Normally Astute American Car Buyers Just Pay Whatever: AutoNation, Largest Auto Dealer in the US

The explosion of per-vehicle gross profit shows why buying a car or truck now is nuts. But lots of people did though they didn’t need to: inflationary mindset.

By Wolf Richter for WOLF STREET.

I’ve covered the mindboggling price increases in the new and used vehicle markets, retail and wholesale, from various aspects since last year, including the collapse in new and used vehicle inventories across the US due to a mix of issues. Today, we’ll check into this on a per-vehicle basis, in dollars and percentages, in terms of what consumers are paying on average, and just how massive the profits are that consumers are allowing dealers to make. These are truly stunning times. And it’s another sign that something in the market has broken.

AutoNation, the largest chain of franchised auto dealerships in the US with over 300 stores, reported second quarter earnings this morning. The per-vehicle revenues and gross profits were just stunning, a reflection of the breath-taking price increases in used and new vehicles retail, documented now even by the new and used vehicle Consumer Price Index inflation data that for two decades has understated or brushed off entirely those price increases.

Revenue per vehicle retailed jumped as a result of higher prices per vehicle and a shift to more expensive models, as we’ll see in a moment. Throughout, I’m going to compare AutoNation’s Q2 2021 to its Q2 2019 because in Q2 2020, the numbers were heavily distorted by the lockdowns:

Revenue per vehicle retailed: Q2 2021 Q2 2019 2yr Change
New $44,429 $39,276 +13%
Used $25,882 $20,969 +23%

Gross profit per vehicle retailed: Gross profit in the sale of a vehicle is the difference between the cost of the vehicle on the dealer’s books, and the final selling price; this does not include expenses such as commissions and interest expenses (floorplan).

These are stunning, mind-boggling, and in normal times incomprehensible increases:

Gross profit per vehicle retailed: Q2 2021 Q2 2019 2yr Change
New $4,153 $1,780 +133%
Used $2,239 $1,452 +54%
Finance and insurance (F&I) $2,339 $1,921 +22%

In new vehicles, the 133% explosion of per-vehicle gross profits reflects in part higher prices, as customers were willing to pay no matter what to get a new truck or SUV; and in part a shift to higher-end models in the mix, as we’ll see in a moment.

If you add F&I profits, the average customer allowed the dealer to make nearly $7,000 in gross profits. These are just stunning numbers and reflect a market that has broken. Customers are just paying no matter what. Pricing has become a loose cannon.

In used vehicles, the 54% surge in per-vehicle gross profit comes despite the historic surge in used vehicle wholesale prices, which averaged over 40% in Q2 compared to Q2 2019, according to the Manheim Used Vehicle Value Index.

So dealers are paying a lot more for their used vehicles, both in terms of trade-ins and in terms of units purchased at auction; and they’re able to pass on those higher costs, plus some, to customers eagerly jostling for position to vastly overpay.

For dealerships, this is a revolution. Before, American consumers were known to be astute and do research and walk away when the price was too high. All manner of tricks were being played to get consumers to pay more; and now, forget it. Consumers are eager to pay more.

Cars and trucks are for most people discretionary purchases. Most people can just drive for a year or two what they already have, or they can exercise the option to buy their leased vehicle at the end of the lease at the price set at the beginning of the lease (the “residual value”). They don’t need to buy or lease another vehicle.

And the people with money are splurging. These are the beneficiaries of the Fed-created asset bubbles, and they’re spending some of their gains. This is how the Fed’s favorite strategy, the Wealth Effect, is supposed to work.

AutoNation reported that “segment income” (operating income less floorplan interest expense) rose across the board, but modestly with domestic brands, and exploded with imports and at the high end.

Segment income Q2 2021

million $

Q2 2019

million $

2yr change
Domestic brands 169 166 +2%
Import brands 204 82 +149%
Premium luxury 226 95 +138%

These enormous profits on a per-vehicle basis document the explosion in prices that dealers were able to get their customers to agree to pay; and they blew away the input cost increases that dealers faced.

And the fact that customers threw decades of training into the wind and just laid down and paid whatever when they didn’t even have to buy a vehicle, and could have just waited a year or two until this craziness blows over, shows just how broken the vehicle market is, and how broken ultimately the customers are. With this kind of attitude that price doesn’t matter, inflation has become ingrained in the mindset.

If enough customers had refused to pay those prices, and just kept driving what they already had, sales would have dropped, and inventories would have built up until dealers start cutting prices and making deals. But that didn’t happen. Customers eagerly played along with the worst outbreak of inflation in four decades.

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  180 comments for “Normally Astute American Car Buyers Just Pay Whatever: AutoNation, Largest Auto Dealer in the US

  1. Phoneix_Ikki says:

    Decades of consumerism brainwashing, perhaps the herds can’t and don’t know how to say no. Even with inflation and crazy price increase, the best we can do is Shut up, take it and you’ll like it when it comes to spending.

    Think the elites and the ones benefiting have figured this out pretty well, a little bit of creative financing will also help, spread those debt out to 8 to 9 yrs loans, then it certainly look more affordable month to month..

    • Joe Saba says:

      so I bought 2016 truck in feb.
      not much GOOD inventory so I ended up paying up
      of course I do that darn 1 payment plan
      $0.00 interest again

      • Phoneix_Ikki says:

        It depends on how much you end up paying up….

        This is how nuts things are, friend of mine sent me a stick on a new 4Runner, $30K mark up on top of sticker, so it’s a $85K 4Runner…

    • Patriot says:

      Depends who you’re talking to. I’m looking at a new car but the prices aren’t nearly high enough for it to matter. .

      I don’t understand the talk about elites. Lebron is an elite but he’s pulling the levers on anything in society. Are we talking celebraties? If so I want to know why Thor has an interest in ZIRP and now he works with the Fed lol. You conspiracy nutters are wild.

    • Mira says:

      It could be down to less overheads ..
      Maybe people have more money to spend for having a cost effective lifestyle.

    • We have a 2010 Enclave that we had to have the engine re-built on, but at 3K, if it lasts another 3 years, that is much better than buying a new car. By that time, we will probably have moved to another country where healthcare costs and housing are a fraction of what they are in California.

      Why buy into this foolish consumerism? It is a hoax. The same upper class liberal idiots that want to save the planet from massive environmental degradation are the ones that go out and buy tons of unnecessary stuff.

      • ThePetabyte says:

        How is possible for you to berate liberals yet you vow to leave for a country with probable liberal healthcare policies?

  2. HQ says:

    I regularly blink in shock at the WTF Charts ™ here. They helped me decide I would be keeping my car as close to death (mine and its) as possible. It is fifteen years old and has over 140,000 miles. I put a couple of grand in proactive repairs into it and take it to the car wash now and again. Still looks great inside and out, comfortable as ever and has my favorite feature in a vehicle: it is paid for.

    • Joe Saba says:

      my 2001 work truck runs great
      of course its diesel
      can’t afford to get rid of it
      so now I have 2 trucks

    • Outwest says:

      Same here –

      I put $900 into a 1997 cargo van 4 years ago, addressed the deferred maintenance, installed a sporty looking camping kit, and have put about 40k trouble free miles on it in most of the states west of the Rockies.

      I like how the old timers take a few minutes to appreciate a nicely restored vehicle when they pass by.

      A fool and his money are soon parted…on the lot of an auto dealership…

    • Old school says:

      If your money is coming easy that’s one thing, but if you are middle class leaving $7,000 gross at the dealer plus in my state another $1300 sales tax seems nuts. Plus in my city and county you will pay about 1.3% property tax on that $44,000 vehicle each year or around $600 first year.

  3. Artem says:

    U.S. consumers’ recent car shopping is akin to a recently released inmate dating.

  4. random guy 62 says:

    My personal observation has been that the primary buyers in the market for a vehicle right now are those who are financially illiterate. And with a limited supply of vehicles, those buyers are skewing prices to new highs.

    Only two guys in my social circle bought new trucks in the past six months. They just so happen to be the two with the weakest grasp on finance. Everyone else I know is watching in awe, driving what they have, and hoping for a return for a return to some semblance of normal.

    • Bobber says:

      Yet, many persons with financial knowledge are heavy in stocks, bonds, and RE at these overpriced levels, which is arguably a worse use of your money.

      • random guy 62 says:

        True, but I think that is a separate debate. The general sense from my friends and family who invest is that they only do so reluctantly right now, due to a lack of viable alternatives. Personally, I have backed off equities in the past year (but not stopped), in favor of cash and a few useful assets like tools.

        The question posed by this article is “why are financially literate people buying vehicles in this environment?”.

        My first thought is “they mostly aren’t.”

        • random guy 62 says:

          Said differently, my hypothesis is this:

          It is not just a shift in mix toward more profitable vehicle segments, but a more profitable buyer mix as well. Meaning sensible buyers didn’t become less sensible. Instead, less sensible buyers are the only ones left in the market, and they are ready to get ripped off – as usual.

          If 10 people walk into a dealership to buy vehicles and each yields the dealership a different level of gross margin, more often than not, the profitable sales are to those without a good grasp on their personal finances. The less-profitable sales are to the buyers who did a lot of research and drove a hard bargain.

          Now if the supply of cars drops, and pricing power shifts a little bit to favor the seller, the first buyers that will go on strike will be the low-margin, educated buyers. Then on a per-unit basis, the profitability of the remaining deals will be skewed higher.

