Ask Bark: There’s a Big Bubble Coming, and a Man Asks About a Mustang

When I started doing Ask Bark columns, I feared that every week would turn into “What’s the best sporty car I can get for under $10,000?” Since I no longer work there, I’m sure it’s completely fine that I tell you that the most popular search on that big, orange auto classifieds site is “Any make, under $10,000.”

Why? Well, anybody who’s anybody knows that used car prices are skyrocketing (yes, there was a dip in February, but that was an aberration). But why? After all, if used cars are lasting longer than they ever have before (and they are—the average age of the car on American roads is 11.4 years, and that’s after Obama paid $2.8B to take nearly 700,000 working vehicles off the roads), then why do prices keep going up? Shouldn’t there be more cheap cars on the road now?

You can thank the lease bubble. There are going to be 7 million lease returns flooding the marketplace this year. All of these cars were dumped on the market to keep the SAAR climbing and climbing to numbers that were completely unsustainable. Well, those cars are alllllll coming back now, and the residuals are too damn high. So all the lease returns going through the franchise-only auctions are being sold with insane reserves, but if the dealers want to have late-model, low mileage inventory, what choice do they have but to pay? And you know that they’re passing those savings right along to you, the people.

As a result, used car prices now average 60% of new car prices, the highest in history. Thanks a lot, you douchenozzles who leased $99 Cruzes with zero down—you’ve killed us!

There’s a whole article on this to be written, but since this is my blog and not something I have to write for a deadline, I’ll do it another time. Now, to the man with the Mustang question!

 

Bark,

A few years ago I absolutely had to have a 2013 Boss 302, but timing and finances didn’t work out. By the time I reached yuppie status, the Boss was out of production and I bought a ’14 GT instead. My plan was to buy the OEM or Ford Performance parts that were discontinued for the ’14 model year and eventually make it my own build—something between a Hertz Penske GT and the Boss that I wanted.

Well, my warranty is just about up and I’ve got a few parts waiting in the garage, ready and raring to go. Something occurred to me though as I was watching the latest Barrett-Jackson auctions: The only classic Mustangs fetching decent amounts of money were the rare, unmodified, numbers-matching survivors.

So with all that said, I’d like to hear your opinion: Should I just have fun with the car and do what I want, or keep it original in the quite-possibly-stupid hope that the economy and classic car market of 2064 will be anything like that of the present day?

Thanks in advance!

– Walt

Short answer: Do what you want with the car.

Long answer: There’s no reason to suspect that a 2014 Mustang is going to be worth a dime fifty years from now. It’s not the original Coyote refresh model, there are several special models available (Boss, GT500) that will be considerably more valuable to a collector, and Ford sold well over six figures’ worth of Coyote-powered Mustangs from 2011-2014. It’s not particularly rare or special.

Now, that doesn’t mean it can’t be rare or special for you. If you want to polish it with a diaper, keep it factory-fresh, and pass it down to the kids someday, then by all means, you should do that. I quite often regret selling my Boss 302—while the Focus RS is its own sort of special, it doesn’t roar down the street like the Hurricane did. You should enjoy your car in whatever way you want to enjoy it—mods, track, autocross, dragstrip, whatever. I think in the end you’ll find that the experiences you’ll have will be far more valuable than any price you could put on it.

Keep sending Bark emails at barkm302@gmail.com. He likes answering them. So do I. I’m Bark. 

101 Replies to “Ask Bark: There’s a Big Bubble Coming, and a Man Asks About a Mustang”

  1. everybodyhatesscott

    I think your Supply and Demand are off. If there were no leases flooding the market, wouldn’t the dealers have to pay even more insane prices for late-model, low mileage inventory?

    Flooding a market with supply doesn’t usually raise prices.

    Reply
    • Bark M Post author

      Supply and Demand ain’t got nothing to do with this. The leasing companies/banks control the late-model game. They set the prices. Dealers need cars, so they have to pay them. The only other choice is to have no inventory. It’s a game of chicken, and the banks won’t blink.

      The proof is in the reality of the used car market right now. It might not make any sense to somebody operating on Econ 101 principles, but it’s real.

      Reply
      • everybodyhatesscott

        Supply and demand always has something to do with it. If there weren’t cheap leases would people be trading the cars back in and the dealers getting better prices? Banks having more leverage than the average person trading a car in does make sense.

        Reply
        • Frank Galvin

          The finance companies and banks are in an inherently better position than the dealers, particularly the ones that rely on the auction to stock their used inventory. Some dealer buddies of mine used to make a few bucks by bidding for myself and others at free-for-all Friday auctions. They explained why the used business end sometimes sucked really bad.

          Private certain dealer-only auctions put on by finance companies drive up the cost of the popular models. Second, some fin co / OEM auctions stipulated that in order to get the cars in demand – the dealer had to take on the shit, i.e. the $99 off-lease Cruze. Margins are squeezed, but what is the dealer supposed to do? They need more X, so they pay through the nose and while getting clubbed over the head, are forced to take so many of Y.

          I think I may have just described Comcast’s business model in some way.

          Reply
          • VoGo

            I think this discussion would be enlightened by an understanding of the finance companies in this business.
            In general, the profitability from auto leasing is abysmal; I don’t think any independent has been consistently profitable. The captives have always focused on one thing: keeping the new car factories running.

        • MrGreenMan

          New cars have never been a competitive market. Used cars are no longer a competitive market because of the lease return. When you have an oligarchy controlling supply of late-model-used, it is a cartel. The cartel gets the price it wants.

          Reply
          • VoGo

            Greenman, oligarchy means a government controlled by a small group of people. It doesn’t describe the used car marketplace, where consumers can literally shop at hundreds of outlets, as well as fellow consumers.

