The Used Car Market is Crashing But Another is Booming

Guest Post by Eric Peters

Well, that headline needs a qualifier.

The private sale used car market is crashing. Very few people are buying that way, though information about this is being suppressed by not separating out person-to-person used vehicle sales from dealer-to-person sales.

Which are booming. But we get ahead of ourselves.

If you’ve attempted to sell a car lately yourself, you probably already know the score – from the lack of responses (excepting spammers) to your Craigs List or Auto Trader ad. If you’re asking more than $5,000 for whatever it is you’re selling.

The reason being that very few people can scrape together a stack that high.

Back in January – before the Gesundhsitsafuhrers (not the WuFlu) wrecked the economy – Market Watch reported that 74 percent of all salaried workers were living paycheck to paycheck and that three out ten Americans had zero reserve cash at all. They would need to finance a new refrigerator if their old one croaked.

How are Americans doing now, given tens of millions no longer have a paycheck at all  – or a temporary one, issued by the government as compensation for cancelling their employment?

Not well enough to scrape together $5,000 in cash money – much less $10,000 or more in cash money. Without which you cannot buy a used car person-to-person because when you buy such a car, you actually have to buy it. The “down payment” is the entirety of the payment.

The owner isn’t going to let you drive away based on your promise to pay.

And so, fewer and fewer private sales are happening. Much to the manufactured good fortune of used car sellers, including the big chain Carvana – which specializes in fire-sale purchases of vehicles too pricey for the average broke American to pay for at the time of purchase, in cash – but which can be re-sold to them on a pay-as-you-go basis, plus interest.

After having acquired it at the fire-sale price (low trade-in value) from the desperate-to-sell-it former owner, who eats the 15-20 percent lopped off what the vehicle is worth on the retail market.

Which becomes the profit – plus interest – for the re-seller.

Or rather, the re-financer.

The dead broke American who can’t scrape together $5k much less $10k or more can scrape together a few hundred bucks – for the first monthly payment, into which of course exorbitant interest on the loan amount is discreetly folded,making it appear invisible – and “affordable” – to those in denial, the desperate and the innumerate.

In plain language, the least able to afford debt are acquiring more debt.

Cruelly, many of these people would be better-advised to buy – that is, finance – a new car, as the interest rates are often significantly lower and the loan itself is usually spread out over longer because there is more “depreciation cushion.” The new car’s value is much higher to start than the used car’s – and this means you probably won’t find yourself under water – owing more on the car than the car is worth.

For just this reason, lenders – who are many things but generally not innumerate – will not write a loan on a used car that’s too-many-months long, because they are aware of the under water issue and know that a not-small number of people caught by that trap will just stop paying on the loan and walk away from the car, forcing a repo and all the hassle of fining a new debt-serf to carry the load.

But the people who can’t scrape together $5k in cash are often exactly the people who cannot qualify for the new car loan, which may require a substantial down payment as well as excellent credit.

So, they finance the used car – and often pay more per month. On a car that is more likely to suffer a failure of some kind or need repairs such as brake work or new tires . . . which they haven’t got the money to pay for.

Everyone loses in this game – except the big-chain car stores that Hoover up all the used cars at fire sale prices and resell (refinance) them to people too broke to buy the same car outright for less from a private party. The private party, in turn, gets bled of the difference, reducing their “stack” of reserve cash or their hopes of using the money they just lost to pay for some necessary thing with that cash, as opposed to financing it on credit.

If you’ve noticed a common theme here, you’re already ahead of the story. It is the same theme played out during the government-ordered “lock downs,” which harmed private individuals for the benefit of large corporations – which were not “locked down” – notwithstanding that almost all of them sold items that didn’t meet the “essential” criteria propounded by the government.

The really essential thing being the calculated impoverishment of the average American for the sake of these corporate combines, which have as their goal fief dependence via debt, which will give them limitless power over the average American for the simple reason that beggars can’t be choosers.

You get what they give you, nothing more.

Welcome to your new normal.

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