In the mid to late 2000s, I think we all knew a storm was brewing. How can homeowners owe $365,000 on their $325,000 houses? Well, we found out the hard way… you can’t.
The housing market came crashing down, homeowners lost their houses, and the banks took some major losses.
Now, fast forward to 2021. Haven’t we learned from the past? Here we go again. The market has inflated used vehicle prices, and banks are offering five-year loans on used vehicles with 75,000 miles on them. Sounds like the housing market bubble. Well, I can guess demand vs. supply is driving it.
Let’s do some math. The 75,000-mile vehicle bought today will potentially have 99,000 miles in two years. You paid $25,000 for that vehicle today and still owe $18,000 on it when it has 99,000 miles on it. By the way, the rise in interest rates is not helping this storm brewing. I don’t know about you, but I don’t like that math.
Are we sticking our heads in the sand about what is coming? We can’t predict the future, but we can learn from the past. It is going to be an interesting ride while the average family struggles to afford a new vehicle at these prices and the push for electric vehicles (“EV”) keeps coming.
We can go on and on about the EVs. The interesting part about EVs is two-thirds of drivers don’t even park in the same parking spot every day. Until we figure out the charging infrastructure, it appears the demand for used vehicles will be there, but will these vehicles last as long as we need them before people start defaulting on their loans?
We will continue to monitor used vehicle prices and our LIFO approach. Click here to learn about our LIFO approach in this new era. Buckle up--it will be interesting. Reach out to Steve Barber or any of the SD Auto Advisors to further discuss this.
About Schneider Downs Automotive Services
Schneider Downs serves dealers of all sizes, from single-point locations to mega-dealerships.
Our Automotive Industry Group members cross departments and meet regularly to ensure efficiencies in the services provided to our clients and discuss issues, regulations and trends affecting the automotive industry. Our personalized business approach emphasizes active listening, proactive insights, exceptional guidance and practical solutions to drive results. To learn more, visit our Automotive Services page.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.