Supply-Demand Disconnect?

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The price paid for the average new car continues to climb – it’s about $34,000 now – but sales of new cars are declining. This seems cognitively dissonant.

Or at least, economically dissonant.

Shouldn’t prices fall when demand ebbs?

Yes, they should . . . in a free market, which is free to respond to market signals. But we don’t have a free market. We have a Borg-like hybrid creature, a mix of free market and corporatist-socialist elements.

Unlike 7 of 9, it is not pretty.

Artificial demand is created by government mandates and regulations for “features” such as ASS – automated start/stop, which has been added to almost every new car not because of market demand but because the government demands that new cars burn slightly less gas, however much cash that burns.

Since the government isn’t paying for the demand it creates, someone else has to.

This would be us – the people buying new cars with all the “features” the government demands. But most of us haven’t got unlimited means to pay for them.

And so we finance them.

Car debt – as measured by the length of the average new car loan – has roughly doubled over the past quarter century, from three-to-four years to six.

To be fair, it’s not all Uncle’s fault.

Probably two-thirds of all new cars come standard with an tablet-style touchscreen and features and amenities such as AC, power windows and locks, four wheel disc brakes and alloy wheels that were once optional in most cars.

When car loans were 3-4 years long, most people could not afford luxury features as described above and so did without them. This market pressure kept the prices of most cars – average cars – within the economic reach of most people. Cars such as Cadillacs and Mercedes-Benzes were around, but rare – and driven almost exclusively by affluent people who could afford them.

Then along came easy credit – and extended financing, which has made it possible for the government to increase “demand” without apparent cost – and for people to demand what they can’t afford.

The several-fold increase in leasing – or rather, renting – is another barometer worth considering.

Thirty years ago, leases accounted for about 5-8 percent of all new car transactions; today, they account for about 23 percent. Again, it’s a way around the high cost – and a way for people to drive more car than they can afford. The lease payments are lower than monthly payments on a new car loan because you are renting the car for a short period of time, usually just 2-3 years.

But there are built-in limits and we may be in sight of them.

Loans on cars can’t be pushed out much beyond the current 6-7 years because cars are appliances – like microwave ovens or toasters. They lose value from the moment you open the box – or drive off the lot.

They also wear out with use, which contributes to the loss of value.

There is a financial tipping point with cars – the point at which their market value is less than the outstanding principal of the loan. That tipping point can be pinpointed. It is reached at about 6-7 years from the day the car left the dealer’s lot. This is why loans are “hung up” at this particular point and haven’t been pushed out much farther.

Because they can’t be.

Bankers are people who are usually good at math.

But then people are, too – at a gut-check level, at least. When a person making payments on a car realizes, after four or five years of making payments, that he still owes the bank more than the car is now worth, there is a temptation to cut losses – and stop making payments.

Many do exactly that. Note the latest repossession/default data – it is upticking, especially among buyers under 35, who are statistically most likely to bite off more than they can chew.

The bank is then left holding the proverbial (and empty) bag.

What’s in the bag – the loss – is then written off, but it doesn’t disappear into thin air. The costs of that loss are transferred onto the back of someone else, perhaps in the form of loan-shark interest rates on the repossessed – and now much-depreciated – five or six-year-old used car dumped by its original owner.

Or, the losses are folded into the costs borne by others for home loans and so on. Bankers do not just absorb the losses and smile.

There are synergies at work which will accelerate a denouement the likes of which we’ve never seen; which no one has ever seen.

There have been ups and downs in the car business – like any other business. But we are approaching a unique nexus. Or perhaps critical mass is the better way to describe it.

Not only are government mandates imposing increasingly impossible costs, not only are more and more people chaining themselves to unprecedented debt to buy new cars, new cars are also becoming more and more disposable – due to the exponentially increasing mechanical and electronic complexity of their systems – which are being added for regulatory compliance reasons and because people want more and more features and amenities – which they can’t really afford but which they can get loans for.

These systems wax ever-more-expensive to fix – and the nature of complex systems is that they tend to require fixing (often, replacing) sooner rather than later.

A very good example of this being an electric car’s battery pack. These can cost many thousands of dollars to replace – and can be counted on to need replacing years before the car itself would otherwise need replacing. But the car’s value has depreciated to a point at which it no longer makes economic sense to replace the battery, because of the high cost of doing so vs. the low value of the car, which by this time is probably only a third what it was when new.

So the car gets thrown away sooner. At eight or nine years old rather than 12 or 15.

