Are we in a vehicle bubble?

[plow_2]

I've been seeing the sraggering amount of brand new vehicles driving around where I live and wondering if the auto industry is heading for something ugly. Where I live in Colorado we are getting a fair number of California transplants, but I don't see how 1000 dollar a month car payments are sustainable at this rate of buying. I expected new car sales to taper with the inflation of new car prices but from what I'm seeing they don't appear to be. Anybody in the know about auto industry?

[Lemur]

My wild guess about this phenomenon is that used cars are priced too high right now so people figure to just buy a new car.

[delay]

Seeing the same thing in The Netherlands, Europe. There are far fewer old cars on the road.

Several European cities have introduced a Low Emission Zone where only the newest vehicles are allowed. This encourages people to buy new vehicles.

[7Wannabe5]

Well, I live near the plant where they make them, and I haven't observed that the autoworkers( or the folks who work at the secondary factories supporting the auto industry or the folks who work at The Dollar Tree where they shop. etc.)themselves are driving new cars. So, more likely a sign that you guys live in increasingly relatively affluent regions.

Also the case that pretty much all of the grouchy old guys I date, many of whom had 6-figure white collar auto industry jobs, are too frugal to drive brand new cars. The only humans I know and observe driving brand new cars near where the cars are produced make their money in flipping real estate or as high level civil servants.

[ducknald_don]

In my area the upmarket houses all have cheap European hatchbacks in the driveway whilst the social housing has upmarket cars out front. Most of them are leased (I read recently that most Ferraris are leased and most Ferrari owners aren't millionaires).

We don't see so many cheap used cars here, they seem to migrate to poorer regions of the country as they age.

There is a car price guide here called Parkers which just celebrated 50 years in existence. As part of that they compared the price of the median car when they started to the modern equivalent. The price had increased by twice the rate of inflation, approximately inline with the increase in earnings over that period. It seems the car companies have been very good at convincing people to spend a big chunk of their disposable income on their products.

As to whether people can afford $1,000 a month on a car it seems easy to achieve on the average US salary.

[zbigi]

There is a car price guide here called Parkers which just celebrated 50 years in existence. As part of that they compared the price of the median car when they started to the modern equivalent. The price had increased by twice the rate of inflation, approximately inline with the increase in earnings over that period. It seems the car companies have been very good at convincing people to spend a big chunk of their disposable income on their products.

A lot of that is regulation. Due to safety and environmental regulations, it's forbidden to sell cars as simple and cheap as they were 50 years ago.

[grundomatic]

Just another part of the everything bubble.

As a tangent, one of my former pastimes was car comparing at work. I'd walk out to the parking lot after a day when coworkers were complaining about their salaries. Driving a 10 year-old car we had the oldest, cheapest car in the parking lot. A teacher driving a new Tesla!?! That's not a car, that's 2/3 of my house.

[Sclass]

We will see how long this lasts. I’ve been shocked at the average price of newly purchased cars. In prior years it was driven by low interest rates but not anymore. Now it looks like big truck and SUV purchases are being used for business write offs. That’s what my neighbors seem to be doing. $80,000-$100,000 trucks are quite common on my street. These really move the average.

Then there is the Tesla boom. My neighbors are all buying a lot of Teslas. Some are $100,000 models. How do they afford them? I dunno. I guess they’re paid a lot in their jobs. It’s likely justified because Teslas get to drive in the HOV lane. You can use autopilot to destress in traffic. Between their mortgages and cars I’d think they are living hand to mouth but I really don’t know what their sources of income are.

How long can this go? I don’t know. Is the tolerance for higher monthly payments strengthening or are people richer? I do notice the effect but I have no idea if it’ll hit a wall or not.

When I think about it my neighbors have pretty boring lives. Spending a lot of money on their home and cars makes sense because that’s where they spend most of their time.

[delay]

Now it looks like big truck and SUV purchases are being used for business write offs.

