They have to set residual values for three-year leases. And it’s risk off.
By Wolf Richter for WOLF STREET.
Used vehicle wholesale prices at auction fell by 1.6% in July from June, seasonally adjusted, and by 3.8% not seasonally adjusted, and by 10.7% year-over-year, to an index value of $19,546, just about exactly where it had been in April 2021, according to the Used Vehicle Value Index by Manheim, the largest auto auction house in the US and a unit of Cox Automotive. The index is adjusted for changes in mix and mileage.
During the crazy bubble spike from February 2020 through May 2022, the index had jumped by 63%, or by $8,842. The index has now worked off $3,336, or a little over one-third, of that bubble spike. The question on everyone’s mind is this: How much more will used vehicle prices drop before the price increases start all over again? And when will those price increases start all over again?
This question is crucial to the financing arms of automakers when they calculate lease payments for new vehicles. They have to predict what used-vehicle wholesale values will be in two to three years to determine the residual values in their leases. They don’t want to be $10,000 on the wrong side of reality three years from now on a gazillion vehicles when their leases end. And they’re now confronted with the worst turmoil in used-vehicle wholesale pricing ever, and they had to place their bets. More in a moment.
Prices have dropped despite tight inventory.
Used retail inventory has been rising off the lows in February and March. But at the beginning of July, at 2.22 million units, it was still about 500,000 units below the inventory during the same period in 2019, according to data from Cox Automotive.
Retail sales were up 6% in July from June, and nearly flat with a year ago. And days’ supply, which expresses inventory in relationship to retail unit sales, dropped to 46 days at the end of July, from 49 days in the prior month, and from 54 days at the end of July 2022, according to Manheim.
Where will wholesale prices be in 3 years? That’s the bet leasing companies have to make.
With used-vehicle retail sales “showing some summer strength, we do not foresee wholesale price declines of serious import through December,” Manheim said.
The automakers’ captive finance companies have to think beyond this year; they have to think about what will happen when the leases terminate in two or three years.
Amid this pricing turmoil that started in 2020, they began de-emphasizing leases, and essentially ended leasing incentives. Increasing the residual value by an incentive amount brings down the lease payment and makes leases appealing, and they stopped doing that, and they’re still not doing it, and leasing activity plunged every year from the prior year since 2019, unlike new vehicle sales which have been bouncing back. Captive finance companies have focused on loans, rather than leases.
Leasing activity, each year from the prior year:
- 2020: -31%
- 2021: -19%
- 2022: -38%
- 2023: -13% projected.
Cumulative, over those four years (2023 projected), leasing activity in 2023 has plunged by 65% from 2019! This data has been provided by a WOLF STREET reader who comments here as “fullbellyemptymind,” and in real life serves in a senior data science role in auto finance risk management and insurance.
Where will wholesale prices be in three years? That’s the bet automakers’ finance companies have to make when they determine residual values for today’s leases.
And they’re now betting that wholesale values will not increase, according to data on contract residual values, provided by “fullbellyemptymind.” The industry sample represents captive finance companies that write a large majority of the new-vehicle leases.
The average contract residual value for pickup trucks so far in 2023, at $32,300, was below the calendar-year average in 2021 ($32,600). So today’s three-year truck leases that will terminate in 2026 have residual values on average of $32,300, meaning these finance companies expect wholesale prices of pickups to be in this range, and that’s below those that will terminate in 2024!
This also shows the absence of incentive spending on residual values.
But in the chart below of the index of residual values, note the 23% spike in average residual values of pickups in the calendar year 2021 from the 2020 average. In other words, the leasing industry is betting that the surge in wholesale prices of used trucks is over (red in the chart below)
In terms of leases for SUVs, contract residual values are roughly flat compared to leases those written two years ago (green).
The chart shows the calendar year average residual value in bold, and the monthly residual values for pickup trucks (red) and SUVs (green).
Exiting a chaotic pricing mess.
