The Used Car Bubble | MASS LIQUIDATIONS STARTING.

oh boy there is a lot of fear that the

car bubble is over in fact and now

reports across the country are

suggesting that car repossessions are on

the rise in a dangerous sign for the

economy this comes as car loans are up

an average of two thousand dollars a per

car loan per car that's financed now

that depends that could be because cars

have gotten more expensive as you can

see here the red line has sort of run up

or it could be because people have been

able to borrow more they've been able to

pay for more car and therefore car

prices have gone up but either way as

car prices have gone up and car loans

have gone up now all of a sudden the

bubble is reversing and we're seeing

repossessions

skyrockets so much so that repossession

companies think a demand will continue

until peaking in 2024 potentially a bad

sign for cars in the second half of

2023. now this could trickle through

through the entire economy and we'll

talk about some of these implications by

starting with carvana look at carvana's

Behavior here according to car

dealership guy here car dealership guy

on Twitter says carvana may have just

quietly started liquidating the company

is now advertising its retail inventory

to wholesale dealers okay so let's

explain this first of all we've done an

analysis on carvana previously in videos

and we found that carvana seems to be on

the verge of bankruptcy much like Open

Door carvana is also in talks with

bondholders to potentially negotiate

together a debt settlement in the event

that carvana goes into bankruptcy to

where essentially the debt holders unite

together and say Hey you know we'll hold

out for taking 70 cents on the dollar

together rather than fighting each other

for you get 75 and I get 65. long story

short people are starting to prepare for

a potential bankruptcy at carvana

similar stories are starting to ruminate

about open door as well in the real

estate World both kind of similar in

that they're kind of like wholesalers of

either real estate or cars but let's

stick to cars for a moment when a

company advertises retail inventory to

wholesalers you have a little bit of a

concern see ordinarily a company like

carvana will buy vehicles from

wholesalers and the goal is hey look

we'll pay you say thirty thousand

dollars for a Ford pickup and then we're

going to try to resell it for 35 000 and

maybe in the meantime we'll put a couple

thousand bucks into it to Spruce it up a

little bit some air fresheners change

out the rugs the carpets whatever and

we'll have some holding costs and

transaction costs and our goal is that

after all of that and after some

negotiating after all of that we'll try

to make a margin of maybe like 1600

bucks has kind of been the goal for

carvana if we can get to 1600 bucks

great that means we bought a car for 35

or for 30 rather we sold it for 35 minus

costs minus negotiate station we ended

up with sixteen hundred bucks when

carvana starts advertising however

cars that they bought from wholesale so

they bought perhaps this Nissan Frontier

Crew Cab here at wholesale when they

start advertising that same car that

they're now trying to sell to a retail

audience to wholesalers themselves in

other words now they're trying to sell

wholesale inventory to other wholesalers

it somewhat sends a sign of panic

now let me give you another comparison

Lennar is the second largest homebuilder

in the United States Lennar

has a Home Building Division and a

landlord division in the landlord

division they go buy rental properties

to rent out in the building division

they build homes and sell them well the

building division is now trying to sell

Homes at a potential 20 to 25 percent

discount to investors who are willing to

buy those homes in bulk

and I'm thinking myself if you're

willing to sell these homes at a 20-25

discount to get rid of them in bulk why

doesn't your own home renting platform

buy those homes oh because it's probably

still a really bad deal

the same story I believe is what you're

seeing here at carvana if carvana is

having to sell their own inventory that

they're trying to sell to retail now to

wholesalers at a big discount in this

case a five thousand dollar discount on

a thirty thousand dollar car works out

to somewhere around what sixteen

Seventeen percent right uh let's let's

just do the math here really quickly if

you're selling it uh to what are you

selling it for you're selling this one

listed to retail for

35.990 that's the retail and we're going

to divide that by what you're

advertising it to retailers for or to

wholesalers rather 39.99 yeah that's

like

16.4 percent more for the retail and

you're cutting that off uh for wholesale

it's kind of a sign and I like how it

says zero bids over here ending in two

days oh look that's today since December

19th it's kind of interesting to me that

you're starting to see this sort of pain

in the used car market especially since

the used car market has has been really

really bubbly in the last two two years

in fact the used vehicle index the

Mannheim or used car vehicle index

report is showing that prices while

they've dropped about 30 percent have

potentially stabilized in November going

from just an index read of 200 to 199.9

in November potentially suggesting that

the used car bubble has slowed it's

popping though some people think this is

just a Black Friday reprieve and used

car vehicle prices are going to continue

to decline especially since the average

monthly payment for vehicles is up 26

since 2019. now an average vehicle

payment is sitting at 718 dollars per

month the current five-year loan for a

new vehicle or or new used Purchase cost

people about six and a half percent and

that's if you've got a prime credit

score golly folks I hope you have a

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first

whether you're an employee or

self-employed but now we're also

starting to see apparently more fraud in

the vehicle industry as well with

potentially as much as seven percent

more rollbacks on odometers this is when

people like disassemble their Dash and

they take older vehicles where this is

easier to work on you need to kind of

take a screw gun to it and you just run

it in reverse to rewind your odometer to

essentially try to fraudulently increase

the value of your car when you go to

trade it in or sell it as people are

kind of pushed into uh desperation

uh in addition to that we are now

