The Used Car Market Will Crash

[FC]

Originally Posted by kognito

And which crashes first?? Home values or car values?

Cars for sure, though it may well depend on the local housing market. The big issue in many places is the limited supply of homes. Housing market may slow down or go down a bit (due to rising rates), but I doubt it will "crash."

If there is a significant correction, it will probably look more like stagnated prices for a few years, which combined with higher inflation, is in effect is lowering home values.

Just a bunch of guesses on my part.

But around here, there just isn't any land. What little there is is exorbitantly priced. So it's all teardowns here for new construction anywhere near Boston.

[SCA]

I was uncertain as to where to stick this, so it landed here…

Bring a Trailer Sold $829 Million in Cars in 2021, Walloping Auction Houses

https://www.bloombergquint.com/pursu...auction-houses

Originally Posted by dan

The one where supply catches up with demand first

Then it will be the automotive market.

[robg]

Yep no doubt the used car market is heading for a crash though there are lots of opinions as to when that will actually happen. End of 2023 sounds like a pretty safe bet. We only have 1 car right now so if I wanted to take advantage of this market i'd have to sell it and drive a beater for a year or so. Not sure I really want to bother; it's a lease so I already know the worst case.

[SCA]

The latest numbers on the microchip shortage: Better days ahead

https://www.autonews.com/manufacturi...ip-shortage-16

[SARAFIL]

Originally Posted by SCA

The latest numbers on the microchip shortage: Better days ahead

https://www.autonews.com/manufacturi...ip-shortage-16

The big wildcard is what “new normal” will be for volume levels. Incentive spending is way down and they’re bringing in big margins right now. How much of that are they willing to give up, etc.

Do agree used car prices will correct but still not clear to me how big of a drop it’ll be. Really depends on how quickly they product enough excess volume to close the supply/demand disconnect from past few year+.

[Nick M3]

Originally Posted by SARAFIL

The big wildcard is what “new normal” will be for volume levels. Incentive spending is way down and they’re bringing in big margins right now. How much of that are they willing to give up, etc.

Do agree used car prices will correct but still not clear to me how big of a drop it’ll be. Really depends on how quickly they product enough excess volume to close the supply/demand disconnect from past few year+.

I'd also expect that the appliance manufacturers will get to volume production a lot sooner than the top of the market.

[JST]

Originally Posted by SARAFIL

The big wildcard is what “new normal” will be for volume levels. Incentive spending is way down and they’re bringing in big margins right now. How much of that are they willing to give up, etc.

Do agree used car prices will correct but still not clear to me how big of a drop it’ll be. Really depends on how quickly they product enough excess volume to close the supply/demand disconnect from past few year+.

The real question with both houses and cars is whether there will be a broader recession -- or, rather, when there will be a broader recession.

Until then, I agree with SARAFIL--there's a lot of silver linings in what's happening here for car companies, from rationalizing their production to moving to more ordering to driving up margins to giving them an incentive to bring more of these chip and software functions in-house to better control their supply chains. All of that suggests that even if there were an infinite supply of chips and labor tomorrow, the car companies might not increase production to the point it was in 2019.

There are going to be areas where prices have been crazy high where they will come down--eventually the market for Broncos will be saturated, eg., and the markups will go away. Overall, though, prices won't easily "return" in any real sense of that word.

But I also agree that the coming EVification of the auto biz is going to lead to some demand for legacy used cars, and that will keep the prices of those last ICE cars higher than we might be used to.

All of that goes out the window when there's an actual recession.

[robg]

Originally Posted by JST

The real question with both houses and cars is whether there will be a broader recession -- or, rather, when there will be a broader recession.

Until then, I agree with SARAFIL--there's a lot of silver linings in what's happening here for car companies, from rationalizing their production to moving to more ordering to driving up margins to giving them an incentive to bring more of these chip and software functions in-house to better control their supply chains. All of that suggests that even if there were an infinite supply of chips and labor tomorrow, the car companies might not increase production to the point it was in 2019.

There are going to be areas where prices have been crazy high where they will come down--eventually the market for Broncos will be saturated, eg., and the markups will go away. Overall, though, prices won't easily "return" in any real sense of that word.

But I also agree that the coming EVification of the auto biz is going to lead to some demand for legacy used cars, and that will keep the prices of those last ICE cars higher than we might be used to.

All of that goes out the window when there's an actual recession.

Yep...plus I think more customers are now getting used to the idea of custom ordering a car from the factory and waiting... that's ultimately good for manufacturers as it allows them to produce the right amount of cars w/ the options that customers actually want. It had always been one of those articles of faith in the US that dealers had to have large inventories cause no one would ever wait for a car. And I think all manufacturers are figuring out ways to lower their "breakeven" point, allowing them to produce fewer vehicles at a higher margin.

While it's not widespread yet, I think we'll see more of the Tesla/Rivian style online configurators where you can actually "order" car directly online (even if it is still fulfilled by a traditional dealer). Polesetar seems to have figured out how to do that for example (from what I understand they basically pay the Volvo dealer closest to the customer a fixed %).

[clyde]

Originally Posted by JST

The real question with both houses and cars is whether there will be a broader recession -- or, rather, when there will be a broader recession.

Until then, I agree with SARAFIL--there's a lot of silver linings in what's happening here for car companies, from rationalizing their production to moving to more ordering to driving up margins to giving them an incentive to bring more of these chip and software functions in-house to better control their supply chains. All of that suggests that even if there were an infinite supply of chips and labor tomorrow, the car companies might not increase production to the point it was in 2019.

There are going to be areas where prices have been crazy high where they will come down--eventually the market for Broncos will be saturated, eg., and the markups will go away. Overall, though, prices won't easily "return" in any real sense of that word.

But I also agree that the coming EVification of the auto biz is going to lead to some demand for legacy used cars, and that will keep the prices of those last ICE cars higher than we might be used to.

All of that goes out the window when there's an actual recession.

Other factors that will or may play roles either directly or downstream...

• inflation
• interest rates
• political stability/unrest
• COVID
• weather disasters
• shifting nature of migration, lifestyle, and workplace trends

We still don't really know what the underlying nature of the post-COVID or the couldn't-beat-it-so-we're-gonna-live-with-it-COVID world will look like. All by itself, that is likely to have massive impacts on vehicle and real estate markets because where we live, where we work, and how we move are all going to change in many interdependent ways.

Then add in all the external shocks that can put everything else on its head in an instant.

Some of these are going to happen. We just don't know for sure which and how much.

[SCA]

Doug’s Predictions: Top Trends of 2022 https://youtu.be/10mdY8RqFQg