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Investing Future With Clayton Morris 6/11/23
"The Greatest Car Market Crash Of Our Lifetime
Has Begun And Auto Prices Will Plummet 90%"
"An unprecedented tidal wave of colossal proportions is about to hit the shores of the car market. Experts are referring to this as the most significant car price cataclysm in our living memory. The storm clouds have been gathering for the past three years, leading to an unparalleled auto price bubble. An excess supply is poised to deluge the market, while consumer demand is contracting. The current sky-high prices? They're like a house of cards in the face of a hurricane. Absolutely untenable.
Today, we're going to delve into the heart of this crisis. We'll shine a light on those vehicles that have already taken a nosedive in price this year. More importantly, we're going to arm you with the knowledge to protect your finances.It's not a matter of if this car price earthquake will hit. The question is when. For a while now, we've seen car prices, both old and new, ascending like a rocket. Dealer markups have been a rocket booster, and the scarcity of those tiny yet essential semiconductor chips has pressed the brakes on production. Auto loan defaults have climbed the ladder to an all-time high, and negative equity is spreading through the industry like wildfire. This is a time bomb waiting to explode, threatening to toss the car market into a turmoil and potentially triggering a domino effect on the entire US economy. The middle-class American dream could be hit hard, leaving nothing but disillusionment and financial voids.
Sounds like a grim scene from a dystopian movie, right? Well, the US Federal Reserve's latest data only adds to the intrigue. Serious delinquencies, the kind where payments are lagging 90 days or more, have soared to heights unseen since the harrowing financial crisis that gripped 2008 and 2009. The climax intensifies for those under 30, as they've seen delinquency rates rocketing in the last six months more than any other time in the past two decades. Edmunds, suggests that average negative equity in auto trade-ins saw a 29% jump in the final act of 2022. Moving into 2023, this equity gap continued its uphill journey, hitting a 15-year high.
Reports are streaming in from all corners of the country. Wholesale car prices are on a steep downhill slope, with the number-crunchers at Mannheim Consulting predicting a 9% skid for new models and a hair-raising 26% plunge for used cars. Now, when wholesale prices nosedive, retail prices follow suit, parachuting down to more manageable levels. April saw the average price of a new car dip below the sticker price for the first time in almost two years. Mannheim also revealed that the rocketing prices have hit the ceiling. In the two-year period between January 2021 and January 2023, used car prices revved up by an extraordinary 52%, while new cars accelerated by nearly 28%. In the same time frame, the median household income in the U.S. only increased by 13%. And let's not forget inflation. When we factor that in, the increase in incomes shrinks to a paltry 7.1%.
Put simply, in this rollercoaster economy, the affordability of used cars nosedived by nearly 40%, and new cars became 15% less affordable. In a marketplace where consumers are being priced out faster than a Ferrari on the freeway, a market crash is inevitable. The question isn't if, but when. Market analysts have already sounded the alarm, and a significant correction is already taking shape. But brace yourselves folks, because the upcoming market collapse is set to dwarf anything we've seen before, even outdoing the auto market crisis of 2008. The Fed, in their bid to wrestle inflation, pushed rates to a peak not seen since 2007. As a result, lenders put the pedal to the metal, cranking their auto loan rates up nearly 25%, from 8.22% in 2021 to 10.26% in 2022, according to the Experian State of Automotive Finance Report for Q4. The first shots of the price war have been fired in the EV sector. We expect this to ripple into the combustion engine segment by the second half of 2023. The biggest cannonball so far?"
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