          And in my social circle, this seems to be exactly what happened.

          Perhaps some data on sales volume paired with the margin data could help kill or support this hypothesis.

          Whenever I analyze our sales figures, sales mix massively influences profitability, even with static revenue, so mix is where my head goes first when I see increases of that magnitude.

          Either way… just thinking out loud. I will shut up now.

        • Phil says:

          random guy that’s a pretty interesting analysis. Every time I read the essays here, in the back of my mind I think “inflation is the symptom, supply is the disease.” And because the supply disruption is mostly covid-based, I do expect the inflation to eventually be transitory, in the sense that prices will fall back somewhere onto the normal curve of inflation that we’ve experienced over say, the last 50 years.

        • Wolf Richter says:

          Phil,

          “the normal curve of inflation that we’ve experienced over say, the last 50 years.”

          Yes, could be. 50 years takes us back to the 1970s and early 1980s. Double-digit inflation no sweat. But up and down, rising, falling back, and then re-surging again to nearly 15% until the Fed raised interest rates to 19% (nineteen percent!), which then brought inflation under control with the double-dip recession, which was pretty nasty.

          But now the Fed is still printing $120 billion a month to bring down long-term rates, and short-term rates are at near 0%. Why should inflation wane under this massive stimulus? I don’t know either. If the Fed raised short-term rates to 6% and began selling off its bond holdings, inflation might very well wane, but that Fed is far from doing this.

          This chart shows yoy CPI inflation rate for the first 20 years of those last 50 years. Inflation is never a fixed thing.

        • Marva says:

          Anyone who is going to buy a new or used car and trade in their old should strike the best bargain that they can, have the paperwork printed up, then at the last second cancel the trade in, have the price the dealer offered for the trade in added to the price of the purchase.

          Sell the trade in on Craigslist and profit many thousands, or just keep the trade in for a second vehicle.

        • Phil says:

          Thank you for the reply. The reason I believe inflation will cool is because supply chains and shipping will recover. As a result, price competition will return. I think the supply side of the equation is not to be overlooked.

        • Mr. House says:

          “The general sense from my friends and family who invest is that they only do so reluctantly right now, due to a lack of viable alternatives. ”

          Hasn’t that been the case since 2008 and wasn’t that one of Big Bens reasons stated for rates at zero?

      • Trailer Trash says:

        “persons with financial knowledge”

        If their financial knowledge comes from an MBA program, well, that would explain a lot.

    • Harrold says:

      I think its the same people that were desperately purchasing shopping carts full of toilet paper 15 months ago.

      With autos in short supply, the same people are now desperate to buy before they run out of cars.

      • Bruce says:

        Agree 100%

      • Nathan Dumbrowski says:

        Just reaching the last TP rolls we stocked. Don’t feel one bit of remorse. Lasted me more than a year and I always knew where the stockpile was. Knew it would get used and the price was good for the bulk purchase

        • PoolFool says:

          I never bought ANY toilet paper during the entire supposed shortage and wasn’t worried at all about running out (and I never did). I knew I had enough to last well past when the panic buyers would quit buying due to being sufficiently stocked up that they stopped panicking.

          In truth, there was never an actual shortage of TP. There are ALWAYS short periods when retailers temporarily run out of a particular item. Panicked people like you just overbought TP because they believed the rumors about there being a shortage.

          What started the TP panic buying is that someone wanted to buy some when a retailer was temporarily “fresh out” and panicked because there was none on the shelf. That person plastered the “TP shortage” all over Facebook causing their friends to hurry to the store to buy TP and of course, they couldn’t find any because the retailer had not had time for their new supply to arrive.

          By the time it DID arrive, people who didn’t even NEED it were trying to stock up because of the PERCEIVED shortage. The retailer’s inventory again sold out unexpectedly, and this time, more quickly, because the perceived shortage created an artificial high demand within a short period.

          At first, the retailer had not yet had time to figure out what was going on and didn’t order extra. By the time retailers across the country figured out what was going on, MANY customers across the country were overbuying; thereby, keeping store shelves empty.

          A similar process occurred at the retailer/wholesaler seller level; i.e, the retailers buying extra to keep up with the artificially high demand caught the wholesalers off guard so it took them a little while to realize THEY needed to order more from the manufacturer.

          By the time the manufacturer caught up with the artificial demand, many of your panicked friends with whom you had discussed the shortage were still OVERBUYING and keeping store shelves empty for no reason. It didn’t stop until you panic buyers had stockpiled a year+ supply and quit your panic buying.

          In other words, it was gullible people like YOU who didn’t really need TP; but, who panicked and overbought, who kept many others who actually DID need it from being able to buy it when needed.

        • El Katz says:

          PoolFool:

          Not necessarily accurate. The “TP shortage” was more the result of “work from home” and the increased demand for TP in small rolls for home consumption vs. the megamonster rolls used in commercial buildings and office spaces. The factories had to convert production. So, in essence, it was, initially, more the “format” than the TP itself.

          Then there was a pulp shortage not too long ago (Bloomberg ran an article in March). Shipping concerns (think the supply came from South America) due to container shortages.

          Lastly…. explain to a woman that she won’t be able to get TP. Men will wipe with an oak leaf…. women, not so much. They have different needs.

      • MiTurn says:

        So empty store shelves lead to empty car dealer lots? FOMO?

      • Yort says:

        In 1983 the BLS switched to using Owner Equivalent Rent, mainly due to the political pressure of the having house prices rise too fast during the 1970s inflation panic and thus needing to fudge the CPI down by replacing housing prices with rent prices. The chart below shows the magic of using “Mark to Fantasy” vs “Mark to Market” CPI data (which used to be called fraud back in the day when our leaders had higher character values and above average intelligence):

        https://pbs.twimg.com/media/E6l-mNBVcAMhpsI?format=png&name=large

        So maybe we can “solve” the auto price inflation by simply creating “Owners equivalent Lease”, and then fudge the heck out of the lease variables to make all auto inflation disappear. Deja Vu, no more “Mark to Reality” auto inflation tracking…

        Yort for Fed Chair position in 2022…

      • Bingo. Or said another way; panic buying. An amazing thing to behold.

    • Wisdom Seeker says:

      Could go the other way and say that when there’s a limited supply of vehicles to be sold, the dealer knows they can make more money by selling to price-insensitive buyers.

      Could also say that with reopening, many of the people suddenly needing vehicles are those who lost theirs in the shutdowns. That subgroup is probably less financially solid than the general population.

      Another option is people who realized that they could work a better job if they only had a car, got the stim $ to give them the downpayment, and went for it. Not necessarily bad to overpay for a car if you double your income?

      Of course, it’s also entirely possible that the trade war ramps up into Cold War II and becomes not just a semiconductors-and-supply-chains wrangle, but an outright East-West economic divorce, new-iron-curtain sort of thing. In that case anyone with a newer car will probably be happy about it since supply will be very short until the West figures out how to produce all the car parts again.

      • endeavor says:

        Boomers are buying thinking of their mortality. Everyone else because a head full of advertising contains no space left for logic or common sense. They want what they want because they deserve it for being ‘so special’. Who wants to be seen without a lifted 50k pickup with a $2500 set of knobby tires?

        • Harrold says:

          Especially in the rural areas. Cities, not so much.

        • ross says:

          @Harrold, I guess you’ve never lived in a true Amerikan Urban Utopia, like Dallas-Fort Worth Metroplex (7.5 million). $50k pick-ups are a dime a dozen.

    • K says:

      People expect rising prices due to inflation, so they are willing to pay whatever. Even I bought computer stuff that I did not need yet on the expectation that prices will rise. IF there is no financial crash, hyperinflation is definitely coming.

      However, the more that I look at the financial numbers, reported in this website and a few others, the more that it seems like we are in a financial gambling situation as in 2008 and not just due to the huge use of margin in buying securities. Watch the Big Short again. The economic situation now is similar in many ways.

      (While I like the depiction in “The Big Short,” it is way too kind by implying that the motivating factors were “coincidental,” widespread, bankster ignorance or stupidity and not just fraudulent schemes. The dumb money like pension funds, who got hosed, were stupid and ignorant, but not the banksters. For example, the fact that Dr. Burry’s analysis was transmitted to and then used by other traders, who were probably cronies of the banksters that got inside information to profit them and their bankster cronies, is made to appear TOO innocent by showing people supposedly finding a prospectus showing the mortgage issues from a pile left on a table. I particularly love the “moral” banker character also, who supposedly, is angry at the bad world (as he tries to make billions) and wishes to change it. (He must be living now with unicorns, Sasquatch, Peter Pan, and tooth fairies in Never Never Land.))

      Now, the banksters’ “Fed” has bought about $2.3 TRILLION as of July 2021 of mortgage-backed securities (MBS) since 2019 and continues to buy more at $40 billion a month. Could it be trying to avoid triggering the latest collapse of its banksters from their gambling in exotic derivatives? Many people do not know about BTOs, which are very similar to the synthetic CDOs discussed in the Big Short reportedly: “Bespoke Tranche Opportunity.” See “Bespoke Tranch Opportunity & Collaterized Debt Obligation” in biznewske.