The huge price spike from 2020 through 2021 has caught everyone by surprise, including the finance companies; their residual values, which were set two or three years earlier, lagged far behind. This produced the peculiar situation where leases that terminated in 2021 had residual values far below wholesale prices. So instead of returning vehicles, a large number of customers chose to buy out their leases at the residual value. Some then turned around and sold the vehicle for big profit.
During the crazy price spike in 2020 through 2021, residuals rose much more slowly than the spike in wholesale prices, which produced relatively higher payments for leases, and made them less attractive for customers – hence the plunge in lease volume.
But then in 2022, when wholesale prices plunged, residual values barely dipped.
And in 2023 so far, as wholesale prices plunged again, average residuals even increased a little. This shows that the captive finance companies are betting that wholesale prices over the next three years will settle down well below where they’d been at the peak in 2021, but well above where they’d been in 2019.
It also shows that the captives are uncertain about where these price gyrations might still go, and that they’re not incentivizing leases by raising residuals, but that they are taking risk off by reducing their lease business, and are instead promoting loans with low interest rates and other incentives.
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Great reporting wolf! As a man trying to buy a reasonably priced truck these last few crazy years —I ended up on buyers strike. Your last statement made me wonder just a little a bit… maybe it’s just me. You mentioned: “but that they are taking risk off by reducing their lease business, and are instead promoting loans with low interest rates and other incentives.” I haven’t taken a look lately at auto loan interest rates and what they mean for the industry. Do you happen to know what they are? Not trying to be trouble, and I thought this was an insightful piece.
For example, Ford is advertising 1.9% on loans for F-150s
Glad I’m not responsible for calculating residual values but if forced to predict Manheim figures I would simply extrapolate the line over and say 17,500 average in two years.
So many of these fine charts we see here just revert back to historic levels. However some don’t so who knows.
“…but that they are taking risk off by reducing their lease business, and are instead promoting loans with low interest rates and other incentives…”
But risk never disappears, it only gets shifted somewhere else. So, the residual car value risk is shifted to the consumer. Together with all the other risks that are being piled on the populace -housing prices, bonds, interest rates, you name it- this makes for a more and more precarious economic balance.
Eventually, the whole house of cards will come tumbling down.
“As long as the music is playing, you’ve got to get up and dance.”
Powell is dancing, Yellen is dancing, everyone is dancing.
Let’s have us a big ol recession and get that number back down to Jan ’20. Then, everyone will stop dancing.
The music and dancing were better during Volcker time.
Correct. Where are the 18% CDs that my father bought?
They’re in the same place as the 20% mortgage rates that your father (or those in his cohort) paid, joe2 — you don’t get the one without the other …
Mocking the home owners with their beloved sub 3% mortgages…
I absolutely love my 1988 Toyota. They don’t make them like it anymore. Reliable and sturdy.
I’ll never give up my Toyota. Not until I’m just so many ashes.
It’s illegal to make them that reliable and sturdy today. CAFE standards require trucks to use less fuel, regulation requires all sorts of electronics in the vehicle now that just don’t last and can only be replaced with an exact replacement. Keep that truck in a safe place, they have a habit of disappearing from city streets and parking lots.
Keep the Toyota. I don’t mind the $50K for a new one since it will last 20 years but the sales tax, yearly property tax, and yearly collision insurance “privilege to own” costs are ridiculous.
I was saying the same thing until Tuesday when my 2007 Tundra blew its transmission. 8k to place a new one. That aint happening. This truck, which I took care of, had 302k mileage. I got the next Tundra, a 2018 with 110k miles for 32k and with a 10.2% 72 month loan. Gotta pay it off quickly, that’s my new mission. Btw a friend with an auto shop said he just replaced an engine in a Toy for a customer: 15k! He also said blown trannies are followed by blown engines. It’s not as easy to drive them until the wheels fall off.
Somewhere down the road,everyone has to pay the “fiddler “…
Fiddler or piper?
…try and find a musician who’s never been stiffed…
may we all find a better day.
Well said Wolf, looking forward to comments but expecting a skew toward bashing the greedy OEMs, and with new units still transacting near $50k that makes sense.
