The Four-Wheeled Bubble

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Bubbles are always obvious … in retrospect.bubble lead

Here’s one you might not see coming.

The Car Bubble.

People are taking out eight-year car loans.

This is – or ought to be – alarming. The automotive equivalent of the zero-down, no-doc, adjustable rate mortgage on a $500,000 McMansion circa 2004.

You know – just before the housing bubble popped.

New car loans used to be 36 months (three years) and then 48 months (four years). Back when the economy was sane.

Today, the typical new car loan is 72 months (six years). This is almost double the formerly typical length of a new car loan.

But even that is not – apparently – enough to keep the music playing.

Enter the eight-year loan.

Which might be ok, if cars were not appliances.

Very expensive toasters, basically.

depreciation graph

Though modern cars are longer-lived than the cars of the past, they are – like any other appliance – something you eventually throw away because eventually, it will wear out. Or cost too much to fix – relative to the value of the car itself.

This is why cars always decline in value over time. It is the nature of the thing.

With an eight-year loan, the odds are high that it will begin to wear out – and cost you money to fix – before you’ve paid the thing off.

Then you’ll have a car payment and repair payments.

On a car that’s not worth very much anymore.

Are people stupid?

Desperate?

Or, on dope?

Actually, they are on credit – and debt.

Just like before. under water lead

Stretching out the loan from four to six (and now eight) years is a way to make a car you can’t afford seem affordable. To hide from view just how much a new car really costs.

Consider:

The average price paid for a new car this year was about $35k, a record high. The year prior, it was $33k.

But the average family income in the United States is around $55k. And it has been around $55k for at least a decade.

People are buying more car – with less money.

Sound familiar?

It ought to be obvious that the $55k family cannot afford a $25k car. Even a $15k car is a financial stretch given a $55k pre-tax income.

Some quick math:low payments!

A four year loan on $25k at about 3 percent interest works out to a monthly payment of about $555. How many families living on $55k can afford a $555 monthly car payment? (Don’t forget the taxes, the tags and insurance. Plus the gas. So really – conservatively – about $700 a month.)

The answer, Alex, is – not many.

Enter humbug financing.

The six-year loan.   

Now the payment is “only” $380 – which seems more manageable. But it is a fantasy, like believing the hot blonde escort you rented for the night is really into you.

Eventually, the bill is presented.

The eight-year car loan is the equivalent of a really high-end escort.

One with STDs.  bad credit pic

Because an eight-year loan is a guaranteed loser. Worse, arguably, than the no-doc, zero-down, adjustable rate house loan… because at least the house is a place to live in; has more than transitory value.

It is not merely an appliance. Not disposable by design.

Unlike a car, a house will usually still be worth something a decade after you bought it. You might not make Monopoly money on the thing. But if you bought in at a reasonable price, you will probably not lose Monopoly money, either.

In this way, a house is still a traditional way to “store” money. It is realistic to think you will at least get out of it what you put into it.

With cars, this is almost impossible.

Even if you do not use the car. Which of course defeats the purpose of owning the car. It would be like buying a house and then not living in it.depreciation pic

A car’s value lies chiefly in the fact that it can be used for transportation. If it is not used, it is functionally worthless. But if you use it, inevitably, its value decreases as the miles accrue and the years go by. Eventually – after about a decade – it will be worth perhaps a fourth of what it cost you to buy new.

This is called depreciation – and she is a heartless bitch.

Most cars lose about 20 percent of their purchase price value before two years have elapsed. Five years marks the Event Horizon for the majority – the point at which their retail value has slipped to about half what they were worth when new.   

At 72 months – six years out – the typical new car is already close to being under water, if it was financed. Push that loan out to 96 months (eight years) and it is all-but-certain you’ll be gargling seawater.

Which, if it affected just those who bought beyond their means, would be unfortunate but economically just.

Unfortunately, this bubble, like the housing bubble, will affect all of us when it pops.

And, before it pops.under water 2

Humbug car financing has caused car prices (like home prices, pre-bursting bubble) to rise generally – for everyone.

It is almost impossible to find a new car without an LCD touchscreen, 17 inch “rims,” a fancy stereo and (of course) AC, power windows, locks and cruise control. These have become almost givens.

The problem is, they’re not being given away.

Now add in all the stuff that’s not on the sticker – but which still pads the bottom line. Or did you think six air bags (and all the rest of it) was a freebie bestowed by the car companies because they care so very much about your safety? They – the car companies – are just middle men, really. The government decrees – the car companies build – and we pay.

All of us.

Including those of us who’d choose – if we could –  to skip the six air bags and the LCD touchscreen, too. Because we’d rather live within our means than live with perpetual (and ever-rising) debt.

Eventually, the music will stop – and some people are going to find themselves without a chair to sit down on.

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81 COMMENTS

  1. Eric, I noticed that today on LRC, they had an article from fatass Jerry at Carpro. What were they thinking? Carpro is a statist, military worshipping, consumer site. It makes me regret my reflexive paypal donation to LRC.

    • Hi Ed,

      Yeah.. and, thanks.

      But we have a solid group here – and you’ll never find me snuggling the flag or venerating the “troops.”

  2. I’ve never bought a car I’ve never paid cash for.
    Sometimes, over the years, that’s meant buying some pretty rough looking (but well running) vehiles.

  3. I like to donate, but I can’t stand those stupid advertisement following me around, they are irritating and I cannot help finance that. Get rid of it and I’ll donate.