      If they are the same, think about what will happen with all of those gambles when thousands must be evicted and landlords also are unable to meet their mortgage obligations now. It will be a similar situation to what was shown in The Big Short. In other words, I smell a loss of control by the banksters “Fed” and bad things for the economy which they are parasitizing.

      • K says:

        Despite inaccuracies, I do love the movie, because it fundamentally points out that the bankster-controlled financial system is fraudulent, e.g., with the manipulation of credit ratings to sell garbage to the gullible, which ratings were not changed even as their garbage was burning down, which I am certain is happening even now.

    • cas127 says:

      “My personal observation has been that the primary buyers in the market for a vehicle right now are those who are financially illiterate. And with a limited supply of vehicles, those buyers are skewing prices to new highs.”

      This seems like a distinct possibility (the skew).

      Wolf, it would really help to pin things down if we could get unit volume sales for Q1 2019 and 2021 too.

      There might have been a bump due to 2020 delayed purchases…but it is also possible that unit volumes are down (sales only going to the desperate or the dopey).

    • Sams says:

      The stagnating or lower number of new cars may indicate the same. There is a shift of buyers.
      There look to be shift to “premium” brands and high spec cars too, again that could be a sign of shift of buyers. This may be a sign of transformation of society to one with two groups; the few have and the many have nots. Expensive premium cars and poor pedistrians on the road with very little in between.

      • cas127 says:

        Sams,

        I agree, but it is odd that manufacturers have somehow forgotten entirely how to design/produce products for the mass mkt, thereby excluding the vast middle of consumers.

        It is hard to believe that the high price/low volume segment truly produces higher total revenue than mid price/mid-to-high volume.

        The middle class may be eroding but I don’t know if it is doing so, so fast/completely.

        This feels more like a mkt segment targeting decision by manufacturers…heavily influenced by the finance-then-sell-debt-risk model that has taken over, over the last 25 yrs.

        Under that “doomed loan” model, maybe the incentives are to over-price insanely rather than price to reality.

        • El Katz says:

          The cost to manufacture a “premium trim” vs. a basic / mid range unit is not as wide of a spread as you may think. Having played in that arena for a few decades, my experience was that it was easy to make an assembly plant unprofitable by mismanaging product mix. Some “base trim” vehicles are only produced for a segment price point, but actually are produced at a loss for marketing purposes. Not too many people want a plastic hub-capped cheapymobile. We proved that in 2009 when, after the meltdown, the product line content was revised for “value”…… and we could barely give them away as we were the only ones dumb enough to adopt that strategy. The Koreans added content and we reduced it sparking the world’s fastest product revamp (product lines are developed years in advance…. changing over in 6 months was unheard of)

          In the present: Production volume is down, due to a lack of components. A prudent company will produce the higher profit vehicle where the wholesale price generated is thousands more than the lower trim (think non-leather, lower content).

          Since the franchised dealers need “something to sell”, they’ll buy the higher trim levels to fill their lots… and, the customer – with no other choice – will buy or lease.

          Keep in mind that the lease customer has to replace his vehicle. His contract is up and there are few alternatives. Sure, you might be able to extend the lease, but the dealer wants you out so he can generate two sales rather than one.

          Another aspect is that, due to the WTF used car values, a person driving a Camry could more easily justify buying the Lexus he always wanted because the spread between the two wasn’t as dramatic as it once was.

        • cas127 says:

          El Katz,

          I appreciate the insights and I hope you post more, since there is a lot to unpack…and the apparent multi-decade trend seems to be a gradual shift from true mass production (to obtain highest unit sales through lowest unit costs/prices) to something output by a yield optimizer (restrict unit sales to hike price and theoretically maximize revenues).

          This would be a historic shift, so the details and interpretations are really important.

          Katz, a lot of what you are saying makes sense and comports with empirical reality, but I do have some questions.

          While many people may not want a cheapymobile, an ocean of them do want/must have inexpensive transportation – meaning there should always be large demand for the low cost producers…it would be interesting to hear the details of the post 2008 CheapFail you mention.

          I suppose it is possible that the utterly loan oriented model the manufacturers have submitted to/cultivated rearranges buyer calculus (ie, thousands more in purchase price may “only” translate to $80-$120 more *per month* over the multi year term of a loan) but then there are questions about the true depreciated, mkt value of the car/collateral. Perhaps selling off the dubious loan paper to ZIRP starved savers means never having to worry…if you are the manufacturer/retail outlet.

        • El Katz says:

          cas127:

          There is always a “supply” of people who need affordable transportation, but they don’t want the plastic hubcap wonders either (as a rule). They want “luxury” (even if it’s pseudo luxury). For confirmation, look at the number of hoopties that have aftermarket wheels.

          I can’t speak of what the “cheapymobile” was exactly, without outing where I was employed. But I can tell you this: it was an expensive blunder. The revamp of the vehicle cost multiples of millions – approaching what it cost to develop the whole car to begin with – and the re-tooling costs were astronomical as well. Then there were the incentives to move the mistakes from dealer inventory onto customer driveways….. then residual issues as ALG recognized the blunder and slashed those as well. The car was stillborn with the customer who gravitated towards the more lushly equipped competition and the hit to market share was immediate. The dealers that we had that controlled competing franchises were walking customer from our showrooms to brand X to show the value there vs. our cars (yeah… so much for dealer “loyalty”). The bean counters eliminated chrome trim (actually stainless), trim around the taillights, downgraded the “soft touch” items in the interior, and simply made the car appear “cheap”. Think gasoline powered Amish buggy.

          The financing? That’s a whole different order of magnitude. Vehicle financing is very profitable for auto makers. That’s why they do it. Even the “zero APR” makes money because it’s nothing more than kabuki theater. In the case of my old home, we (the auto company) paid the finance company the interest – along with their loss reserves – along with their operating costs, and they were collected in advance and in full – even if the loan didn’t go to term. That’s why manufacturers offer additional money if financed/leased through their captive finance companies. It reduces the amount of incentive subsidy required from the auto company to the finance arm (which can impact residuals and perceived resale value). This is especially true in leasing as it goes against the capitalized cost (similar to amount financed on retail contracts). We did a lot of math exercises and “what if’s”, then spent a lot of time trying to educate our execs as to why it was so dang expensive to do business that way.

          Lastly: lower trim vehicles have similar warranty costs to the more expensive trims. If your warranty costs are $1K PNVS, but your margin is multiple times that on the higher cost vehicle, why would you build the cheaper car? Just kick the can on the financing and move on. Few people ever rode out the full term of a loan anyway. Trust me… we used to monitor that data as well. You’d be amazed at what a company can purchase from data aggregators. We could tell when someone was “in market” by their web behavior and previous purchase habits.

        • BatHelix says:

          There is no more catering to the frugal or base consumer that doesn’t want all the goodies … because the answer to that is financialization. Everyone is entitled to everything right? They just need a low enough payment … and no one skips the leather seats and premium audio when it’s only $13/month.

  5. Bobber says:

    I have a feeling a lot is going to change when the extended federal unemployment ends in August or so. There are thousands of people in the airline industry that were on furlough, with full unemployment benefits. They will be returning to work next month when the unemployment benefits end. I suppose this is happening in other industries as well.

    I’m pretty confident they won’t be shutting businesses down because of the Delta variant, although they might be demanding proof of vaccination.

    • Ron says:

      If you are on unemployment and don’t return to work when needed you lose unemployment

    • Sierra7 says:

      Bobber:
      Right on target!
      Gonna be very interesting when the “stimmies” lessen or are eliminated altogether, and when many workers will be returning to offices thereby cutting into their money situation during the height of the Pandemic. We have not reached that point yet.
      Logic tells me that “things” will change dramatically and the FED will have it’s hands more than full to keep the illusion going.
      That will extend to the millions of families that have been living “outside” their financial boundaries for the past two years.
      Reality is a harsh teacher.
      We are still in “La-La Land”!

  6. Old School says:

    Big government deficit means big corporate profits. Where else is money going to flow. Always will til you overdo it and blow things up with inflation.

  7. RockHard says:

    The segment income chart is really interesting and I’m not sure what to make of it. I was curious about how they divided it but it’s in the footnotes:

    >Import segment is comprised of stores that sell vehicles manufactured primarily by Toyota, Honda, Subaru, Nissan, and Hyundai;

    > the Premium Luxury segment is comprised of stores that sell vehicles manufactured primarily by Mercedes-Benz, BMW, Lexus, Jaguar Land Rover, and Audi.

    Why would the dealers of US brands be doing relatively poorly? They sell some pretty pricey cars, especially when you’re looking at pickups but also SUVs.

    Now, just because you’re at a Lexus dealer, if you’re looking at used cars, they won’t be all Lexus, the dealer sells what they have on hand. So maybe a lot of this comes from people trading up, and the dealer gets to sell their used car at a great profit, and then gets to sell them an even more expensive model on top of it? Still doesn’t explain the Import segment, Toyota makes nice cars but are they substantially better than Ford? Ford definitely has an advantage with pickups.

    Am I just misunderstanding this stat?

    • no name says:

      If you look at Consumer Reports, you find that reliability and quality in Toyota vehicles are higher than Fords. This has been the case for years.

    • roddy6667 says:

      Ford sells more pickups, but the quality has been less for a long time. Also, Toyota pickup trucks contain more made-in-America parts than Ford or Chevy.

