Americans can't afford their cars any more and Wall Street is worried
telegraph.co.uk
telegraph.co.uk
Yes, the working class will suffer the most, but they are already doing so by default. The rich won't crash but they have a much bigger fall.
My childhood friend's brother has gone through so many new cars I lost track, and never paid off a single one of those loans. We're talking a pattern that began in the late 90s with this guy.
He now lives out of a truck that's.... wait for it, not paid for!
"There's one born every minute"
(at least until the credit cycle turns)
Cars keep their value much better than, say, houses.
Around most places the land goes up very slowly, but the house’s depreciation is reduced by steady repairs.
Houses are a much better long term bet for buyers, but car depreciation is more predictable. Lend someone 500k to buy a house and during a recession it might tank in value by 20-40% while a bunch of people walk away. Worse the’ll likely pull out their equity before defaulting in mass.
Cars value on the other hand is more counter cyclical. When the economy is bad people still get into accidents etc but they now want to buy used cars instead of new ones. Even better it’s just less money being lent out at higher interest rates.
PMI is there to reduce risks, but PMI isn’t an infinite pool of money independent of the rest of the economy. It’s on someone’s balance sheet.
Cars depreciate faster than houses. Car loans are also frequently issued without a down payment, reducing the lender's cushion.
The only advantages cars have over houses is they're cheaper and marginally easier to seize and resell.
This has happened for as long as there has been car finance (i.e. practically since the dawn of private vehicle ownership), it's nothing new.
Given most folks cannot purchase a vehicle outright, the customer only really cares about the monthly payment, a sizeable amount of whom do not even understand the concept of being "underwater" on a trade in. The industry has always preyed upon the financial stupidity of most car buyers.
You're moving your goalposts to easily-tested--and disprovable--ground.
The flip side of limited recourse is limited liability. For houses, non-recourse lending promotes speculation, volatility and risk shifting [1]. One would expect similar effects if non-recourse lending were normalised for cars: higher prices, bigger booms and worse busts.
[1] https://www1.villanova.edu/dam/villanova/VSB/assets/marc/mar...
"The practice of Americans buying consumer goods on the installment plan dates back to the Civil War," e.g. for sewing machines [1].
America's first affordable car, the Model T, was released in 1908. In October 1919, less than one year after the Armistice of November 1918 and just four months after the Treaty of Versailles, GM had "created a financing arm called the General Motors Acceptance Corporation (GMAC)."
You said "cars became 'unaffordable' sometime when loans became common." That is wrong. Cars became cheap because of industrial production. Production aimed at the American consumer, in part, due to the post-Civil War prevalence of installment-based purchasing of factory-made goods.
[1] http://americanradioworks.publicradio.org/features/americand...
(Now known as Ally Bank, the online bank popular for relatively high interest rates on deposits).
Hopefully we won't be testing FDIC coverage with them...
I noticed this when I bought my Subaru. There was a young couple next to me that worked hard with the sales guy to get an acceptable monthly payment for their desired car. No thought about actual price or duration of the loan. I wanted to scream at them that they were making a big mistake.
It’s easy to manipulate the payment by adjusting the loan term without actually taking anything off the price. And then the finance manager can further manipulate the payment by upselling you additional products and saying it’s only an additional $7 per month instead of saying nitrogen in your tires will cost $336.
It's a bit of an uphill battle, where you have to tell them over and over. They're just so used to trying to sell the monthly payment. It's really no wonder that people that don't understand interest (many if not most) will fall for this. And if you actually can't really afford the car, it's also understandable why many if not most people will "gladly" fall for it. The alternative is not having the car of their dreams.
That said, financing in general isn't bad. I've financed most of my cars. I wouldn't have had the sort of "emergency fund" to just outright buy the car and financing allowed me to get the car when I needed it instead of buying some "temp beater" and taking even longer to buy the car I really wanted when I needed it and I paid it back with priority (i.e. faster than the financing terms required it).
