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      04-04-2020, 02:34 PM   #1
DarkstarZero
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Exclamation Complete collapse of the used car market?

I'm wondering if there will be a complete collapse of the used car market over the next 6 months.

A loan officer told me that I would be blown away by how many people out there have cars they shouldn't be able to afford but do because they got a 10 year loan at high interest in order to have low monthly payments that they could make. These are luxury cars like BMWs, Mercs, Porches, and Teslas.

Update
Some people find this hard to believe. A great example is BMW's own "BMW Select Financing" program which is balloon financing offering "Lower monthly payments up front and the option to refinance if you're qualified." Essentially turning a 5 year auto loan into a 10 year loan with refinancing (or repossession) at the end of the first leg.
/Update

Now that means all these people are way upside down on their loans. The first things to go when people try to maintain financial stability are their cars. But since they're going to be so upside down, the easiest way out is to default on the loan. I think everyone is going to do this around the same time - which means a flood of cars going to auction at the same time and then hitting the market at the same time. About 3 months from now is my guess.

I drove by carmax the other day and their lot is already PACKED, fence to fence, bumper to bumper, no room for more cars and no buyers.

But at the same time, auto makers have shut down - so with no new cars coming into the market, will it all just even out?

Update#2
The following is from: https://finance.yahoo.com/news/fear-...110000556.html


“Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market,” Dale Pollak, an executive vice president of Cox Automotive, which owns North America’s largest auto-auction company, wrote in an open letter to auto dealers last week. “Cars are coming in, but they aren’t selling. Today’s huge supply of wholesale inventory suggests supplies will be even larger in the months ahead.”

It goes on to say that auto makers with in-house financing units, like BMW FS, are going to have to eat the depreciation. Dealerships will have to eat the cost for every single car currently on their lot. This is a big deal guys, much worse than 2008, maybe not for mortgages but certainly for vehicles.

One thing is certain, in about 6 months you're going to be able to buy your 2010-2020 dream car at a fraction of the price.
/Update#2

Update#3
See:
https://www.karglobal.com/march-apri...et-conditions/



They say April's 16.3% Y/Y drop is the largest price drop in wholesale used vehicles, ever.
Though you can see in that chart that Sports cars only dropped 12% while luxury cars, compact, and midsized cars dropped the most at 22%.
These are wholesale auction prices, it will take time for this to trickle down to off-the-lot prices.
/Update#3

Update#4
We now know why off-the-lot used car values haven't dropped much while auction prices have.
https://nypost.com/2020/06/05/used-c...utos-languish/

"More than 4 million off-lease vehicles are due to return to the market this year, at a rate of around 340,000 per month.

Automakers and their finance arms are trying to slow the pace at which those vehicles hit auctions to avoid flooding the market.

KAR Auction Services has bought 200 acres of land and is seeking another 100 acres to store cars for major customers.

Tom Kontos, chief economist at KAR, which alongside Manheim dominates the US used-car auction market, calls these vehicles “melting ice cubes.” They lose value every day, and cannot be held back for long."

Other reports show that they're now storing cars in stadium parking lots, since those aren't going to be used any time soon.


They're trying to control supply to reduce the flood of cars into the market which artificially keeps off-the-lot prices high. This helps out big used car dealers like CarMax who need to sell their cars for more than they paid for, before the flood happens, otherwise they would go bankrupt as each vehicle would then become a liability if the value on all of them fell below the price they paid.

However, this is basically like a dam holding back a rising river. Eventually they're going to have to open the flood gates before the dam breaks. All things considered, it still seems like around September is when the implosion will occur.
/Update#4

Update#5
What we're seeing now is that sports cars, offroad cars, classic cars, and otherwise 'fun' cars are in high demand and prices are up. People have nothing to do but they are allowed to drive, and driving is fun. They want fun cars. So values are on the rise.

Cars that would plummet, boring econo-boxes, soccer-mom cars, commuter cars, basically anything a rental car company would own, are artificially being held up by storing cars away. Eventually they'll be released and sold for pennies on the dollar - but given the current climate, I don't think they'll effect sports/fun car values much.

Luxury cars are an unknown. Cities being hot beds for COVID + Riots + Protests + everyone can work from home now and there's no reason to be close to the office, means there's a city exodus underway. If someone was on the fence about moving out of the city before all this, they are moving out now. This is evident by home sales going up and home builders selling out. That's a lot of people/families that didn't have a car or multiple cars and now suddenly need one or two. And that can change everything.
/Update#5
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Last edited by DarkstarZero; 07-13-2020 at 10:55 PM..
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