          • Ark-med

            He means oligopoly. And when they lobby for, and obtain, legal restraints on new entrants, they are de facto an oligarchy.

        • Doug

          Yes, supply and demand will win in the end. This is just a bubble in waiting with a bunch of high priced cars flooding the market and a glut of new cars sitting on the lots backing up the coming off lease cars. The dealers will try to sell even more new cars that are not needed as even more cars come off lease. This will end in a similar way as the housing bubble did 10 years ago.

          Reply
      • Djarum

        Then what happens when those cars sit on lots because buying new is a better proposition? My last two purchases were new because low mileage used, after finance, was almost the same cost as new.

        Reply
          • Djarum

            Really? Not around here. My other half had decent but not so great credit. The banks were more than willing to give her a loan on a brand new car, but not on a 2 year old low mileage car. Now a 5 or 8 year old car? Sure, all day every day.

      • Adam!

        He’s right. Supply and demand does. The supply and demand dictates the relative cost of holding inventory/releasing it to the market vs profit on fiancial services on new vehicle supply against the price of fish. Its a secondary market in used price futures and like pork bellies, someone has to actually stockpile the things. I have an economics degree. The only people who say “Well people who have economics degree will tell you that of supply goes up then price goes down”. Not in my experience they don’t. It is only said by people who don’t have economic theoretical knowlege (short name: voodoo), like you, who say that. Perfectly competetive pareto efficient markets are the first half hour of your economics graduate course. I spent the rest of it in the pub and doing my Law degree so it was most of mine. Any BSc. Econ. (yup, it’s science apparently) will tell you that retail vehicle supply is oligopolistic and vertically integrated (in the uk most franchised dealers are owned by manufacturers and only sell other marques to comply with EU rules. All that bloody customer friendly nonsense will end soon and we can get back to what we do best. Scrapping with the Germans and then economically collapsing. You Americans should try it one day) so most of the classical supply/demand/price elasticity rules don’t apply. That’s why it looks out of whack. I’m not clever/knowledgable enough to tell you exactly what is going on, just what isn’t. Whatever that may be.

        For a UK perspective, look here.

        https://www.theguardian.com/business/2017/apr/02/car-loan-boom-not-housing-bubble-still-could-be-crash-us-economy

        Regulators not asleep at the wheel? On a Harley maybe, the UK plods flat twin bimmers reliability is, um, variable.

        Reply
      • George

        The reality is that Ally is reporting a 7% drop in used car values versus a year ago. NADA expects prices to drop 5% this year.

        I really don’t understand your problem with supply and demand – more supply and constant demand creates a lower clearing price. Not rocket science.

        Reply
    • yamahog

      I’m going to toss my ‘best understanding’ in the ring and I asked Bark about this back at TTAC and did some independent research. This is probably a good example of a person with half the facts (me) arguing against someone with less-than-half of the facts.

      I have some serious questions about how many vehicles are going to auction (do all lease returns go to auction?) but lets proceed with a market by market analysis.

      Auction –

      Buyers: car dealers. seeking lowest prices. penalty for going home empty handed. penalty for over-paying (there’s an upperbound on how much you can sell a used car for)

      Sellers: financing arms/banks/people who hold the paper on the lease. the cost of a no-sale is just the cost of holding the paper until the vehicle sells (at the next auction with a non-zero probability)

      Equilibrium: dealers buy everything they think they can make money on, the businesses that own the cars probably price the reserve very close to an equilibrium price or even slightly over. Here’s the trick, a reserve price *shouldn’t* affect the transaction price if the auction has enough participants. No one will knowingly overpay. A dealer would rather not sell a car than lose 3k on a used car, right?

      Retail –

      Buyers: consumers / lending institutions

      Sellers: car dealers

      Caveat – car dealers can work with customers to get into a customer’s willingness to pay. Financing, dealing with negative equity, ect. are all things that the dealer can use to help get more money for the same car. Also, dealers can sacrifice their margin. I wonder why more people don’t shop for more used cars, but there are serious challenges buying cars from a private party if you don’t have a bank / lots of cash, and the used car dealers seem to have a floor on price. A lot of franchised dealers around me don’t sell cars with >100k miles or more than 10 years old. If a dealer has good sales staff and they can find financing that works, it might be easy to transform customers who originally wanted a $6,000 car into customers who are willing to pay $11,000 for a used car.

      But if that’s the case, the banks need to release the cars to the dealers as fast as the dealers can sell them at high price levels (but no faster). More or less – finding the equilibrium/market clearing price against a quantity constraint rather than a price constraint.

      I imagine that many used car dealers right now are getting more ‘creative’ in their financing and not making a ton of money on used cars, and they’re spending more time with some customers to figure out how to make the deal.

      Consideration:

      I really get the sense that there’s coordination in the off-lease market so that the off-lease cars don’t flood it and depress the prices. I think reserve prices on the cars help stabilize the prices at auction, but banks can’t sit on cars forever and more cars are coming off lease every day. I’d really like to get a lunch or dinner with anyone who thinks this is going to continue, they may well be right, but personally it seems like classic bubble thinking and I’ve taken bets that some companies would be more exposed to a used car price bubble popping.

      Conversely, these high prices might be sensible prices for used cars. Maybe a 4 year old Camry with 60k miles on it is worth 60% of the price of a new Camry.

      Reply
    • Scott

      Market forces should bring down prices in the lanes, even with price discipline. You need some data to back up that hypothesis.

      Reply
      • Yamahog

        Not if the forces that push price reductions are overpowered by the forces that support price increases. I agree that I need more data and I’d welcome anyone with data to get in contact with me.

