One thing that I noticed in this article and charts was the unprecedented growth of auto loans. They too have skyrocketed. That seems like another "bubble" waiting to happen.
Car companies seem to have figured out a lucrative business model: pump up the price of desirable cars (suvs, trucks), then offer low-interest loans, making it seem like you’re getting a good deal. That’s how you end up with an average new car price of 34k.
And now I’m wondering if the same dynamic is happening in education: schools increase tuition because govt-subsidized loans are easily accessible.
The problem is getting worse. It used to be hard to get 5 year loans for new cars. 8 year loans are pretty common. With the vehicle failing to reach the loan's end of life these new loans roll in the old loan's deficiency until someone defaults.
Well if you do no maintenance whatsoever you can destroy any car in 8 years. With maintenance even a BMW will last 20 years though you may be better off getting something more rugged, like a Toyota.
I'm not sure how common it is. Thing is that the market for used cars is fundamentally messed up [0]. That 8 year loan on most new buggies will be underwater for all but the last year or so of its 96 month life.
Short answer: yes it is common for a building not to last long periods of time (unless properly maintained). I recall a civil engineer telling me once that most “tract” homes only are designed for a 35 year useful life. While I can’t find a reference for that, I did find this Quora article from a structural engineer:
Answer to What is the design life span of a building? by Vishnu Vijayakumar https://www.quora.com/What-is-the-design-life-span-of-a-buil...
Note: while he quotes 60-80 years, the concrete is still in that 30-40 year timespan.
I think you would be very lucky to get a few decades without the need for any major repairs or upgrades. It too know people who live in houses that have some features that are centuries old, but none of them are living in the exact house that was constructed centuries ago.
The distinction is meaningful as the comments earlier in the thread are talking about how long a new car will last before it needs work (beyond your basic oil changes, etc.). If you are willing to put money into major repairs and upgrades, there is no real reason why a vehicle cannot last centuries as well, as classic car enthusiasts can attest.
Pickups especially. From what I remember, Ford is all but dropping making cars in favor of the F series because it has a higher profit margin. But I'm less concerned about car prices in contrast to college and healthcare costs.
With GPS/always on mobile data connections, the lender has a much easier time reclaiming the collateral and recouping their losses by selling or leasing it again.
I can absolutely confirm this. I have done work (not on this particular type of system, however) for many small-to-medium car dealerships, and they will spend roughly $400 to equip many of the vehicles in their inventory with ignition interlocks that can be disabled remotely.
Here is their business cycle:
1. Purchase a used car from a customer for 80% of "fair market value."
2. Sell the car on a $0-down, 7-year note for 110% of "fair market value."
3. Undoubtedly the loan goes into arrears, and the dealer will disable the ignition system after a certain amount of time. The "owner" will be billed for the tow as well as multiple "recovery fees."
4. Sell the car again for 110% of "fair market value."
5. Repeat.
Multiple times I have been told "we don't want them to pay off the car; we make less money that way."
I remember one particular dealer bragging to me about the fact that he had sold a 2009 Honda Civic 11 times in 4 years. That is, 11 sales and 10 repossessions over the course of 4 years. The saddest part was hearing that over 70% of their car notes would go into arrears within 4 months.
Is it possible to disable these systems, or is something baked into the car where if you disable it the car won't run? This seems very suspicious unless the auto dealer/contractor is expecting most people to not even bother with the gps system.
I know that for my most recent vehicle purchase (paid cash, no loan) the dealer left their own anti-theft device installed. From what I could gather online, they use them for anti-theft on the lot and then can try to upsell you on a service that uses the same hardware during the sale.
It's wired directly into the ignition system. Despite having a computer engineering degree and enough experience to be reasonably confident in my ability to analyze unknown electronic systems, I spent a lot of time very carefully going through all of the connections to convince myself I wasn't going to brick my vehicle by removing the device. In the end it was pretty easy to yank the device. The hardest part was patching the ignition wire, which had been cut to install the device.
Conclusion from the previous paragraph? It's not that hard if you know what you're doing, but I'd bet that something like 99% of people wouldn't have a clue how to remove it even if they noticed it was there at all.
If you're smart and capable enough to reverse engineer the device, there's a 95% chance you're smart and capable enough to have a job that pays enough to not need ultra high-interest car loans.
I don't think that's true. There are a lot of smart people in not very good jobs who can't break through, or people who have self learned skills in some fields but not enough to get a job that's paying to do that. I could do this easily, but I'm stuck in a $52k/year IT job in Seattle trying to move up.
It doesn’t take many people to know this to serve an entire community. The problem is likely that the terms of the loan are such that the car still gets repo’d, just at a lower frequency and higher cost.
This is exactly what was on my wife’s Honda. Tried to up sell us on some theft deterrent system. Upon declining, we’re told it’s in there.
I recall buying a Honda back in the late 90s. Dealer tried to up sell me on having the VIN etched into all the windows. I declined. Drive the car home and realize it has the VIN etched in all the glass.