The owner jumps back on the debt carousel. He finds it more manageable to get a new loan for a new car than to come up with a large lump sum (several thousand dollars) to fix what he has.

He’s still paying, though – and he’s paying more. It’s just made to seem like less.

Meanwhile, our wallets grow thinner – faster.

A time is approaching when there will be nothing left in our wallets except dust and lottery ticket receipts.

And we won’t even have enjoyed an evening with Jeri Ryan for our trouble.

. . .

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  1. The more I look into which cars to buy, the more I value on getting stuff I DON’T WANT!!! I am very seriously thinking about redefining a “new car purchase”, from being a brand-new car to one that is specifically old, but also specifically spending money (otherwise spent on the high-priced new car) towards a complete and thorough refurbishment or restoration.

    At present, the only ways I see getting around all this crap for brand new cars is 3/4 ton work truck, or base-bones commuter (think Nissan Versa S – 5sp).

    Thanks to Eric: I have come up with a short list of things on a car that I will not be without. They all involve direct mechanical connections. I will not buy a car that does not have *direct mechanical connections* from: 1) steering wheel to front wheels, 2) gas pedal to throttle, 3) brake pedal to brakes. Also on the list is ASS that cannot be easily turned off. (A single switch on the dashboard would be acceptable, but nothing beyond that.)

    • Ditto, Tom –

      I plan to do the same… but expect this “loophole” will be closed by making it illegal to drive “noncompliant” cars on public roads.


    • European governments are descended from the “divine right of kings” and have a long history of shoving centralized power and diktats from the top down onto the shoulders of the proles. The idea of power flowing from the individual upward to those in “public service” is not there even in theory.

      The U.S. was supposed to be “different” but of course it has not turned out that way. We are just a little behind Europe in the totalitarian curve but all it would take is an election or two with the Clovers prevailing at the polls to catch us up. Today more and more people clamor for their serfdom because being bound up in chains makes them feel “safe” and “secure”. Although certainly not limited to the millenial generation (look how many old fogeys clamor for “muh Medicare” and “muh Social Security”), it seems particularly bad with them, being freshly minted from the government indoctrination centers. “AOC” is a virulent symptom.

      At least I’m old enough to have experienced times when there was a modicum of freedom and no alphabet-soup mix of gunvermin ministries giving you a proctology exam at every turn. (I can remember when car design was left to the auto companies and the marketplace. For that matter, one could travel on a cross-country train or an aircraft with no ID at all, let alone having to take off your shoes and grovel before some government stooge in order to board – imagine that!)

      • Hey Jason,

        You bring up the “Devine right of Kings” as a European tradition.

        The first time I heard the phrase was thirty some years ago on a local talk radio show in Detroit.

        The Michigan State Lottery Commissioner was asked, “by what right does the state imprison two individuals for playing penny ante cards yet allows those same two men to gamble with the state?”

        I was previously unaware that god made these decisions.

      • Jason,

        “Today more and more people clamor for their serfdom because being bound up in chains makes them feel “safe” and “secure”.”

        That’s because Mr. Whipple makes the chains here.

        They’re squeezably soft, but please don’t squeeze them.

      • “For that matter, one could travel on a cross-country train or an aircraft with no ID at all, let alone having to take off your shoes and grovel before some government stooge in order to board – imagine that!)”

        I’m starting to think that was all imagination.

        Back when guns and smoking were allowed.

        I remember running out to the rolling staircase as my sister got off a DC 3. Getting a tour of the cockpit, sitting in the pilot’s seat, and the stewardess pinning real metal wings on me.

        Was that just imagination?

        Did people really get dressed up to travel as opposed to wearing flip flops and shorts with their nutsacks hanging out, service animal in tow shitting in the aisle.

        What progress we have made.

        • I am refusing to take my infant son on an airplane or anywhere near the Gestapo Hub airports until the TSA is gone, even if it means waiting 25 years or more. Touch my sons parts and you’ll go to the hospital and I will happily go to jail.

        • Wasn’t your imagination, I remember getting on the Eastern Airlines shuttle without even a ticket. Paid onboard and no one ever asked for I.D. You could even go out on the roof of the terminal and watch the planes takeoff and land. Nowadays that does seem like it was an alternate universe.

  2. And also not mentioned but maybe thought about is the confiscatory personal property taxes in one’s local place of residence. It has made me reconsider purchasing a new/newer auto. I’ll keep what I have and properly maintain them myself while they slowly depreciate and the taxes lower over time. That is until the Jack-n-apes decide to jack up the rates and hose the pubic down…..again!