But regardless of how one feels about the industry as a whole, their response to a self-inflicted* supply disruption has been mostly rational:
– Faced with a shortage of critical components they prioritized profitability -> fewer, bigger, more expensive trucks and SUVs
– Uncertain about market strength 36 months out they’ve resisted the urge to chase payment down by pushing lease residuals up.
A valid counter argument would likely allude to the potential for long term demand destruction at current price points, and there’s something to that – how does one attract and retain customers in the absence of affordable new product? (hint – with quality used product) I’m very interested in this line of thought, but when meditating on it I always come back to the fact that no one except Jimmy Carter has built an affordable new home in years and the world keep spinning for that asset class (for now).
I’ve got corporate muckity mucks in town today desperate to understand how we’re going to parlay this insight into EBITA so I won’t be able to check back until later afternoon EDT. Hope it stays civil…
*In hindsight we’re in this situation because most of the volume manufacturers cancelled their chip orders early in the lockdown, which we now know was unnecessary. But many of us did silly things in March of 2020.
“how we’re going to parlay this insight into EBITA”
How about a quality dependable long lasting product, that’s all we ask. It’s always about amortizing the price and repairs over the lifetime.
I sympathize with the JIT savings and supply chain problems, but when I build a PERT there is always a path that leads to death. Why did you not make the risky chip components optional? Crank windows physical keys et al are not the end of civilization.
Government fee sucking is something you can’t do anything about. So there’s that.
Not sure on used cars, I have only been tracking used heavy duty trucks for work. Have not bothered with new since the GFC.
Prices are now moving down at a good clip.
Deflation does not appear to be in the forecast is my take on this nor will there be a large surge in used lease vehicles available in 2026 . Deeper into the data analytics just like the Wolf surveys on gasoline and transport Fuel facts and figures which I love EV and state mandates may be having an impact on the overall car manufacturing and sales modeling efforts and demographics. Though I can say that I had two 24 year olds in my home over the weekend one wants a Lexus SUV (female accountant) and the other a Ford F250 (male nursing student) neither mentioned an EV (Texas and Ok markets)
I hope you were able to gently advise them that a Lexus SUV and F250 are terrible ideas.
46yo dad here. I’d like an F-250 to pull my future boat behind. But not at high prices & 10% interest & $4 gal.
Prices have a long way to go before regular folks can buy regular stuff.
I don’t know how much longer this consumer spending based economy can last. Not all consumers received PPP “loans.”
For the honest business man, all the PPP loans did was repay money spent for paying workers prohibited by the government from doing anything. Look up the actual rules. Many would have gone bankrupt otherwise.
Maybe it was great for criminals and con artists, but criminals always do great in our current society. Do you need me to name names?
I was in a local Chevrolet dealer yesterday looking to buy a Bolt EV to capture the tax credit this year ($7500). Inside the showroom was a Silverado 1500 pickup all tarted up with goodies and the sticker was $84,500. Next to it was a Corvette Z06 with a sticker of $144,700. I can’t imagine leasing (or buying outright) these vehicles what the payment would be.
I did put down a deposit on a new Bolt in their order system already. Build date is September (late), delivery around the first of November. Since I only drive local anymore, this EV should suffice.
Why would you even consider something as badly built and junky as a US ShoveRollLay? Don’t you know how awful they are as compared to many other vehicles?
“as badly built”
Could be worse…he might have considered a Chrysler.
At the charging station down the block here (they’re everywhere in SF), I talked to an Uber driver with a Bolt EUV. He loved it. (Chatting up EV drivers while they charge their vehicles is one of my favorite neighborhood things to do).
GM is killing the old Bolt. But it said a couple of weeks ago that it’s developing a new Bolt based on its new platform. GM is finally seeing the writing on the wall: there is demand for nice vehicles in the sub-$30k segment, DUH.
SoCalBeachDude, Price dude, and a dealer network. This place is crawling with Bolts. After the tax credit, I own it for $23K and some change. Plus, GM is installing a Level II charger in my garage for free. There’s at least another $1,500 savings.
As a retiree, I only drive locally after my wife passed last December.
There are a couple of Teslas near me that are sitting after they made the 1-800 call to *home*. And they keep sitting…..