  4. @ Jason Flinders

    Yea its getting pathetic. Communism was really a way for the elite to have control under the auspices of ‘everyone being equal.’ That is what we are being groomed for and no one really sees it because history we are taught is blatant lies.

    People will become so tired of poverty they will be thankful for everyone having the same. Welfare, Obama phones, Obama care, Obama housing, and the list goes on. Its what happened in Russia – it might happen to us. If you calculate what the welfare recipient receives translated into $/hr – its actually very frightening.

    At least when a kid in the 70’s, 80’s, 90’s had the unrealistic goal of being a rockstar, singer, actor/actress – they had to learn an actual skill to do so. Hey, they didn’t grow up to make millions or get fame but at least now they could use an instrument, read music notes, or learn to memorize long lines of scripts. All are forms of learning that could benefit them in an actual job.

  5. I bet most of the mid-market luxury brands (e.g. Lexus) are leases to professionals who consider their vehicle another part of their marketing.

    Lawyers, brokers, some physicians such as plastic surgeons – they’re salesmen, and have to dress up nice to convince you to buy their product – the “right” vehicle is part of that, plus it’s a business expense.

    I’m sure their dealers love them, knowing they’ll be back at least every 3 years until they retire.

  6. Eric, your comment that the average depreciation for a new car after two years is 20% seems way low. If someone is foolish enough to pay MSRP, they take an immediate 10% hit.

    I bought my car when it was two years old from a private party for HALF the MSRP sticker I found in the glovebox.

    • > it will be worth perhaps a fourth of what it cost you to buy new.

      That corresponds with my experience. I bought the Lexus (~$60k new) when it was ten years old for $15k. … one of the better car purchases I’ve made.

      Of course, it’s needed repairs (even a Lexus has things that go wrong after 10 years), but I can go to a shadetree mechanic that specializes in Toyotas for almost anything that needs doing.

      Buying gently used is the way out of the depreciation trap. Lots of people have discovered this, either because they just don’t want a $700 payment, or because the 2007 crash damaged their financial health such that they simply can’t do it. What I’m worried about is if a lot more people skip buying new that’ll affect the used car market since there won’t be any “donors” coming into it.

      We saw this to a degree during the Cash For Clunkers program – the government purposely destroyed the used-car market to make buying a new car relatively affordable (keeping firms that should have failed still in business, but that was the whole idea…)

  7. I remember when the factory stereo sounded terrible and cost $1000. Anyone who knew anything about basic electronics ordered the AM radio and immediately tore it out for an after market head and upgrade speakers.

    Now the factory bean counters figured out that the aftermarket guys were making money that they felt should be theirs, so they began doing away with DIN chassis head units, designing proprietary speaker systems, and integrating the car’s major systems into the stereo. They still sound just as bad as ever (sound quality in general has improved, but for the money the factory systems should sound much much better than they do), but it’s nearly impossible to do a simple head swap upgrade without losing functionality of the vehicle.

    I blame Bose. They’ve been spending their “engineering” all over the automotive market for years, since they can no longer compete in the retail market.

    • As you say, it looks like on new cars you cannot even install an aftermarket stereo. That’s an entire industry that’s going to become a thing of the past once there are not enough old cars left to support it.

      • It would seem to be easier than ever now with bluetooth speakers, radios, and amps. I probably won’t be looking into the guts of a new car but I’d suspect they’re all bluetooth too. Wiring for just about anything is obsolete.

    • Remember the old Pioneer SuperTuner with the boosted antenna? Those were the nads for west Tx. or the hill country. I still prefer analog music.

      • In my home town of Johnstown PA, the goal was to have a good enough stereo to pick up WDVE out of Pittsburgh. Everyone, and I mean everyone, had a ‘DVE ROCKS! bumpersticker.

  8. Debt is the new serfdom. The way people are enslaved today. Same old thing effectively. Through debt the ruling class extracts the earnings of everyone else.

    We are supposed to be consumers. People are conditioned to working to pay their monthly notes. The society is so out of wack because of it. People who aren’t consuming and going into debt are considered poor while those with negative net worth are considered rich.

    So distorted it effects everything now.

    • Hi Brent,

      My wife knows a young woman – mid 20s, single. What’s she drive? A mid-sized SUV. Owes a ton of money on it, too. She could have – in my opinion, should have – bought a compact economy sedan instead. Which she could have paid cash for – and had no car payment debt.

      But debt made it tempting to get the SmooVee.

      And so, she has debt.

      • It’s the owing a lot that’s the problem. I had a car payment in my mid 20s. Of course I put 30% down or so and paid it off in less than 2 years. I’m guessing she didn’t do that.

      • Eric,

        I am not sure what type of position that girl is in, however, it can be very difficult to get financed for certain vehicles. While she should not have taken on an SUV loan – she would probably still have to take on a hefty loan to be approved.

        Its hard to be frugal in this day and age and the car business is tricky. If you wanted to finance a used Honda, for example, it would be more difficult to get that 20-something approved. The bank sees it as more risky to lend say $6k on a used car as opposed to a brand new $20k car. Terrible system.

        For most people in their 20s its a lose-lose situation. No one in their family will really be able to help them fix-up a used car as most people have become mechanically illiterate. Also, if the car does need repairs who can afford to put new, or even used, tires all the way around in addition to other repairs that need to be completed from the start?

        • “Its hard to be frugal in this day and age and the car business is tricky.”

