Next Sub Prime Crisis–SUV Leases
2005 Dodge Durango
Chrysler announced Friday that it was closing down its auto lease business. This is the beginning of sub prime like write downs for auto companies. SUV’s bought three years ago, now being returned to dealers with a true value probably 50% below the auto company’s book value. Nobody want to buy a used SUV getting 15 MPG.They will be lucky if they can sell them for scrap. Ford took a $2.1 billion dollar write down on the value of its lease portfolio for just one quarter’s worth of returned cars. So we are talking about perhaps $9 billion in Ford financing losses for the year. Let’s assume both Chrysler and GM have similar problems and that the two big banks in auto leasing Well Fargo and Citibank have equally heavy portfolios filled with heavily marked down SUV’s. Could this be another $40 billion of finance writedowns this year?
Of course there is the other side of the auto finance business which is the straight auto loan business, where the bank is holding the car title as collateral for the loan. Here the sound of jingle mail (customers walking away from the payments and mailing in the keys to the bank) is getting painfully loud.
Former Fed Vice Chair Alan Blinder has a suggestion for a federal bailout of older more polluting cars, he calls “Cash for Clunkers.”
Cash for Clunkers is a generic name for a variety of programs under which the government buys up some of the oldest, most polluting vehicles and scraps them. If done successfully, it holds the promise of performing a remarkable public policy trifecta — stimulating the economy, improving the environment and reducing income inequality all at the same time.
Fairly wild idea, but we will need imagination in the next few months. Worth considering.
We certainly will need imagination. Frankly, though, I think it serves them right for not heeding the demand for cars with higher fuel efficiency ages ago. The popularity of the Prius should have tipped them off that people don’t really want SUVs with low gas mileage anymore.
Seriously, it could have saved them a world of hurt.
We certainly will need imagination. Frankly, though, I think it serves them right for not heeding the demand for cars with higher fuel efficiency ages ago. The popularity of the Prius should have tipped them off that people don’t really want SUVs with low gas mileage anymore.
Seriously, it could have saved them a world of hurt.
given the cost of energy efficent cars consumers would be much better off buying these give away SUV’s– at some ponit consumers will do the math and the prices won’t drop so much–right now there are real bargins to be had–doug
given the cost of energy efficent cars consumers would be much better off buying these give away SUV’s– at some ponit consumers will do the math and the prices won’t drop so much–right now there are real bargins to be had–doug
Doug – that is only true for hybrid cars that have a premium on them. There are non-hybrids that still get 30+ mpg and are significantly cheaper than hybrids and bargin priced SUV’s.
Doug – that is only true for hybrid cars that have a premium on them. There are non-hybrids that still get 30+ mpg and are significantly cheaper than hybrids and bargin priced SUV’s.
The leasing problem has been building for a long time. When auto manufacturers offer 0% financing and rebates to move new inventory, they also lower the residual on all outstanding vehicles. Leasing was an option that worked when demand was high because it kept monthly payments reasonable. A new luxury SUV costs more per month to own than many mortgages due to zero-down offers and rolling the negative equity from trades. The bottom is about to fall out from the automobile market as it’s doing in the housing market. Too much inventory and not enough buyers.
I drive a 14 year old vehicle with 155,000 miles on it. I filled up this morning and calculated I got 27.4 miles per gallon on mainly suburban driving. I get over 30 on the highway.
A. That’s higher than the majority of new cars get in the real world and not the EPA standards fantasy.
B. It’s paid for many times over.
C. I can’t afford a new car under any circumstances.
The leasing problem has been building for a long time. When auto manufacturers offer 0% financing and rebates to move new inventory, they also lower the residual on all outstanding vehicles. Leasing was an option that worked when demand was high because it kept monthly payments reasonable. A new luxury SUV costs more per month to own than many mortgages due to zero-down offers and rolling the negative equity from trades. The bottom is about to fall out from the automobile market as it’s doing in the housing market. Too much inventory and not enough buyers.
I drive a 14 year old vehicle with 155,000 miles on it. I filled up this morning and calculated I got 27.4 miles per gallon on mainly suburban driving. I get over 30 on the highway.
A. That’s higher than the majority of new cars get in the real world and not the EPA standards fantasy.
B. It’s paid for many times over.
C. I can’t afford a new car under any circumstances.
I hesitate to be negative about a creative idea, but don’t be fooled into thinking that this plan will actually help the environment. The cost (in carbon emissions) of scrapping old cars and building new cars more than offsets any gain from better fuel mileage. In this case it’s not “planned obsolescence”, but forced or assisted obsolescence.
I hesitate to be negative about a creative idea, but don’t be fooled into thinking that this plan will actually help the environment. The cost (in carbon emissions) of scrapping old cars and building new cars more than offsets any gain from better fuel mileage. In this case it’s not “planned obsolescence”, but forced or assisted obsolescence.
Kevin – One such example would for instance be the Toyota Aygo which runs over 60mpg and is pretty cheap (in euros) at some €8500. A nice and very comfortable car.
Driving around Europe the increase in gas prices is noticeable for us as well. A lot of people are demanding some part of our high gas taxes be cut to compensate but that probably is not the best idea.