But there are a LOT of Teslas running around these parts. And it’s Texas, which is being invaded by folks from “out West” a bit.
It’s a great country, have fun!!
Back in the late 2000’s I was working next to a Toyota dealership and one evening, over the radio, the news announced a $5000.00 tax credit on hybrid cars so I walked next door to the Toyota dealership and checked the price on the new PRIUS; it was $25000.00.
The next morning I arrived back to work at 7AM and what do you think the new price on the PRIUS was???? You guessed it, $30,000.00! All producer surplus; zero consumer surplus….
Good luck, it’s ones birthright in TX and OK to drive the largest and most obnoxious vehicle the financing company will let you have. Trying to argue otherwise is futile. I’m curious though why the nursing student needs to stop at a F250? Why not a F350 dually diesel? Or a F550? Why take up one parking spot when you can have something that needs a pull-through spot?
Jesting aside, the whole country is going to same way – brainwashed that tall riding SUVs and pickups are absolutely necessary. AWD is very important as well because it might snow once per year and who wants to wait for the DPW to clear the roads first? It’s “me first” on steroids now in the automotive market.
F550? Just go all in with an F-15.
AWD on rain slick roads where it doesn’t rain often, resulting in an oil film on the pavement, has saved my bacon on several occasions over the years.
Rented a FWD GMC shrunken SUV in FL and the thing was unstable on curves and ramps during heavy downpours. It tended to hydroplane and pull the car sideways (like a propeller) towards the other lane if the wheels were even slightly turned and under acceleration (like merging onto a freeway). I parked it when I got to my destination and drove the 4Runner AWD that, even with worn tires, isn’t nearly as affected.
“F550? Just go all in with an F-15.”
The F-15’s exist to safeguard the viability of the F550s…
AWD is a huge advantage for unskilled drivers.
AWD is pretty mandatory for any essential worker who has to commute through all sorts of weather.
And nursing students need to report to their clinicals an hour before the regular staff arrive for change of shift. Many a time the parking lot wasn’t yet plowed when we got there in our crappy college shiteboxes.
Not sure where he lives but it makes sense to want a truck, but maybe something a bit more affordable until some semblance of normalcy resumes and you graduate and know you have a good job lined up would do.
Lily, there’s a big difference between wanting an SUV with 4WD or AWD and wanting an F250. Unless you use it to carry things or to tow things, the F250 is a huge waste of money. Period.
Tires matter more than how many wheels are pulling or pushing the vehicle. Factory tires are worthless. For the record, I live in hilly Northern New England and I’m an essential employee on call 24/7 and I’ve done just fine with FWD and winter tires for a few decades. AWD does help at one thing though – it gets you going real fast in inclement conditions and makes it more likely you’ll end up in a ditch. It’s similar to perceived individually of youth. I’d rather spend a few hundred on good tires and know my limitations then tens of thousands more on some high- riding gadget-filled profiteering device. Just proves my point that Americans don’t like driving one bit. Nothing else explains our vehicle choices.
Correction: “invincibility” of youth.
DD – as was often said in the Spokane area in the ’90’s during an influx of Californians and Texans: “…four-wheel drive just seems to get them into trouble four times faster…” (FWD+studs worked fine for me during my sojourn there).
may we all find a better day.
“Tires matter more than how many wheels are pulling or pushing the vehicle. Factory tires are worthless.”
This is very very true, there is a massive difference between tires for various conditions. I did an entire winter of driving the Canadian Rockies for work in an old FWD with top notch snows, the grip on them was so good there was no incline or decline that could make me sweat on the 5Hr journey. By comparison, when I got a new AWD and got surprised by snow one day I ended up blowing through a red light on my local road on the stocks, wasn’t going fast at all but the slight decline turned me into a sled. Ultimately, whatever your drivetrain, it makes no difference when you’re trying to slow or stop, you’ll either have grip or you won’t and that’s all on the tire. However, AWD, high end snows and mountains? Well, that is just a whole lot of fun, I can’t wait for first snowfall 😊.
