Car bubble?

Aikidoka · 12 May 2017

The Economist and various other publications have highlighted the growth of personal finance and the danger of a debt bubble, especially with regard to cars. Property, equities and bond prices are at or close to all time highs and well above fundamnetal levels. I appreciate we enjoy our cars and don't want to think about financial reality, but when I visited a car dealership recently they explained they were having a boom time and I asked how come and they said all down to the growth of personal finance.

So how many think there is a car bubble?

As a petrolhead I agree there is more to cars than utility and money. I am also aware in the last proper recession (early 1990s) the value of cars plummeted...

Monkeynutz · 12 May 2017

In the short term I guess the finance companies will move the risk by lowering residuals to protect their business models. Costs will eventually increase to levels that might not be as appealing as they are now. I can't see it being sustainable so I think it is a bubble. That said the USA have been leasing cars for years....

MisterCorn · 12 May 2017

The way I see it, by using PCP people are able to use a car and only pay the depreciation. As such the payments are a lot lower than they would be if they were financing the whole car. This leads to people getting higher spec cars because they can afford to. The finance companies assume a value for the car at the end of the three years and price the finance accordingly. I think the problem will come when this has carried on for long enough that the market for 3 year old performance cars is totally saturated and the prices plummet, meaning that the finance companies either can't liquidate their capital or make a large loss. I can see that it will happen, but I can't see how to effectively short the funding of the car loans. So not a bubble in terms of car pricing, but a bubble in terms of car buying IMO. Whoever is financing the companies doing the PCP deals could be in for a wake-up-call soon.

MC

seeforez · 12 May 2017

MisterCorn said:
The way I see it, by using PCP people are able to use a car and only pay the depreciation. As such the payments are a lot lower than they would be if they were financing the whole car. This leads to people getting higher spec cars because they can afford to. The finance companies assume a value for the car at the end of the three years and price the finance accordingly. I think the problem will come when this has carried on for long enough that the market for 3 year old performance cars is totally saturated and the prices plummet, meaning that the finance companies either can't liquidate their capital or make a large loss. I can see that it will happen, but I can't see how to effectively short the funding of the car loans. So not a bubble in terms of car pricing, but a bubble in terms of car buying IMO. Whoever is financing the companies doing the PCP deals could be in for a wake-up-call soon.

MC

i think this will happen gradually though and they will just adjust their costs to allow for residual costs increases or decreases and by scale and having a spread across age of cars at any 1 time they can absorb minor fluctuations.

Gottans · 12 May 2017

The car manufacturers are the ones financing the whole pcp thing and they are ones who will take the hit if residual values of 3/4 year old cars fall when the market get saturated.

No doubt if residuals of these cars fall it will generally push down used car values for everyone but used cars don't make much money for the car manufacturer so I think prices of new cars will rise to compensate which will also underpin the used car market to an extent.

Just my simplistic view of the market and no doubt there are a multitude of other influences that could turn the above on its head.

Ian Perry · 12 May 2017

There may well be a correction based on supply and demand but in the mean time the margins are enormous bank rate 0.25% BMW finance 10.9% in believe not a bad return .

Aikidoka · 12 May 2017

When the crash happens, my shopping list will be the 918 and a Singer (just live the retro looks with the modern twist).

madge · 13 May 2017

Aikidoka said:
As a petrolhead I agree there is more to cars than utility and money. I am also aware in the last proper recession (early 1990s) the value of cars plummeted...

What, the "Great Recession" of 2008/09 where the UK economy lost more than 6% GDP over the course of six consecutive quarters wasn't proper enough for you?! Crikey, you're a difficult man to please! :lol:

Car manufacturers around the world were saved from extinction by government bail-outs as demand for cars disappeared. Chrysler and GM actually went into bankruptcy.

Recessions always bring falling car prices. Always have, always will. 'Joe Public' makes do with their old banger rather than buying this year's shiny new model and the 'investors' try to liquidate their classics before everyone else does. When everyone's selling and no-one's buying prices are going in only one direction.

That old argument that people trot out when stating that the air-cooled cars will never lose money by saying "but they're not making any more of them" just doesn't wash. They weren't making any more of them in 2008 either and their prices dropped just like everything else. Of course, certain cars will always have a premium attached to them but they won't be immune from whatever the market is doing.

Another recession will come. Car prices will fall. Get saving because that will be the time to buy that dream car. It may seem an outrageous thought now but at some point Porsche dealers will be only to happy to accept any order for a new GT3 rather than to treat an enquiry for one with contempt! :grin:

stichill99 · 13 May 2017

bubble

Yes you are spot on madge, a crash will come again. I bought my first 987 boxster in summer 2008. It was just over 2 years old and OPC's were asking between £32-£34k for similar cars. My car was advertised for £26500 and the vendor had no other interest,I offered £20k and walked away,she phoned the next night to accept the offer. She had tried to sell the car back to the OPC but they told her they weren't needing any stock just now. She took a £14k loss in 9 months! Yes it will happen again only this time the losses will be bigger!

Aikidoka · 13 May 2017

I follow zerohedge and some of the numbers coming out of America suggest the car market over there is slowing down. America sneezes....

Back in the early 1990s I was offered a lightweight Porsche for £15k needing work, I regret not buying it. At the time DB5s and DB6s were trading at £20-£30k having just been restored. No one was buying or had the money to run them.

We are in a deleveraging cycle and asset prices will fall....if you have the cash.

madge · 14 May 2017

Aikidoka said:
I follow zerohedge and some of the numbers coming out of America suggest the car market over there is slowing down. America sneezes....

It is slowing, but there are a few reasons why it might not yet be a sign of imminent recession in the wider economy.

1) Unlike any other developed economy interest rates are rising in the US due to continued strength in the economy and particularly the employment (and wages) numbers. So the cost of finance has increased and is expected to increase again this year as rates rise.

2) The recent splurge on new cars was partly as a result of pent-up demand from the lean years after the "Great Recession". People held off from upgrading their cars for years but then came back into the market as confidence (and cheap, available credit) returned. So we're reaching that point where everyone who had delayed has now upgraded and it's back to a 'normal' replacement cycle. There's only so much 'catching-up' that can be done.

3) The Americans love their 'gas guzzlers' and the biggest sellers recently have been the SUVs and trucks as low oil prices have encouraged them to return to these in a big way. Like interest rates, the oil price has risen over the last six months and this has contributed to the slowdown in this large segment of the market.

Employment is the key. When people start to lose their jobs that's when prices will start to fall. All of the major economies are growing job numbers at the moment so, barring a shock event, a crash doesn't look imminent.

Zingari · 14 May 2017

Wow, it's all doom and gloom but can't disagree with the assessment :what: The days of the 25 bagger will return.

However with a pair of the Jonttt MkII rose tinted specs the future's bright :thumb:

Car bubble?

Aikidoka

Silverstone

Monkeynutz

Nurburgring

MisterCorn

Fuji

seeforez

Barcelona

Gottans

Spa-Francorchamps

Ian Perry

Spa-Francorchamps

Aikidoka

Silverstone

madge

Montreal

stichill99

Sao Paulo

Aikidoka

Silverstone

madge

Montreal

Zingari

Brands Hatch

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