          The key is to be able to do your own repairs and maintenance. It’s possible to purchase an older vehicle that is basically solid but needs some TLC for a low price, but if you have to run to a mechanic every time some little thing goes wrong it probably would not work out well.

          I had this discussion recently with an acquaintance when I mentioned that, oh, a rusted brake line on my old chariot sprung a leak and I had to replace it, not a big deal. (Normally I keep on top of things like that but in this case it had rusted right at the fitting where you really couldn’t see, the rest of the line looked OK.)

          The guy just could not wrap his mind around something like that being a simple thing to fix. (“But, but, you have to jack the car up and get under it!”) To me it was just a quick afternoon chore and a few bucks to run a new line, to him the same repair would have been a major operation costing $$$ at a shop. Ditto with replacing normal wear-and tear items like alternators, water pumps, radiators, etc. (I have to laugh when I see those ads for automotive “service plans” scaring people with statements like “if your alternator goes bad it could cost $1000 to fix!” I replaced mine last year for about $50.)

          I’ve been on the “one-payment plan” for decades and don’t plan to get back on the debt treadmill. No way, nohow. In fact I find that it’s a liberating thing to not know and not care what my so-called “credit score” is.

          • “The key is to be able to do your own repairs and maintenance. It’s possible to purchase an older vehicle that is basically solid but needs some TLC for a low price”

            I agree with you but the issue is that most people do not have the resources to do the repairs. Sure, I can do my brakes, fluids, alternator, radiator, and the list goes on. However, I have been using tools my whole life and can follow instructions from a repair manual.

            I also had the benefit of being around people who encouraged me to do so at a young age. But most people are made to feel that they cannot do anything without a mechanic. For a 20-something without having the benefit of these experiences at a young age, what are they to do?

            Surely, you do not expect them to go into a repair without at least knowing someone whom they can call upon when they get into the issues that almost every repair has. Also, there is the upfront cost of tools, replacement parts, and who knows what else.

            So, for the young person on a budget it is, in many cases, impractical to take the car that needs TLC.

            • “For a 20-something without having the benefit of these experiences at a young age, what are they to do?”

              They either are resourceful and learn, or they get on the debt slavery treadmill to buy something new or late model. (Assuming of course they don’t come from a wealthy family that will just buy ’em new BMWs.)

              I would say that these days with youtube videos showing you how to do nearly everything and lots of info and tech forums available online it’s probably easier today for those so inclined to learn than it was when I was younger.

              • Wish I could find what a youngster I work with owns, an ’84 military Blazer with a 6.2 L diesel. Looks like hell but hums along right nicely. His other vehicle is a 70 series Volvo, nice enough and old enough to be cheaply bought. They both must hold up well. He had to come get me when I left a truck at a location and drove the company Chevy pickup against the speed limiter the whole trip…..at night with hogs and deer moving. I kept trying to impress on him how bad the wildlife was in that area. I don’t think he understands a deer will try to get away from you by jumping. Those are some terrible scenes with blood and guts from one end of the passenger cab to the other and it’s not all from the deer.

                I don’t think most people understand that the white tail deer is the most lethal thing on the highways of N. America.

                I was taking my parents to a the doc 140 miles away in the wee hours of the morning through thick deer country. No other traffic so I was using the brights on a new PA and watching the sides closely. I suddenly caught sight of a deer flying over the trunk only 100ths of a second behind being in the side glass and taking us all out.

                I may have to revert to old times and start using some airplane landing lights as I once did. They’re hell on the alternator but it looks like the sun is up when they’re on.

              • Debatable. My former auto shop teacher (his job was eliminated by the state) would say it was easier in the past. My father and grandfather say it was easier back then.
                I think even Eric Peters himself would agree it was easier back then.

                This, of course, does not excuse one from at least trying – as I am assuming you were alluding to in your post.

                • I think that servicing information is a lot easier to come by today. In years long past for the most part all we had were things like Chilton manuals. Even the factory shop manual, if you had one, frequently omitted details or would start out with “use special tool XJ-Z2012A” which of course you would not have access to. These days there’s a ton of instructional material available, and some guy on youtube will show you how to get around the need for that special factory tool.

                  What is probably more difficult today is to actually find someone to personally assist you in learning to service your vehicle. Back in the day you could usually track down a friend or relative who could show you how to do stuff hands-on. Most young guys had some interest in wrenching and some were even decent at it. Today all most of them seem to be interested in is the latest smart phone or video game.

                  • I agree and that is essentially what I was getting at. Sure, the information is there but it takes courage to take on that oil, brake, or even a spare tire change.

                    John Bowlby, the whole secure-base theory, these youngsters need someone in proximity encouraging them to do this stuff. “its okay buddy, take off the bolt, I promise you’ll be safe.”

                    The epidemic of parents sheltering their children from everything and making them dependent has contributed to this. Today, little Mikey’s dad is addicted to XBOX too and he doesn’t know what the heck to do either.

                    Now, auto-shop is not even available to these kids.

                    So, yes, there is an infinite amount of information available and its wasted on the laziest piece-of-shit generation. I agree.

                    • Not long ago at a high school reunion I went on a tour given of the recently remodeled school. I was surprised to find out there was no longer any wood shop, no auto shop, no electric shop. Nothing to teach kids to work with their hands, to actually work with tools. Is everyone going to be either a lawyer or flipping burgers?

