As you’ve probably read – and it’s true – used car asking prices have gone bananas. On average, they are up some 30-40 percent vs. about two years ago this time, not coincidentally on account of what came into office around that time.
This rise in used car prices – which usually go down, because they are used cars – has led to a paradoxical situation in that their prices now approach those of new cars – which in many cases cannot be purchased because they don’t exist (on account of the supply chain disruptions engineered by the thing that gait-ataxia’d into office). On the other hand, used car prices are now so high that many people simply cannot afford to buy them anymore – and not just because they cost so much.
So does the money, if you haven’t got it.
It has always cost more to finance a used car because it wasn’t new – and for that reason had less expected life in it. Because it had already depreciated (lost value) significantly vs. what it was worth (sold for) when it was new. Accordingly, interest rates were (and are) higher on used car loans and the duration of the loan usually shorter – the latter being a necessity, from the lender’s point-of-view, because a used car’s value will usually reach that dangerous event horizon of being less than the balance due on the loan, sooner. Ergo, there is more of an incentive for the person making payments on a used car to stop making those payments, if they go on for too long – and walk away from the debt albatross around his neck.
The same is true now – only even more so – because of the unprecedented rise in the asking prices of used cars, which don’t cost any less to finance. And which, by dint of those higher prices, a growing number of buyers can no longer afford to finance at those higher interest rates and shorter loan durations, which can make the monthly payments even higher than they would be on a longer-duration new car loan.
Historically speaking, one of the great boons of buying used was being able to pay cash – and not just because it mean no debt. Being in a position to show a wad sufficient to buy the car outright served as an incentive to the seller to part with his car; it made “getting a deal” easier for the buyer.
But how many people can come up with say $10,000 in cash to buy a used car from a private seller? Probably not many. Those who can’t must buy from a dealer – who will finance the sale. And the seller who cannot find a buyer with $10,000 must also go to the dealer, to sell what most potential buyers can’t afford to buy anymore.
The dealer then marks up the used car and finances it at an extortionate rate to a buyer who cannot afford a new car – which is even more expensive, assuming it’s even available for buying.
The good news here – kinda sorta – is that it can’t go on. Meaning, the asking prices of used cars cannot continue to increase because there is a limit imposed by the ability of people to buy (and finance) them.
One of the chief drivers of this being the force-feeding of electric cars (and partially electric cars) onto the “market,” via the enforced manufacturing of them, absent a market. Government is immune from market discipline. It – rather, those minions who are the government, including the head minion, that thing which took office about two years ago – simply decree and enforce. The car companies have no choice. They cannot lower prices of the cars they sell when the government continues to impose costs, via regulations and “standards” that must be complied with, period.
The most expensive of these being those pertaining to what are styled “emissions” (which aren’t, except in the sense that they are “emitted” – as distinct from polluting or causing harm) which all-but-require a mass conversion of the new car fleet to electric cars and partially electric cars that cost thousands of dollars more than non-electric cars. People won’t be able to afford these, either – especially given the thing’s devaluation of the buying power of their increasingly less valuable dollars.
This means demand for used cars will increase. It certainly won’t decrease much – if at all.
Because will be – there already are – fewer of them available. Because those who have them know the value of what they’ve got and are not interested in selling – even at today’s (and likely, tomorrow’s) astoundingly high prices.
It is like the child’s game of musical chairs. The music has stopped and those who found a seat aren’t going to give theirs up. And for exactly that reason, those left standing aren’t likely to find a place to sit.
All courtesy of the thing that gait-ataxia’d its way into office, with a little help from a few thousand mules.
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