Signs of trouble in the auto industry can be taken as signs of hope for a certain class of used car buyers…
The subprime mortgage crisis famously and nearly took down the global banking industry in 2008. Now, as one article puts it, a new subprime crisis is upon us:
In particular, auto loans made to consumers with subprime credit have been accounting for an increasingly larger percentage of the market. Unfortunately, when you make loans to people that should not be getting them, eventually a lot of those loans are going to start to go bad, and that is precisely what is happening now.
Meanwhile, automakers and dealers are starting to panic as sales have begun to fall and used car prices have started to crash. If you work in the auto industry, you might remember how horrible the last recession was, and this new downturn could eventually turn out to be even worse.
In the aftermath of the financial crisis of 2008 that plunged the US into the Great Recession, Congress put its inept heads together and came up with a truly boneheaded economic “stimulus” program: Cash-for-Clunkers. They allotted $3 billion to buy back used cars for a credit ranging from $3,500 to $4,500, depending on the car and its eligibility. The intended goal of the program was to persuade consumers to replace their less fuel-efficient cars with more fuel-efficient cars.
The consequences of this ridiculous program resulted in a dramatic increase in the price of used cars. That’s because the government’s interference reduced the supply of used cars on the market, in a lot of cases by paying more money than the car was worth.
If you wanted to buy a used car after 2009, you had a much smaller pool of older cars to choose from, so prices were higher. People took advantage of the government’s program and purchased expensive new cars, on loan, that they wouldn’t have otherwise purchased so soon. Most people who traded in their clunkers for credit weren’t really qualified to buy new cars.
Now, the chickens are coming home to roost. In 2006, it was the housing market that was clearly in a bubble, but the car market tanked too, when the economy hit the skids. That’s why Congress bailed out the auto industry in 2009 and launched the cash for clunkers program. Car sales recovered under aggressive financing schemes. Now, there are serious signs of trouble in the car industry.
12 OMINOUS SIGNS
There are 12 signs that the auto industry is coming unglued…