is much higher than being reported and everyone knows it, and as HR Haldeman of Watergate fame once said
“The toothpaste is out of the tube, and you can’t put it back in there”:
Any sucker that owns these bonds is going to get burned big time.
I can see this administration imposing a moratorium on repossessing vehicles that are in default because the owners are all classified as hardship cases, and will not be able to get to work, buy groceries, or go get their Covid-19 Vaccine. It will start out as a 3 month moratorium and then be extended for 6 months and then 1 year. So the repot man will be out of a job and collecting unemployment checks.
Welcome to “free sh!t world,” where debt junkies are rewarded and prudent savers are destroyed.
From each according to their virtue.
To each according to their depravity.
Prudent saving = cash hoarding
House price inflation = house price growth
Currency debasement = stimulus
That’s how I feel. Been saving cash to move back to California. It hurts to see low interest rates eat away at my plans while at the same time driving prices past insanity. I can’t hide the truth that I wish for a crash of the housing market. It won’t hurt us nearly as much here in Texas simply because the home values are so much closer to earth.
> I can’t hide the truth that I wish for a crash of the housing market. It won’t hurt us nearly as much here in Texas simply because the home values are so much closer to earth.
Buy an RV and drive to California every year for holidays.
It’s a much better financial deal for you (buy the RV used btw, allow the first owner to take care of its depreciation).
> prudent savers are destroyed.
I disagree. I’m a super saver, above 70% of income and instead of being destroyed, the Fed trained me to spend a grand total of under $24k / year allowing me to take my first sabbatical year very soon.
The Fed’s war against savers and renters can also be interpreted as the boot camp training LeanFIRE people like me need to completely destroy velocity of money. We are doing it!
When they show the long lines of cars in the free food lines on the TV news I just shake my head. These needy folks are driving
big fancy trucks and SUVs. Draw your own conclusions.
Another perspective after system crashes America will start over with zero debt we will be working for 3 rd. World wages or can starve me thinks it’s all planned only way to erase debt and lower wages to be competitive our consumption is ridiculous 4 tv s 3 cars 2 I pads 2 cell phones none made in America f. Ing corporation s as we all allowed it to happen see u in Ecuador
We advertise apartments for rent anytime they become vacant on craigslist and Zillow and for the first time ever I have real estate agents calling us to see if we are interested in selling the apartment. Of course we can’t sell them because they are multi family rentals, but things seem to be going crazy out there, we never had that kind of internet, not even during the housing bubble of 2008. Nuts.
Memento mori: ?
Do the real estate agents think the apartments are houses/condos, or are they wanting to buy the apartment buildings as a whole?
They think it’s a condo, there are hundred of units in the building.
We offered to buy a house from a house owner that was looking for renters.
She said no.
How can you afford a house if you had to borrow $25,000 for a used Tacoma?
2.5% is free money
I could pay it off but I want to hold on to the cash to use when purchasing a house. Same reason I’m not in stocks other than my kids college and retirement.
Once the house is purchased, I’ll give much of the remainder to a financial manager who lives down the street; I grab some precious medals, and buy some house stuff.
But the main idea is to stay liquid. The truck is our only debt in the world.
“2.5% is free money”
Is that what they’re teaching in school these days? No wonder we’re where we are.
Sounds like history repeating itself to me, at least in some way.
In 2006, owners of apartment complexes zoned as condos in San Diego were very eager to kick out all of their tenants to cash in on condo sales. We were kicked out of the unit we rented but FOMO apparently got the best of the new owner because although the place is remodeled, no unit was sold as a condo. They’re still apartments today.
That must’ve hurt.
It’s challenging. When rent cost the same as buying a house with a 20% down and prices being high. I figure if the house is about where it should be adjusted for inflation over the past 10-20 and the total payment adjusted for low interest rate would be about the same as 3-5 years ago- well? Rent or buy?
It would seem obvious to wait it out until there is a correction, but when Kamala voted to send out 2 trillion dollars, I couldn’t believe it. I threw in the towel… they are going to keep doing this for at least another year. There is some limit-10 trillion more maybe? I don’t know-
The fraudulent FED lies to us and tells us there’s no inflation. They hide it in their bogus data. Then, when somebody is even allowed to point out some inflation in one of their fake pressers, like in house prices the other day, they have the audacity to say it’s a “passing phenomenon.” So, in other words, there’s no reason to raise rates, nor will there ever be.
We could have starving people taking to the streets over high food prices and Jerome “Weimar Boy” Powell would be telling us it’s just a passing phenomenon. This clown is printing his own net worth higher every time he loads up some more QE, so more QE it is. It’s like a pig feeding itself slop.