That doesn't prevent the car from being repossessed though, just makes it a bit harder. Automated license plate scanners are increasingly becoming a thing too (and they're feeding into collaborative sightings databases), so it's easier and easier to locate and thus repossess a vehicle.
I don’t understand your use of the term “fair market value” in quotes, implying that it’s not the actual market value. If the seller and buyer are not under duress while selling and buying, why is the dealer not buying and selling at the market value?
Typically because there is an education and need asymmetry between the buyer and seller in a lot of these cases. If the car is maybe worth $3K cash, but a dealer can lease it to someone for $4K by requiring no money down but high interest rates on the loan/monthly payments, where does one say the "market value" is?
The dealer is getting $4K (or more in the cases where they repossess the car and re-lease it) because the buyer often has few options on how to get transportation so they're implicitly forced to take worse terms (say, they need a car immediately to get to their low-wage job otherwise they are fired and forced into worse poverty). Of course, you can still say the car doesn’t have a value until a transaction takes place.
These socio-economics dynamics mean cars have much more of a spectrum of "value" than just one-off car purchases. Framed another way with the parent comment, buyers are often under implicit economic duress, it's just not duress forced by the seller.
I'm not strictly opposed to markets like subprime auto/personal loans, as often these markets would look worse without these options. But a lot of times people see supply-and-demand situations in very limited scope and miss external factors that influence choices.
Because the vast majority of the customers that walk through these buy-here pay-here places' doors already have loans on their vehicle and are looking to upgrade. "Kelly Blue Book" is not a phrase used very often by their salespeople; the customer base seems to be much more interested in the appearance of the cars than the financial utility of them.
You weren't touting KBB and that's good. Kelly Blue Book is a great trademark and marketing tool but the preferred industry reference is The Black Book https://www.blackbook.com/
A perfectly efficient market will push the bids higher and the asks lower. Stocks for example only have a spread of a couple of pennies.
As the markets get less and less efficient, you become more reliant on middle-men to perform transactions. In the dark ages, people would pay 1-pound of gold for 1-pound of salt. In the case of modern society: bonds (and other derivatives) are less efficient to trade and therefore have higher bid/ask spreads than stocks.
Go away from financial instruments, and a 30% spread on bid/ask is actually reasonable. Play Magic: The Gathering? Buying/selling used video games? You're going to pay a pretty large spread.
------------
"Fair Market Value" is an estimation of the bid/ask spread. There really are two fair prices: the value the buyer is willing to pay, and the value the seller is willing to sell at. These two numbers are all that matters.
By definition, these two prices are fair. Because if they weren't fair, then the buyer (and seller) would reject the deal and the trade will fail.
In my eyes, "fair market value" is roughly (bid_price + ask_price) / 2. In effect, "fair market value" is a survey-result, based on how much buyers are bidding and how much sellers are asking.
80% to 110% isn't a perfect split between the buyer and seller, but its "within expectations".
I am disputing the existence of that number. If two parties enter into an agreement to exchange X for Y, and no one has a gun to their head, then the market value of X is Y at that time for that party, and the market value of Y is X at that time for that party.
"I could literally survive the next 10 minutes without buying this" is not the same thing as "if I don't buy this soon, my life will not be significantly worse off."
Poverty's not known for opening up options for people.
In the last twenty years, new vehicle prices have doubled. My eyes just about roll out of my head when I see what the sticker price is for a new truck or minivan. I assume people must be leasing more than they used to, because I can't see any other way to get the payment down into a palatable $500/month range.
Some quick numbers here. Inflation over the last 20 years was about 54%, so I would expect an apples-to-apples vehicle to cost that much more today than it did in 1999. If you look at the CPI-based numbers for cars from 2000 to 2019, in real dollars it's barely gone up [1].
I think what you're seeing is that the cars getting advertised, and more specifically the cars that you want are more expensive than they used to be because auto makers are trying to boost margins in a shrinking market by pushing fancy features and higher-end models. But if you look at base-model sedans, they've stayed pretty close in price over the last two decades.
Is it? I’m still driving the same car I bought 10 years ago so I’m genuinely not sure. At the time, I ordered it from the Honda fleet manager at a dealership and getting a base model was no problem. If you’re walking into a dealership or want a car ASAP then you’re probably right, but I feel like if you can wait a couple weeks getting a base model is still relatively easy.
When I bought my Kia it definitely was a problem to get the low end model. There was just one base model on the lot vs. many cars fully decked out. I guess not many people buy base model these days.
The market is rather efficient in these vehicles, so depreciation isn't a way to save money. Dealers beg 3-yr-old car owners to sell their cars back so they can flip them. Like real estate, cars are cheap to buy. The expense comes when you sell them, losingthe residual becase you won't get a good price. The most important factor in auto afforidability is how long you own the car, not how good a deal you get at purchase time. And buying a "reliable" used car is a risk, because you don't know what damage this particular used car has suffered. Unless you have good intel on why the previous owner gave it up, and how they treated it, you're taking a gamble.