        Reply
  2. cruise2016

    I’ve looked up the used values and my three year old truck is still worth around 75% of new pre tax purchase price. In the same time, the MSRP gained 11.5%. In Canada, the falling loonie had a significant impact on used prices since I bought my truck but after looking vehicles of my immediate family they are still worth ~75 to 80% of what they paid for them three to four years ago. The loonie losing 25% to USD, 0% interest on 84 month loans, and increasing MSRPs make for what I think is overvalued used market in Canada. The only thing keeping it all in check right now is the truckloads of used cars, that were sold when the dollar was at parity, being hauled into the US daily.

    Reply
  3. Orenwolf

    “As a result, used car prices now average 60% of new car prices, the highest in history.”

    Wait, are you saying, then, that there’s never been a better time to buy new, since mfrs are having no problem flipping high-residual used cars onto unsuspecting used car buyers? 🙂

    Reply
    • yamahog

      I wouldn’t want to impose on any fantasies. However, if Bark’s wrong then this is a really bad time to buy a new car. However, the expected residual values is still high, it’s the right time to lease regardless of whether or not you think the residuals will stay high.

      Reply
      • Mike

        Yamahog – it sounds like it is a good time to lease. Since the lease is based on the current high residuals and if as you and others think it is a bubble that bursts then it is the bank left hanging since the lessee can walk away.
        The large number of vehicles (17 million SAAR) will impact the market eventually since the banks have to sell eventually (even if for a small loss) and the car dealers have an upper price limit.

        Reply
    • Disinterested-Observer

      If you are planning on keeping the car, or as others have said, leasing. If you were going to trade in/sell in 5-7 years then it is not a good time to buy. This bubble is unsustainable.

      Reply
  4. Bigtruckseriesreview

    The mere fact that FIAT/Chrysler is leasing HELLCATS at $599 a month should tell you something.

    My finance on a $75,000 Hellcat was $1050 but they are leasing them for $599?

    They are leasing everything they can lease…

    Why? Because:

    #1 Generation Y is strapped with student loan debt.
    #2 Baby Boomers and Generation Y are SCREWED on home loans. If they aren’t in foreclosure, they are most likely underwater on the mortgage. If not, they are probably barely making it in most cases.
    #3 Generation Z is USELESS and producing nothing but more debt. Teen pregnancy is even way down.

    This market revolves around JOBS. The jobs that haven’t gone to Asia are being claimed by automation. The only growth is the welfare state, the military and prisons (which are all basically the same thing).

    If you think it’s bad now, just wait…

    Reply
    • kvndoom

      This country’s population outgrew sustainability decades ago. It has just taken a long while for it to eat its way to the surface and be visible enough to not be denied.

      Reply
      • Bigtruckseries Review

        I lived in China. When I lived there in 2001-2003 the Yuan was 8.277

        China has manipulated the currency to ensure it’s cheaper to manufacture in China than elsewhere.

        322 Million Americans vs. 1 Billion Plus Chinese, 2 Billion Plus south East Asians/ Oceanians, 1 Billion Plus Indians and 1 Billion Plus Africans.

        Basically, America’s money leaves its shores and is HELD in the pockets of these people. Problem is: there’s nowhere to spend USD that doesn’t ultimately come back to the US.

        We are EXPORTING INFLATION. When that money comes back, it comes back in the form of Mega-rich foreigners bringing in bags of cash to purchase your buildings – and then renting to your kids who can’t get a loan because they are deep in student loan debt (Dodd Frank’s DTI limit).

        Our cost of living goes up. There’s no way around that.

        Only now you can’t easily get jobs because: #1 you outsourced them and #2 robots continued to take over the others.

        SOLUTION: move to a quiet, secluded area and stock up on ammo for when the “zombies” come.

        [Zombies are an allegory to the “have-nots” who come to take what you’ve got]

        Reply
          • VoGo

            Actually, quite easy to pick apart.
            1. “Basically, America’s money leaves its shores and is HELD in the pockets of these people. Problem is: there’s nowhere to spend USD that doesn’t ultimately come back to the US.”

            BTSR is saying that the world spending money in the US is a problem. No, that’s a good thing.

            2. “We are EXPORTING INFLATION. When that money comes back, it comes back in the form of Mega-rich foreigners bringing in bags of cash to purchase your buildings – and then renting to your kids who can’t get a loan because they are deep in student loan debt (Dodd Frank’s DTI limit).”

            Fact: The debt to income limits in Dodd Frank prevent predatory lending to misinformed consumers. Dodd Frank didn’t cause college kids to get into debt over their heads, poor decision-making did.

            3. “Our cost of living goes up. There’s no way around that.”

            Fact: Inflation is at historic lows in the US

            4. “Only now you can’t easily get jobs because: #1 you outsourced them and #2 robots continued to take over the others.”

            Fact: Unemployment is at historic lows. If you can’t easily get a job, it’s because you are sick, unable to move, or lazy.

            The zombie fantasy stands on its own merit; I have no expertise here.

          • Jack BaruthJack Baruth

            Well, allow me to retort!

            * It’s economics-school wisdom that a trade deficit benefits the country that runs the negative balance. You’re sending paper out and receiving actual goods and services. And that’s true for any given day of a trade deficit. Over time, you lose manufacturing capacity and workforce skills, which — surprise! — happened to the US.

            2. I have no opinion about this. I’ve never taken a student loan.

            3. And wage growth is even flatter than inflation, particularly in the middle class. Furthermore, as BTSR notes, it doesn’t matter that the CPI rises slowly if your rent doubles every three years.

