No one buys a car expecting the value to go up so the vehicle market probably won't unravel in a collapse (vehicle debt is also about 1/10 the size of the mortgage market).
http://www.bbc.co.uk/programmes/b08q31ct (about 33 min, towards the end of the show)
It is true however that it's a really small market compared to housing, car companies also aren't critical to the economy as a whole in the way banks are but it would still be bad.
Manufacturers are increasingly offering limited edition cars to cater to this kind of investment.
We also get told that these 'halo cars' cost the manufacturer 'twice' what they retail at. So the Bugatti creations of the VW group 'apparently' cost far more to research and develop than was recouped over the car sales. The project as a whole being like A380 financing - the R+D never paid off. This 'legend' goes back to the first supercars for the road - the Porsche 959. Even the rebooted Ford F40 was with this same legend.
What is going on here is a genuine collectors market with vehicles actually getting raced, repaired, rebuilt and polished. This is an expensive hobby.
Beneath this market something else is going on and I am sure finance has a lot to do with it. High end SUVs are desirable for people who like such things but they must depreciate faster than I get paid and they don't seem to have the mechanicals to last more than 5-10 years on the roads. Where do all the old Land Rover group luxury products go? Maybe there is some part of Serbia or somewhere that takes all these vehicles and they serve out a long and dutiful life, but I suspect not. The only way I can see these products as viable is if the manufacturer offers the finance to make it so.
> Porsche Financial Services - a trading name of Volkswagen Financial Services [VWFS], with finance provided by VWFS - offer different finance plans across the Porsche model range. To find the right plan for you from a selection including Personal Contract Plan, Lease Purchase, Hire Purchase and Contract Hire, simply explore the options below or contact your local Porsche Centre for an individual and personally tailored quote.
http://www.porscheawards.co.uk/carfinance
etc etc.
That Porsche finances a bunch of more affordable cars doesn't provide much evidence about how many people finance $500,000+ vehicles.
the difference is they call up their banker and accountant instead of filling out a form at the dealership.
if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else. at this point it becomes a business move, not a trip to the mall. it's like financing a construction project.
do you think they buy jets and yachts and big homes in cash also? of course not. they setup holding companies and finance the purchases, and then charter or rent the asset out to make some of the money back and to pay the crew of people that run these types of properties. that's why you can rent an amazing vacation home for $1k a night, or spend a few days on that yacht with a bunch of friends for $5k, or rent a ferrari for a few hundred bucks.
rich people are exceptionally good at monetizing and leveraging facets of their life that look like giant expenditures to you or i. poor people try to emulate this behavior, and meet their financial ruin, because they aren't savvy or rich enough to make it work.
> Graham Hill, of the National Association of Commercial Finance Brokers, told the FT recently that using a PCP, drivers could pay less for a new BMW or Mercedes than for a second-hand Ford Focus. Or, as Bob the Dinosaur might put it, “they just make you sign papers!”
People don't tend to think of BMW or Mercedes as cheaper down markets cars.
(see, e.g., https://www.whatcar.com/news/the-10-most-popular-cars-in-the...)
This only makes sense if your bank thinks it will go up in price and will lend you the money at low rates based on the car itself as collateral. If you're getting the money at low rates based on other collateral (like you suggest above) it makes no difference if the car value goes up or down. If you think you can make more return on your other investments than the loan rate you leverage, the rise or fall of the value of the car is irrelevant.
they're not in the speculation game, they're in the loan making game.
Banks are actually very much in the speculation game, which is why different people get different interest rates for the same loan, they speculate that the person with the lower interest has a better chance of paying back the loan. See also the financial crisis of '08
no i'm not. i said condition B is often present in condition A, and that given A, you'd be stupid not to do B.
NOT that A necessitates B or vice versa. that's something you just made up out of thin air.
Are you or are you not saying that if the car appreciates you should use a loan to buy it? That's what I read from this sentence at least:
>if you're expecting an asset like a 918 or 911RS or R to go up in price, you'd be stupid to not leverage your cash at a low interest rate and put the rest of it to work somewhere else
What I'm saying that unless you can get that value appreciation to make the loan cheaper it doesn't matter.
Say you have 200k$ in cash and are considering buying two different cars both costing that amount. One appreciates and after 5 years is worth 300k$, the other depreciates and after 5 years is worth 50k$. Say you also have a bunch of other assets (a house, a boat, etc) that you can use as collateral to borrow the 200k$ at 10% over 5 years. If you take the loan after 5 years you've paid 250k$ for the car, doesn't matter which one. If you don't take the loan you pay 200k$ up front for the car, doesn't matter which one. The decision to take the loan would only be more attractive in the appreciating in value car if you could convince the bank to also use the car as collateral, reducing the risk of the loan, and giving you a lower than 10% rate.
What's your "lots" in that context?