      • roddy6667 says:

        The most American made full size pickup truck is the Toyota Tundra. Has been for over ten years, I think.

        • Dan Romig says:

          Toyota Motoring Manufacturing Texas, Inc. is in San Antonio where the Levi’s factory used to be I believe.

          Chevy Silverado & GMC Sierra are assembled in Silao, Guanjuato, Mexico for the most part, are the not?

  8. Escierto says:

    No one ever went broke underestimating the intelligence of the American people. They are idiots who deserve everything that’s going to happen to them! Bend over, morons!

  9. Prue Grubstreet says:

    Meanwhile, in a tony neighborhood near mine, people are fretting because there’s been a rash of catalytic converter thefts. The thieves come around midnight and just cut them out. SUVs and Priuses are favorites. One woman couldn’t figure out why her car wasn’t driving as smoothly. She took it to the mechanic and he told her she too was a victim of converter theft. I heard the repair can be upwards of $2000.00. Just another day in this brave new Blade Runner world, I guess.

    • Harrold says:

      Blame the gold bugs pushing up the price of platinum.

      • Wisdom Seeker says:

        Platinum prices are not that high, and platinum/gold is near historic lows. Got another explanation?

        • Dan Romig says:

          Palladium is the target.

          There’s been a lot of catalytic converter thefts in my south Minneapolis area, and I’ve painted my Lexus RX450h’s cat with bright red engine paint — which is clearly visible.

          “Only an asshole gets killed for a car.” – Bud from Repo Man. I do keep 3M ear muffs and a 1911 handy though. Just in case, you know.

          The thieves are predominantly young gangsters, and not just guys work the rip offs; there are women involved too. They work in teams and have lookouts. Serious shit can go down on the streets around 3:00 am in the city.

          I think a bigger garage would be a good thing to have, eh?

        • Dan Romig says:

          I should add that the St. Paul police department will paint your catalytic converters with neon orange hi-temp paint and engrave the VIN number on them.

          However, this deterrent is no longer fool proof to prevent thefts. Sources tell me that an “Organization” has it’s own shop in the boonies to break down the cats and smelt out the palladium, platinum and rhodium. Sodium chlorate is used to precipitate out palladium.

          Star Automotive on East Lake Street has some customers who’ve had their painted cats ripped off. The bad guys are smart and organized sometimes.

          No, I’m not going to shoot people if I catch them in the act, I should also add.

          “Hope for the best. Prepare for the worst.”

    • Shiloh1 says:

      A common occurrence in apartment complexes of Willowbrook, Illinois. Cops only care about expired windshield stickers.

    • Swamp Creature says:

      I carry a second wallet with me when driving into the bad Swamp Neighborhoods. The wallet is filled with ones, fives and tens. The other day near the Nats stadium which is in a high crime area I hired a dude who was a trash collector at one of the projects to keep an eye on things for me while he was on a break from doing his work. He gladly complied. Gave him $10 for his time and effort. If I get robbed I just hand over all the cash in this second wallet. This will become the norm as you cannot depend on the cops for law enforcement or crime deterrence.

      • Prue Grubstreet says:

        My aunt, who lived in NYC in the 70s, did this. And even until the mid-90s, I remember being told, “If you visit NYC, make sure to bring a fake wallet to hand over should you get mugged.” I’m thinking of doing this now that crime has ticked up again in my area.

      • Harrold says:

        I don’t carry any cash.

        Nothing in my wallet is of any value to a thief.

  10. Seneca’s Cliff says:

    It’s a good time to be a cyclist ( pedal type).

  11. Mike says:

    I wonder if changing a few words would result in a valid first paragraph:

    “I’ve covered the mindboggling price increases in the HOUSING markets, retail and wholesale, from various aspects since last year, including the collapse in new and used HOUSING inventories across the US due to a mix of issues. Today, we’ll check into this on a per-HOUSE basis, in dollars and percentages, in terms of what consumers are paying on average, and just how massive the profits are that consumers are allowing HOME SELLERS to make. These are truly stunning times. And it’s another sign that something in the market has broken.”

    Yes, it does result in a valid paragraph!

  12. Russell says:

    The first round of child tax credit pre-bates went out last week. This will only continue when the free money stops flowing. Those checks are scheduled monthly through the end of this year. What’s next ?!?

  13. Anthony A. says:

    One of the retired guys I know, a retired postal worker in his early 70’s, was diving a really clean 2015 Toyota Camry with about 35,000 miles on it. He is single (widowed) and has no children and lives with his single older brother (pays him rent). This man has virtually no debt and is not going to marry anyone anytime soon. He’s living on a postal workers pension and SS, plus he has some savings.

    He recently traded that “mint” Camry for a new Lexus GS sedan (@$53,000 MSRP) because, as he told me, “I always wanted a luxury car”. He didn’t tell me the financial details of the trade or the final price, but he’s not a financial genius of sorts though.

    Even guys who are the last people who really need to buy a new car are doing so. It’s nuts.

    • Prue Grubstreet says:

      Yes, I know some younger folk who have completely stopped paying into their 401ks, thinking the world will end in about five years. This seems to be a popular life decision flaunted on social media as well. Instead of paying for a retirement that may never happen, they are living it up as much as they can. I imagine this involves buying things like new cars and other consumer items. “Après moi, le déluge!”

      • Trucker guy says:

        Fatalism never pays off in the end. You just keep waking up and having more responsibilities all while actively making yourself less prepared for them with each passing day. Death will come for us all in due time but to expect it to come unreasonably soon just shoots yourself in the foot.

        #yolo

      • Twinkytwonk says:

        Years ago I volunteered in the local hospital and I got the chance to speak to a lot of elderley people. As I was quite young at the time a lot of them used to give me advice and the most common thing they said was not to save for a pension as the government will means test you so you’ll be no better off. Now obviously this applies to a general person not someone on 100k a year. My dad saved for a pension and his neighbour who saved nothing for retirement ending up about 10% worse off.

        Note: this is in the UK

        • Depth Charge says:

          The best thing to do is squirrel away gold and other things of value that the government and greedy corporations don’t know you have and cannot take from you. Because THEY WANT IT ALL.

      • Paulo says:

        My tenant lived this way his entire life; for today instead of tomorrow. He is now 81 and quite fortunate I charge him very little rent. He has a bit left over every month from his pension which allows him the occasional lunch out and the odd bottle of rye.

        He informed me a few years ago he was going to kill himself if he didn’t find a place he could stay. And yes he bought a new truck every 2-3 years while he was working.

      • Mira says:

        Hi Prue Grubstreet
        We have compulsory superannuation in Australia .. pay day they are all over us like rash .. it’s just a bit disgusting the way they come at us for our hard earned salary even before it hits our wallets.
        Dooms day spiel is all over the place .. hey.
        2008 I realised that the population of the world was decreasing due to lowering birth rates .. it’s the drum I beat now.
        Fertility rate: Jaw-dropping global crash in children being born.
        by James Gallagher.
        It’s not the sperm count .. it’s women being selfish ..
        *Greater access to contraception
        *Education
        *Jobs
        FACTS:
        World population today is 7.6 billion
        By 2100 it is said that most nations population will be halved
        This would bring the worlds population to approx: 3.8 – 4 billion in the space of 79 years .. this is the length of one life time.
        What will this do to GLOBAL SALES across the board ??
        I will not be around to experience the fallout of this .. but I get the feeling that the Doom Sayers might have a point.

        • Mira says:

          Just to say .. all those brilliant HUMANOID ROBOTS except for one have been shelves .. it is deemed that while they are fascinating technology they are actually USELESS .. at this point in time.
          No capacity for ongoing conversation beyond the scripted intro.
          And they can’t DO things .. yet ??
          So man on earth may not be exquisitely educated .. richer .. with lots of leisure time while the robots .. produce all the essential necessities to keep body & soul together.
          Indeed they may be out ploughing fields to get dinner on the table.???

    • DR DOOM says:

      A postal worker or a hillbilly like me that needs luxury ? He was mobile while driving a very comfortable dependable car with an automatic tranny and proabaly a working a.c. and heater while sitting on his ass. Luxury is having mashed ‘taters and gravy with a baked chicken.

    • MCH says:

      I wonder how much of FOMO there is here.

      In this case, Fear Of Missing Out while the prices are still only insane before they go parabolic. This doesn’t seem rational at all. Last year, I was thinking about buying a used car, I remember distinctly mentioning it here around the Hertz bankruptcy. Then prices jumped a bit, and everyone thought it would be a temporary situation, and one the rental cars start hitting the real market, prices will go downwards.

      But I remember the escalating prices being talked about in articles here. It went from it’ll get back to normal, to this isn’t normal to WTF. I guess it depends on the forces hitting this market which is far from the effects on just one industry. I wonder when things will return to the pre-pandemic way of things. I wonder if there is also all this talk of scarcity and inflation is pushing people to get value out of their money now before inflation really takes hold. (I wonder if there is this mentality)

      And how long before we go back to hoarding toilet paper again. This new normal is just a bit insane.

  14. Lance says:

    Maybe it’s all the media coverage of chip shortages and not just inflation expectations.

    People panic buying cars like they panic bought toilet paper, and things are going to fall off a cliff as soon as the shortages ease up.