I bought a new vehicle in 2023 after years of not owning a car. I was trying to buy used, but the delta between new and 1-3 year old used was so small it made no sense to go used. I was giving up a warranty for often times $500-$1500, total.
This is still true, and especially true for brands whose used vehicles command a price premium, like Toyota. Used values are still high relative to historical norms because a lot of the market that normally buys new vehicles is priced out of buying new, and some of that demand has been absorbed by the used market (some of it has dropped out of the market and/or deferred a purchase until later).
The idea of buying a relatively low miles 3-year old Toyota for materially less than a new one doesn't really exist, currently. Now, if you want to go for a 3 year old car with 150,000+ miles, sure, you can save some money, but that's a ton of miles per year. You're counting on the previous owner(s) being _really_ on top of their basic maintenance.
I would also not call a 3 year old car a “beater”. A “beater” is more like 15 years old.
3 year is not a beater. My dad used to buy a new car every 3 years, back in the hey days when his company would have a deal with the local dealership (of one particular brand that they like for some reason - probably CEO friendship or something) to get their employees better terms (without negotiating), so we enjoyed a new car every 3-ish years when I was a kid. But that's not a beater.
The beater cars I owned were about 10 years old when I bought them. And I drove them for like 3-ish more years before selling again.
Over and over, the agent kept insisting that I increase my counter offer. "Think about it - that's only like a latte a day".
Yes. A latte a day, that I don't already purchase. Over 25 years.
We were talking about close to $50,000.
It's crazy how many people do just look at the monthly payment. It's not like X price over Y years is complicated math or anything.
Because that's literally the only way banks make money. Cars, houses, whatever -banks are after the interest money. The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. The real money in this is the interest that the bank will take. This is why if all people decided to withdraw all their money, banks would refuse, aka a bank run. In fact, this issue -the credit creation with fake digital numbers in accounts for the purpose of making profits out of the interest- is the reason why house prices are going insane beyond their actual value, it’s never demand and supply.
so mix in the "house prices always go up" and you've got a whole nation (world?) who are using housing as the ultimate get rich quick scheme
all while leveraged quite a lot because hey, the prices will never go down so why not, it's a profit multiplier!
And you pay the rent via the tenants who will always be out there to rent any property no matter what.. it's not like the economy will somehow suffer and people will be unable to pay that ever increasing rent right?
Lending for bad investments isn't a way to make money. It can work for the banks if they resell the loan, but in that case one thing they definitely aren't after is the interest money on the loan they no longer hold.
> The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day. The real money in this is the interest that the bank will take. This is why if all people decided to withdraw all their money, banks would refuse, aka a bank run.
The reason banks "refuse" to redeem all of their deposits at once isn't that this would stop them from earning interest on their loans. (This sounds like nonsense, but I don't see another way to interpret your sentences...?) It's that they can't, because they are never holding enough money to cover all deposits at once.
> The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the "trust" that you can withdraw all of it one day.
Also, this sounds like you're describing a loan from the customer to the bank. A deposit can indeed be modeled that way, but in context you appear to be talking about loans from the bank to the customer. Can you clarify this?
Yep, that's the reason (not the other one you mentioned), which means banks are creating money without actual assets backing it up. It's fake numbers basically created out of thin air, but that's not an issue as long as it will make money, real money, from the interest. The concept of modern banks when it was created was that this money is the receipt of actual gold you own, or the bank owns, so when you give these receipts to someone instead of actual gold (which is safer and easier) they can go and withdraw the gold using those receipts. Later, people started using these receipts instead of taking the gold and redepositing it again. Till here things are fair. Later the banks got greedy and started giving receipts for loans without having enough gold, and if someone ever decided to take the actual gold and the bank didn't have enough of it, they would borrow it from another bank, which kept banks in check because they couldn't go crazy with loans (to maximize their interest aka profit) until gold was no longer backing up those receipts (1), and banks are creating credit just because they can, resulting in an overinflated assets, especially the ones that are seen as investments with speculated values not real cost, rendering the housing market a legal state-sponsored Ponzi scheme. And the government is happy too because even after "owning" the house you still have to pay a perpetual rent aka property taxes that will increase when the house value increases as well, so everyone is winning except the home "owner", in fact, the attack on work from home was because the taxes the government collected from commercial property and residential ones are getting lower, it was good for the people to live in cheap locations, but bad for whoever is collecting the taxes.