I mount and balance my own tires for friends and family these days at a local shop (access to lifts is a bartering benefit of rural living when your a tradesman), so I buy tires wholesale. Lately I’ve switched to studless winters. Let me tell you, quality tires in this realm are amazing now. My favorite for cost and performance are Nokian Hakkapelliita. Anyone that insists on needing AWD without putting on winter tires is saying that they don’t know anything about driving and handling dynamics. All wheel drive with stock or regular all seasons will never be better than front wheel drive with dedicated winter tires. No matter who’s evaluation you follow the only test that all wheel drive wins is getting going from a dead stop.
I will side with you on the Nokians. Had them for my old 2003 BMW..absolute monsters in the snow. So good I bought another set for the wife’s Audi and I’m going to replace the Bridgestone winters on my 2011 BMW with Nokians once they wear out. I am what you would consider essential, sometimes heading into work at 5am or leaving work at that time and during big storms the roads are hardly plowed around then.
Lucky Lopez did a video recently where he stated that 20,000 cars a day are being repoed. If I recall correctly, 1 in 3 cars are 30 days overdue, 1 in 5 are 60 days overdue, and 1 in 7 are 90+ days overdue.
There’s a lot of inventory that’s going to be available soon.
A figure like 20,000 is useless, if it’s even accurate.
There are ALWAYS a lot of repos. There are 265 million vehicles on the road in the US. So the repo numbers are always big, and a whole industry has evolved around it: companies that repo them and companies that recondition them (sometimes the same), car carriers that transport them, special repo auctions, etc.
But the repo business collapsed during the stimulus-check era, as people used their stimulus checks and forbearance programs to hang on to their cars. So now the repo business is recovering from that depression and is moving back into its comfort zone.
Nearly all repos are subprime loans. But only about 15% of all auto-loan and lease balances are subprime, so total subprime loans are a small $ number ($230 billion or so).
Two specialized subprime auto-dealer chains, owned by PE firms, shut down earlier this year because they had trouble selling their subprime-auto-loan backed structured bonds (ABS), as rates were hiked.
https://wolfstreet.com/2023/04/18/second-pe-firm-owned-subprime-auto-dealer-lender-suddenly-shuts-down-after-its-subprime-auto-loan-bonds-make-huge-mess/
When these dealer chains shut down, a lot of borrowers apparently stopped making payments to the surviving finance arms, and that has increased the distress on those bonds. These two companies are leaving behind a mess. And just looking at the default rates of those specific ABS, it seems these two companies’ customers are choosing to default in larger percentages. Some of them reportedly don’t even know anymore where to send their payments to.
Subprime customers often get ripped off with way-above-market prices and huge interest rates that essentially doom those loans, and borrowers know it. At some point they stop making their payments and drive for free for a month or two or longer, and then the car gets repoed and they start all over again. If those deals were done right, the lender makes a huge profit on the sale and a huge amount of interest for a while then either takes a small loss or no loss when the car is repoed. It’s a very profitable business. But subprime dealers can get too aggressive, and when their own funding dries up, it’s over for them, and they just shut down. But the PE firms that owned those subprime dealer chains still made a lot of money on them. The bond holders are now taking the losses.
“There are 265 million vehicles on the road…”
On a very marginally related note…
With maybe an average vehicle age of 12 years (and that may be on the far side) and 17 million/year in new auto sales (an increasingly rare peak rate) there must be a **lot** of vehicles older than 12 years (since 12*17 million only gets us to 204 million, far short of that 265 million number).
Classic and collectibles maybe
Or vehicles a LOT older than 12 years. For example I have a diesel from 1995 that I keep driving as my trailer tow vehicle because it gets better mpgs than the ones today. And this is very normal to keep these old trucks running. So going on 30 years old, skewing the average of 12
I’m dragging that average down for sure, 2002 Tacoma, 2007 4 Runner, will be driving them both till the wheels fall off
That’s a lot of people that are gonna need to buy another car
Talk about risk. Buying a 3-year-old truck, out of warranty, with over 100k miles? One major repair with the prices dealers charge sounds like a nightmare. No thanks at any price.