    Seems like there has been so much stimulus and home related product purchasing in general that we are going to hit buyer fatigue (or not enough money) to keep it going, which could stop the inflationary pressure.

    Hopefully not at the exact moment real estate crashes like Wolf’s theory suggests is coming too.

    • SocalJim says:

      Real estate seems like it is picking up again … today, I saw many homes go into escrow, even though the equity market has been shaking … there seems to be more upside room to house prices.

      In the 70s ( before my time ), home prices rose while the economy was slow and stock prices fell. The reason given for this is cost push inflation. We will see if history repeats itself. Keep your seatbelt on.

      • MS Swamp Creature says:

        I have so much work I can’t keep up with it. Everyone is unloading their second homes. All empty. Working 18 hours/day 7 days a week. When is this going to end??? Am making a lot of money but what good is it if you don’t have time to spend it? I’m supposed to be enjoying retirement.

        • Karl says:

          First homes too as people downsize. They are dumping stuff while other people are buying the same kinds of things of lessor quality at high prices.

          It’s unbelievable how many washing machines,refrigerators, sofas, beds, patio furniture and other more useful things are being given away as people change houses.

          Good things too, nothing wrong with them, often U.S. made. Meanwhile, the uninformed video game generation–translated into ‘Click to Buy’ — chumps are buying overpriced low quality items right and left judging from the Amazon delivery trucks.

          Went to pick up a bunch of giant timber bamboo stakes some couple was giving away because they were too long to fit in the dumpster out front. “You garden?” they asked, “want some tools?” I ended up with about $3800, current retail value, of items that they were going to discard.

          Wise hoarders, this won’t last forever, so stock up now with things that won’t be available again in many lifetimes. You can always sell them for cash at a garage sales if you don’t actually need them.

        • El Katz says:

          When we lived in New England, the town “dump” had a section (under roof) that people would place usable items they no longer needed. It was a lot of fun to go scavenging to see what items you could find. It wasn’t uncommon to find old growth lumber, tools, fine furniture, and the like in the shed. Peeps with their flannel shirts, driving Volvo’s, pawing through other people’s junk.

          We have a similar thing here in our community. We have an area with several dumpsters for resident’s use. People will put items on the side there for the taking. I found a an old stamp collection in there, with some stamps that are 100+ years old. Others have hauled away patio heaters and patio furniture. One of our summer projects is to go through those stamps – if, for no other reason, than to look at the fine engraving.

        • SocalJim says:

          Some of the garbage listings ( near busy streets, airports, gas stations…. ) are starting to sit. Buyers are getting smart.

          Prices are very high and it is likely price growth will slow. So, be careful. If you buy, buy quality or continue renting.

          If you buy garbage, there is a good chance you will be underwater for a long time.

    • RobertM700 says:

      Toilet paper is still more expensive than prepandemic…

  15. Mendocino Coast says:

    Great Post : That “Gross profit per vehicle retailed” really grabs me the 54 % on used Cars gross profit is staggering when many times your talking lots of miles on then as the years pass. I Bought a New Car 1 time and that’s the last time. I worked for dealers in the SF Bay area and have bought lots of Cars that where Broken and sold cheap due to hi cost or repair or lack of knowledge as to what was wrong with. The USA has a Huge Car Culture and I strongly doubt the end of USA Built Cars. However the Mindset of the US Auto builders since the VW / Toyota / Porsche, a long list of Better Cars that deservingly took a huge segment of the US Auto Industry

  16. Bruce says:

    Seems that the pricing model for franchised new car dealers morphed into a combination of Car Max/Carvana/Vroom and any other “one price this is it” retailer during the past 100 days or so. There will always be consumers who don’t bargain regardless of what they’re purchasing. Wolf, what’s the SAAR for CYTD?

    • Wolf Richter says:

      Bruce,

      Not sure about “cumulative YTD” SAAR, but below is my chart for “monthly” SAAR.

      Not SAAR: Total new vehicle sales YTD through June 30 = 8.3 million units, down 1.3% from 2019.

      • Educated but Poor Millennial says:

        Do you see comming car loan defaults?
        I believe the next bust will have “car loan bubble” name, or something like that, Any thoughts?

        • Wolf Richter says:

          There will be some, probably revert to normal (right now below normal). If used vehicle prices actually fall from these ridiculous levels, then lenders that financed recent purchases might have bigger losses on their hands than they expect. This will be an interesting aspect to watch, coming out of the used vehicle pricing bubble.

  17. kk says:

    You old people who have 15 year old cars and everything paid for and never pay too much for anything, do realise you will die one-day and your lazy, useless son-in-law will xxxx your hard saved money up the wall, don’t you?

    • Paulo says:

      ha ha. My son in law is a great guy and a very hard worker. I am saving him my 1950’s Southbend metal lathe that weighs about 900 lbs. I’m going to leave him a note that says, “You always liked my tools. These are for you”. I can see his face now.

    • Bobber says:

      As you probably know, it’s not about money. It’s about enjoying your life, while knowing that material pursuits only detract from happiness and true friendships. It’s also about appreciating nature, and trying to leave a good environment for future generations.

      A 15-year old vehicle that functions well is a great thing. Nobody should live their life trying to impress others with new cars and other material purchases. It’s a sure path to misery and a superficial unexamined life.

    • Wolf Richter says:

      kk,

      “You old people…”

      And when the “you old people” are buying NEW cars, you complain that they’re driving up the prices and making it impossible for young people to buy cars. Folks can’t do anything right.

      • MCH says:

        Wait until old people make it impossible for young people to buy iPhones. Then you will see a real revolt.

        Home… no big deal, rent…. Car… lease, iPhone? That’s where the RED line is drawn.

      • VintageVNvet says:

        Actually Wolf, it’s ”guys” who can’t do much correctly:
        As a now elderly guy who enjoys laughing with young guys from time to time when the better half lets me out of the house, I try to get them to understand that, ”Try to stay out of trouble.” means ya gotta try, but, ya also gotta understand it ain’t gonna happen.
        No matter what,,, you just ain’t gonna stay out of trouble, so get used to it.. LOL
        ( And have fun with it, eh )

      • MCH says:

        I had one other thought about this thing. And it has to do with old people. The one thing the younger generation has been trained on is the belief that money is just bits of electrons and nothing really tangible. We can see if with the gamification of real life finance through services like Robinhood. It was already bad enough with credits and one click shopping which removed us from the physical handling of cash.

        Think about it, for most of us who are not Millennials or Gen Z, we had spent time handling cash. Back before the 90s, credit card use wasn’t quite as prevalent as it was a decade or more ago. For us, the effect of physically handing over cash meant something. It wasn’t the same as swiping a credit card or tapping your phone on the terminal. We’ve been so disintermediated from cash that we can literally go anywhere and not carry cash.

        I remember my first trip to Europe where I had to get Euros, Pounds, thank God Francs or DMs were obsoleted by then. The last couple of times I was there, I didn’t even bother to get cash. Everything was done with credit cards.

        The point is, the changing medium of transaction and the lack of use on physical cash over time has basically atrophied some of the sense associated with value of money. For the younger generation that might have had far less cash interactions, the situation is likely worse, for them, taking delivery now and paying later in installments for any largish item might be the only way they know how to do things. And cash is just inconvenient bits of paper they have to carry around instead of just using their phone or a piece of plastic

        • El Katz says:

          My daughter had a spending problem as a young adult. She had disconnected the relationship between “money” and her debit card. One day, she was complaining about always being “broke”.

          My suggestion to her was to put away her debit card/credit card and spend only cash for one week…. she reported back that her spending habits changed as pulling out an extra $10 for the “energy bars” at the checkout vs. swiping the card forced her to think “do I really need these?” – and she often put them back.

          Worked like a charm.

        • MCH says:

          @El Katz

          It’s amazing the difference you see between simply wielding cash and being used to plastic.

          Once a certain mentality sets in, one might not even realize the alternative. Debit card has the advantage of not being able to draw past your limit. Credit card is literally slavery in a pocket if you don’t know how to manage things correctly. It’s very easy to start off with, oh I paid most of the card off to only making minimum payments every month.

          That kind of discipline is what the financial industry is slowly weaning people off of. It really isn’t a good thing, eventually, something is going to give if debt piles up high enough.

        • Marc D. says:

          I use my two credit cards to pay for most things – carry very little cash. But I’m also extremely frugal. I pay my balances every month, and get cash back bonuses from the credit cards. The reason I use the credit cards is for convenience (easier than carrying cash around and dealing with change, etc.). So not everyone who uses credit cards is spendthrift.

      • 91B20 1stCav (AUS) says:

        …Wolf-we ARE a difficult species, aren’t we?…

        (btw, wife actually needed a new ride, and found an acceptable deal on a base, Japan-made Venza gas hybrid (had to wait 3 weeks for delivery), replacing a very high-mile ’16 Tucson that was our primary transport for her 98-year-old mother, who lives with us and requires frequent 100-mile round-trips to the medics in town. It was great except for its relatively short wheelbase (choppy ride over our deteriorating rural roads) and seat entry height that were getting more difficult for m-i-l to deal with. All concerned very happy with it, so far-ride (longer wb&no ‘offroad’ suspension-tuning)/way-improved gas mileage/seating/interior space and (at the time), significantly less $ than a comparable RAV4 (the Venza, like us, harbors no serious offroad aspirations other than traversing the 3 1/2 miles of improved dirt road leading to our modest rural digs, which it handles just fine-reckon one could say it’s really a Camry with more ground clearance…). Agree with all here in thinking that one should pass on a new purchase if you don’t actually need one (my own beloved/maintained ’02 Camry LE’s still going strong @nearly 250K, and stands ready for duty if unforseens ever trigger a default…

        may we all find a better day.

