Complete collapse of the used car market?

[DarkstarZero]

I'm wondering if there will be a complete collapse of the used car market over the next 6 months.

A loan officer told me that I would be blown away by how many people out there have cars they shouldn't be able to afford but do because they got a 10 year loan at high interest in order to have low monthly payments that they could make. These are luxury cars like BMWs, Mercs, Porches, and Teslas.

Update
Some people find this hard to believe. A great example is BMW's own "BMW Select Financing" program which is balloon financing offering "Lower monthly payments up front and the option to refinance if you're qualified." Essentially turning a 5 year auto loan into a 10 year loan with refinancing (or repossession) at the end of the first leg.
/Update

Now that means all these people are way upside down on their loans. The first things to go when people try to maintain financial stability are their cars. But since they're going to be so upside down, the easiest way out is to default on the loan. I think everyone is going to do this around the same time - which means a flood of cars going to auction at the same time and then hitting the market at the same time. About 3 months from now is my guess.

I drove by carmax the other day and their lot is already PACKED, fence to fence, bumper to bumper, no room for more cars and no buyers.

But at the same time, auto makers have shut down - so with no new cars coming into the market, will it all just even out?

Update#2
The following is from: https://finance.yahoo.com/news/fear-...110000556.html


“Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market,” Dale Pollak, an executive vice president of Cox Automotive, which owns North America’s largest auto-auction company, wrote in an open letter to auto dealers last week. “Cars are coming in, but they aren’t selling. Today’s huge supply of wholesale inventory suggests supplies will be even larger in the months ahead.”

It goes on to say that auto makers with in-house financing units, like BMW FS, are going to have to eat the depreciation. Dealerships will have to eat the cost for every single car currently on their lot. This is a big deal guys, much worse than 2008, maybe not for mortgages but certainly for vehicles.

One thing is certain, in about 6 months you're going to be able to buy your 2010-2020 dream car at a fraction of the price.
/Update#2

Update#3
See:
https://www.karglobal.com/march-apri...et-conditions/



They say April's 16.3% Y/Y drop is the largest price drop in wholesale used vehicles, ever.
Though you can see in that chart that Sports cars only dropped 12% while luxury cars, compact, and midsized cars dropped the most at 22%.
These are wholesale auction prices, it will take time for this to trickle down to off-the-lot prices.
/Update#3

Update#4
We now know why off-the-lot used car values haven't dropped much while auction prices have.
https://nypost.com/2020/06/05/used-c...utos-languish/

"More than 4 million off-lease vehicles are due to return to the market this year, at a rate of around 340,000 per month.

Automakers and their finance arms are trying to slow the pace at which those vehicles hit auctions to avoid flooding the market.

KAR Auction Services has bought 200 acres of land and is seeking another 100 acres to store cars for major customers.

Tom Kontos, chief economist at KAR, which alongside Manheim dominates the US used-car auction market, calls these vehicles “melting ice cubes.” They lose value every day, and cannot be held back for long."

Other reports show that they're now storing cars in stadium parking lots, since those aren't going to be used any time soon.


They're trying to control supply to reduce the flood of cars into the market which artificially keeps off-the-lot prices high. This helps out big used car dealers like CarMax who need to sell their cars for more than they paid for, before the flood happens, otherwise they would go bankrupt as each vehicle would then become a liability if the value on all of them fell below the price they paid.

However, this is basically like a dam holding back a rising river. Eventually they're going to have to open the flood gates before the dam breaks. All things considered, it still seems like around September is when the implosion will occur.
/Update#4

Update#5
What we're seeing now is that sports cars, offroad cars, classic cars, and otherwise 'fun' cars are in high demand and prices are up. People have nothing to do but they are allowed to drive, and driving is fun. They want fun cars. So values are on the rise.

Cars that would plummet, boring econo-boxes, soccer-mom cars, commuter cars, basically anything a rental car company would own, are artificially being held up by storing cars away. Eventually they'll be released and sold for pennies on the dollar - but given the current climate, I don't think they'll effect sports/fun car values much.

Luxury cars are an unknown. Cities being hot beds for COVID + Riots + Protests + everyone can work from home now and there's no reason to be close to the office, means there's a city exodus underway. If someone was on the fence about moving out of the city before all this, they are moving out now. This is evident by home sales going up and home builders selling out. That's a lot of people/families that didn't have a car or multiple cars and now suddenly need one or two. And that can change everything.
/Update#5

[PKL]

Horrible time to sell anything, great time to buy. IMO

[BMWILUVU]

Originally Posted by PKL

Horrible time to sell anything, great time to buy. IMO

New cars are another story but used cars should be on sale. Alot of people are losing their jobs. If the virus keeps on, the sale on used cars should get better.

[yco]

if virus keeps on, everything will go down..

[fastboatster]

Not so sure about the collapse of used car market. A few months later when (hopefully) lockdowns are lifted, a lot of people who used to buy new every so often or get a new lease won't be able to do that. So they might start holding on to what they got or instead of a new car, get a used or CPO car. So what will happen is that the supply of used vehicles will dry up in some segments. I think after 2008 recession used car prices started to hold better because the new cars got out of reach for many people. This time around might turned different, but I don't know

[BzsBimmer]

Who gets a 10 year loan at 12% interest so they can afford it or have a low monthly payment? Especially for a luxury vehicle?