For the last point, your deposit as a customer is in fact a loan to the bank, and the bank is your customer, but I was talking about bank loans to the account owners that they take to purchase/invest/etc., with added interest.
It means they're creating money. That money is backed by actual assets; that is, for example, what's going on when someone forecloses on your house.
> I was talking about bank loans to the account owners that they take to purchase/invest/etc., with added interest.
How does this work with the comment "The loan is a fake number that gets transferred from your account (as debt) to theirs, as digital numbers too, all under the 'trust' that you can withdraw all of it one day"?
A loan from the bank to you is generally withdrawn in full, immediately, because you need to use it to pay for something else. A loan that isn't withdrawn in full isn't called a loan, it's called a line of credit.
She was able to trade that car in for a brand new one without spending any money. It was literally cheaper (in the short term, of course) to buy a new car than to fix the old one.
It was one of the reasons we broke up -- she was the type of person who counted the amount she could borrow as an asset.
Banks keep lending money for stuff like that because they can repossess your car if you stop paying.
There's a joke about playing for the other team buried in there somewhere, lol.
Because if they ever stop lending the music just abruptly stops. The entire US economy grinds to a halt and takes the entire world down with it. Even just raising the interest rates is enough to provoke cataclysmic events that wipe out billions and billions of dollars overnight. I can't even fathom what would happen if banks stopped lending money.
The US economy is so addicted to cheap credit it would rather forgive debts and bail out banks than let it all come crashing down. Debt is so pervasive, everyone is so thoroughly leveraged, that if there's too many defaults it would cause an endless cascade of further defaults that could threaten the entire economy. It'd take an act of god to fix this.
Banks are altruistic actors who generously prop up the world economy by lending to non-creditworthy buyers? That's a new one for HN.
The sentence you quoted doesn't have anything to do with the point you claimed they're making.
And the GP is right: banks have to lend because the system is set up to use credit for investment, personal consumption, and to balance shocks. Doesn't take anyone being altruistic.
They are propping up the world economy though. They're not sitting on top of their cash reserves like dragons and their hoards. They are "efficiently allocating the capital" by lending at interest. That's the number one cause of inflation. They make it so there's so much money circulating it slowly becomes worthless.
Someone needs a $1,000 loan. Bank issues it against some collateral. They grab the cash and spend it. Whoever receives that money deposits it at the bank. They keep $100 and loan $900 back out. It eventually gets deposited again. A significant fraction is loaned out again! Then it gets deposited again!! Then $1,000 turns into $100,000 literally overnight! Not one cent of it real until the loans are paid back, until somebody actually goes and extracts value from this planet! Exponential growth in a linear planet, it's unsustainable.
The entire global economy is leveraged this way! It's not real until the loans are paid back! If people start defaulting on these loans, it's fucking over. People depend on those payments in order to pay back their own loans. Defaults generate more defaults which generate even more defaults, like a society level stack unwinding. Next thing you know the government is "injecting liquidity" into banks. If they don't bail out the banks everything come crashing down.
We live in the age of CBDCs, of programmable currency. We have governments speaking of negative interest rates and expiring money to drive consumption. People have to keep consuming, they have to keep spending money. The motor of capitalism must keep turning. Otherwise the loans go unpaid and everybody gets liquidated.
There is no way to prove this is true or that if true it happened more than once (people get millions of loans every day, and once in a million per day is a tiny number)
Used to be that you could winter paid off 'fun' cars at nice (live security, climate controlled, fire suppression, low risk zip code) storage units for the steep discount on the auto insurance.