        • 91B20 1stCav (AUS) says:

          Correct to ‘…Tucson was great…’ after ‘…medics in town…’, and ‘…All concerned very happy with Venza, so far…’ . apologies.

          may we all find a better day.

    • Wolfbay says:

      I’m one of those frugal old people. Yes I could die tomorrow but what if I lived another 20 years. I don’t want to depend on my lazy useless son in law for food and shelter.

    • Anthony A. says:

      kk, of course! We did that same thing to what our parents left us. It’s the American Way!

  18. Zalgiris says:

    I witnessed the mindset and frenzy. We wanted a minivan for extra room for the kids and felt like all-wheel drive is a necessity in the Midwest. We visited several Toyota dealerships and could only locate a handful of Toyota Sienna’s available around Chicagoland. All the dealers were busy with people combing the lots and sitting at sales desks. We went took a loaded model on a test drive and the salesman stated that we would need to act fast. He said he’d be looking for around $60,000 (which was approximately $10,000 above sticker). WTF – it’s a minivan … Unreal, it’s mania, pure and simple. Ended up reserving one with less bells and whistles in a few months for just below MSRP.

  19. Jim Gearing says:

    Wolf, you should change the name of this series from “Normally Astute Car Buyers…” to “Formerly Astute Car Buyers….”

    This has been going on too long now to say anything other than “Formerly”.

  20. JK says:

    The boat (and RV) market might be even crazier than the car market right now. New boats selling at huge margins over MSRP, every dealership completely out of new inventory, used boats bringing insane prices. I’m watching 3 year old used boats selling for way more than they sold for new. If that isn’t peak bubble, ready to burst I don’t know what is.

    In a normal market 54% of 1st time boat buyers will no longer own a boat after 5 years, this wave of new buyers who bought irrationally should eclipse this 54% number. Once these new boat/RV buyers realize how expensive these things are, and how much work they are to actually use, I expect a tidal wave of used boats and RV’s hitting the market within the next couple years, right at the same time that dealers new unit inventories are piling up. This will drive boat and RV prices into the abyss.

    • Depth Charge says:

      The real question is who are these idiots paying more for used boats, rvs and cars than they cost new, and where is the money coming from?

      • JK says:

        The answer to this question is, everybody. Financially stable working professionals, wealthy retirees, working class folks who can get a loan.

        Dealer inventory is gone due materials shortages and demand that shot through the roof due to covid and a booming economy (that is inexplicably being called a recession) These are all contributing factors.

        There’s a pervasive thought that “it’s different this time” and current prices are a new floor and not the peak of a market cycle. My opinion is that things are indeed different this time, in that the crash will be even more drastic than the previous two.

        • RightNYer says:

          The government printing money and handing it out for people to spend does not a booming economy make.

      • Nemo 300 BLK says:

        You can mortgage a boat or RV for up to 20 years. A brilliant move when you consider their typical depreciation.

    • 3D Modeler says:

      When the financial crisis hit in ’08-09, the epicenter of the RV industry in Elkhart IN laid off most of their workers, many of whom had to move to find jobs. As, the industry rebounded, they had a hell of a time attracting qualified workers, so they compromised their hiring standards. The result was a dramatic drop in quality. Lawsuits were filed by owners brand new of $300k RVs that sat in dealers’ lots weeks or even months waiting to be repaired. Quality of RVs since the financial crisis has been a disaster. And the industry’s struggle to cope with the 2018 tariffs imposed on steel and aluminum didn’t help. You’d be out of your mind to buy an RV in the current poor quality/inflated pricing environment.

  21. Depth Charge says:

    There are still innumerable cheap older used cars on Craigslist. People are out gorging on fancy new stuff.

    • MiTurn says:

      That’s how I buy used cars, or from friends.

    • Karl says:

      Not just cars, but everything else. Sometimes free. Better yet, an opportunity for WS readers to post free ads and sell useful items that they will never use.
      Deal only in cash, first come first served, at your own place for less stress.

  22. Dazed And Confused says:

    So the pandemic-induced recession officially ended 15 months ago.

    Can someone explain why the Fed has extreme emergency sky-is-falling world-is-ending ZIRP and infinite QE when GDP is growing at 7% with 5.5% inflation and <6% unemployment?

    • Dazed And Confused says:

      Isn’t the Fed supposed to set rates to “neutral” (3% or so) in the middle of an expansion so they have some dry powder to combat the next recession?

      And isn’t the federal government supposed to cut back and reduce its deficits during an expansion rather than pushing for trillions more in stimulus?

      Can anyone explain WTF is going on?

      • Random guy 62 says:

        A) They are smarter than us and the policies are not causing near the harm we believe they are. They are on the right path and it will come clear over time.

        B) They are utterly incompetent.

        C) They are charged with the duty of maintaining economic stability and are backed into a corner. They have no choice as the cost of inaction is a far larger problem.

        D) They are owned by monied interests and could care less about what happens to the other 90% of the country, so long as primary asset holders are protected.

        E) They are waging a deliberate war on savers and are using this pandemic as an excuse to rob the people.

        There are plenty of other options, but those are the first that come to mind.

        I reserve a reasonable place in my head for each of these possibilities but C gets the most weight, with a dash of D.

        • Nathan Dumbrowski says:

          Vote for C with a healthy dash of A. Please do report back in 10 years and let us know how it turned out

          E) touches on something that is part of all the answers. The pandemic was used to scaffold over something much grander. The economy was teetering right before the massive drop in 2020. The treasury had inverted and things were already creaking before we got the DROP on Wall St.

        • Paulo says:

          Vote C but D is who they turn to advice. That means a bit of B is there too.

          I think mostly the political and policy class makers are simply out of touch with the reality of normal people’s lives and problems.

          One of my best friends in high school came from a wealthy family. He just thought poor people were stupid. He was a hard working dependable guy with few worries.

        • Young Buck says:

          B 100%

    • JK says:

      To protect the wealthiest of citizens it’s critical for the fed to keep interest rates low and loans easily available to the masses At the same time repressing earned interest on money in savings accounts to force all savings into the stock market.

      Once the wealthy have sufficiently unloaded all of their bloated equities and massively overpriced houses onto the unwashed masses and parked their money in safe havens such as bonds and savings accounts, the Fed can simply pull the plug on the entire scheme and let the stock market tank and housing prices crash.

      As the crash deepens and drags on, the aforementioned new investors/home owners will begin to panic at the thought of losing their life savings that they thought they had smartly invested into stocks while at the same time struggling to make ends meet while paying for a deeply underwater home loan. Eventually they give up, sell their equities at huge losses and walk away from their mortgages to go and start the whole process over. Now the wealthy and savvy can swoop in and buy back these “assets” that sold not long ago at a fraction of what they sold them for. to start the process over again. The transfer of wealth from the worker bees to the kings and queens continues-

      • The Real Tony says:

        What used to be pump and pump scheme’s have now turned in to pure ponzi’s. These things will likely only go higher until they ultimately implode and like the definition of ponzi 95 percent of the people will lose everything.

  23. Shawn says:

    This may have been a side effect of the stimulus checks and “easy” money many have been pulling from the stock and crypto markets. People tend to spend perceived windfalls more carelessly than they do their hard earned money. How long will this continue after the easy money runs dry?

    • The Real Tony says:

      It was from people getting money who didn’t need the money and the 100 percent rigged U.S. stock market. I live in Canada and everyone is poorer than ever except the Chinese. There is zero wage pressure here and Alberta is cutting nurses wages.

  24. breamrod says:

    in 1980 when I was young fool I fell for the 40 miles per gallon diesel rabbit. Paid a few hundred over sticker and only got 300 for my 73 olds. So this mania will too pass as Wolf’s WTF charts crash back to earth

    • BrianC - PDX says:

      My folks bought a diesel rabbit in 1978. I remember driving it from Kalispell MT to Bozeman back and forth from University. It would regularly get over 60 mpg. (354 miles, a little over 6 gallons to top off the tank.)

      Great car.

      • MiTurn says:

        I had one too, but it had a manufacturer’s defect (recalled and fixed). Cruising down the highway it would suddenly start sucking engine oil into the combustion chamber and take off like it had turbo! Redlining the tach til it burned through that slug of oil. Scsry, actually!

    • roddy6667 says:

      Back about 1984 I bought a 1981 Rabbit diesel for $1800. It got 50 mpg around town. Never took it on a trip, but I imagine at least 60 highway. I wish I hadn’t sold it. I always wanted a car I could run on Fryolator grease.

  25. MiTurn says:

    “And it’s another sign that something in the market has broken.”

    I’ve often wondered if people bought nice, too-expensive cars because they had given up on ever affording a house. But people seem to be going nuts buying both. Same people or two different groups?

    Probably no way to quickly differentiate.