                      Another thing missing today is the rite of passage where dad would let the kids help in doing maintenance on the family bus, even young kids just handing a wrench or screwdriver while looking on in awe. Then when a little older they’d get to actually use a wrench – it was exciting! Used to be almost everyone did that. In today’s overprotective environment it would probably be considered child abuse.

            • CP, I disagree with you. I took a car repair course at a local community school and learned a lot. At the class we replaced 4 ball joints on my 69 Polara. Investments in tools are real investments and have a large payback. I think of my Jap made 1/2″ ratchet and socket kit that has been used in the renovations of at least 12 motors that I got at auction for $25. I learned car repairs while going to uni. Then I branched out into appliance and house repairs, all from the confidence I got fixing cars.

              Folks now want someone else to do what some of us do on our own. That $30 auto repair course has returned many tens of thousands of dollars back into my pocket, and has created independence for me from mechanics, pickpockets and merchant sharks for my lifetime.

              Of course, I grew up in the times when manliness was judged by how many items you could repair on your own. Now it seems manliness is judged by how you sniff the cunt of the woman you are with, and how sensitive you are when she has her monthly grouch session!!!

              • On tools, yep. They pay for themselves the first time they are used. Except the big ticket ones like air compressors and welders, those take a while. Labor and overhead costs to have other people do stuff are so sky high. Mostly the overhead costs that the tools are comparatively cheap. Even highly marked up parts are getting there.

                As to manliness, yeah, being able to do all this stuff doesn’t matter any more. Used to be the measure of a man. Now nobody cares.

              • Joel Allen,

                I don’t think you do disagree with me. I wasn’t referring to community colleges, was discussing high school. Also, where are you located? I know the community colleges in my area offer no such courses.

                Further, I wouldn’t disagree that tools don’t pay for themselves. The point I was trying to make was that if a young adult needed a car and was financially strapped – buying that bone stock, stick-shift, 4cyl could make more sense. Model year end clearance, no down payment, and their payments would be under $200/ month. It’s a safer bet.

                To expect a 20 something year old, who has no experience working with tools, to suddenly morph into a DIY mechanic who can diagnose and repair their car – while also paying for the tools and parts as they go along. C’mon.

        • @CP the problem is that the new car is financed by the factory, not a bank. The factory is more willing to take on risk to sell cars than a bank is to sell a loan.

          • Eric_G – can you please elaborate on what you mean? Money can only come from one place. GM Financial, Chrysler Capital, etc. does not make its own money.

      • I didn’t actually purchase a car until I was nearly 30, and that was because the speed limit went to 65 and my beater Subaru wouldn’t go that fast!

  9. I just want to point out that purchasing a home since 1980 has been a losing proposition. Hell probably before that! Even if you get a loan for 4.5 percent per annum. Housing prices skyrocketed for the same bubble reason the car prices now are. For example, John Doe buys a 110k house on a 30 year simple interest note. He will have paid the original purchase price plus approximately 90K interest. This almost doubles the price of the house. Of course, houses don’t last forever. They deteriorate just like everything does. So add another estimated 50k just to keep the house in good enough shape to sell (meaning not condemned by the state) (mechanical systems and maintenance on the exterior/interior of the house). Oh, mind you that doesn’t mean renovation to bring it to what ever the style/standard currently is which could add another estimated 50k to the bill before it can be sold.

    To add insult to injury. My home, which I do have the deed to, I won’t dignify the term ownership of it, has an annual insurance premium of 1500 bucks a year. That is if i can keep it at that level (I’ve had this house since 2007. I still haven’t lowered the principle on the mortgage in that time. My annual percentage rate is 5.00%. I refuse to refinance as doing so has its own evils.). I have to shop insurance every year just to keep my premium around the 1500 dollar mark. So, if I can keep that rate, which I highly doubt, over 30 years that is 45k added to the bottom line of the house.

    Don’t get me started on City and County Yearly Rent called property taxation.
    Mine is 1900 bucks a year here in Memphis and has been since I purchased the house in 2007.

    To recap, 110k for the house + $90,647.38 (4.5% apr amortized over 30 years) + 50k (maintenance for upkeep over 30 years) + an estimated 50k to renovate the house to current style and or standards (just to sell it). That is 346k for a 110k house without the addition of property taxes (57k without inflation which would bring the total cost of ownership to 403k if all factors remain static. I doubt that will happen due to the gov / Fed inflating the crap out of the money supply). You are NOT going to get your money back in any amount or stretch of the imagination.

    To be frank, it is better to rent than purchase a home. The home buying crap is a scam put forth by the banksters and insurance mafia to get you to be their debt slave for 30 years. Sure I’ll have to pay rent until I die but I won’t be out 403k by doing so.

    That is my two cents on the scam of home ownership aka fraud by the Banking and Insurance Mafia.

    David Ward
    Memphis, Tennessee

      • Yep, and paying extra (if your mortgage won’t penalize you) will really rein in that interest paid out, even if it’s just a few dollars a month, or say a bonus or tax refund. My #1 financial goal over the next 5 years is to pay off my 15 yr mortgage in 7 years, figuring I’ll save about $30K in interest payments.

        I’ve cut back on vacations and other niceties of life, but the only debt I have is the damn mortgage, and I figure I’ll get a lot more satisfaction from that than I will sitting on a beach somewhere for a few days.

    • Bear in mind that when you rent you are still paying all those expenses, albeit indirectly. If the landlord is paying a mortgage, property taxes, maintenance, etc. – and is making a profit on top of that – it all comes out of the tenants’ rent.