If it was a previously leased vehicle, it’s unlikely that a 3 year old vehicle has 100K miles. More like 36-45K… depending on the contracted mileage. If it hasn’t been destroyed, it will likely be offered as a certified used – extending the warranty, often up to 6 years.
My timing for most things in life is terrible but man am I glad I bought my civic in 2018. Will last long enough for a BEV or hybrid version to exist (hybrids finally coming to America in ’24). To people who use their truck for actual work and not as a vanity purchase, I dont envy your situation.
I’m guessing that post-pandemic-alien-invasion economic prognostication will need to step away from the dance and observe the dynamics of student loan repayment.
More than likely, this time is different, and a tsunami of people with excessive cash burn will boost economic growth and stimulate economic statistics. Everything is fine, next story please …
I remember the good old days of car values. Leased a BMW in 1999 for cheap because they estimated the residuals really high. Then when the lease was up I was given the opportunity to buy it for the residual value. I looked it up, and the KBB price was significantly higher, so I took the buyout then flipped the car for a profit.
You should have kept the car. Late 1990s BMW E38s (7-Series) and E39s (5-Series) are very desirable today and among the best cars ever built and offered for sale in the US.
Uh, no. We had a 1998 740iL in 2000 and it was nothing but problems. Transmission module failed, headgasket blew, plastic endtanks on the radiator cracked and leaked, etc, etc. Thankfully we didn’t own it past 2008 to run into the rust issues the late 90s BMW had. Good luck finding one without rusted out jack points under the car lol.
E36 and E46 are also garbage. The E36 with strut tower failures and E46 with a subframe support panel that isn’t even connected to the frame rails…the subframe bolts to that hollow panel and fails. And their most expensive car, the Z8, another chassis failure. Some would need an ENTIRE new chassis as it would bend (aluminum). Great looking cars, junk otherwise.
Obviously, your didn’t maintain your E38 even slightly properly and just minor problems escalate into major problems. We have no such issues with our 1998 740i at all and never have had any such issues. Learn to take care of cars better.
I had an older 530i and it was a giant money pit…
I had an ’01 750 and while it was a very satisfying car to drive, it cost me about $3k/yr in repairs. I did head gaskets, intake manifold gaskets, numerous O2 sensors, something called a supplemental air compressor, and don’t forget that lovely hydraulic suspension in the rear. There’s a valve back there that likes to get stuck. It even had speakers that needed to be replaced (4 subwoofers in that thing). It never left me stranded, and I shopped around for local mechanics who specialized in German cars to be able to afford it. If I took it to the dealer, I’m sure my cost to own would have been over $10k/yr. I learned to spend my money on other things.
Hm let’s see, 253k miles on my 1985 BMW 535i, 160+ on my 88 325, had a 2003 325xi that has 170~ on the chassis and 20k on a ground up rebuilt 330i engine I swapped in (was totaled), 220k on my 2000 528i wagon, and going on 173k on my 2011 X5 diesel. All are still running fine to this day (sans the 325xi, but the engine lives on in a 530 now), the X5 is getting its drive belts replaced this weekend. I was a former BMW tech, got paid pennies but in the long run I’ve been able to work on all my vehicles myself. Repairs on it average maybe 3-500 bucks a year if that, Ive fixed most of everything that goes wrong and just completely overhauled the suspension, good for another 100k. Driving it til the wheels fall off.
Well see how the wife’s Q7 TDI stacks up.
In addition to poor residuals, interest rates are playing a big role in the lack of leasing at the moment. Some lenders have a one-pay option where you can pay the lease upfront and not pay interest.
Most of the kind-of-desirable leases this year are EVs from European brands. BMW’s current push is moving its EVs, and Mercedes has been very aggressive with its EQS line this year. The typical European Ev can be bought or leased for 8-16% off MSRP before incentives and tax incentives.
Most one pay leases have the IRR baked in…. the only difference is that is it’s a flat fee (similar to “points”), not amortized over the term of the lease.
The company I worked for had “one-pays” for decades. Acceptance rate was dismal.
I follow BMW as a company and a car aficionado – they and Mercedes are having a very tough time with their EV products resulting in heavy incentives.