    • Nathan Dumbrowski says:

      Got wants? Got Credit? We got a loan for you!!! Home, RV, Boat, ATV, vehicle, Solar Panels, Swamp-land, etc…

      Saw ARMs listed today for the first time in a long time. Thought the
      industry did away with those crazy instruments

      • Depth Charge says:

        Subprime has been back for over 5 years. We’re right back in the soup again, but even worse this time around. These bankers are so greedy they just can’t help themselves. That’s what happens when they get bailed out and don’t go to jail for fraud – they do the same exact thing again.

    • Artem says:

      Por qué no los dos?

    • El Katz says:

      We did market studies on new home buyers and there was a high propensity for them to purchase a new car. The theory was that the old clunker didn’t have the right “look” for their new digs. We used to direct market to those folks… and you’d be amazed at how successful it was.

      • MiTurn says:

        Very interesting. Some people are just lumps of clay, waiting to be molded into buyers!

  26. Cyclops says:

    My dad told me you can have a nice house and old cars or new cars every few years but not both!

    Pretty much true!

  27. Yort says:

    I’m surprised the Fed has not started buying auto loans yet, and might be forced someday as they already own 50-60% of the total 10 year Treasury market to date:

    https://pbs.twimg.com/media/E6rj47IWQAYhA85?format=jpg&name=small

    At some point, the Fed will have no choice but to taper as they will run out of paper to buy as it all goes exponentially illiquid…so yes I guess J-Pow is right, inflation will ultimately be transitory…HA

    • Wolf Richter says:

      Yort,

      I’m not disputing your point. But there is something wrong with the numbers here, including in the chart you linked.

      The Fed holds $5.2 trillion of Treasury securities. The entire market of Treasury securities (the marketable portion of securities, not including the non-marketable securities) = $22.2 trillion. So the Fed holds about 23% of the total Treasury market. But in the chart, only 2yr and 5yr maturities show something like 24%. Everything else is way above, with the total appearing to be close to 40%. So something is not right with this chart and data.

      • Swamp Creature says:

        All the MBSs that the Fed is purchasing seems the same as purchasing 10 year Treasuries. Same trade. So when this stops so will the suppression of these rates?

      • Yort says:

        It does seem high, I got the chart from RBA advisors (Richard Bernstein – Manager of $14.6B in funds). The chart states it is from Fed Reserve data, yet plenty of ways to fudge the any data, I agree…and it did seem weirdly high on the 10 year Treasuries…

        Jesse Felder (The Felder Report) had linked the chart, so I didn’t think much about it as he is a giant chart nerd…HA I’m a huge chart nerd too as I have a 500 square foot office in which one entire wall is covered with charts and tables concerning world financial matters. I find visual data to be easier to absorb and comprehend, yet the devil is definitely in the data quality and data presentation details…and usually that devil has J-Pow written all over it…HA

        • Wolf Richter says:

          Yort,

          It might be that there is some detail missing from the info, for example, it might not be a percentage of the total Treasury market but only a certain part of it, for example, total Treasury market minus x, y, and z big holders (such as central banks). Then the chart might be right. Since it was cited out of context (possibly by Felder as well), we might never know.

    • The Real Tony says:

      If they taper the Fed’s long term bonds become next to worthless on the open market.

  28. Depth Charge says:

    The hurry up and buy a bunch of cars thing is only slightly less dumb than the crypto scam. People are unbelievably stupid.

    • Nathan Dumbrowski says:

      …or go to higher education with government backed loans. Vote to have the loans cancelled or forgiven

  29. CRV says:

    It’s a sign of the times, or just normal human behaviour, but we see people buying like crazy when the prize of something goes up. The appetite is lost when the price goes down.
    Maybe a psychologist could explain it.

  30. ru82 says:

    Warren Buffet made the following comment about a month ago. I keep calling the Nebraska Furniture Mart stores to check on sales as inventory cost keep going up and we keep raising prices i keep thinking sales will slow down but people keep coming in and keep paying the higher prices we pass along

  31. LM says:

    Mainstream media insists there is no inflation, as pandemic denial and stress energize the ridiculous decision-making of Americans, most of whom have little emotional/psychological/intellectual resilience. What a good time to lie to and exploit the dummies.

  32. Micheal Engel says:

    1) JP saved NYC subway & SF BART systems.
    2) Ridership is down 80%, but fares, at best, covered only 30% of
    the cost.
    3) Those who use the public transportation during the pandemic are the new American slaves. Without them, our cities cannot start the day. NYC subway conductors make : $80K-$100K. The slaves : $20K-$30K.
    4) Cities and states cannot run budget deficits.
    5) Their growing deficit was covered by JP & RE taxes.
    6) Soon, US gov incremental debt rate will lose it’s thrust and stall before the fall. NYC transportation union TWU will declare a strike.
    7) The public transportation system is our blood pipeline.
    8) When city’s pipelines clog, cities collapse and die.
    9) WFH is a symptoms. The cause is the high debt positive feedback
    loop. Defund the police, the public transportation system…
    is a negative feedback loop.

    • Kelly says:

      Rode the “Smarttrain” yesterday from San Rafael to Novato and back just to see what it was like. Rush hour. Four people on the train, including me.

      Like the streetcar lines through the 1920s Twin Peaks and Sunset Tunnels in San Francisco, which opened up the empty land in the west end of the city for development, the “Smarttrain” is just a pretext for land development in N. Marin- Sonoma Counties in the face of shrinking population. Part of the Development Industrial Complex, spearheaded by Scott Weiner and other prostitutes for the building and finance industry in the state legislature.

      Each ride subsidized by the tax payers something like $50. The freeway is still gridlocked. Wait until thousands of new condos are built, in each town along the line, which is what new state laws allows and now mandates.

  33. RedRaider says:

    Perhaps people paying these high car prices are doing so because they’re in the same quandary everyone here on Wolf’s site is in. What the heck do you invest in when everything is in a bubble?

    Maybe that’s a new investment style. Find that rare thing that hasn’t entered a bubble. If it happens to be bubblegum then buy bubblegum.

    • The Real Tony says:

      The owners of the racehorses will be making the $2.10 show bets until they outlaw show betting at the racetracks.

  34. Arnesto says:

    Tesla is selling more cars that they can make. The wait times a extended to about 3 months. And there are No Discounts. I know because I ordered a Model 3 and an uncomfortably waiting for my delivery. The single price to everybody seems to work.

    • Wolf Richter says:

      EVERY automaker is now “selling more than they can make.” That’s the problem.

      • Micheal Engel says:

        1) Ilan might have asked employees, suppliers to finance his spaceship pet project.
        2) Tesla paying customer’s are in Ilan pocket.
        3) Jeff’s bloggers, high end employees, Chinese suppliers…donate
        to his hypersonic vehicle, according to their ability to pay.
        4) Those who ignore, might be deleted or reduced to a minimal visibility.
        5) Donate, or risk elimination. That’s business.

    • El Katz says:

      There’s a pile of them (100’s) in a lot at “The CORE” in Scottsdale – which happens to be a few blocks from their PHX offices. Dunno if they’re new or lease returns.

  35. Micheal Engel says:

    10) The doom positive feedback loop might spread like a pandemic
    from defund the police to defund the public transportation, to the hated
    schools system, to daily blackouts, healthcare and tax collections.
    11) It will be the failure of helpless leaders. They will turn their back on
    the public, in a leadership avoidance & shortages.

  36. Glashub says:

    I’m shopping for a car. My parked 2014 Lexus was rear ended and crushed. It’s so sad. The insurance company totaled it out. I planned on keeping that car for years. Only had 54,000 miles on it. So, I’ve looked everywhere. Anything I buy used will cost more than a new car. Search new cars and there’s little or no inventory. Some dealerships advertise having the cars in stock when they’re really “in transit”. Yelp reviews showing a lot of bait and switch going on. Absolutely the worse time to buy a car. The only good news is paying an inflated price on my totaled car.

    • Micheal Engel says:

      Fix it. The insurance will pay. The rear end will not look the same, but the engine is good, the transmissions are good… Your Lexus is good to go for another 200K miles, or : 54,000/ 7Y = 7.5K miles/y, for another 25 years.
      Your car might out live u.

      • Glashub says:

        The cost to fix it is more than than the value of the car. The car was pushed forward while in park about 15 yards. “The impact from the back of the car could shove your vehicle’s exhaust forward, damaging the exhaust manifold, engine mounts, catalytic converter, and even the Y pipe that extends from the exhaust into your cars’ engine. A mechanic should inspect your vehicle for body damage, but should also check the exhaust system, the engine, and the transmission. If the vehicle’s transmission slips, or if there is leaking transmission fluid or motor oil, it could be a sign of a mechanical problem caused by the crash. There are several different kinds of body damage that your vehicle may suffer in a rear-end collision. It may require a new bumper, bumper cover, trunk, taillights, and rear fenders. A hard impact could cause frame damage or damage the wheel weld, which is in the trunk. Following a rear-end collision, it is not unusual to notice a difference in the way a vehicle handles. This is usually due to an alignment problem – another example of auto collision damage that might not be instantly noticeable. Common warning signs of improper alignment include uneven driving, wobbly steering or unusual vibrations.”

        • Wolf Richter says:

          In addition…

          I think the Lexus has struts in the rear. In that kind of hard rear-end collision, those struts likely got bent a little. So you might not see it, but they’re now leaking, and after a while of driving it, you realize that your rear wheels are bouncy. And you need new struts. Lots of bucks involved in replacing struts. Other suspension components might also be bent. Fixing the damage from an accident like this can be a money pit.