      • When you rent, you are paying rent. Period. A lot of owners are not covering all their expenses with the rent they are charging – expecting to make it up in ‘capital gains’ when they sell. Good luck to them.

          • Capitol gains are devoured when deprecation is recaptured by the IRS. Uncle Sam has made dabbling in the residential rental markets a no-win proposition unless the seller follows specific rules to roll over sales into new rental purchases. The Donald didn’t become a billionaire without considerable assistance from Uncle.

        • Everyone I know that has income property charges enough for the rent to pay all expenses, including any mortgages, property taxes, and maintenance, plus at least a small profit. That’s not to say there are not some “flippers” out there who expect to make their money on a future sale, but in most cases the rent is covering your portion of what it takes for the landlord to keep and operate the building as well as make a profit.

    • In ’85 we had to find a place to live since our bad alky landlord went off the deep end cause we let some of our friends(a couple)stay with us a month waiting on a overseas job. We’d lived there for 5 years, replaced the roof ourselves, fixed the dishwasher, rebuilt the electric furnace, replaced the water heater and done countless other improvements to the house at our expense, literally tens of thousands of dollars counting labor. And he kept going up on rent because he incorrectly thought we were making a lot of money. No other reason, just that, and that’s according to him.

      We’d been negotiating with a an old shyster up the road who was selling 30 acre tracts. We get ready to buy one, less than 10 miles from both our work places and he presents this contract…..no livestock of any sort and this is in the boonies. I wouldn’t even have considered it with that stipulation he never mentioned. he didn’t sell but one of those in the end either and there is no house there now so those people obviously defaulted. It reminds of Uncle Slayton in Choctaw Bingo.

      I’d been leasing the farm so I asks if I can put a house there for a time. My dad says it’s mine in the will(first I’d heard of it), do whatever I want with it. We find a house and then look for financing. This was during The first chimps(RR) reign, and he and his’n got this idea of going loco with interest rates. No way around it and we paid 14.6% back when it had been a fifth of that just a year or two earlier. and back then they didn’t let credit union loans count towards a credit score so we didn’t have bad credit, just no credit. We kept getting refinance letter for years after RR was gone but we never did and probably should have. I was too busy working to really give a shit. That’s some seriously FU’d interest for home buying though. We didn’t have a credit card till it wasn’t possible to rent a good motel or hotel room without one. If I had it to do over again, I’d just rent an RV everytime we had to stay overnight somewhere. Credit cards, the bane of free life.

      So we looked up uncle Slayton so he could teach us to make shine and meth…..well, we probably would have if we’d known uncle Slayton back then. It was tough for years.

    • You don’t “own” real estate in the United States. It all belongs to GovCo. You may be the current highest bidder to pay the rent(property taxes), but you don’t “own” it. Try not paying your rent and see how long it’s in your name.

  10. Eric,

    Combine that with the inevitable burst of the Student Loan bubble and you’ve got the makings of one fu#$%! U.S. economy. Every time I see another commercial for some on-line college I vomit in my mouth. Yea, some genius with a degree from Walmart University – that’s who employers want to hire. How much did that BS degree cost? That is, the one the government fronted the bill for? Try 8-10 times more the unit cost of a state college.

    Think that anyone is actually learning anything behind a computer in their home? Sure, there are those who desperately want to learn and understand that they will have to prove themselves much more than there degreed counterparts who actually made it to a classroom everyday. Soak it up America! You are dizzy because you are circling the drain. There is no substitute for hard work. Think of that in between Call of Duty and JO sessions while you feel superior at your respective, dime-a-dozen, Internet University.

    “Gosh CP, tell us how you really feel”

    • Of course people willing to work hard has never been the problem. It’s tough to work at nothing…..and most hard workers don’t find satisfaction in working the welfare system.

    • CP, BTW, I can’t think of a good university that’s not offering online degrees as we speak. Even Ivy League schools offer online courses for everything. It’s not like they didn’t see it coming and after years of trying to figure out how to beat online college, they came to the inevitable conclusion, they couldn’t. The people you now see on college campuses are the moneyed crowd. Of course it’s always been that way for the most part but not anything like it is now. My parents and most parents back in the 60’s could send their children to college. Now, we’re back to 3 generations in the same house. Wages peaked in 1974 but that wasn’t good enough for TPTB and their lackey’s, the US congress, so they came up with shit like NAFTA and GATT and now an ever-increasing bunch of bullshit treaties that are nothing more than NAFTA and GATT and the absolute control of TPTB as signed “treaties”. And that elusive 1% that holds all the wealth is really a tiny fraction of that that holds the power. But statistics are a great way to misrepresent anything.

      • Good point, and I agree with you. However, I am referring to colleges that operate almost exclusively on-line and whose creation banked on enrolling mostly Financial Aid students. They are cracking down on these schools and their phony programs. Students are graduating with credentials that will not secure them the type of employment needed to pay off the inflated loans.

        As for those on-line students at Ivy League schools – I cannot compare them to Joker Online Est. 2010. Of course, even W. graduated Yale.

        • Keep this in mind. When the BO bunch was pressured to shut down the immoral, virtually, illegal student loans, the group(can’t call the name now)that represents colleges(most)in the US went bonkers. They were pushed by the banksters. This is BIG MONEY. Cutting off what sometimes amounts to usery banking rates is a big blow to banksters.

