Another Canary in The Coal Mine…

Guest Post by Eric Peters

Another canary in the coal mine has just dropped to the bottom of its cage.

A few weeks back, I wrote about evidence that the bubble-ized new car business – “sales” inflated by the same kinds of financial flim-flam that gave us the housing bubble just about ten years ago – is on the verge of popping.

And may have already popped.

Now comes another indicator.

Sales of Chevy’s Camaro muscle car and its two rivals, the Ford Mustang and the Dodge Challenger, have stalled.

Suddenly, too.

As if they just ran out of gas – all three of them – all at once.

This after several years of double digit increases.  

Now, the reverse is happening.

Camaro is down an ominous 15.4 percent for the year to date (January to July) despite the current model benefitting from an update that few, if any people could find fault with. The car looks virtually the same as the previous version – which was hugely popular – but is now several hundred pounds lighter and so it’s both quicker and more fuel efficient than it was before. That kind of thing usually increases sales of a muscle car.

It hasn’t.

Same thing over at Ford and Dodge. Both of their muscle cars have been improved recently and neither has lost any of the attributes that made them successful… until now.

So what’s up?

The better question is, what’s down?

How about the financial ability of the middle class buyer (this is the demographic that buys cars like these) to afford them?

Or – perhaps more to the point – their willingness to buy them?

Interest rates are still low; gas is still cheap.

But such things don’t matter when you can’t afford the car itself. Or begin to fear not being able to afford other, more important things – like the monthly mortgage. Or (more coming) your Obamacare premium.

These are not practical cars. They are muscle cars. Largely useless for anything except having fun.

For two people.   

While they have back seats, these are technicalities. A Camaro is nearly as unfit to carry passengers in its backseats as a Corvette (which has no back seats at all). The same is true of Mustang and Challenger, though to a somewhat lesser degree regarding the latter because it is a bigger car than either the Chevy or the Ford.

Still.

They are all of them just about the worst possible choice for a car that has to get you to work in the winter (rear-wheel-drive and high-performance tires and not much ground clearance being the snow-day equivalent of trying to lose weight on a diet of Super Sized McDonald’s meals) or transport the family. And while their gas mileage is quite good for the power/performance they offer – if you can control your urge to use their power/performance (and in that case, why bother?) they are none of them exactly Prius-like.

Insurance is likely another factor. Buy any of these and the mafia will hit you with premiums probably twice what you’d pay for a Camry (which has back seats fit for people).

Get a couple of tickets for using these cars – and if not, why bother? – and that is a certainty.

But, here’s the thing: All of these costs are optional – like going to Disneyland with your family.

And what is the first thing most families do when they begin to feel uneasy about their finances – and their financial future?

They stop spending money on things they don’t need.

And no one needs a muscle car.

They are indulgences, cars people buy when they feel good about their finances; when there is money to spare on something fun.

Fun is the first casualty of a financial bubble’s popping.

Karl Brauer of Kelly Blue Book – which tracks used car prices and market trends generally – agrees. Cars like Camaro, Mustang and Challenger are “discretionary rather than functional purchases,” he says.

Indeed.

Exactly.

When there is trouble in Detroit – in the economy – sales of such discretionary purchases are the first to wilt. But it likely will not stop there.

And hasn’t. See here.

Even with the life-support of essentially free loans – interest rates low enough such that the “cost of money” is effectively nil – and car loans extended to six years routinely and lately seven or even eight years not uncommonly, people are becoming leery of signing up for $500 a month car payments.

Their financial Spider Sense is tingling, warning them to pare down.

This is smart policy given the at least 50-50 odds that Hillary Clinton will ascend to the Decidership in a few months from now. Because that will mean (among many unpleasant other things) the certainty of Obamacare Forever – and that is going to cost everyone who is still foolish enough to get out of bed in the morning and perform productive work even more of their already diminished dollars. Note that several major families of the insurance mafia have already pulled out of the exchanges, citing costs. What do you suppose Hillary’s solution to this will be?

And a new War is very likely, too. Hillary is champing at the bit for one.

But even if we are spared Hillary and get Trump as the lesser of the two Cthulhus, the economy – macro – has been running on vapors since at least ’08. A leaky balloon kept inflated, kinda sorta, by an unprecedented ad-hoc crew of pump crews.

But that only works for so long.

About ten years, it looks like.