  3. Eric, you have the “average” cost of a new car as $34k. What about the median cost? I know many times the two are nearly identical but, in this case it could be illuminating. I’m constantly seeing Nissan Versas running around but, very few new $60k pick ups. Perhaps the consumer is realizing that all that technological ginger bread will eventually be a downside.

    Also, nice use of 7of9…as if there is any un-nice use…

  4. Jeri Ryan, the woman that gave us Obama in a round about way.

    For those who don’t know it was her divorce from an Illinois politician that got leaked which tanked his senate campaign that he probably would have otherwise won. So the republicans brought in Alan Keyes(sp?), moving him into a Cal City apartment, to run against Obama and the rest is history.

    • True, but…it was her husband’s desire to take her to sex clubs that drove her away. Frankly, any man married to her that wanted to do that shouldn’t be allowed to roam free…let alone legislate.

      • It’s divorce court which is structured such that women are encouraged to make various accusations for the betterment of themselves and their lawyers. What’s real and what isn’t is often rather difficult to determine.

        • Hi Brent,

          I’ve come to the conclusion that marriage is untenable because it is outdated. Because of the coercive collectivist social welfare state. In the past, a man married because he wanted a wife and mother for his children. The woman wanted provisioning and protection – for herself and her children. For life.

          But the rise of the social welfare state eliminated the need for a woman to depend on a particular man – her husband – who agreed to provision and protect. Instead, other men would be taxed to provide and provision for her.

          Feminism, of course, added salt to the wound by making women feel pressured to have “careers” (really just jobs) and compete with men, which further undermined the natural bonds between man and woman. And by encouraging women to act on their feelings, whatever they might be at any given moment.

          • Bingo, a woman doesn’t HAVE to make her marriage work, or even be married at all-not when she can have provision from Uncle Sam.

            Plus, once you get to a certain age, sex doesn’t have the same appeal anymore; after a certain point, you can take it or leave it. Shoot, at my age, I find a good bowel movement more satisfying than sex!

            Finally, I and my cat can do WHAT we want, WHEN we want, HOW we want-no nagging for us… 🙂

            • Hi Mark!

              Ditto on the cats 🙂 And: Now that I, too, can take it or leave it (sex) and take it on my terms I find I have many women seeking me out and frustrated by my absolute indifference to “getting involved” and being “serious” with them. They seem unable to grok that there is no upside for a man in my position; hell, for any man.

              I can get sex – thanks, Feminism! – and forget the rest!

              But here’s the real punchline: Middle-aged guys (assuming they have their shit together) can easily bed women in their 20s and 30s… but the middle-aged women who divorced us can’t find “a good man” their own age. Or a man, at all!

              • You’ve got that right, guys. Cats are wonderful companions and they won’t incessantly nag you to death over minor day-to-day trivia. Ditto for dogs. They ask for little and return a lot. I’m not religious at all but would say that pets are a gift from God, if there is such a thing at all.

                Marky, as an old fart I’m with you on the assessment of sex via taking a nice, satisfying dump. The latter leaves you feeling satisfied without all the hassles. 🙂

                • Marky, as an old fart I’m with you on the assessment of sex via taking a nice, satisfying dump. The latter leaves you feeling satisfied without all the hassles.

                  Man, I had to LOL at that one! I’m 57, so I’m no young fart anymore. But yeah, there’s nothing more satisfying than leaving a big log in the morning! And it has none of the drama or hassles that having sex entails. I’m glad that I’ve reached a point in life where the hairy magnet has lost its pull…

                  The only time my cat gets insistent is when he wants his breakfast. I’m usually in bed, so if making noise doesn’t wake me up, he gently nips my arm right above the elbow. After breakfast, he plays, runs around, and chills out as he sees fit…

              • I’ve had a couple of younger women show interest, but I can’t be BOTHERED anymore, Eric. After the honeymoon period of the relationship ends, it’s always the same BS. With just me and my cat, there’s peace in the house. I seem to remember the Bible saying that it’s better to dwell on the corner of a rooftop than live in a mansion with a contentious (read PITA) woman. How true it is…

          • Eric, or the way I put it, the welfare state has freed women from ever needing to interact with boring (from their point of view), decent, productive men.

            • Morning, Brent!

              It has – but the upswing there is we men can disconnect from them, too. Since my divorce – and my change in perspective – I have found that the less interest I show in women, the more interested they are in me. And that they get really frustrated when I refuse to go along with anything more than a very casual interaction. They want “more.” But what is the benefit to me?