Where I'm at, the cost of units like this are up by >20%. The introductory rates at new places are minor and only good for 1-3 months. The insurance discount (which was previously as much as -35%) is gone because of the risk from increased tenant churn at the storage places, and the insurance is up almost another 20% anyways.
The pattern of bailing out all but the absolute worst in these crashes means that the people taking the risk don't really care about the risk because a backup is expected as long as you're not the most irresponsible.
You don't have to be faster than a bear to outrun the consequences, just faster than the scapegoat.
You also need to walk in the door with your own financing. Even if they give you financing through your preferred bank, it's not uncommon for them to juice the interest rate for some additional profit without any kind of disclosure.
But also check out what the dealer/manufacturer offers. Sometimes there are factors other than just the terms of the loan to consider.
For example I financed my new car (2025 Hyundai Kona SEL Electric) through Hyundai because Hyundai was offering $7500 off if you financed through them. I could have gotten a better interest rate from my bank, but I'm going to pay the loan off early and even if I could have somehow gotten 0% from the bank it wouldn't have saved enough over the time I'll actually have to loan to come anywhere near matching that $7500 from Hyundai.
1. There is enough financial uncertainty that many people are putting off buying a new car for now. The people most worried are also the people who would be buying one of those $20-40k cars. It's the upper end buyers who aren't being affected much by the uncertainty, so the average has gone up.
2. A lot of people bought EVs, which are more expensive than similar ICE cars, in the first 3 quarters to beat the end of the tax credits.
For instance, the Geome Xingyuan is $10k, Hongguang Mini EV is $5k.
Instead we have the average cost of a new car at $50k.
They sold well because you could get a Civic or whatever with a nice radio and they had a bunch of them on the lot in automatic and all the other things buyers cared about beyond just A to B because for the Japanese automakers shit was serious business and so they built their shit with some give-a-fucks included whereas to the Americans shit was a sideshow and they phoned it in and it was like pulling teeth to get a well optioned domestic that wasn't hobbled by the lack of some key feature or ergonomics issue.
None of these were cars people wanted to be driving. The market for big nice fuel hogs shrunk and the market for compacts rose in it's place and the Japanese were very well positioned to put their ass in that seat when the music stopped.
People sell things based on their perception of future consumer sentiments, calculated margins, defensible moats, lots of things.
If someone wanted a compact sedan but the only thing for sale was SUVs, they aren't going to be like "I refuse! Bus pass for me" no. They will just bite the bullet and purchase the SUV.
Then the analysis will say "well people are buying the SUV! It looks very popular we should make more of them! I told you sedans were a bad idea!"
The supply and demand economics 101 ways of thinking are for fools and simpletons. It's why the iPhone wasn't a BlackBerry knockoff
I mean look at Hyundai's ev line up. I drive a kona because it's the cheapest. The next most expensive car is the 5 and then their most expensive (up until recently) was also their smallest! The 6.
It's like twice the price and at the end of the day I just wanted to drive electric so I got the cheaper one.
But if the ioniq 2 had a US release I'd be on top of that real quick
The auto industry would rather use its limited assembly line capacity for the highest margin products, which are large luxury internal combustion vehicles.
We have long been in the era of lean manufacturing, where assets like factories are hyper-optimized for returns to capital, not for making products to serve all needs or desires. Why lower your gross margins by investing in more factory capacity to make affordable cars? You'd rather put your capital into the Mag-7 to get a higher rate of return.
It also makes sense because with growing inequality in the US, the well-off (or the financially irresponsible) are the only people who buy new cars anyways, so the manufacturers make cars for them.
This is also a big part of the reason they make EVs (which are disproportionately higher end or luxury): because they know that EV buyers are likely to be more well off. The environmental benefits are secondary, and the auto industry has never cared much about lowering TCO or energy costs (those things benefit the EV driver, not the car manufacturer).