          Follow the money. It’s the same reason we have groups always pushing for war, banksters supplying funds for military contractors, banks supply funds for the oil industry and the military.

          Immediately after WWll, JF Dulles was head of the CIA and it had already proven to be a reliable source of revenue for TPTB and the US was by far the most valuable entity TPTB could support. The just us dept. realized it was a boon for them too so the CIA became so invaluable to the moneyed interests it couldn’t be shut down as Truman and later Eisenhower wanted. It was part and parcel, and still is, of the War on Drugs. CIA has and always will be the main drug supplier worldwide.

          When I think of Ollie North crying like a little bitch I can’t help but have a picture of him, when he’s throwing the blame back to Reagan who was clueless, and Reagan in the cockpit of a C-130 with Reagan in pilot gear saying “Ollie, chop out a line for me and the old bird too…..we need to be gone toot sweet” as he releases the brakes, hammer down with a big load of coke.

          It’s so ludicrous, but Ollie would have you believe that RR and Noriega were pilot and co-pilot and he was just the steward. Of course the neocons had to get him into office when he got off. And the saddest part is he could easily have been nailed and convicted by any number of federal prosecutors but that’s just how demented the entire system is so “follow the money” will always remain the path to what’s really going on.

          • Yea, I’m going to have to tip my hat to your opinion. When you’re right, you’re right. It’s always about the money. Usery is a bitch.

            Here I am forgetting about “divide and conquer” which is exactly where the financial system wants all of us. We are focusing on emotional issues like being on one side of the “black lives matter” debate, pro-life/ pro-choice, Dem/ GOP, and every other endless debate that focuses our energy on each other and not the real problem.

            I can admit I wouldn’t be as upset about the issue’s of today if the other part of my sanity wasn’t being eaten away financially (taxes, student loans, being forced to buy health insurance, etc.).

      • Ever noticed how the education scam has changed?

        In years passed there was elementary, then preparatory or high school with prep/high school being referred to as secondary education. Why? Because most individuals that completed the 8th grade (elementary or basic education) either went to prep school for university or apprenticeship to learn a trade. Of course, elementary education then was not indoctrination as it is today. Individuals educated then could actually parse Latin! LOL! Today? Most people can’t parse English. It is worthy to note that solicitors/barristers, at one time, didn’t have schools to train for Law. it was done by apprenticeship. Same with most Medical training.

        Now it is elementary school, middle school and high school. These are now all considered primary education. With university/college being secondary education. Apprenticeship is all but crushed by the state. This is due to a lack of ability to impose regulatory standards by the state when an apprentice is involved. The apprentice is allowed to endure until he realizes he can’t do the work or is certified by the mentor as being fit to pursue the trade. The U.S. Coast Guard still does Midshipmen. Not so sure about the U.S. Navy. Being a Midshipman is equal to being an apprentice for the officer ranks.

        Lastly, I would like to state that having a Government College or University degree is vastly overrated. Some of the wealthiest individuals in the world never attended college or complete a college regimen to earn a degree. Hell some didn’t even finish high school! Some notables, Robert De Niro (didn’t finish High School), Richard Branson (didn’t finish High School), Billy Joel (didn’t finish High School), Dave Thomas of Wendy’s fame (didn’t finish High School), David Green of Hobby Lobby (finished High School but skipped college altogether), Bill Gates (dropped out of college), Steve Jobs (also dropped out of college), David Rose founder of Digg (dropped out of college), Michael Dell (dropped out of college), and lastly Rachel Ray (never went to college and never went to culinary school).

        So, to put it mildly, indoctrination will never make one successful. It will just make you a more pliable cattle when it comes time for the slaughter.

        David Ward

        • Hi David,

          Agreed.

          The object of a classical education used to be primarily to teach people how to think; to develop the critical faculty.

          That, of course, was a problem for the collectivists. What’s wanted (to quote Carlin) is an obedient worker. That is the object of the exercise.

        • I concur. Compulsory schooling was devised to make slave workers. Hopefully, most people come out of the spell of indoctrination after leaving college. In that instance, a degree can be useful and part of a successful life/ career.

          • “Compulsory schooling was devised to make slave workers.”
            True, but also to provide babysitting services so MOM can join the slave – work – force also.

            • Just want to point out that while compulsory education was around for a while. It did not match what is now called the Prussian System.

              What’s the Prussian System you ask? Seems during the Franco-Prussian War there were educated officers in the Prussian Army that actually cared about the people they were in charge of. Mind you now, this was the last vestiges of the old feudal system. The lower ranks were tenants of the landlords whom were the officer corps. Kill all your tenants and who works the land after the war? So the officers did not want to waste any lives and very often refused to follow orders that would result in wanton slaughter of their tenants.

              After the Franco-Prussian War, TPTB in Prussia decided they could not keep the existing educational system in place. Their answer to the feudal system was the Prussian System of Education aka indoctrination of the masses to follow the orders of the state no matter how wasteful of lives they may be. They wanted to create the perfect ignorant “Citizen”.

              Enter WWI to test the results. To say the results were overwhelmingly successful would be an understatement. The Christmas where soldiers from both sides celebrated against orders is an example of how the officers were so indoctrinated they actually threatened firing squads for those celebrating!