              Selfish? How about self-defensive.

              Women want… and want and want and want. Their idea of commitment is as ephemeral as their feelings at any given moment. And how they feel changes constantly – monthly – and then again, radically, when they transition from being capable of having babies to no longer being able to have them. Nothing remotely approximate happens to men. I have friends I’ve had since childhood who are basically the same now as they were 40 years ago. Women change. It is not their fault, but it is their nature.

      • “it was her husband’s desire to take her to sex clubs that drove her away.”

        Oh my, it appears that this woman has suffered terribly.

        If we could only end all women’s suffrage we’d be ahead of the game.

        • Giving women the vote was the BIGGEST MISTAKE we ever made! Ever since they got the vote, we’ve trended towards the nanny state because women crave security above and beyond everything else…

    • Really true. The white guy Ryan I suppose would have won that election otherwise except for his backstabbing wife. Why any man gets married is beyond me.

      • Hi Mark,

        Men are more romantic than women, is why. When we commit, for “better or worse,” we actually mean it. Women commit… for as long as they are “happy.” It being up to us to make them perpetually “happy.” When they are not “happy,” they leave.

        Men are foolish enough to believe women think like men. They don’t.

        • It’s sad and it’s sweet and I knew it complete when I wore a younger man’s clothes….

          I first learned as a young man that men married the woman they loved and women married the man they thought they could make into the man that they loved. I occasionally had to be reminded “I don’t want to ever see your sorry ass again”. Gee babe, I thought you knew I was a cowboy and honky tonker and not a frat boy.

          I walked in yesterday and only recognized since I’d been schooled lately about Charlie’s Angels….don’t ask, it’s depressing. One was being groomed(hell, I don’t know which one, I didn’t watch tv much and certainly not that, mainly the only thing I’d see on the road was Sonny and Will because it was ROTFLMAO funny)by a real estate guy to sell…well…..real estate. He said “Remember, for every divorce there’s 3 houses being sold, the one the couple had that was community property and the one each one will then buy.”….at which point I walked to the barn and got the first of a few beers. I like the barn and need to clean it. BTW, typical scenario here and with most people I know, someone pulls up and the wife looks out and they’ll ask if the hubby’s home. “He’s gone to (fill in the blank)”. Oh, I noticed both pickups were here. Then she says”I could have sworn he went to town”. Nope, he’s out in the barn and he may be just sitting and gazing with that thousand yard stare with a hot beer in his hand. That’s the stare women hate.

    • Yep: Every time I see a picture of her, I can’t help but think *the exact thing* you just wrote! It’s amazing how something seemingly trivial, (meaning a divorcing couple – happens all the time), sparks off such a chain of events. And make no mistake, we WOULDN’T HAVE HAD OBAMA if that didn’t happen. And yes, the post mortem analysis (or facts) would be very intriguing: Where there any unsubstantiated claims, was there any post-divorce/election payout, who was involved, etc. There had to be some shenanigans involved from the Chicago Democrat Machine…

    • This.
      The Big Three have taken out big loans to finance the next vehicular scam and paid salary to Pencil Neck engineers making touchscreens for F150s. If nobody buys their garbage product, pitchforks come out, on us the plebes! If no one takes out loans GMAC/GM Financial will layoff thousands and dry up. If we barter cash deals for used cars Uncle Scam loses revenue, if we re-use older cars, fix things that are broken vs buying new… etc

  5. ” A time is approaching when there will be nothing left in our wallets except dust and lottery ticket receipts.”

    Nice phrase Eric! It resonates in so many dimensions.

  6. I remember when you could buy with cash and get 10-25% off the price. Today most won’t take cash and when they do, you get no breaks. The last vehicle I purchased would have cost me $4000 more if paying cash. I took the loan and then paid it off in 6 months. But that still cost me an extra thousand,,, interest. Still $3000 ahead. It seems no one wants cash anymore. And if we ever go cashless……. Man,,, Talk about smiles on bankers faces!

    This credit (Debt? ) thingie is really getting stupid.