            4. Anybody can get a job! At Wal-Mart, as a greeter. Or at Starbucks, as a barista. That might amuse the one percent but it’s terrifying to the rest of us.

          • 1A

            @Jack — thank you. Inflation is at “2%”, but new, basic, barebones housing has gone up 18.75% in my area in *one* year. Not even going to retort the unbearable troll. “FACT!”

          • Djarum

            While Manufacturing jobs are low, in terms of inflation adjusted USD, we are producing more now than we ever have.

          • Doug

            #3 Inflation is being concealed by the financial institutions and companies just holding on to their funds. If all the dollars created in the past eight years hits the market in any short term period you are looking at a recreation of the Weimar Republic in th 20’s.

            #4 of VoGo is so far off the mark. You only have to look at the “our of the job market” metric to see that real unemployment is much much higher than the published rate. I suggest perusing Frontline Thoughts by John Mauldin to see how this is destroying our economy.

        • BIGTRUCKSERIESREVIEW

          VOGO

          #1 INFLATION…ask the people who are retiring right now just how much their pension they worked for is worth – now that cost of living has gone up. It’s unofficial “main street” inflation.

          Everyone wants to talk about “how great the market is”. The reality is “wall street” is winning. “main streets” money isn’t because the stock market is TOO EXPENSIVE (inflated).

          #2 Dodd Frank – Dodd Frank hurts newlywed couples if they have student loan debt.

          If you’re so worried about “predatory lending” stop giving student loans to underperforming students so they can GO ATTEND PARTY SCHOOLS. Make em all go to community college and EARN a scholarship to a party school. The rest will take care of itself.

          #3 This market isn’t training its citizens for much beyond mindless consumerism.

          Champagne taste and beer money.

          Reply
          • VoGo

            BTSR
            #1: Inflation is low. It’s been low for decades. I envy the youth of anyone who thinks otherwise.

            #2: You’re repeating my argument. I’m glad we agree.

            #3. True enough. But as they say, caveat emptor.

            Jack,
            #4. With respect, you’re not getting it. Jobs are plentiful for those with skills. In fact, those with skills don’t need jobs, they can create their own value.

            We need to stop whining about the lack of jobs for the unskilled, and start arming our citizens with the skills they need to earn enough to satisfy their material aspirations.

          • Jack BaruthJack Baruth

            Middle-class jobs for the unskilled is all that stands between this country and bloody chaos. Remember that comment in ten years.

          • VoGo

            Jack,
            You may be right. Unfortunately, the unskilled have no reason to expect middle class wages. Those days are gone.

            If a robot, or a Chinese farmer, or a string of code can do your job, don’t expect to make $70K. It’s not happening.

          • Jack BaruthJack Baruth

            This is all well and good until the definition of “unskilled” covers everyone. At that point only capital holders will have any income.

          • VoGo

            Jack,
            You’re 100% correct. Does it take skill to drive a big rig or a taxi? I would not recommend anyone take a job driving if they have a time horizon of more than 5 years. Who needs bank tellers if the only people who go into banks any more are over 70 years old? Most jobs in retail will soon be history, unless they involve entertainment.

            But I think we’ll survive. 150 years ago, 85%+ of jobs were agricultural. Today, it’s 3%. Then all the jobs were in factories. And we know the vast majority of those jobs were automated.

            New categories of work keep popping up, so long as skilled people can handle them.

          • Bigtruckseriesreview

            So basically what I’m hearing is that I’ll have to hoard as much money as possible and move to Canada with my Trackhawk and Hellcat – because America will be “bloody chaos” and someone will come after my rims for heroin money?

          • rwb

            “This is all well and good until the definition of “unskilled” covers everyone. At that point only capital holders will have any income.”

            “But I think we’ll survive. 150 years ago, 85%+ of jobs were agricultural. Today, it’s 3%. Then all the jobs were in factories. And we know the vast majority of those jobs were automated.

            New categories of work keep popping up, so long as skilled people can handle them.”

            What a perfect, inherent, fundamental collision of realities.

            The “city mouse”/”country mouse” analogies aren’t perfect, but they help to forment a sense that within a multitude, the extremes that emerge are of equal, negligible value. If, within 20 years, we’re still all in a position to be discussing this on a website, I’ll consider the human race much more restrained and virtuous than I give credit for now.

            I heard a saying today I liked: God created man because he likes stories. Maybe this is relevant to Jack’s last thing, maybe it’s an arrogant platitude, maybe it’s bullshit. It was within a fun conversation worth listening to:

            http://www.duncantrussell.com/episodes/2017/3/28/dr-raymond-moody

          • jz78817

            “#4. With respect, you’re not getting it. Jobs are plentiful for those with skills. In fact, those with skills don’t need jobs, they can create their own value.”

            the problem is that skills take time (and in many cases, talent) to acquire, and if you have the wrong skills for the job market, you’re still fucked.

            you sound like this NYC asshole I interacted with on another site years ago. this was during the “pleasantness” of 2008-2009, and I came within a hair’s breadth of being laid off from my job (mechanical engineer working in automotive) and I would have likely been facing multiple years of joblessness (or working whatever shit job I could get to squeak by.) This dick was like “what do you mean there are no jobs?!? Here’s 8 openings for Java programmers in New Jersey right now!”

            1) I don’t know Java, I’m a fucking mechanical engineer
            2) I live in Michigan, not New Jersey
            3) by the time I potentially *could* learn Java, those jobs would be filled
            4) I’d be out-competed by H1B/offshore code factories anyway
            5) you tone-deaf twat

          • Doug

            +1

            Also, we have to worry about the coming of Artificial Intelligence….then WE will be pets of our machines anyway.

