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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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)
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".
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.
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.
xnx•1h ago