              After WWI, the U.S. adopted the Prussian System. The rest they say is history. Funny how Woodrow Wilson’s regime turned out to be the worst tenure of any president except Abraham Lincoln. Wilson ushered in the Federal Reserve Act written by the Banksters. Wilson added the Income Tax upon the people therefore creating a slave class (note this was not the first income tax ever imposed. Thank that tyrant Lincoln for that). Wilson entered WWI when there was no real need to. The U.S. entry into that fracas by all accounts added another year to the mess. Wilson and his personal adviser Colonel House most possibly were the two most evil individuals in the history of the U.S with the exception of Lincoln, of course.

              For more on Wilson’s evil you can refer to: https://conservativecolloquium.wordpress.com/2008/05/29/woodrow-wilson-americas-worst-and-first-fascist-president/
              or https://www.lewrockwell.com/2015/11/james-ostrowski/worst-president/.

              For more on the Prussian System reference excepts of this speech given by Nevada State Senator Ann O’Connell: http://archive.nevadajournal.com/nj98/05/prussian.htm

              • Just want to change the part about after WWI the U.S. adopted the Prussian System. It seems it was adopted before WWI. Seems it all started around 1852 and in that bed of Marxist sentiment, Massachusetts. The founders of the U.S. Prussian System were Edward Everett & Horace Mann. Edward Everett was the first American to earn a P.H.D. (P. H. D. = Indoctrination Piled High and Deep) UGH!

        • The Education/Industrial Complex is a scam. However, so many employers fell for it and like the naked emperor can admit they got taken. As a result they demand any new hire to have also been scammed by The System. Look at the job postings, the most basic these days demand a college degree and many, if not most, more advanced degrees are desired. What happens is you get a workforce all educated in the same methods and “best practices” (a phrase that might better be stated, “we don’t want no new ideas”). Then you wonder why so much of corporate America is stagnant.

          Think of it, not one company of 20 employees or more will hire a Gates or Jobs to be their IT assistant…gotta have a degree, Buddy.

    • CP,

      I am on board the student debt bubble. I have to shell out $32k @ 4%APR for my schooling which is LUDICROUS. The level of schooling in a free market would only command roughly $5k max. The big caveat is that I’m not in college. I’m in one of the most prestigious Machinist schools in the country…not many people are in school to be machinists these days. The shortage of qualified machinists combined with companies unwilling to train new people in this industry is well documented.

      Those student loans will be paid off within the first year. Any liquid cash I obtain from my personal business goes straight into Gold and Silver Eagles. That way if we suddenly experience massive inflation, my funny money loans get paid back with any of the gains I get from my precious metals.

      No use in throwing good money after bad.

      • Pedro, if only I had half the sense you do at that age. College really wasn’t my thing. I have always been a “hands-on” guy. I used to have a couple friends who were machinists and always wished I had learned at least some of the more sophisticated parts. I can half-ass operate a lathe but that isn’t anywhere near what I’d like to know. Good luck to you. We need those who “can”.

  11. eric, good article and in my estimation, right on the money so to speak. Early 90’s cars of some makes, like GM, Toyota, Honda’s had a lot of models good for 20 years, not to say they were worth much after 10 years but they did last.

    I think that’s a thing of the past for the most part now except for maybe the light truck market. I have friend with various luxury or close to luxury Japanese and a few American cars from the mid or early 90’s that are hanging in there to some degree. The only one that have a prayer of going much longer though are the GM’s simply because of parts prices.

    I have a couple friends who would drive their Q or Lexus another 20 years and be tickled but when they go to buy major parts such as brake rotors(cheap for American stuff for the most part), transmissions or god-forbid, a crate engine, the costs are just too high. Finding donor cars? Good luck. A nice Q45 comes to mind, still a nice car with probably close to 300K on it but absolutely must have all new brake components, struts, shocks, steering parts and it’s not available at any reasonable cost. Same for a friend with a nice Lexus. They’d be great in a nice garage with a big theatre system using the car for the sound and comfortable seating, an eating and dining type thing.

    • Low end Japanese cars are still good for 20 years and 400,000 miles. My little Scions have some parts like drive axles, bearings, clutches, etc., that are as cheap–sometimes cheaper–and as readily available as any GM car. The nice thing is that when there are break downs with Japanese cars, its not usually blown head gaskets and transmissions like American cars.

      I went the GM route because of “parts availability and price”. That was probably accurate in the 80’s and into the early 90s, but the internet has turned that into a thing of the past. At least from my experience over the past 6 years with a fleet.

      GM fanboys need to come up with a new mantra, or compare German and Korean cars. Thats the only way for the “parts a availability and price” line to be accurate now days.

      • I got my fill of Japanese IN the 80’s. And precisely because of head gaskets and their not being able to handle Tx. heat. I don’t doubt that has changed but I’m no longer looking for anything approaching new.

