thoughts on the car sector (true disaster brewing)
0% financing masks incredibly deep trap for buyers
nowhere is deflation more evident yet hidden from customers
just read that 14-15% of the entire US economy derives from the auto sector
mfg, finance, service, repair, parts, etc
I knew it was a high figure, and the article fixed the number
usually a recession is led by cars and housing
instead, this time low rates suckered millions into continuation of spending patterns
in real estate, they chase higher and higher prices, like fools
the deflating asset bubble has fooled millions into chasing these low prices, which will all get much lower still
in cars, customers chase a depreciating asset
in good times it is not uncommon to see a person's car loan balance slightly exceed the current value of the car
after a couple years, payment to principle catches up to a relaxing deprecation rate
but in these times, the differential has widened sharply
the 0% finance deals have absolutely flooded the used car market
absolutely flooded it
that is where I will seek my next car
fortunately for me, my German older sporty jalopy will command a decent price, despite its 115k miles
since the Germans refuse to destroy their market with insane financing
the used market prices have virtually collapsed
car dealers wont tell you in ads how low they will go on your tradein
it will get much much worse
just heard from Boston friend who reports a radio show interviewing a car dealer
he says the walkaway rate from car loans just exploded past all previous records
why continue with a car loan when its value is $10k less than the balance?
so they walk away
the guy predicted real estate property would next see this
but property is an appreciating asset (typically)
but that story will take more time to unfold
as soon as a driver takes his/her car for 100 miles, the loan is in jeopardy
this is not unusual though, esp with American cars
they usually decline 20% in the first month
German and Japanese cars decline also, but not 20%
now add job insecurity and layoffs to that formula, ouch!
just who finances these 0% deals?
it sure as hell aint banks, they aint that crazy
OR DESPERATE
it is the car mfg finance arm division, that is who!
these guys are soon gonna hold a whopping used inventory
they will undoubtedly be taking possession of many REPO's
they have essentially destroyed their pricing structure from lowcost financing while attempting to maintain the topline new car price
in a matter of months, new prices will descend in order to clear new car inventory
law of supply & demand
what they have done is erode the very foundation of their new car pricing structure
used car prices typically follow the new car pricing
now, due to lowcost financing, new car pricing will soon be led by used car saturated pricing
this horribly treacherous economy has turned things upside down
many like Sir Alan GreenScrotum have steered a watchful eye toward the real estate sector for maintaining consumer spending power, extracting equity insanely from homes via REFI, enjoying round after round, encouraging the hapless consumers to go deeper into hock, thus buying GreenMan more time to save his legacy
but it wont work for him
he will earn total ire of American citizens
just give it time
BUT THE REAL STORY IS WITH CARS !!!
real estate might support consumer spending, and I do believe that support will erode
but the more immediate shock wave will be from the car sector
1 in 7 jobs comes from the car sector directly or indirectly
and those jobs will disappear very quickly
take my word, very quickly, and very soon
next year will be full of job losses in the car sector
in every phase of the car sector
real estate stall will hurt consumer spending
car sector stall will hurt jobs
together, they usher in a DoubleDip recession
dont listen to HACK ECONOMISTS
their aim misses the toilet bowl every single week
just like normal business cycles, the big nasty recession will come on the car/housing avenue, all in due time
GreenInflation Man has only guaranteed that the recession this time will be one to remember
it will gradually undermine the USDollar itself
as it unhinges the largest components to the economy
nowhere is deflation more evident and hidden than the car sector
check Kelly Blue Book for that evidence on used prices
ask friends in the auto business about inventory
not only new inventory, but used inventory
oftentimes, older used inventory goes to Mexico and South America
not this time
AND THEN THERE IS FORD, GM PENSION UNDERFUNDING
AND THEIR CORPORATE DEBT LOAD
get ready for nationalization of these two giants
or else bankruptcy
we are talking about over 20 million jobs !!!
the disaster brewing is with the car sector, not housing
the catchphrase acronym has been REFI
it should really be REPO
/ jim
p.s. "Repo Man" -- tremendous film (Emilio Estavez) |