          • phlipski

            Every country on earth manipulates their currency for their own benefit. This topic was covered in depth on itulip.com years ago. During the height of the 2009 financial crisis everyone was looking for a safe haven. Turns out there is not a single currency on earth that is backed by precious metals 100%. If there had been that country would have seen it’s currency become the darling of the world. Anyone holding that currency would have seen a huge increase in buying power since all other currencies would have depreciated versus the precious metal backed currency. Unfortunately this magical currency no longer exists and so everyone was racing around trying to find the proverbial “least dirty shirt” of currencies. Turns out the USD – as problematic as it is – was still better than most…. Now relative to gold or other precious metals it was still toxic – hence the rise in gold prices during that time. In 2008 gold was roughly $800/oz. In 2012 it was $1800/oz. It has since settled to around $1200/oz.

            “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default” said Greenspan on NBC’s Meet the Press.

        • Aoletsgo

          This is a side note but BTSR I thought of you a couple of weeks ago. I flew to JFK and my rental was a Challenger – standard black V6 unit. I then spent two work days driving all day long in Brooklyn and Queens. Props to you, I like that car but long, wide, low and small windows is a tough car to drive in the big city.

          Reply
    • ComfortablyNumb

      #1 is right on. I want very badly to maximize my bottom line, i.e. the total cost to own a vehicle, including financing costs, cost of ownership, etc. But until our student loans are paid off, the monthly payment is the only consideration I can have. I’m not trying to shirk my responsibility…I took on my debt willingly (though maybe a bit ignorant about the decades of repayment that would follow), but my current reality is that the monthly payment trumps all. So with MSRPs where they are, our options are to buy an econobox or lease a better car. Thus my wife will be leasing a Pacifica when her T&C is up this fall, and I’ll probably lease something too when my 11-year-old Fusion becomes too much of a hassle to keep up…probably also this fall. I hate to be part of the problem, but I can only work with what I have.

      Maybe I’m looking at this completely wrong…comments welcome and appreciated.

      Reply
      • kvndoom

        Student loans are a bitch. No doubt. I am fortunate that we’re in a position where I have been able to make a 2 year plan to pay mine off completely.

        But it hurts… we have had to live far below what our combined income would imply. But when it’s gone, it’s GONE. I call it a lesson learned though. And yep I will be replacing my old Nissan soon after that day. So hang in there!

        We are adamant in telling the youngest to either sign with Unca Sam or go to community college when she graduates next year. Going to university for years 1 and 2 is a horrible mistake when our area has such a great community college system.

        Reply
    • RobbieAZ

      Are you seriously equating the military with the welfare state and prisons? I spent 20 years in the military. I wasn’t a criminal and I sure as hell wasn’t on welfare.

      If you’re trying to claim that the net effect on the economy of each of these institutions is roughly similar you’re still way off. The military creates jobs, both in civil service and private industry. I should know, I work for a defense contractor and have seen with my own eyes the negative effects of military budget cuts. People get laid off.

      Reply
      • Yamahog

        The military is WELFARE. Healthcare? Defined benefit pensions? Cost plus contracts? The acquisition process that refuses to allow contractors to go out of business – ala the B2.

        Go walk across a military base and tell me it’s not a monument to welfare.

        “The military creates jobs” – perhaps but it doesn’t create value. It’s ‘make work’. Who wants a trillion dollar plane other than the people who stand to benefit from it? Let’s do a thought experiment, if everyone in the economy were in the military, how well-off would be be? Who would teach children? build roads? develop new technology? GI Joe the teacher/construction worker/scientist?

        Tell me – if the military creates jobs why did the soviet economy tank? They made more military jobs per capita than we did and who survived?

        Reply
        • Sseigmund

          I could go off you for hours, but I’ll leave it at this.

          Let’s do a thought experiment, if no one in the economy were in the military, how well-off would be be?

          Reply
          • Yamahog

            Immeasurably better.

            But lets look at the data –
            America had no standing military from 1700 to 1775 and the economy grew 12-fold.

            America has spent >3% of its GDP on the military for the last 75 years and the economy has grown less than 12-fold even with the super advantageous conditions of the 1950s. If the economy grew 12-fold on a 1942 basis, we’d have ~21 trillion dollar GDP. Our GDP last year was ~16.8 trillion. All figures in 2009 dollars.

          • Doug

            And if we did not have a military….we would all already be speaking German, Japanese, Chinese, or Spanish as we would have been invaded a long long time ago. And our country would have been allowed to remain two countries back in the 1860’s…which probably would have been a good thing in hindsight.

        • Rock36

          “Tell me – if the military creates jobs why did the soviet economy tank? They made more military jobs per capita than we did and who survived?”

          This question is so absurd as to be revealing of a profound ignorance of complexity, and an apparent over reliance on linear cause-and-effect narratives and superficial comparisons.

          Your though experiment is equally absurd, because it doesn’t prove or demonstrate an argument supportive of your hypothesis that military jobs don’t create “value” (here in this forum/context being a uselessly vague standard of measure if there ever was one). Rather, it is informative of your own personal values, interpretation of worth, opinion, and perhaps a bit of ignorance of the subject you are probably a bit biased against.

          Reply
          • Yamahog

            https://mises.org/library/military-spending-and-bastiats-unseen

            “. A military establishment funded by taxation, inflation, and debt is just as destructive to the market economy as a welfare establishment funded by taxation, inflation, and debt. Every dollar spent on the military, just like every dollar spent on the Department of Health and Human Services, is a dollar not spent or invested in the civilian economy. Every person employed by the military or the firms that supply the military with equipment is a person not employed in the civilian economy. And since civilian employment and capital accumulation are the foundations of a prosperous capitalist economy, a conventional military can only exist at the expense of a fully functioning free-market capitalist system.”