Your loan officer might be exaggerating a bit much.

There will be a meltdown in the financial markets but my biggest concern is that this C19 may never go away until a vaccine comes out. With global contact, this could just end up being a cyclical crisis.

[NickyC]

There is a going to be a complete collapse of everything.

[Bongoxxx]

Originally Posted by DarkstarZero

A loan officer told me that I would be blown away by how many people out there have cars they shouldn't be able to afford but do because they got a 10 year loan at like 12% interest in order to have low monthly payments that they could make. These are luxury cars like BMWs, Mercs, Porches, and Teslas.

What reputable Financial Institution would even offer a 10 year auto loan?

[NickyC]

Originally Posted by Bongoxxx

What reputable Financial Institution would even offer a 10 year auto loan?

What reputable financial institution would offer 30 year ARMs without proof of income and no money down?

See early 2000s, A LOT.

[c1pher]

I can only hope. I’d love to get a hold of some nice older cars on my list cheap.

[Bongoxxx]

Originally Posted by NickyC

What reputable financial institution would offer 30 year ARMs without proof of income and no money down?

See early 2000s, A LOT.

I would argue those aren’t reputable FIs and why most of those aren’t in business anymore.

[Red Bread]

Originally Posted by Bongoxxx

I would argue those aren’t reputable FIs and why most of those aren’t in business anymore.

Nearly every major bank survived. And every one was giving absurd loans.

[///M Power-Belgium]

Originally Posted by yco

if virus keeps on, everything will go down..

We also....

[Sephiroth]

Originally Posted by DarkstarZero

I'm wondering if there will be a complete collapse of the used car market over the next 6 months.

A loan officer told me that I would be blown away by how many people out there have cars they shouldn't be able to afford but do because they got a 10 year loan at like 12% interest in order to have low monthly payments that they could make. These are luxury cars like BMWs, Mercs, Porches, and Teslas.

Now that means all these people are way upside down on their loans. The first things to go when people try to maintain financial stability are their cars. But since they're going to be so upside down, the easiest way out is to default on the loan. I think everyone is going to do this around the same time - which means a flood of cars going to auction at the same time and then hitting the market at the same time. About 3 months from now is my guess.

I drove by carmax the other day and their lot is already PACKED, fence to fence, bumper to bumper, no room for more cars and no buyers.

But at the same time, auto makers have shut down - so with no new cars coming into the market, will it all just even out?

I agree. We haven't touched on leases yet, but I'm sure people won't be able to keep up those payments either.

There is going to be a huge supply regardless and few buyers. Sports cars especially will be impossible to move im guessing.

[gatorfast]

Originally Posted by NickyC

There is a going to be a complete collapse of everything.

This. People won't care about cars when they can't even afford food and shelter.

[GenXer]

I'll bet used car will start doing COVID-19 free as part of the used certification process.

[Dog Face Pony Soldier]

Originally Posted by BzsBimmer

Who gets a 10 year loan at 12% interest so they can afford it or have a low monthly payment? Especially for a luxury vehicle?

Your loan officer might be exaggerating a bit much.

This.
My perception is people lease to get into a more expensive car than they can afford.

[383vett]

Originally Posted by Dog Face Pony Soldier

This.
My perception is people lease to get into a more expensive car than they can afford.

I've never leased a car, but people that use their cars for business or swap cars every 3 years or so sometimes are better off leasing.

[Dog Face Pony Soldier]

Originally Posted by 383vett

I've never leased a car, but people that use their cars for business or swap cars every 3 years or so sometimes are better off leasing.

I didn't intend to portray everyone that leases as doing it for a lower payment. My comment was focused on people buying above their income. My perception is this group likes to lease because the cost of admission and payments are lower than financing.

[DBV1]

Originally Posted by Dog Face Pony Soldier

This.
My perception is people lease to get into a more expensive car than they can afford.

Bad perception for everyone then

I always lease, just because I like the car/tech every three years. I can lease two new cars in three years through BMW than paying cash for one in 6 years and still have warranty, new car/tech and not worry about the value of my trade in too.

My wife, on the other hand always pays cash. Nothing to do with affordability.

[GenXer]

Originally Posted by Dog Face Pony Soldier

I didn't intend to portray everyone that leases as doing it for a lower payment. My comment was focused on people buying above their income. My perception is this group likes to lease because the cost of admission and payments are lower than financing.

Hey, I resemble that remark! Who in their right mind would buy a new BMW and a truck in the same year.
But if I die this year at least all of my vehicles will be paid for.

[Dog Face Pony Soldier]

Originally Posted by DBV1

Bad perception for everyone then

I always lease, just because I like the car/tech every three years. I can lease two new cars in three years through BMW than paying cash for one in 6 years and still have warranty, new car/tech and not worry about the value of my trade in too.

My wife, on the other hand always pays cash. Nothing to do with affordability.

Originally Posted by Dog Face Pony Soldier

I didn't intend to portray everyone that leases as doing it for a lower payment. My comment was focused on people buying above their income. My perception is this group likes to lease because the cost of admission and payments are lower than financing.

Note the clarification to my post you're commenting on.