        • Dan Romig says:

          Ten years ago, at 1:30 in the morning, my Lexus SC400 was parked on the street and hit in the left rear so hard that it split the rear-sub-frame from the main frame.

          It didn’t look that the car was a total wreck to the untrained eye, but it was, and it was not worth trying to repair or salvage.

          Sorry to hear Glashub, but keep the faith and best of luck to you.

  37. Swamp Creature says:

    I wonder when some start up business will emerge that takes all these new cars and disables all this electronic crap that is bundled with each vehicle and leaves the owner with basic transportation. I bet they would make a fortune. I don’t want all this s$it in my vehicle to spy on me and would gladly pay someone to get rid of all of it. Most of this s%it will be obsolete in a few years or break down requiring expensive repairs if it can be repaired at all.

    • Artem says:

      I’ll take several thousand and cover every LED in your car up with tape.

      Seems steep for just tape, but, you know… inflation.

      • El Katz says:

        With the long development lead times, most of this s%it is obsolete the day the car hits the market. I recently read that, apparently, they’ve come to the conclusion that the “automatic start/stop” doesn’t save any fuel. *shocking*

        We have two cars: A basic “luxury” coupe that’s a 2003 (47K miles) and a technomobile. The technomobile is the first vehicle that I have ever owned that I purchased an extended warranty (it really is an extended warranty, not a service contract) from the manufacturer. Why? Because if one of the CANBUS connectors inside the car fails (and they do), it’s likely that they have to dismantle the entire interior of the car to replace it…. and, since the CANBUS runs the entire car from the HVAC to the radio to the locking system, it’s not optional to not repair it.

        If people only knew how much data that their car transmits from the “sharkfin” on the roof, they’d be very afraid. Forget about lying to the cops about speed, braking, steering to avoid an obstacle in the event of an accident…. The car will rat you out.

        • Swamp Creature says:

          My ins Company notified me that all this electronic crap adds 60% to your premiums. So you are paying to have the government spy on you.

          They also said that in an accident which affects the electronics the car can be declared “Electronic Total Loss” a new category which means they write you a check for the depreciated value of the car and you have to go out and pay through the nose for a new car if you can even find one.

          The ins company then takes ownership of the car and sells the parts for 2 times the blue book value. You lose and they win Welcome to America or what once was America. Enjoy

        • davidtoo says:

          I love my new Volvo…and its electronics. The adaptive Cruise Control a must. The accident avoidance systems superb. The sound system with the satellite radio can’t be beat for long drives. Once you move into the new world of technology, it will be the rare person who wants to return to what came before, not to mention New Cars today are far safer than they were even ten years ago. To me its worth the cost of having a new car, not that I would pay the outrageous prices being asked today, but fortunately, I bought my car just before the Pandemic hit.

    • Brent says:

      You are up to something ?
      The idea in not new.

      1.During WWII US Navy removed 50% of parts from the Swedish 20mm Oerlikon cannon w/o affecting its performance

      2.While designing his handgun Gaston Glock studied Walther,Beretta,Browning and Steyr and reduced the number of parts to 36 (compared to 108 parts in Steyr).And Glock conquered the world.

      3.There was a service at select Walmart stores to remove all bloatware from new computers for $40

      4.The size of Win 10 LTSC is 6GB less,it is much faster,more stable and does not push updates down you throat twice a day.Just a polite reminder once a month.

      Keep us common peasants updated ! Post the video of your new de-loused ( I mean de-chipped) car on YouTube !!!

  38. B.A.C.A.H. says:

    My elderly mom, who has only a few driving years ahead of her, wrote a check for a new Mercedes last week instead of spending for repairs on her year 2000 Buick that was running but needed work.

    She rationalized it to me that it’s been a rough year with the pandemic closures and all.

    I am skeptical that this sort of purchase is a sustainable sort of demand to keep the gig you describe going.

    • drifterprof says:

      I’m in the elderly category, but I’d rather spend that money on renting a seaside villa in Portugal for a couple years.

  39. Micheal Engel says:

    1) Hypersonic Jeff Bezus is back from space.
    2) His accumulated profit, in the last ten years, is down to earth.
    3) Jeff’s round trip to spaced to dethrone himself.
    4) Hypersonic transportation will be a viable transportation for the rich.
    5) NYC poor have no viable transportation besides the subway system.
    6) NYC veins will not recover for years, because they are already badly clogged, with future promises and high debt, while operating at 20% capacity.

  40. Moosy says:

    ‘ and paid whatever when they didn’t even have to buy a vehicle, and could have just waited a year or two until this craziness blows over’

    But if they expect inflation and that two years from now the price will be even higher —or— any lower price due to cool down is offset by inflation, then no reason to wait

    Same with all other bubbles. ‘Yes, it is overpriced in today’s dollars but two years from now with massive inflation it will look cheap”.

    It seems to have become a self fulfilling proficy sentiment

  41. TheFalcon says:

    Of all the people I know who have recently bought a new vehicle, not a single one has told me they did so because they were afraid prices were going to continue to go up so now was the time to buy, aka inflationary mindset. Here are the reasons I was given:

    1. New Toyota pick-up: Wanted a dedicated camping vehicle (for about 5 camping trips/year).

    2. New luxury LR/RR SUV: Always wanted this model, pulled equity out of property for a cash purchase.

    3. New Audi SUV & new pick-up: Hasn’t paid rent in over a year, cash burning a hole in the pocket.

    4. New Tesla SUV: Pulled some gains from the stock market, wanted to go electric for awhile now.

    5. New Jeep: sold some land, wanted to treat themselves with some of the profit.

    Lookit people want what they want and they want it now. We live in an instant gratification society. Whatever happened to layaway LOL.

    What is this mentality that what is happening now will continue on forever? Our markets, our economy, our society, are all full of twists and turns. Why do people forget what has happened and not see that they in fact cannot see all the curves, drops and loop-de-loops ahead? We’re riding on Space Mountain. It’s dark. But you know it’s a roller coaster and you know what roller coasters eventually do.

    • random guy 62 says:

      Great summary. Sounds like par for the course.

      This reminds me of some recent reading about the current understanding by psychologists about how decisions are made. In short, there is a well-supported theory that states the conscious mind exists mostly as the “press secretary” for our animal instincts.

      This topic was first introduced to me in “The Righteous Mind” by Jonathan Haidt. The job of the logical brain is to find supporting reasons for the whims of the subconscious mind. The comparison he uses is to equate the conscious brain to a rider atop of an elephant that is the subconscious brain. The “rider” can coax the “elephant”, but only so far as the elephant is willing to move. This changed the way I see people, and how I view the world.

      In other words… We want what we want, and we don’t have much control over that. Intelligent people are just as susceptible than those with lower intelligence (if not more) because their minds are more adept at finding excuses to support their conclusions. Fighting it is more about acceptance, humility, and seeking a broader perspective.

      It is sometimes almost comical to watch the mental backflips people will do to support their conclusions. We all like to THINK we are 100% in control. In reality, the most introspective people with a lot of self-discipline run on probably on 90% instinct, and a whole lot of people are 100%. Seem to me that this is why we do dumb things in large numbers.

      • 91B20 1stCav (AUS) says:

        Random-ah, the everpresent temptation/danger of selectively-forcing the data to fit the hypothesis…

        may we all find a better day.

  42. Tee says:

    Most of this isn’t herd buying mentality, but fear based mentality. Every source of financial news is saturated with “inflation/ possibly double digit inflation”, headlines!
    ppl are being programmed to buy at ridiculous rates to hedge against loss of future purchasing power!
    Same with housing. I saw an investor’s blog, stated he recently bought and rehabbed a house, took a loan against the property as an inflation hedge. He would rather invest in RE, then loose purchasing power.
    If inflation declines rapidly, and there’s massive deflation coming soon, these ppl will have a rude awakening!

  43. gametv says:

    We peeked into an million dollar open house in California and it was swamped with shoppers. Every single one of them was of foreign descent. I think the same might be true of real estate in Canada.

    I dont think all of them are rich, I think there is just a very different mentality with foreigners in terms of the willingness to pay top dollar for what they want. Similar to when the Japanese were buying up everything in the past. Maybe it comes from the fact that properties in places like Hong Kong and China are so out of whack.

    This housing bubble and financial bubble are not at all good for the economy and for regular working class people. The only thing saving our economy is the productivity gains from new tech developments that are rapidly re-inventing the world.

  44. Micheal Engel says:

    1) NYC wealthy refugees invaded Fl. Auto Nation Ft Lauderdale profit on new cars jumped 89%. A new dealership in San Antonio was profitable in the first month.
    2) Sales reached $7B. The average sale in US was 38K up 10% Y/Y. AN Sales/Inventory turnover was above 3. Only 14 days supply for new vehicles compared to 49 a year ago. What a crazy year.
    3) Cost of goods : $5.65B. Net Income after taxes : $385M.
    4) Customers are buying online, before they come to the store.
    5) Auto nation will open four more stores in the second half and 12 new
    stores in 2022.
    6) Tesla model 3 is sold out for 2 years, but there is one model Y
    available in Arizona, just for u, if u sign in the next 5 min.

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