With the rate at which electronic safety features are advancing, I think the advantages of buying used have fallen a bit. A new base-model Corolla currently has more electronic safety features than a high-trim 3-4 year old Avalon or Lexus. That's a recent phenomenon, though, and it might be a temporary condition if the rate of improvement of those systems slows down.
How did everybody manage to convince themselves that they need these expensive add-ons? You need seatbelts, airbags, and impact absorption. That was perfected 20 years ago. Everything else is a luxury not needed for driving.
I’ll take the other side and say some of the newer (literal) bells and whistles are more a distraction than a life saver. Properly adjusted mirrors should have no blind spots - I don’t need lights on the mirrors constantly flashing on the highway. My last rental would beep whenever it thought I was drifting out of my lane but suffered from so many false positives it was infuriating.
If this were 10yr ago I'd agree. The 80s gave us computers. The 90s gave us good simulation software and the engineers used that to build us reliable cars. The early 2000s gave us plastic interior and exterior trim that didn't rattle and fall apart in short order.
Since then we've tacked more gears onto automatic transmissions, hybrids have become more mainstream, sedans and wagons have been replaced with small SUVs as electronic doodads have proliferated. If you don't mind creaky plastic quality is about the same back deep into the 90s for cars that were on reasonably modern platforms in the 90s.
Gas mileage is better, backup cams are standard (and required), the average age of a vehicle on the road is 11 years (up from 8 years in the 90s), so they are more reliable and last longer, better airbags (side curtains are standard nowadays), better anti-corrosion technology, adaptive cruise control, lane assist, auto parallel parking, partial autopilot, bluetooth standard, etc.
Gas mileage is a very marginal improvement in any of the vehicles I'm interested in, on the order of 16 mpg then to maybe 20, now. Bodywork is plastic or aluminum, so it is less repairable, but there's the anti-corrosion factor.
Everything else listed I would want to actively avoid in my next vehicle.
> Gas mileage is a very marginal improvement in any of the vehicles I'm interested in, on the order of 16 mpg then to maybe 20, now.
this says more about the vehicles you're interested in than the overall trend in vehicle efficiency. I get ~34mpg out of my hot hatch with a heavy right foot.
sure, but that was probably a much lighter car. I realize I'm moving the goalposts a bit here, but when you consider the improvements in crash safety, engine performance, and efficiency together, cars really are a lot better today than they were 20+ years ago. the one thing that has suffered is the weight and size of the vehicles, but imo it's worth being a lot less likely to die in a car.
Would you say that the average age of a vehicle is longer due to cars being pricy and people fixing them up or because they are far more reliable? I could see it going both ways.
The backup cams affect my night vision. When I back out of a parking space at night, I'm hit with the glare. I need my vision to drive!
Humans adapt to adaptive cruise control, lane assist, auto parallel parking, partial autopilot, and any other safety feature. So we get more texting while driving and other dangerous behavior. https://en.wikipedia.org/wiki/Risk_compensation
So marginal incremental improvement in drive-train technology and electronic doodads? That's how I read that list you gave me.
Cars these days don't age any better than cars from 20yr ago or the more modern cars of the 90s.
I guess anti-corrosion has improved but it hasn't improved by that much. You still have plenty of vehicles that repeatedly rust out in some spot because the salt gets flung there and the surface coatings aren't adequate to stop it.
Average age of cars on the road is 11 years vs 8 years in the 90s...which means cars are on average lasting 37.5% longer than 20 years ago. And that might be a lagging indicator.
No, the measure is average age, which is more indicative of used cars than any largess caused by various boom times. Cars don't get salvaged for spare parts and metal until they're no longer useful as vehicles. They otherwise get resold and traded in and put back out on the road.
Are you sure about how this metric is defined? The average age of cars in today's fleet is not the same thing as the expected lifespan of today's new car.
In a growing fleet, new purchases expand the fleet and necessarily lower the average age. On the other hand, if production falls below replacement rates, the average age of the fleet will increase. Couldn't such a change reflect changes in demographics (number of new drivers added to population) or habits (amount of car-based travel) as much as car durability?
Also, wouldn't such fleet metrics be influenced by the lumpy history of natural disasters like hurricanes flooding densely populated coastal regions?
There's a lot of very real safety improvements that have been added (or mandated) over the past decade. They are saving lives. It doesn't matter if you don't value these improvements for whatever reason; the rest of us will still benefit from your vehicle having them, so they are now required.
bought a used 2016 last year for ... ~$12k? Small Focus, nothing fancy. Even that felt like a bit of a stretch, although... I'm getting more conservative with $ as I get older. It's also just 2 of us in the house - no kids, and I get that some people want/need larger cars to haul around kids and stuff. But seeing that an 'average' new car loan is $30k, my mind just... boggles.
