Let’s pretend they never happened because… well… we’re still waiting for them. Sure, on the surface things could be worse. Real estate is getting to be cheap. Cars are getting even cheaper. We seem to be in this period of mild deflation where ‘deficits don’t matter’ and interest rates remain low thanks to China. It’s a debtly paradise that will eventually turn our economy upside down, but for now it’s all good. As John Fogerty used to say, “There’s a calm before the storm, I know it’s been calmin’ for some time.” I’m not convinced that hyperinflation will be on that menu, but a happy-go-lucky tightwad like me realizes that books and reality need to be balanced no matter what. So…
I’ve been buying up gas sippers for the last few months. If the vehicle can get up to 30 mpg or beyond, and had a good owner, I’m swiping it. Gas prices are just beginning to reflect the onslaught of affluence in most of Southeast Asia. Plus I’m noticing that 1990’s and early 2000’s SUV’s are being traded in earnest for about a month now and minivans from that era are becoming as common at the auctions as Saturns were when a gallon of gas was cheaper than a pint of bottled water.
Will this strategy work out? I really don’t know. Right now my inventory is at it’s highest level in a long time. I’m not even trying to market what I have very hard at the moment, which is strange since a couple of years ago I would be in full panic mode. The new car dealerships had a very good fourth quarter last year and that usually translates into a healthy first quarter in the used car market. Tax returns. Bonuses. Everything but new hires at the moment. Like most other investments, there are pluses and minuses you have to weigh in before putting up the capital.
It’s hard to say what the right strategy is. Unemployment continues to get worse. Retail sales were worse, this December, than last (which was the worst something like 30 years.) Next year’s foreclosures are projected to be worse than this years.
On one hand, used car prices are being squeezed by new cars being dumped on the market. On the other hand, the gas guzzler program took a bunch of perfectly good cars off the road. The very low end is a different story though. There is always a market for cars that can get you to that job…no matter how crappy (the car and the job.) I always tell my friends, when they are offered next to nothing on their beater as a trade-in, “Sell it yourself.” It seems if I car runs you can always get $400-$500 dollars for it. If it runs and keeps out the elements, maybe $1000.
Actually retail sales were up this Dec over last Dec by 5.4% according to Reuters.
Woops. Retail sales fell in December vs. November…not the previous year. Thanks for correcting me.
http://www.marketwatch.com/story/retail-sales-drop-03-on-widespread-declines-2010-01-14
I think that the new reality will be that people will be buying smaller, more efficient vehicles. Here in Canada, where we have higher gas prices and are more fearful of big auto debt, we have Civics and Mazda3s as our best selling cars.
With the probable rise in fuel prices, I expect that an even greater proportion of Canadians will be moving into compacts. If I can haul my family of 4 around in a Focus, why can’t most others?
When I replace my Focus, one of my primary criteria is that the replacement should get significantly better fuel mileage. When fuel costs rise, I don’t want to be paying more to fuel my car than I do to heat and electrify my home.
I don’t think we’re going to get hit with hyperinflation, but there will be inflation, and interest rates have nowhere to go but up. I’m more worried about paying higher taxes. The deficit is out of control, on both a state and national level. As a country we’re fiscally out of control, so is it any wonder most of our citizens are the same way? All I know is something’s gotta give.
Also, I’ll be keeping my TSX for a while. It’s paid for and gets good mileage.
Inflation is a real risk with all those dollars being pumped out, but is that really the biggest risk? Many economists feel that the Great Depression could have been prevented by the proper intervention. Today, preventing further economic distress was given a far higher priority than the deficit, as it should have been. However, those scary numbers make for good press. In the 80’s it was the Democrats spreading the scare over Reagan’s deficit spending; today it’s the Republicans’ turn and they have much bigger numbers to crow about. But what would have happened if there was no stimulus spending – or much less? Where would our economy be today? If the Japanese “lost decade” is any clue we would be in much worse shape. Interest rates have no choice but to head upward; they can’t be any lower. That’s one more tool the Fed doesn’t have at its disposal. And lets not forget that the financial industry is back to its old tricks – a byproduct of rushing through legislation without enough review. So now how do you pay back this money? Taxes will go up, there is no question. That’s never good but does not have to be as bad as it sounds if it is done equitably. The first should be expiration of the “gift-to-the rich” Bush tax cuts. But with these deficits, its going to take a lot more than that. And that’s why there will be no new cars in our household for at least two years.
golden2husky: I agree with everything you said. It did have to be done or the consequences would have been much worse. I agree that Bush’s tax cuts need to expire. I’ve got no problem paying more taxes while also having the government’s budget cut. It needs to be done eventually, and people will complain, but it can be done fairly and logically. We need to start digging out of this hole.
Steven’s right, some form of high inflation or increased inflation or even hyperinflation (which will be followed by a collapse and always is) is inevitable at this point, for the very reasons he’s pointing out above (and which I myself have written about here and elsewhere for those with eyes and mind open wide enough to see and fathom).
I was reading Doug Casey this morning at Lew Rockwell dot com and he sees a stock market crash coming – probably this year.
But more ominously, I was reading elsewhere this morning and other gold bug type experts are opining that while hyperinflation is likely to come about, it might be delayed for 5 to 10 years. MIGHT be.
Oil prices just dropped a tad, but with China AND India moving away from scooters and mopeds to cars, and with a probably real world peak-oil (in terms of production capacity) having probably come about in late 2007, then I see trends towards gas prices continuing to gradually move up, until they don’t any more. At which time it won’t be a gradual move up any more. More fuel for hyperinflation.