  7. I often wonder how much of our nations economy is now actually supply & demand oriented. The “information age” has seemingly brought about more consumerism, but less actual productivity. Is more of the economic “engine” of this nation based on white-collar robbery rather than production of goods and services for the people living here? We have advertising telling everyone they need constant “healthcare” and that we are all entitled to “this, that, or the other”, instead of people just working for what they honestly need, and saving for the things they “want”, but could otherwise live without. Meanwhile, the govt. is increasingly taking more liberties it ought not even have access to, and people are letting the govt. do so, primarily out of fear. And the fears are not necessarily of the govt., but rather all the other “perceived” dangers the public has embraced, such as terrorists, medical epidemics, “global warming” and other environmental hoaxes, and at least a dozen or more crises that I can’t even think of at the moment. The govt. does take advantage of public fears and does use them to control and suppress our freedom, but why are we allowing fear to run our society in the first place? This has to be more than just an economic trend, and surely is more deeply rooted in the degradation of our social structure. 25 years ago you would get nothing but laughs and maybe even some dirty looks if you suggested people would willingly wait in line to get cavity searched in order to fly on commercial airlines, and now? Things happen on a daily basis in public (and to the public) that, when I was in my 20s and early 30s, could (and sometimes did) spark boycotts, riots, and other manner of civil disobedience that kept the abuse by the PTB to a minimum, and now? I guess when people get to a point where they have little to lose other than their life, we may see the public fight back, then again maybe not.

    • Think of this. Why did cash for clunkers exist? To keep new debt coming in. Why does your local tax authority never remove taxes or lower the valuation of your house? To keep the banks happy that their assets aren’t losing value, and create a figment for the county to claim taxes on. Even here in Texas there is a push to abolish the property tax* but replace or divest its coverage to other taxable areas. If people all of a sudden one day stopped taking out new debt, some people high on top would be really mad. And debt is truly created out of thin air and printed on butt paper. Or even hold onto assets with little to no value that have no taxable value to the state/banks.

    • gtc,

      “I often wonder how much of our nations economy is now actually supply & demand oriented.“

      I believe the words you were looking for are supply and mandated.

        • Mark, you are correct, and as Eric has indicated often, it seems there is very little now that Uncle, & GovCo in general, won’t just leave the hell alone. The concept of “live-and-let-live” just doesn’t seem to exist at any level, Federal, State, or Local, any longer. Truth is, the goal of any bureaucrat is to meddle, endlessly, for their own job security.

  8. Statism (communism/socialism/democracy/fascism) is a disease and this country is so severely infected all we can do is wait for it to run its course. (Or get TFO- quarantine yourself from it). In the meanwhile, go underground, ignore them when you can, learn to fake out the system- I’m sure it’s illegal to espouse lying to “authorities” or forging the documents they love so much, so I won’t do that;). Cars are a leading indicator of this- see the Soviets with Ladas for the favored peasants, ZIL/ZIS for the nomenklatura, and shank’s mare for everyone else not in the gulag.

    Interesting, cars/trucks can be and are useful and necessary as military hardware. I’ve contended for years that the driving right is protected by the second amendment because of that, as well as being protected by the first under freedom of “religion” (conscience). But of course, they gave the irrational girls and the dependent half wits the vote, so we’re often outvoted on matters of right where hard decisions have to be made.

    Anyway, prep for what’s coming. Keep some real cars and some real weapons and especially real books (I recommend anything from the old Paladin Press) stashed away.

    • Excellent article Eric, and excellent post Ernie. I think a lot of your perspective depends on where/how you live.
      My once rural conservative area of the North East has recently gone bat shit crazy. Just an example is a county level solar project that ended up $30M in the hole. we pay, and for next to zero benefit. Even the supposed leaders of my town bought in. I was considered a kook. The town has 150+ empty homes still and I say ‘better prepare’. Nope, double down on new mega million dollar projects. How stupid can you be. I just hope I can get out before my property value becomes worthless. It already has dropped 40-50% recently.
      But at the other side of the coin, I am fortunate enough to have a small vacation home in a very rural part of the country. I have semi-involved myself with the locals, and after they vetted me to make sure I was not a typical nutcase from the coasts, my belief that man is good has blossomed. The little town of 2000, not influenced much by ‘others’ is very refreshing.
      Our goals are to go galt, and live among like-minded people. Many of my peers are thinking the same thing.

  9. Eric,
    This is why Trump bailed out the automakers by holding off the CAFE regulations a few more years. Think how MUCH more expensive they would be now WITH the CAFE laws unchanged from Obama. He should have let them crash and burn.

    • I would be nice if we could either dial back, or outright abolish, CAFE regs. What business is it of the gov’t to determine what mileage our cars should get? Since we, the purchasers and end users, will have to pay the fuel costs, why can’t WE decide how important fuel economy is?


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