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28carslater t1_j27d8ck wrote

>Then absolutely get rid of the car. The used car market is dropping and will continue to drop over the next year, so you're going to get less and less for it the longer you wait.

Just like real estate is dropping, eh? Also like real estate, dropping 3% after rising 30% isn't really "dropping" (BONUS: You're not supposed to pay over MSRP for any automobile that's not a niche or exotic model, ever, so back to MSRP prices is not a "drop" either).


whisky_in_your_water t1_j27hf6l wrote

They're unlikely to drop relative to pre-2020 levels, but they should get pretty close.

I'm talking specifically about used cars here, and you can see in the Manheim wholesale used car index that the wholesale market has already dropped considerably over the last few months, and it's likely to continue dropping. The used market hasn't dropped much, but that's likely to happen as inventory builds up and dealerships need to liquidate their inventory. If Carvana and similar companies go under, that's another flood of used cars hitting the market.

The situation for new cars has gotten better as well, with production numbers improving and prices coming back down to MSRP. Supply is starting to match demand, but it'll probably take longer for the new car market than the used car market simply because new cars didn't experience nearly as much price inflation as used cars, they just had limited availability (i.e. you'd get on a wait-list for months).

Both are improving, and time will tell if that continues or if we have another supply chain disruption.


28carslater t1_j27ovjm wrote

Prior to my career in IT I was an automotive wholesaler, I could talk to you for hours about automotive valuations and auction data. I can also tell you in April of 2020 Manheim registered to my knowledge the only double digit average drop ever at 11%, which then rebounded and went three points over March 2020 by the end of May. If you had told me prior to 2020 this would happen I wouldn't believe you, because such a swing industry wide is stunning. I was still working part time in 2008 when the world fell apart, I don't recall we saw such monthly swings as an industry then but if we did it was the last time prior to April 2020.

In 2014 I argued on average the block as a whole was 30% higher than it should be, and every year after it rose causing the banks to predict a drop scheduled after 2017 when 2012-15 lease inventory would start to hit CPO remarketing. My absolute favorite part of this is Morgan Stanley was famously predicting an extreme bear case of -50% by 2021 :D

Then I was skeptical but like many I chat with in and outside of the industry we saw a +/- 10% decline coming which never came. Looking at the chart in the article the pricing was in the 125 range in 2017, in the link you provided the chart now is 202.6 in six years down from 230s or more than 100% higher in a short time. Before the world blew up the second time this century, it looks to have been around 140 which was already higher than the predicted bull case by 15 points. Now that dealers are all sitting on inventory in the 200-230 range period (depending on when acquired since 2021), you think there will be a 60 point drop which would literally bankrupt most of the used industry who would then be 30%+ negative on their inventory sunk costs? I'd like everything to return to the mean as well because none of the valuations since March 2020 of anything are real but I don't see it happening. Just like we didn't see any drop as predicted in 2017, dealers will employ the same wholesale and retail tactics to keep the used market stable.

On Carvana et al this is the only major variable I see and perhaps the implosion of the VC used car companies may trigger something unexpected, but Hertz started dumping its inventory into a rising market and didn't trigger a pullback at all. I asked around a little when Hertz was going on, the liquidation company purposely was not releasing inventory as it sold as you would think but only in small chunks and held back everything else until those chunks cleared. If Carvana went Ch 7 I would expect more of the same, in my view something unexpected and uncontrolled would have to happen to trigger a major market shift in the short to mid term.


whisky_in_your_water t1_j27scq8 wrote

> major market shift

That really is the main unknown here. The used car market was pretty good prior to COVID, but disruptions in supply chain for new cars saw drastically reduced supply. So it's not that analysts were wrong, it's just that analysts didn't foresee the COVID pandemic and the global economic response that ensued.

As rates rise, parts become more available, and employment outlook gets more uncertain, people will buy fewer cars. That's just how demand works. So dealerships are going to be forced to either cut prices or sit on inventory.

> Hertz

With a rising market, there's a lot of demand to soak up that supply. When there isn't enough new stock coming in, people will buy what's available.

We're in a falling market, so if Carvana dumps a bunch of supply, it's absolutely going to shake things up. Dealerships would be able to buy cars at a steep discount, so they can afford to take losses on some of their inventory if they make profit from those liquidated cars. If your basis is 10% more than market value and you can buy cars at 20% under market value, you'll still make a profit if you sell at a 1:1 ratio, or break even if you sell 2:1 old vs new stock.

I'm only worried about dealerships if demand dries up before they can get through the old stock (e.g. unemployment jumps). As long as we continue this measured market correction where unemployment remains low, I think they'll be fine, they'll just make their money more from financing than sales price.