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Comment by chiph | Hacker News Reader

> And household debt has grown no faster than household income and is concentrated in households best able to pay it back.

I'm not so sure about this - what I'm thinking is that the next (current?) bubble is in auto lending. I'm seeing tons of advertisements saying "We will lend up to 72 months with very little down". With the average new car priced around $37500 that's a payment in the mid $500's for someone with good credit. And I suspect the people doing this only have an average credit score so theirs will be higher.

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> With the average new car priced around $37500

That's absolutely jaw-dropping. I assumed that was a made-up Internet stat, and was going to ask for a cite, but some quick web searching confirms it.

I'm a used car guy, typically buying vehicles 2-3 years old, and would never contemplate paying above $20k. Even a brand new sedan (e.g. Nissan Altima, Honda Accord) is around $23k MSRP. A crossover family vehicle (e.g. Nissan Rogue, Honda CR-V) is around $25k.

What on earth are people purchasing, that the AVERAGE price is a low-to-mid range Mercedes?

Pickups and SUVs with insane markups and profit margins.

A Ford F150 Raptor's MSRP is something like $60-70k.

>Pickups and SUVs with insane markups and profit margins.

dumb question: why do pickups/suvs have insane markups/profit margins?

Think about this - the same amount of tech, of engineering, of “stuff” like window regulators, speakers, steering wheel, etc goes into a subcompact 4 door as does a 4 door SUV, minus cheap stuff like body panels interior carpet.

There's a demand for them. SUV are quite popular for families who don't want to "drive minivans" but they still want a large vehicle to fit in everyone. Others buy it because of the perceived safety, larger vehicle so they feel more "protected".

Trucks are just what you drive in rural areas. And there are a lot of small towns and rural areas. Companies noticed that people are shelling out $40k for them, so they started selling them for $50k. $50k and they are being bought still? Ok, time to charge $60k, and so on.

> Others buy it because of the perceived safety, larger vehicle so they feel more "protected".

It's not just perceived safety though. Heavier cars are objectively safer when crashing into a lighter car. IIHS did several tests on this. The fact that SUVs are higher means that they have an advantage if crashing head on with a sedan.

It also means less safety for everyone, though. Especially pedestrians and people on motor(bikes) are endangered by heavier, bigger cars. Not counting emissions and climate change from moving a ton of decorative metal around.

I don't disagree. But I don't see a better solution. Why would someone with a family take a risk for instance? I know that Volvo are taking safety very seriously, and want to have 0 fatalities (even pedestrians) sometime this coming decade.

I think emissions can be improved with things like hybrid drive trains and electric motors.

Because that’s where manufacturers need to make money. These things typically have fuel economy numbers at or below CAFE standards, so they’re banking on these and selling more efficient vehicles closer to cost.

They have them because people are wiling to pay for them. People are willing to pay because they think they are worth it. I would guess that the fact they are bigger make people think they cost a lot more to build, when they do not.

Because they can?

As utility vehicles, they also tend to have really good resale value, so they might not be quite the poor 'investment' you imagine.

Because the resale is good, margins can creep up. There's nothing holding them down.

At least some part of it, and perhaps a majority of it is due to chicken tax. Trucks in the US enjoy a level of protectionism few other industrial products do. US manufacturers, as a result, can increase their margins without losing market share to foreign competition.

https://en.wikipedia.org/wiki/Chicken_tax

My brother in law probably makes $80k and my sister about the same. He's got a $50K truck and she's got a $40K SUV and they were bragging to me about the deals they got on them. Granted, their house note is very respectable due to the time they bought the property and built their house, and I'm sure that his parents have helped out given that he's an only child and they both make good money. Even still, they each have 20 minute commutes and are rarely in the vehicles other than grocery shopping otherwise.

STILL... I'm paying about $500 a month on my car when you count insurance and car note, and mine is only $24K. The only way anyone is ever getting me to pay more than $30K for a vehicle in this day and age is if I win the lottery or if I absolutely HAD to have a more expensive vehicle to do my job (such as towing or sales).