(joking, but not as much as I want to be)
I'm not saying it's good or bad, it just is, and car companies don't exist to make affordable new products for everyone. "Obese" manufacturing won't result in more affordable cars either, not while housing, education and healthcare continue to eat away at Americans' stagnant income growth.
If affordable transportation is the goal, we probably need to get past personal car ownership.
Blame fleet efficiency standards [1] and the light-truck loophole [2].
[1] https://me.engin.umich.edu/news-events/news/cafe-standards-c...
[2] https://digitalcommons.law.lsu.edu/cgi/viewcontent.cgi?artic...
Many things are more affordable overseas.... aVW ID.3 is 15k eur in china, 32k over here in my small eu country.
Now that said: I own a 2008 car with 180k miles, bought used over a decase ago. and I'm really hoping I can ride it out another 2 years. I wanted to go FEV a while back, but then the market got rough.
Little of column A, little of column "jerks on the internet have these people convinced that using a vehicle anywhere near it's rated capacities let alone beyond them is guaranteed to end in a fiery crash" so they say "oh we might pop out a 2nd kid, better go with the CRV over the HRV" as if the latter can't do both fine.
HN is very much complicit in this pushing of social norms in a direction where people feel like they're slumming it or behaving irresponsibly putting two adults and 3-kids in a 5-seater or towing something recreational with a half ton.
I don't really get the Overcompensation thing. Engineers are usually conservative when giving those ratings. I wouldn't necessarily push 4k lbs on a 3k rating load, but I wouldn't be surprised if true max load was in the range of 4.5k lbs.
No it isn't, they chose to make their consumer choices into an identity that needs "expressing." It's just a car. I don't begrudge their choice to want the car they want, I dislike the implication that they're somehow forced into buying it.
"Its just a car" to them in the same way "it's just a streamer" to someone developing a parasocial relationship. If only it was that easy to snap them out of it.
If you want a new car, many 3-year-old lease returns are so clean they often provide an indistinguishable experience.
and EVs have even bigger discounts.
-- signed, some continental European without a garage
And people pay more taxes for the privilege (you don't think road salt is free do you?)
You could probably come up with similar metrics on the number of dented cars you see in a day that people couldn't afford to repair.
Or the number of people who skip out on their checks at a restaurant. Or the number of people who buy lottery tickets. Or the number of people that are willing to gamble, not as entertainment, but as a way to get some money for the next bill due date.
There have been a lot of cars I consider "nice" but have squealing wheel bearings, squeaking brakes and/or engine tune issues which point to general lack of maintaining the vehicle.
Good to see I am not the only one seeing this warning sign.
The missing middle in discussions around Chinese EVs is import quotas (and disconnection mandates).
Americans buy over 15 million vehicles a year [1]. Letting China export up to 150,000 EVs into America a year, subject to anti-surveillance measures (e.g. no phoning home), paid for by the importer and thus--ultimately--consumer, would not bankrupt American producers. It would, however, show American consumers what they're missing out on while increasing competition in the American car market. Hell, it might even give some stateside auto engineers some good ideas.
No, no. THAT is not acceptable.
there is a difference between 'good healthcare' and 'available healthcare'.
the US has some of the highest quality healthcare in the world to those that it is made available to.
the worlds' most rich and famous come to the US for treatment -- and the poorest in the US are among the most plentiful medical tourists to Malaysia and Thailand.
It's hard for foreigners to understand, but these two qualities are not mutually exclusive.
The availability of healthcare is the favorite talking point of those with socialized medicine programs because.... the quality sucks.
How many hundreds of NHS horror-stories are produced a year?
Yes, it's great that they are given a card that says they have medical coverage. It's not so great to wait 6 years for a cancer treatment that is nigh useless by the time the scalpel touches the patient.
https://www.england.nhs.uk/statistics/statistical-work-areas...
~75% of people get diagnosed in <1 month of urgent referral and 90% of people that want treatment get started in <1 month.
>and the poorest in the US are among the most plentiful medical tourists to Malaysia and Thailand.
This is such an absurd statement. The poorest Americans can absolutely not afford travel to the other side of the world for treatment.
