Wednesday, August 6, 2014

The Results Are In: Thanks Very Much For "Cash For Clunkers" Barack

It was another form of "economic stimulus". Government got involved in pumping up your payoff for trading in used cars to get new ones. Part of the deal was every used car in the program had to be permanently disabled and sold for scrap. Probably to China or someplace else, whatever.
People just loved it. Look how much I can get for my clunker! Yay! And I'll get a new car! Yay!
What a bummer that was and continues to be for people like me. Buying a new car (or more commonly, financing the purchase of a new car) is the financial equivalent of paying $100 at a restaurant for a steak I can make at home for $10. A car isn't an INVESTMENT (about 99% of the time at least), at best it's a depreciating asset and most of the depreciation comes the moment you drive the thing. It's value (market dictated) is yer basic exponentially diminishing curve over time. Coincidentally so is the logevity of US cars.
I'm bangin around in a 1991 Dodge Caravan minivan these days. It looks presentable, no major dings, been repainted, drives pretty good, I love how a minivan does 80% of what you use a pickemuptruck for plus it's a rolling toolbox plus you can go weekend camping in one. Oh yeah and throw in the seats and it's a troop transport. And with the seats out you get lawn furniture! An ABSOULTELY UNBEATABLE VALUE at $750 plus about $100 more in hoses and wiring and all the fluids (that tranny wasn't shot, it was literally bone dry) and here I am a year later still driving it. I'll ask the lady but I think we're probably paying more in insurance than the total cost of ownership of this thing. It's something I take joy in.
But it's hard not to notice people making not much more than me or often considerably less driving around in these new and nearly new automobiles. What was recently reported has been pretty apparent to me for some time:
They been giving out car loans to just anybody for a few years now. Plus, leasing
This neat graph from zerohedge tells part of the story.
This is showing leasing being a major trend up while household spending on vehicles falls. What's unseen here is a subprime lending environment that's gonna result in a big rate of default (repos). Both are recipies for a bunch of used cars coming on market. We should be seeing this effect about now.
The general principle here is "pulling forward demand". Buy what you don't need yet or really need at all now. Get rid of what is old but was working fine. Of course getting everybody to buy shiny new cars would be great for the economy right? What a laugh when we don't make them here anymore for the most part.
This would be good for us dedicated buyers of other people's mistakes but with the recall rate these days it's starting to look's all junk anyways. How much of this stuff will be rolling in 10 or 20 years? No idea. How long with the "faith and credit" system keep going? Like any religion, institutionalised or not, it tends to keep going long after the point of utility.
I wish we had the old used cars back. Thanks a lot Barak.

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