showing that there potentially reports

of production hitting slowdowns for new

vehicle manufacturers the largest

winners are expected to be companies

that have price and margin strength as

consumers pull back both in the used and

new vehicle space which makes sense

because that's what we're seeing at

carvana that's what we're seeing with

high interest rates that's what we're

seeing with affordability challenges for

people going into a recession we think

that profitability for companies like

lucid and rivian is far out potentially

uh bankruptcy is much closer for lucid

and rivian GM and Ford have gone through

recessions before Tesla kind of grew up

in a recession so it's hard to say if

Tesla's been able to weather a recession

before although many will argue that

yeah they've weathered the 2008 GM and

Ford have certainly survived before

although many else include myself

included will argue that Tesla should

have substantial margin strength and

pricing strength even through a

recession that we'll see it is

interesting though to consider what this

could mean for the overall economy

consider this if somebody goes in to

sell a used car but they can't sell

their used car for what they thought

they could get now they're stuck with

their old car that means one less piece

of inventory for the used car dealer it

means one less transaction for the used

car dealer it means one less buyer for

either a new used car or a new new car

for that person right and what does that

do well all of that ends up crimping GDP

because the less transactions you have

the less you potentially have a GDP or

gross domestic product which is the sum

of all those transactions contributing

to overall strength in the United States

which reiterates to the Federal Reserve

that oh yeah our high interest rates are

finally starting to trickle through the

economy keep in mind it takes a while

for high rates to trickle through the

economy the feds raised rates in a

matter of nine months from zero to four

and a quarter percent and they're on a

trajectory of continue viewing to hike

rates and this has actually turned

pretty scary because a lot of folks

realize wait a minute we don't need to

get new debt that often to where just in

nine months we're going to be able to

see the impact that's why we talk about

lags and monetary policy because how

often are you getting a new car I don't

know maybe once every three years well

if you just got a new car maybe you even

got a new car lease in 2020 when are you

due for a new one oh maybe in 2023 so

you actually haven't even hit the

realization of high interest rates right

yet for the whole group of people who

bought a new car or leased a new car

that is in 2020 uh itself which is

really interesting because you realize

wow yeah the lagging effects of rate

increases are something that take a

while to actually hit individuals and

what we're starting to see in the used

car market is a sign that oh the FED may

have gone too far too fast and there's a

lot of hurt coming for the used car

business but it potentially could hurt

the new carbon business as well we

expect new vehicle inventory to move up

from where it is now around 1 million

units on average to about 2 million now

that's about still 2 million below the

trend that we saw between 2000 and 2019

where you actually had such high

inventory levels where like car

dealerships were overflowing with cars

and that was actually kind of bad for

dealership profitability we do think new

inventory is going to kind of climb

again and that could slow down some

automaker's desire to get into EVs and

really just their desire to try to get

by through this recessionary environment

that we're going to be going through

here in 2023 and hopefully that'll End

by 2024 though we'll see buckle up long

and short of all of this look we're

probably going to see deflationary

impacts from this disaster in cars which

is good for sending signals to uh the

Federal Reserve that maybe they've done

enough especially since used and new

cars have been a big driver of consumer

price inflation over the past two years

now they might be a big driver of

consumer price disinflation as these

prices deflate remember the difference

disinflation is a lower rate of

inflation deflation as price is actually

coming down with cars we actually expect

prices to start plummeting especially

again as repossessions Skyrocket and do

keep in mind as repossessions Skyrocket

people's credit scores get hurt which

makes it hard for them to ever buy a new

car on credit and that unfortunately

means lower demand for new cars but then

again you have to ask yourself which

cars and this could create an

interesting dichotomy maybe lower credit

buyers are really just lower income

purchasing users anyway so for example

if somebody has bad credit maybe the

best they would be open to ever buying

would be like a new uh Honda Civic right

a lower priced car

sub 25

000 sub 20 000 a dollar car maybe you

have less of an impact at that higher

end vehicle say above forty thousand

though who knows as lower price cars get

less expensive the premium you're paying

for a more expensive vehicle at least in

appearance wise extends because if let's

say the price of a Honda Civic goes down

well all of a sudden now what you're

paying for a premium car is a lot

greater than what you would be paying

ordinarily for a Honda Civic and that

spread becomes harder to justify the

larger it gets which could also then

hurt more expensive vehicle demand all

around this is probably just bad news

for the vehicle industry and it's it

takes a lot of Hope to say that yeah

Tesla's going to be able to maintain

their margins they're probably going to

have to reduce prices now keep in mind

they've increased prices a lot over the

last couple years so maybe it'd be okay

for a model 3 to rotate back from where

it is now in the mid 40s back to that

higher 30s or maybe even mid-30s range

and we just get back to where things

were which would be nice to show the

Federal Reserve that deflation is

actually on its way and it's time to

stop hiking but in the meantime the

fed's probably going to keep going until

they see meaningful signs of rotation

down and so far this is just an early

warning sign of that rotation down

getting started anyway let me know what

you think in the comments down below

thanks so much and we'll see in the next

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