  5. Ronnie Schreiber

    “Thanks a lot, you douchenozzles who leased $99 Cruzes with zero down—you’ve killed us!”

    Wait, weren’t you the guy who asked me why I didn’t get one of those cheap Cruze leases when I got my Fit?

    Reply
  6. Ark-med

    Adenoidal anorak snivels:
    You meant Road Runner (“it doesn’t roar down the street like the Hurricane did”).

    Reply
  7. Crancast

    Bark, I find this topic of the banks manipulating the off-lease resale market fascinating. Supply and demand, of course it does not apply to banks?!?! Not challenging your statements on the matter BTW.

    But here’s the thing. Like the .com bubble and mortgage bubble, someone ends up eating shit – retirees savings, home owners, customers, everyone but the banks. Sometimes the pressure value releases and equilibrium returns without fireworks. But I’m betting this one hits full force in all its glory since the banks and manufactures learned zippy. Tick tock.

    Looking forward to your view.

    Reply
  8. Sseigmund

    Mark,
    I am keenly interesting in the post on the back side of the car business. This stuff is never talked about in the glossy car rags.

    Looking around my local area on Northern VA, I wonder if there isn’t another car bubble brewing? Within a short distance from my office there are brand new cars being parked in fields. One is full of new Nissan 5hit boxes and has been steadily growing in size for the last three months. The other at the local fair grounds in a large grass field used for parking during events. The fairground field has growing collection of brand new Ram 1500 trucks. It just started in the last three weeks and there must be over 200 trucks parked now and growing by the week.

    Any insight into what is driving this? Will there be fallout? I’ve never in my life seen new cars stored this way. The Nissan’s are not in a fenced area and require a full time security guard.

    Reply
  9. 1A

    Are those “$99” lease deals going to return?

    The local Hyundai dealer stopped the $110-120-130 all-in Elantra/Sonata lease offers around September (sorry Chevy, not buying a car without cruise [Cruze, Trax] in 2017).

    Reply
      • Paul M.

        lol Celebrity Eurosport. I personally loved the Pontiac 6000 STE. I used to dream about the Pontiac 6000 STE and Camaro IROC with tuned port fuel injection. Those were the times.

        Reply
        • 1A

          We almost bought a maroon STE (AWD–can’t remember if they all were). It was sweet! We had a diesel 6000–in fact, there were 4 6000s in my family at one point. Die-hard Pontiac family since the 60s.
          The STE was passed over for an Audi 5000–whoops!

          Reply
      • 1A

        Coincidentally, we had a Eurosport in the 80s. Ironically, the base Cruze has no cruise. I was going to use curly brackets to indicate the irony, but who beyond myself uses parentheses, square brackets, and curly brackets in one sentence on an auto blog?!
        ([{}])

        Reply
  10. zzrist

    From commenter above: “If you can’t easily get a job, it’s because you are sick, unable to move, or lazy.”

    The arrogance and ignorance of that statement is mind-blowing. Let’s parrot the kleptocracy. SMDH

    Reply
    • VoGo

      zzrist,
      Let’s just think this through logically. The US unemployment rate is under 5%. Which means that for every 20 adults who want to work, 19 are working. 1 is not.

      And every business i speak with – and there are many, they are desperate to hire talented workers. But they aren’t hiring the bottom 5% for a reason. And why do you think that is?

      Reply
      • Rock36

        That’s all well and good, but two statistics still bother me.

        The first one is the number of people who want jobs, but are not in the labor force. This figure has not yet recovered to pre-2008 recession figures/trends.

        https://www.bls.gov/charts/employment-situation/persons-not-in-the-labor-force-who-want-a-job.htm

        The second one is labor for participation rate, and it is still sitting near 20 year lows.

        https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm

        I think statistics like these (among others of course) help illuminate why people sense the recovery has been a little hollow.

        Reply
        • Doug

          Now you are talking sense….discouraged workers and the low participation rate are conveniently ignored by those who want us to think the economy has been hunky-dory since the last recession. The fact that they also changed the unemployment calculation method about eight years ago also gives you a clue they knew the problem was not going away.

          Reply
      • jz78817

        the “unemployment rate” is not “the percentage of people without jobs.” if you think it is then your argument is built upon a false assumption.

        Reply
          • 1A

            You: “for every 20 adults who want to work, 19 are working. 1 is not.” That’s simply horse shit.
            You: “Certainly not me.” It’s “I”.
            Econ 101 and Eng 101, please.

          • VoGo

            1A
            I think you missed the phrase “want to work”? That’s the key differentiation which is at the heart of the debate over whether the US has sufficient jobs.

            Great post, otherwise.

          • 1A

            Vogo – No, you simply don’t understand real unemployment. Only a troll would say “Who said the unemployment rate is the % of people without jobs? Certainly not me. [sic]” after stating “Which means that for every 20 adults who want to work, 19 are working. 1 is not.” (horse-shit).
            You sound like some self-absorbed baby-booming blowhard on the brink of bequest — BUZZ OFF!

          • VoGo

            1A,
            I was simply stating in layman’s terms the definition of the unemployment rate. As Rock36 pointed out, there are additional measures that track other tranches of people who are not working.

            You certainly are welcome to use your own bespoke, snowflake definition of the word, or any other word. Not sure why you need to be so insulting.

            My point, which I will spell out in a little more detail, is that simply adding more jobs won’t have much impact on the economy. As it is, nearly everyone who is looking for work, is finding a job. To truly impact the economy, we need to mobilize the people who aren’t looking to work. This will be much harder, and require tools beyond what most economists and politicians typically wield.