On the opposite end, their hybrid products, especially the 330e and X5 50e are selling like hotcakes with no incentives and little discounting.
Apparently, Total Net Worth Held by the 50th to 90th Wealth Percentiles has been going down the last year, but maybe wealth is being converted into purchasing toys and other stuff and maybe a slight increase in cash burn. Maybe a few homes are decreasing in value a tiny bit, but overall seems like less play money going forward. However, that’s the mid to top range of well off folks, versus that lower 50% group of losers — who don’t dare dream of buying new or used cars.
Yeah — all those Desperate Dans in their loser cruisers, unable to shim their wobbly self-images with a $700 a month car payment. Nothing says winner like a really expensive car.
And is there any scent sweeter than that new car smell for blotting out the vague but unmistakable malodor of mid-life fear?
bulfinch,
Personally, I roll around on my beautiful carbon-fibre racing Bianchi to shim up my self-image.
Of course, the women who’re half my age — or younger — that look my way when I ride by are really just checking out my bicycle.
But the truth is, it’s quite nice to have a fast car, a fast motorbike, and a couple of fast bicycles (per season and conditions). And as time moves on, one appreciates, and values, still being being able to use them all very well more and more each day.
My favorite quote from Chris Harris while he’s driving his modified BMW M2 CS: “What’s the point of working if you can’t buy stupid toys?”
“…and a couple of fast bicycles (per season and conditions).”
🤣 Only your legs are fast.
I don’t judge — I’ve got a closet or two full of nonsense I have fun collecting….and the tub in my spare bathroom is a makeshift record bin.
As for cars — I’d say you’re right: it’s the rubberneckers who get the most joy out of watching you pilot your dream car by on the blacktop, minus the lease & insurance payments and the inevitable PITA all performance vehicles are to maintain.
Beg4mercy,
“Total Net Worth Held by the 50th to 90th Wealth Percentiles has been going down the last year,..”
Yeah, it plunged from $760,000 per household to $758,000 per household, Fed data, LOL
But the market rally this year refilled the gap.
You must live in a very scary and sad world when you creed about being in the < 50% and wail against those in the 50-90%. I shudder how you really feel about the 10%, 1%, .01%. I will release the hounds when you approach.
Hope you have a lot of hounds.
Hello Helpers,
Anyone know of mutual funds that buy and hold treasury bills to maturity? Currently due to various restrictions in my 401k plan, I could only buy mutual funds, or put the money in Stable Value fund which pays me mere 2.5% return.
Looking for stability with higher return. Thanks
Sean
They may plan to hold to maturity. But when mutual funds get redemptions, they HAVE to sell the securities to raise the cash to pay for the redemptions, and so they HAVE to value bonds at market, and their NAV fluctuates with market prices of the bonds, which declines as rates go up. That’s how bond mutual funds are set up, and you cannot get around it.
Bond mutual funds have an additional risk: When there is a “run on the fund,”– like a run on the bank – as many people try to yank their money out, the fund can collapse, which happened to some really big bond funds during the financial crisis.
Thanks. Do you have any thoughts on ticker “BIL”? Seems like it hold short terms treasury bills to maturity?
BIL is an ETF, which is a different thing than a mutual fund.
A regular Treasury money market fund yields about the same.
I’ve held BIL before. It’s like a money market that you can sell during the day, really not bad overall but I do think the fees and thus return are less than a MM or buying treasuries directly through your broker.
Every mutual fund has a management fee, some have slightly hidden fees, and that obviously eats away at anemic gains.
Some fund companies offer money market trading accounts, where cash sits, making decent interest (in the past year). Most of those yields are somewhat linked to three year treasuries, currently making around 5%.
The bond funds have always seemed pointless to me, primarily, because you never know what’s going on with layers of maturity and yield— but they like to claim that diversity is important.
A 401k is basically a very long term way to force yourself to save, but there’s no easy solution to have stability and high returns, that’s extremely rare, imho.
Thanks Beg4.
Do you have any thoughts on ticker “BIL”? Seems like it hold short terms treasury bills to maturity?