With "write off" do you mean tax advantages? As far as I know, tax advantages allow you to buy more car per dollar, but it still takes more dollars to buy a more expensive car. For example, here in The Netherlands there are three tiers of owning a car:

1) If you have your own company, you use the company to buy a car. You pay the car from your net income and do not pay value added tax. With 20% VAT and 45% income tax, this means a person with a company pays 66% less for a car. You do not pay VAT for fuel.
2) If you work for a company that is willing to provide you with a car, you pay 10% of the new value of the car per year. You pay less for an electric car. Your company pays for the fuel you use.
3) If you buy a new car yourself, you pay purchase tax and VAT for the car, and VAT on your fuel.

This uneven playing field means regular people buy second hand cars. Given that the first two groups drive a car for only a few years, most regular people buy 3 to 10 year old vehicles. These still look really new! The amount of electronics is amazing, with two customizable displays and more information projected on the front window. The cars will correct themselves if you steer over a white line, break when there's an obstacle in the way, and cruise control mimics the speed of the car in front of you. I'm always amazed when I hitch a ride with a friend or colleague.

[loutfard]

This uneven playing field means regular people buy second hand cars.

People have agency. Many can take a career path that offers them this possibility.

I for one wouldn't want to ever pay for a luxury car. Even that means paying the world's highest marginal tax rate on a wage that's low by US standards.

It's funny. Some of the teenagers I teach are confused I don't own a car.
- "..but imagine your rich uncle gave you a Ferrari for your birthday?"
- "I'd say thank you and ask him if he didn't mind me selling it."
Even more confused looks from startled teenagers...

[Jean]

i'm looking for a car to go hunting. There are no 500.- cars anymore. It might end up cheaper to call a choppa a few time in september than to own a car.

[jacob]

I'm not following the auto industry in particular, but it seems that this might just be cyclical with many people having put off buying cars in the wake of the distribution-chain mess that the pandemic left behind. Now that the economy is cranking again and wages in general have gone up, there's room in the budget to finally replace the old clunker that would otherwise have been replaced a few years ago. Also, $1000/month is a ~$15000 raise. That's not entirely unreasonable/rare in this [US] economy. Something similar might be happening with appliances like washing machines or graphics cards. Only difference is that you don't see those on the street.

[Sclass]

With "write off" do you mean tax advantages? As far as I know, tax advantages allow you to buy more car per dollar, but it still takes more dollars to buy a more expensive car.

Yes. There’s something called section 179 equipment deduction in the US for small businesses.

I guess if you’re a business owner with a lot of income to shelter and you like new expensive cars, then this will allow you to buy one at a discount by lowering your taxable income. If you wanted to buy a two seat exotic sports car on your business it would not work. But this allows you to buy it more like a piece of small business equipment which is not only different than a sports car for your salesman but it’s also different than a capitalized asset like a forklift.

Yes you are spending more. Write offs are like spending a dollar to save fifty cents. I guess it makes sense if you already wanted a 6500 lb $80,000 SUV.

ETA - I think this can drive the average price of a new car sold by giving a tax incentivized sale to those who both want one of these cars and have a lot of taxable business income. To those people buying the $80,000 car is like a salaried person buying something like a Camry Hybrid for $45,000. But on the statistics is doubles the price of the car while not really requiring the same outlay of cash. Statistics can get skewed this way like we see in mean net worths being pushed higher by the top 1%.

[7Wannabe5]

Yes, my best friend in high school drove a red Trans Am and her mother had a pearl pink Cadillac, because they both worked for the family roller rink business. OTOH, you can take standard mileage depreciation on a very inexpensive car, like I did for my business with the Mazda Protege I bought for $1200 from a Russian guy, and come out way ahead on the depreciation. I think everyone who is attempting semi-ERE and has a family should start a family business just for the flexibility.

[chenda]

i'm looking for a car to go hunting. There are no 500.- cars anymore. It might end up cheaper to call a choppa a few time in september than to own a car.

Au contraire monsieur...

https://www.autotrader.co.uk/car-detail ... 24&fromsra

Who needs power steering anyway?