In October I bought a 2019 Tacoma Sport- 4 door charcoal grey leather-moonroof-black out option-JBL stereo-ladidida for roughly 32 grand. I traded in my crappy hyandia sonata. I owe about 25 on it now 2.5% interest.
Last month a friend of mine bought an 80,000 dollar new suv for his wife. I think it is an infiniti; It is an awesome car.
So, some folks can- my friend- and some folk constantly scan for any kind of weeds peaking through the cracks – me -like the gunslinger series by stephen king.
Question about the looming “chip shortage” – assuming this does turn out to be a thing. I suspect that this will drive manufacturing up the foodchain because why “waste” the chips on manufacturing a cheap vehicle instead of an expensive one if they have to choose.
I’m assuming at some point this would mess with the average sale statistics for vehicles – is this something you can keep an eye out for in future updates?
Seemingly, it would make sense to do some triage when they are short on chips. But it’s very complicated because the supply chains are so huge and complex, and the plant that runs out of components from a supplier that ran out of chips might be the one that is building high-end pickups. And that plant cannot be switched to build something else.
Is this the financial crisis all over again and the only difference is forbearance?
Just think. Less than one year ago, you were writing articles and publishing all types of statistics predicting a crash in used automobile prices. It think you even coined the phrase “Carmageddon.” So what went wrong?
Thank you for your memories…
Carmageddon was the term I used for years, but stopped using about two years ago, to describe the collapse of “car” sales v. “truck” sales. And the collapse of “car” sales, as opposed to “truck” sales, continues. This is a chart I posted a few months ago (it’s no longer current):
I never predicted that prices of new ICE vehicles would fall.
In the spring last year, I did expect to see downward pressure in the used wholesale market after it would emerge from its freeze-up period in March and April. The rationale was based on the rental vehicles hitting the auction. But instead, the rental cars hit the auction very slowly, and no one wanted to flood the auctions with cars, and then dealers that had run short of vehicles during the freeze up of the wholesale market went out and panic bought used vehicles at auction, which caused a historic spike in used vehicle prices. And yes, that entire scenario did surprise me.
I understand that it’s hard to sell an electric car in Texas this week. Not only no way to charge it, but you can’t sit in one and keep warm for very long. ;-) As Jerry says – it’s just a temporary phenomenon.
It’s hard to sell any car this week. Many dealership sales departments are closed. Employees have trouble getting there. No one in their right mind is going car shopping in this situation.
Who buys a new car in the middle of a pandemic?
Another example of the Felonious Fed wrecking the price discovery process with artificially low interest rates of even 2.5% over 4 years for a used jalopy. The American consumer is more concerned about his or her monthly payment on the new or new used ride, and these rates pull the wool over the car-buyers eyes even while he or she is getting goosed in the wallet or purse on a way-too-high selling price. Subaru is still offering 2020 vehicle deals, so the oceans of new and esp. rental car used cars should be telling a different story.
But when Americans are almost getting money free, they are compelled by decades of bad spending habits, of putting it to use, even if misdirected toward a bad price deal, before it burns a hole in his or her pocket!!! Wonderful, wonderful DEBT has allowed Americans to live larger than there incomes for decades now. The Government is merely a reflection of the American public, with a big dash of corruption of course.
So Chair Powell take another bow. Instead of U.S. consumers benefitting from real supply and demand pricing with a sea of available vehicles rusting in lots, your financing give-away is causing price distortions so Americans have more debt than ever.
American consumers can take a bow also. What does thousands more of additional debt matter when we can see the Great Reset just over the horizon, and the Savers & Prudent Shoppers will totally MISS THE GRAVY TRAIN. Shame on them. Debt Forgiveness is a wonderful thing TO HOPE FOR. Uncle Sam or Uncle Empty Pockets will not be so lucky.
We just appraised a condo in one of the worst slums of the DC Swamp. The area know as “Trinidad” has a 50% unemployment rate, and rampant crime and drug dealing. The contract price came in about 10K over any similar comparable properties. We had to cut the price below the loan amount requested, so someone is going to have to come up with the cash at settlement. The owner is a home flipper. He could care less about the neighborhood or the property. His sole goal is to make quick buck. While we were there a Real Estate broker came out of another unit and bragged about how much money he was making flipping units in the condo. These people are using the easy money and low interest rates to game the system and abusing the VA loan program which was designed to help Vet buy their first home. This will all end just like it did in 2007/2008, with a lot pain and sorrow for everyone.
Look for this new administration to implement the Massachussets law regarding selling a used car to a private party. If you sell a used car privately the new owner can declare it a lemon and force you to pay for renting or leasing a vehicle to them for up to one year and taking back the lemon for the price paid. This scam is only in Massachussets now but look for it to go nationwide.
Elections have consequenses. Enjoy!
I know! Everything was going great until the last 30 days!! Dammit.