  11. Paul M.

    That Mustang looks so good (It may be older than 2010). I have been thinking about getting another Mustang from previous generation. I love the prior generation Mustang’s looks. Is it wrong to get a V6 (3.7 liter version)? I need a slower car not so as not to get in trouble. And seems nice 2011-2014 examples can be had for less that 20k.. What are your thoughts?

    Reply
    • Rock36

      The mustang in the picture is a 2006-2007 Shelby Mustang GT-H with the 4.6L 3V V8.

      I’m not sure what your definition of slower is, but, for reference, the 2011-2014 Mustang 3.7s accelerate almost as fast as the 2005-2010 Mustang GTs.

      Reply
    • Kevin Jaeger

      There is absolutely nothing wrong with getting a 3.7 liter Mustang and don’t let anyone tell you otherwise. 300HP is enough to make the car interesting. Sure, a GT is even more fun but go get a V6 if that meets your needs.

      Reply
    • Kevin Jaeger

      There is absolutely nothing wrong with getting a 3.7 liter Mustang and don’t let anyone tell you otherwise. 300HP is enough to make the car interesting. Sure, a GT is even more fun but go get a V6 if that meets your needs.

      Reply
  12. ltcftc

    “I think in the end you’ll find that the experiences you’ll have will be far more valuable than any price you could put on it.” – wise words there Bark. Enjoy your cars people, particularly whilst they’re still being powered by dino juice.

    Reply
  13. Bigtruckseriesreview

    I think the biggest problem is that the media has convinced everyone that “The Federal Reserve and The Barack Obama Administration FIXED THE CRISIS of 2008”.

    WRONG.

    The Federal Reserve had a chance to “fix” the crisis by ALLOWING IT TO CRASH. Naturally, that’s completely politically untenable but it would have allowed the “bad money” and “bad credit” to get out of the system.

    What they did instead was reduce interest rates to 0%.

    When interest rates are 0%, you are taking out cheap credit in order to buy stuff: iPhones, cars, houses, etc.

    The problem is, that: a) the houses will end up underwater when rates do rise and values decrease (inverse relationship – which I can fully explain) and b) the “growth” of the economy is FAKE GROWTH.

    REAL GROWTH comes when interest rates are higher. It’s harder to take loans, any loans taken are better qualified and fewer “bad loans” get made.

    FAKE GROWTH – what we have – is when any and everyone has access to credit:

    A C- student who can take $100,000 for an Art degree.
    An underemployed person who is allowed to buy a house – whether they can pay on it for 30 years.
    Brand new cars – sold instead of used cars – because the residual value is higher in case of default…

    This is FAKE GROWTH and we’ve been living in it since before 2000.

    The pain is coming whether you like it or not. The Federal Reserve has hit the PLAY button and we are about to see foreclosures, reduced credit availability and eventually falling home values leaving a whole lotta people underwater, without equity and unable to sell or move without taking a loss.

    Short Sale BONANZA.

    My advice:

    If you’re in the market for a house, buy a fixer upper as cheaply as possible with as low interest as possible and build it up yourself.

    I am preparing to buy a new property. I already have 3. The last house I bought was a fixer upper and I fixed it up. Value has gone from $250,000 to $499,000 over the past 6 years and I will sell it before the housing prices fall again. Queens, NY is a hot market.

    High cost of living and overpolicing has flushed most of the bad money and shady individuals out.

    Reply
    • Doug

      You hit the nail right on the head. The Federal Reserve has done us no favors in holding rates so low while pumping trillions in debt into the economy. They should have let the financial markets melt down so that we would be in a better position now.

      I have concerns that the ‘play” button has been hit so soon after Barry left the White House. It is almost (actually is) as if his minions are rooting for the coming crash so they can blame it on someone else. I doubt it is a coincidence.

      I am just glad I bought my house at the bottom of the last market. Hopefully I will be at least even once the crash happens. Right now I am getting concerned as they are building huge numbers of houses near me that are much smaller in size but much higher in price than mine….a sign the bubble is nigh.

      Reply
  14. Bigtruckseriesreview

    When you go into a domestic dealer, they would rather give you a new car than a used car since defaulting will allow them to repo a vehicle with higher residual value.

    Add that to the leasing craze and you’ve got a situation where used cars sit on lots longer than used cars.

    The pre-owned “luxury cars” are still so expensive that they can’t be sold as easily as a new car of the same model – in many cases.

    My cousin has a Malibu 2015 with over 30,000 miles and he’s thinking about a Scat Pack Charger – which they’d happily sell him even with weak credit. (I’ve tried to convince him that he can’t afford it and he should just get a V6 model [loaded] but he wants what he wants).

    Reply
  15. Sseigmund

    This has been a good post with many great comments. My takeaway is that cars, both new and used, are way over priced and most people truly can’t afford them. This three year old article at The Motley Fool discusses the issue. https://www.fool.com/investing/general/2014/03/16/why-the-average-american-can-no-longer-afford-a-ne.aspx

    Like a college education, the average American household income is insufficient to purchase the average priced car. The only way many Americans can obtain either an education or a car is due to the fact that they can borrow a stupid amount of money for either college or a car and pay it back over an unreasonably long period of time.

    I agree there is bubble that at some point has to break.

    Reply
  16. Widgetsltd

    Meanwhile, it’s a fantastic time to lease an electric car in order to obtain certain benefits: low cost of operation, driving solo in the carpool lane, and driving in the tolled express lanes for free. OK, those second two apply to California but probably don’t apply elsewhere. My wife loves the quiet and smooth ride of her new Chevy Bolt. Does anyone believe it will be worth the 58% residual (15k mile/year) at the end of the lease? I think not.