You should visit Houston then. Almost everyone drives an SUV or pickup..

Are "house note" and "car note" regional terms? I don't think i've ever heard them before, but then i don't live in the US.

"car note" is a pretty common term, at least in the Southern US, but I haven't heard "house note" before.

House note is also common, at least in the New Orleans area

> Even a brand new sedan (e.g. Nissan Altima, Honda Accord) is around $23k MSRP. A crossover family vehicle (e.g. Nissan Rogue, Honda CR-V) is around $25k.

An accord/ultima start around that price for the base models and the lowest package. I doubt most people buy those models. People like options and get plenty of them.

Also keep in mind you pay a ton of tax and also registration. Registration is insanely expensive in states like CA.

The price of a low mercedes is much higher than that, not sure where you're getting your numbers, but they're off, WAY off.

"What on earth are people purchasing, that the AVERAGE price is a low-to-mid range Mercedes?"

I think that's a classic median vs average situation. The median purchase price is probably a lot lower than $37500, while the average is skewed up by a minority of buyers purchasing very expensive cars.

There's significantly higher demand for used cars than there was a decade ago, which has allowed banks to extend finance terms out to 96 months.

For example, take a look at this depreciation curve for a Ford F-150: http://usedfirst.com/cars/ford/f-150/ There is very little depreciation from 2017 - 2015, meaning that if you keep the truck in good condition, you can basically drive a truck for just its operational costs (fuel, maintenance, etc.) Not a bad deal assuming market demand stays hot for these vehicles.

The auto industry is increasingly regulated and cheap cars are becoming illegal to produce

Average isn't median, but still.

F150 was one of (if not the) most popular vehicle(s) sold in the US for a long time. It's not cheap.

My theory 2 years ago was that the likes of Uber, Lyft et al. would cause more and more people to buy new cars that couldn't really afford it. Should demand for ride sharing ever stall or fall off, the continued increase in people entering the "gig economy" workforce in such a levered manner would be catastrophic to the auto loan industry.

I think uber recently killed of it's in-house leasing program. But I imagine they may have a huge amount of liability on the books depending on how many of those leases haven't expired yet.

There's been a lot of apprehension around auto lending for a long time. I'm not sure what a crash would look like though.

Very different from a housing crash in important ways, that's for sure.

Vehicles are much more "liquid" -- they're portable and fungible to some extent. A bank repossessing many vehicles will get much more of its money back than a bank trying to sell foreclosed houses.

While I would totally love to see a used vehicle price crash because it would be good for me personally and to stick it to the "hurr durr, muh resale value" types, I'm not convinced that wouldn't have reverberations throughout the market.

I agree it would reverberate. I just don't know if it would be the first domino to fall in a massive economic crisis, the way housing was.

Vehicles also lose much more of their value than houses. The second you drive a new car out of the dealership, you are underwater unless you made a good downpayment; and it is not uncommon for people financing cars to find themselves underwater on their current one if they want to upgrade (or sell/downgrade to get out of debt). And that is in a good market. If there is a surge in used car supplies, we will see them depreciate even more.

In contrast, in a typical market, it is uncommon for houses to be underwater, as they tend to appreciate in value. It took a crisis in the housing market for a large portion to go underwater. A simmilar crisis in a market where underwater is the norm would just push them further under.

> Vehicles also lose much more of their value than houses.

In a housing bubble, houses lose a lot of their value because the buyer side of the market shrivels up.

Banks, and really all loans, make mad cash the first few years, 90%+ of the payment is interest. For cars, that's like 18mo, for homes it's a few years of good cash flow for the bank, and the home appreciate (cars don't) so when the bank is flipping a flipping a foreclosure, they still make out great.

> the home appreciate

In a housing crash, this is exactly what doesn't happen.

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