I had this same issue w my 401(k) – only offered index and bond funds. I ended up asking my employer to set me up a self-directed 401(k) account, which works like my regular brokerage account and lets me buy pretty much anything (individual stocks, bonds, brokered CDs etc).
I have most of that money in a CD ladder, one of which is a 10-year CD @ 5.2%.
My 401K has a restriction where you can only invest 50% of your balance in brokerage… the rest has to remain in the fund category.
This data is from June to July. Would like to know what will happen in the fall, some predict a used cars is coming. Cargurus price trends suggest a small bump in the summer, and decline underway.
MW: Bank ETFs head for worst day in 3 months after credit downgrades, warnings rattle sector
As others have said, great reporting. Does your source (or you) have any thoughts about relative strength of ICE vs BEV resale/residuals 3 years out? Will people begin to shun ICE vehicles? Or will possible reduced supply of ICE vehicles strengthen demand for used one? Will future improvements in tech of BEVs make current ones relatively less valuable? I’ve seen nothing addressing this, and it puts consumers in a bind if they shop based in part on anticipated resale.
Addressing your last point first, regarding shopping based on anticipated resale. That’s a bit like trying to time the market, right? Lots of ways to be wrong and only one way to be “right.” But if you want to be mostly right (top 75th percentile) just get a 3 or 4 year old certified from one of the historically Japanese OEMs (if you can find it). That advice never changes.
‘relative strength of ICE vs BEV resale/residuals 3 years out’
I’d urge you to think of it more simply than that – BEV is going to grow and ICE will shrink (eventually). Whether that timeline is 3 years or 30 is the wildcard. From a risk management perspective we’re making conservative bets on EVs until the data tells us otherwise – which probably won’t be for another 3 years.
‘Will people begin to shun ICE vehicles?’
Some will, some already have. But for every one of those shunners there’s an F-350 dually blowing black smoke somewhere in Texas. This is not a consideration in our North American business currently, but we’re constantly testing new model inputs
‘reduced supply of ICE vehicles strengthen demand for used one?’
Not on an actionable timeline. There are plenty of ICE units out there and current product lasts a long, long time.
‘Will future improvements in tech of BEVs make current ones relatively less valuable?’
Future tech is always better to somebody and terrifying to somebody else, but from a market perspective hedonic improvements have historically added value to the new product vs. reducing value of previous. Consider the F150/Camry chart Wolf updates ~annually – every year the units improve and every year they cost more. But those improvements don’t make the previous models less valuable. Speculation, overproduction, and incentives make the previous models less valuable.
At the risk of TLDR let me just add, EVs will eventually dominate the market, whether consumers demand it or not. We’ll still have ICE vehicles, but they’ll make up an increasingly small share of units, except in the lonesome crowded west. Tech sizzle aside, EVs are vastly simpler machines than ICE. Way fewer moving parts to go wrong, and way fewer workers to build and maintain -> more efficient production -> more profit/unit. Somebody is gonna make a lot of money.
This is super valuable insight!
house 26 years
Sequoia 20 years
Highlander 15 years
Rav4 14 years
I can stay ______longer than they can stay_______.
I like your style
Very nice!
It will be interesting to see where the Ford Lightning and New GM electric pickups prices go over next few years. Living in Denver metro I’m looking to purchase a used 4WD/AWD proven vehicle. 100k miles is fine with me, let someone else eat the upfront cost. The Mag Chloride and sunny days does a number on the paint job , and the baseball hail storms keep insurance claims rolling. Always bought the color white, reflects the sun and easily seen by all the idiots on cell phones. It might be time go electric. $35k to $45k is too rich for used pick up.
New Bicycle prices have been declining.
Bicycles and Crypto hyper valuation were the stage after toilet paper.
I will ride a child’s tricycle before I buy a Tesla.
I will walk barefoot thru Hell before buying a $80,000 truck.
Your all probably thinking…that poor Gary dude is screwed!
No, just screwed up in the head.
Eli Lilly (ELI) is the latest pendulum yo yo stock propping up the ETF massive passive ponzi thingama-401K-jigger.