    Reply
  17. Steve Renwick

    So anyway, regarding the Mustang:

    >>Short answer: Do what you want with the car.<<

    Word. Do you want to enjoy it now, or preserve it so's that your offspring can maybe make some bucks when you're in a retirement home?

    Reply
  18. Domestic Hearse

    I’m printing this. Putting it on my wall. And when the noobs come in with a complete lack of understanding about the used car/CPO business vs new, and how lease residuals and the used car auctions work (note, Mr Franchise Dealer needs to feed at the first trough, the factory auction, and share the pain of the financial hit with the OEM’s Captive Finance Arm, or those cars will end up going through the open auction and the dealer across the street will be selling against you — with the same used cars — at lower costs to acquire). After all, Mr Franchise Dealer was only to happy to roll those sub-$200, no-money-down leases all day long, and how do you think OEM Financial worked back into that can’t-resist price?

    There will be pain. Plenty to go around.

    All of you babbling about how the “market” sets used car prices…fine. Yes. Sure. In a market that isn’t artificially financially supported by the manufacturers of the product, okay. In a market where the manufacturer doesn’t dictate price and cost through sale and re-sale of the product through the sales channels, gotcha. But this is the the super-heated SAAR of ought-teens; throw your Econ college text out the window.

    Reply
  19. Deven

    The impact of falling used prices has also hit Hertz Global Holdings Inc. The rental-car company replaced its chief executive officer last month, weeks after cutting its annual earnings forecast due to the falling value of its cars.

    Faster Depreciation

    The average used car depreciated about 23 percent last year, faster than the average annual rate of 18 percent, Edwin Groshans, an analyst at Height Securities LLC, said in a report Friday, citing NADA’s data.

    “We expect this trend of above average annual depreciation to continue in 2017 and 2018,” Groshans wrote. This may drag on auto-finance companies including Capital One Financial Corp. and Ally Financial Inc., he said.

    In addition:
    https://www.bloomberg.com/news/articles/2017-01-23/ford-seen-as-canary-with-record-leases-spurring-used-car-glut

    Or this one:
    https://www.theburningplatform.com/2017/03/31/morgan-stanley-used-car-prices-may-crash-50/

    Or this one:
    http://www.talkmarkets.com/content/us-markets/ally-financial-issues-profit-warning-over-used-car-prices-jamie-dimon-says-its-not-systemic?post=127494

    Mark, while I enjoy your behind the scenes look at dealer operations, your views on this issue are the exact opposite of Ford, Ally, Morgan Stanley and Hertz. My guess is that if I spend a few more minutes I’d find similar sentiments from FCA and GM, too.

    Reply
    • Kevin Jaeger

      If someone tries to say increasing supply is driving higher prices it’s a good clue to be skeptical.

      A market can be manipulated by a cartel or a collection of large players that coincidentally have incentives so that they behave similar to a cartel. But ultimately the market corrects and prices reach a level where supply and demand are in balance. It’s called a law for a reason.

      Reply
  20. DirtRoads

    Someone (vogo) said inflation has been low for decades and if you don’t believe it you’re not old enough to know.

    OK I don’t know how old you are vogo, but I’ll turn 59 in three months and I’m making more money than I ever have, per year. However, my wages increases of 1%/year have NOT kept up with inflation. I am keeping less of my paycheck each year. Five years ago I could feed my household by shopping at Winco for $120/week and be quite happy. Last weekend that $120 was $220. And I can hardly believe with a 6 digit salary that I am almost living paycheck to paycheck.

    inflation is stagnant? No, it’s rampaging through my paychecks routinely. Far worse than 10-15 years ago.

    Reply
    • BIGTRUCKSERIESREVIEW

      Some people think inflators is “just the number that “they” tell us”.

      Inflation is the higher cost of living.

      Inflation is unaffordable housing.

      Inflation is higher cost of food and clean water.

      Inflation is the pension you worked for -that you thought would be enough- “not being enough”.

      Reply
    • VoGo

      DirtRoads,
      CPI is the standard measure for consumer Inflation, based on many thousands of data points. It does not take into account whether one particular person’s wages have kept up with that inflation.

      Please tell me what you paid for your first PC, and now tell me what you would pay for similar functionality today.

      Reply
      • Yamahog

        Which highlights an interesting point – housing, healthcare, and secondary education drive inflation. Just about everything else is as expensive as its ever been or cheaper.

        Housing in particular is in a bad market failure – housing is seemingly higher quality but consumers don’t seem to want higher quality housing or they face choices that reduce their consumer surplus – people might want a crime free building but they also have to pay for a swimming pool and granite counters in order to get a landlord who tries to keep thugs out.

        Not to mention zoning laws that restrict renter’s options. In my city, it’d be illegal for me and 4 friends to rent out a mansion (houses can’t contain more than 4 non-related people).

        Are we really better off if alarm clocks are cheaper than they’ve ever been but things that are more or less mandatory cost increasingly more? Maybe the more ‘explanatory’ metric is disposable income rather than inflation and mean/median wage.

        Reply
        • VoGo

          Yamahog,
          Keep in mind, that higher rents mean that real estate is worth more. Which means that Americans who own real estate are wealthier. Is that bad?

          In many ways, this is an inter-generational conflict. Wealthy boomers renting to indebted millennials.

          Reply
          • Jack BaruthJack Baruth

            I think you can make the argument that higher real estate prices and lower economic mobility are directly linked.

            We are en route to a permanent freezing of affairs — whatever real estate you owned when the robots bring an end to labor will be the real estate your family owns in perpetuity, save for various deals and mistakes.

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