Wish I could see the future clearly, but then again, perhaps I’m glad I can’t.
If I had a used car dealership, I’d be doing EXACTLY what you’re doing, though.
“…and minivans from that era are becoming as common at the auctions as Saturns were when a gallon of gas was cheaper than a pint of bottled water.”
What does this mean?
I read it as there is a glut of used minvans on the market now dating from the era of cheap gas, much like folks traded in their Saturns (for these minivans?) when gas was cheap.
I expect that a return to frugalality is going to be the mood of the country for at least 18 months. Hard times (even if you weren’t hit personally, just saw the pain of others) refocuses your value system like no marketing ever can, and no new discoveries of oil reserves could push gas prices down so low that nobody cares about the price.
I checked out a low klm 2008 Cobalt this morning at the local Chev dealer very nice ,very clean.
Here in Canada gas is sitting around 99 cents a litre =3.80 U.S a gallon, give or take a cent or two. I drive a 2003 Jimmy 2dr for a winter beater. The Jimmy is a good little truck,but it’s a pig on gas and as I found out, its resale ain’t pretty either.
I eat the cost of gas,cause I figure its less wear and tear on my 09 Impala. At least that’s what I told myself as I poured $50 into the tank this morning.
So I sit down with my pencil and calculater. I figure if I will say goodbye to my thisrty,but reliable, and well mantained Jimmy and drive home a gently used Cobalt. Before I do that though ,I got to part with the best part of 10 grand.
So if I save $25 a week in fuel it will only take me 7.6 years to get my money back. Hmmmm?…..I guess I’m just going to have to keep feeding gas to the Jimmy.
You sound like nearly the perfect candidate for a “Cash for Clunkers” type program – ‘on the fence’, but ready to lower your fuel use – you need that extra incentive to justify the move to a more fuel-efficient car.
Makes me wonder if the next C4C should apply to used (high MPG) cars as well, though the supply would probably be limited – maybe a tax rebate, as long as the old vehicle is “crunched”. (I realize that you’re in Canada, though).
The Chinese are going to use more oil, which means we need to use less, and save our reserves for when the shite really hits the fan.
Uh – you do know that a lot of us are making really big families, right?
My next vehicle will be bigger than the minivan I have, not smaller.
My wife and I, along with many of our friends, are making babies and already have a few kids. Families are growing and we need space for all those damn car seats, booster seats and all the stuff we have to cart around to keep us legal. Remember that we are in a baby boom, bigger than the classic one a few generations ago. That’s why TV ratings are dropping – we’re “busy”.
So, while you are buying up used vehicles, please have a few big vehicles out there for our growing families. Gas mileage be damned, we have to get around. If that means driving less, then we’ll be driving those big vehicles less. But biology is demanding bigger – not smaller, for couples and their numerous offspring.
Be on the lookout for large wagons. We’re sick of minivans. I refuse to buy another!
I think that you’re in the minority with your growing family. I’m not up to date on the stats, but I believe that Canadians (and Americans) are averaging well below 2 kids.
What babysitting and kid hauling I’ve done with the grandkids makes me wish more of our children liked minivans. Much easier to load those car seats and get those buckles secure etc. through the opening of a large sliding door than the typical oddly shaped SUV door. Yeah, minivans ain’t “cool”, I guess, but aren’t you supposed to be individuals and rebels?
Would it not be a lot cheaper to decide your family is complete and get a vehicle that does not need all those car seats? If you don’t want a minivan use a method, it’s a lot less expensive. Only your biology is demanding bigger vehicles. Reasonable people want fun and efficient cars. Take some personal responsibility, dude.
Oh, my sister told me when she was on her way to the hospital for a tubal ligation her first thought was “Now I will never have to buy a minivan!”
I think for most folks, depreciation dwarfs fuel costs.
But depreciation is not displayed in three foot letters at the curbside like fuel prices are.
I totally agree with you, the massive depreciation costs are going to force, the budget minded folks to keep thier vehicles longer. For seven years I’ve watched my Jimmy depreciate 70%. I figure if I trade it in,I’ve locked in my loss. If I drive it three more years how bad can my losses be?
I’m not a professional dealer, but have done a fair amount of curbsiding over the years. Nowadays, $250 is what the junkman will give you for any carcass. Running with the need for a lot of work, $500 to 1000. Decent runner and looker, $2000+.
The issue with fuel economy vs. driving the guzzler is this: during the first oil embargo in 1973, gas was 50 cents a gallon BUT you couldn’t get it. Had to wait in line for hours only to have the gas station run out as you got next to the pump.
Fast forward to 2008. Yes, gas was $4.00 BUT you could buy all you want any time any where. Thus the staying power of trucks and SUVs.
Myself, I’ll stick with the fuel efficient cars. GM H bodies with 3800. Buy em for $500, put $500 into them, and sell them for $2500-3500. They are comfortable cars, and get 20 city/30 highway.
There are many good reasons to think that frugality will continue to reign as we unwind many years of living beyond our means. Frankly, I’d be concerned if it didn’t happen. In that sense, Steven, you can’t go wrong with your current inventory.
As for oil prices, however, a bubble of the magnitude we saw in 2005-2008 rarely re-inflates this soon after bursting. It tends to recoup 2/3 of the decline, and just when everyone thinks we’re going to the moon it stalls and goes sideways for as long as it takes us to lose interest. And then some.
The sheer unanimity with which everybody seems to expect higher gas prices suggests to me that it probably won’t happen for awhile. I hope I’m right.