        Of course, I only worked on friends jap cars and bought jap pickups with too thin sheetmetal but acceptable drivetrains. My old ’82 Chevy pickup would run over anything in the pasture and not have a dent. You better have some heavy steel on the front of anything now to do that. 1500# heavier now with sheetmetal that won’t take the abuse the fairing on my old Suzuki would. That ain’t progress. 1500# of added sheetmetal, now that would do you fine in a wreck. I always though crumple zones were the other vehicle.
        In the early 80’s a friend got married and bought a new Subaru, fairly obscure back then but good cars at any rate. We met at a friends house in town along with a few others. I didn’t know he’d bought a new car but pulled up front to front with the Subaru just because that was how things worked out. We’re standing in the yard and there’s this glaring size difference between Red Dog(3/4T 4WD ’82 Chevy)and the Subaru. This guy lives in farming country and his dad was a farmer at the time so just about every vehicle you see on the road is a big pickup. He says he bought the Subaru because the engine would go “under” the car and not back into it in a head-on. He wanted to keep his bride safe. So we all stood there and looked at his car and with my pickup nose to nose, it was easy to see the first thing it was going to contact in any meaningful way was the cowl. So then those geniuses in DC decided we needed to “level the playing field”and make pickups more “pedestrian” friendly. I still haven’t figure that one out but that’s when you started seeing sheetmetal where a good bumper should have been. For people who need a pickup, that big bumper is part of what you need. Then the “cowcatcher” industry took off like a bullet. When you buy a new pickup in Tx. the showroom also has 2-3 different grill guards that weigh few hundred pounds and you buy what you like so it’s part of the pricing and debt. A friend pulled up to the house one morning and the first thing I noticed was a deer head stuck between two large pieces of steel on his grillguard. I pointed it out. He said “I though I hit something this morning but never saw anything”. They’re very pedestrian friendly.
        Is there anything that doesn’t get worse? Windows 10? OMFG.

      • Where do you guys get your parts? Are domestic model parts cheaper due to the fact that they’re domestic, or is it a volume sold sort of thing? Or something else?

  12. As long as there is a vast range of used cars that are less expensive than new ones and plenty of repo men, there is no auto bubble. The bubble is money in terms of credit and debit, not cars.

    • That would be true if money wasn’t the same as debt. Each time any loan is made new money is created. So, if the car is sold, repo’d, and later sold again (financed) – money was created that never should have been. The premise behind an economy being the need for a medium of exchange to match the goods/ services being transferred.

      No. This isn’t some crazy conspiracy theory. The federal reserve explains all of this in their publication “Money Mechanics.”

  13. Very astute article. Obviously, this will lead to more “thinning of the herd” in the auto industry.

    For a fun forecast, here’s my list of automakers who will disappear.

    Mitsubishi.

    Fiat. (Not the whole corporation. But Fiat brand cars will fold their tents, and go back to Europe.)

    VW…? Not a sure thing. But they too may have to leave the American market.

    Ford and General Motors………they are too big to fail, at least from the size of bubble pop that you anticipate. But they have probably moved more transportation appliance vehicles with this toxic financing than everyone else combined. Some of their model lines, particularly their glut of overlapping CUVs, will become extinct. And despite good sales in China, Buick too may die.

    Lincoln already has one foot in the grave. I wouldn’t bet in Caddy making it either.

    The top line Euro and Japanese luxury cars will be fine, because their buyers don’t need 8 year financing….if any financing at all. I do predict attrition in the entry luxury ranks. Infinity seems the weakest.

    • The crazy thing is that even Lexus–the least depreciating car you can buy–couldn’t hold enough value on an 8 year loan to not be under water. even crazier is that they will be one of the few cars that won’t offer the 8 year loan. I haven’t seen them offer even 7 year loans. They may offer 6 year loans, but I doubt many of them are sold out longer than 5 years–which is a long time.

      When one of the most expensive, lowest depreciation, large auto maker cars doesn’t grasp onto the longest loan terms available, that’s a pretty good sign for even the dumbest of clovers–actually, probably not–that it’s a doomed for implosion idea.

      • Luxury marques are primarily leasing, not selling, new vehicles. Lexus doesn’t need longer loan terms because so few require it.

        Bottom feeders need the longest term loans because that is the only way they can only afford a car because they can’t qualify for a lease and monthly terms for “affordable” used cars are unaffordable. The reality is those people really can’t afford to own any car, new or used. That is a fast growing segment of the American population.

        • “The reality is those people really can’t afford to own any car, new or used. That is a fast growing segment of the American population.”

          Excellent point, and ominous indeed.

          First, most Americans became unable to own their own house.

          Now, we’re reaching the point where too many can’t even afford a car!

          What’s next?

          • What do you think the Agenda 21 bike lanes are for?

            Coming to a theater near you: 5 year financing for bicycles! (I don’t ride bikes, so I am now assuming that you CAN actually get extended financing on bicycles.)

    • Had a customer back in the mid 90’s who had just bought the then new Audi A4 to replace his aging Audi 90. He said he was speaking with the manager who told him how well they were selling, but that his was the first paid for in cash, the manager then stated that the older Audi 100’s and the new A8 were the opposite, they were almost always paid for in cash with only about 10% of them financed.

  14. I hate the video game consoles cars have become – most are from the anti-steve-jobs school of design, insanely frustrating. I now have an old Ford pickup that is simple.
    You miss a few points on the loans.
    First, many are ZERO interest, so leave the pile of cash in the bank and let it deplete slowly.
    Second, most have inexpensive “gap” insurance which makes up any difference between your insurance check (minus deductable) and the remaining balance, so if you are in an acccident and total it, you’re covered.
    That might create moral hazards looking for a road hazard.

  15. That’s why I drive an old car. I cannot imagine paying for a car for 7 or 8 years, it’s total insanity. Then something expensive and out of warranty breaks, and you’re paying for expensive repairs, that frequently only the dealer can perform, as well as a payment. Sounds like economic suicide to me.

    Thanks, but no thanks. Yes, old cars need more maintenance but it’s mostly stuff that someone reasonably handy with tools can do themselves. (My car has no computers, no sensors, no touch screens. There’s very little that cannot be fixed with common hand tools and a shop manual.)

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