Less than the millions of horror stories produced by the lack of anything like the NHS in the US.
That number is not just hyperbole. There are on the order of a million homeless people on the US, and 50-70% of them cite medical debt as a major reason why. This is literally unimaginable in any European country.
America (19.5/10k, of which 12 unsheltered) has fewer homeless per capita than, in increasing order of homelessness, Czechia (22), Austria (22), Sweden (26), Serbia (29), Canada (29), Germany (31), Latvia (35), Greece (37), Luxembourg (38), France (49, of which 4.5 unsheltered) and the UK (56, of which 0.9 unsheltered) [1].
[1] https://en.wikipedia.org/wiki/List_of_sovereign_states_by_ho...
Nevertheless, medical debt is a significant driver of homelessness in the US, while it is not one in the EU.
Well, this isn't universally true. But regardless, the quality of care in the US sucks just as much if you aren't financially well-off. When you can get it.
> How many hundreds of NHS horror-stories are produced a year?
And how many thousands of horror stories are produced by the US healthcare system every year?
ETA: also, every country with UHC spends less on it as a portion of GDP than US public funding of non-universal health care.
The US is by way and away the richest country on earth, and ostensibly the best country on earth.
Surely they would aim higher and build a better system than the NHS, right?
Flip it around. You're in China. Would you want the CIA to have access to your life?
Of course not, unless you're an idiot. Every intelligence agency has near-limitless utility for disposable stooges.
You're comparing conditional probabilities without considering the priors. Given you're being coerced, it's worse to have that done by power close than power afar.
The downside for the FBI blackmailing an American is significant. Of course it happens and has happened. But it's weighed. The downside for the CIA doing pretty much fuckall is highly limited. This results in the common asymmetry in non-autocratic countries between domestic and foreign surveillance budgets and, subsequently, targets. (If it came out that the CIA had been leveraging the porn habits of Chinese citizens to coerce them into spying for it, I'm not sure there would be any backlash in Washington. That's literally their job.)
That example, by the way, hints at the lack of mutual exclusivity in your example. Every one of those disposable agents would subsequently be punished by Beijing. Same as if you got played by Russia or China (or Pyongyang or a non-state criminal outfit). The blackmail only works because you're rationally afraid of your local agencies--the CIA has limited means by which to directly coerce Chinese citizens in China.
In what sane society is this an acceptable point in conversation to be hand-waived away. The FBI has murdered American citizens in some cases and no one has faced any consequence. To me how is the FBI any different from the FSB at that point?
There's no difference to me. My government and its adversaries respect my privacy equally, which is to say they don't at all.
Even in cases of hostages, American citizens have been left languishing until a deal that satisfies both sides has been brokered. All governments view us as little more than pawns. I feel like I'd be an idiot to expect differently when there are dozens of examples of our government being outright hostile to innocent citizens, both directly and indirectly.
Stellantis, is, as usual, screwed up. The only remaining Chrysler product is a mini-van. The Jeeps designed after the Stellantis acquisition are not very good. (A plug-in hybrid with a 21 mile electric range?) The dealers demanded that the CEO of Stellantis be fired for incompetence, which was done. So far it hasn't helped much.
General Motors is still trying to push their "ladder of success": "Start your adventure with Chevrolet", and someday, reach Cadillac. This was a good idea around 1955. General Motors, post-bankruptcy, is a much smaller company than it was before the bankruptcy.
You fail to understand the magic of the Jeep Wrangler. It is a masterful exercise in checkbox engineering.
It is a lifestyle car or a practical SUV. It has a (shitty) 2nd row for the kids. It comes in hard top and soft top. You can get it in a hybrid, or 6spd manual.
It is literally the car that has a "well askshually" in response to whatever reason your significant other has for why not to get it.
Yeah 21mi plug in range is crap, but that's all it needs to check the box.
Sad part is it might still be worth it to buy after tarriffs at the rate American vehicles are going.