It would probably be smarter in Europe as well to gradually increase taxes even further. It’s not like we can’t take it and the current high price is already having positive effects by reducing leisure driving and congestion and stimulating people to switch to small efficient cars or no car at all. The only problem is that high gas prices disproportionally affect the poor.
Kevin – One such example would for instance be the Toyota Aygo which runs over 60mpg and is pretty cheap (in euros) at some €8500. A nice and very comfortable car.
Driving around Europe the increase in gas prices is noticeable for us as well. A lot of people are demanding some part of our high gas taxes be cut to compensate but that probably is not the best idea.
It would probably be smarter in Europe as well to gradually increase taxes even further. It’s not like we can’t take it and the current high price is already having positive effects by reducing leisure driving and congestion and stimulating people to switch to small efficient cars or no car at all. The only problem is that high gas prices disproportionally affect the poor.
I wonder what the average percentage cost contribution of the powerplant in an SUV is (everything north of the flywheel and requisite for the functioning of the reciprocating engine block core components)?
I wonder what the average percentage cost contribution of the powerplant in an SUV is (everything north of the flywheel and requisite for the functioning of the reciprocating engine block core components)?
Doug, you’re absolutely right about gas guzzlers being a bargain, even working out the total cost per mile, but that ignores the big emotional wrench every time you go to put gas into the sucker and see the price going up. Yes, it may be cheaper over four or five years to pay horrendous fuel costs for a car you got for next to nothing, but this is about how people feel, not how they think. Why do you think Prius owners are so happy? It’s not because their cost per mile is so much less.
As per Brian, I drive a 13 year old car with over 145,000 miles on it, and on the highway, it gets 34.5 mpg…measured recently on a 1000 mile trip from Santa Cruz to San Diego and back. The car is mine. I’m driving it ’til the doors fall off or it blows up, and then I want a plug-in hybrid.
Doug, you’re absolutely right about gas guzzlers being a bargain, even working out the total cost per mile, but that ignores the big emotional wrench every time you go to put gas into the sucker and see the price going up. Yes, it may be cheaper over four or five years to pay horrendous fuel costs for a car you got for next to nothing, but this is about how people feel, not how they think. Why do you think Prius owners are so happy? It’s not because their cost per mile is so much less.
As per Brian, I drive a 13 year old car with over 145,000 miles on it, and on the highway, it gets 34.5 mpg…measured recently on a 1000 mile trip from Santa Cruz to San Diego and back. The car is mine. I’m driving it ’til the doors fall off or it blows up, and then I want a plug-in hybrid.
Doug, you’re absolutely right about gas guzzlers being a bargain, even working out the total cost per mile, but that ignores the big emotional wrench every time you go to put gas into the sucker and see the price going up. Yes, it may be cheaper over four or five years to pay horrendous fuel costs for a car you got for next to nothing, but this is about how people feel, not how they think. Why do you think Prius owners are so happy? It’s not because their cost per mile is so much less.
As per Brian, I drive a 13 year old car with over 145,000 miles on it, and on the highway, it gets 34.5 mpg…measured recently on a 1000 mile trip from Santa Cruz to San Diego and back. The car is mine. I’m driving it ’til the doors fall off or it blows up, and then I want a plug-in hybrid.
Rick, you’ve raised a really crucial thing about buying gasoline – it’s not like other commodities. When you buy a quart of orange juice, you buy a finite amount, and you *might* notice if the price has risen by 5¢, but you probably won’t. Likewise your coffee.
But the way people buy fuel is quite different. They purchase large amounts, and they have nothing to do while pumping gas but watch the numbers go round on that dial, at an alarmingly fast rate. That’s why people are more sensitive to gas prices than other commodities – because they see their usage in a way that they don’t see for, say, coffee.
If people bought 15 gallons of milk, or bottled water, at the same time, they might be more sensitive to price hikes. They’d be even more sensitive if they had to tabulate the price in quarter gallon increments.
Rick, you’ve raised a really crucial thing about buying gasoline – it’s not like other commodities. When you buy a quart of orange juice, you buy a finite amount, and you *might* notice if the price has risen by 5¢, but you probably won’t. Likewise your coffee.
But the way people buy fuel is quite different. They purchase large amounts, and they have nothing to do while pumping gas but watch the numbers go round on that dial, at an alarmingly fast rate. That’s why people are more sensitive to gas prices than other commodities – because they see their usage in a way that they don’t see for, say, coffee.
If people bought 15 gallons of milk, or bottled water, at the same time, they might be more sensitive to price hikes. They’d be even more sensitive if they had to tabulate the price in quarter gallon increments.
Once you get beyond Maslow’s Heirarchy of Needs, “consumer spending” is mostly about emotions like joy, fear, confidence, and lack thereof. Gas, with it’s near hyper inflation, gets right to the point…which is that too many consumers have bought cars that are really stupid to own. Hummers… Did my ex-bookkeeper really drive a bright yellow Hummer to work three days a week solo? Did her husband have a mean looking gray one? Are they sorry now? You betcha. That damned thing must have cost her eight bucks a day in gas just to drive fifteen miles to my office and back home. All for what? Looking tough? Looking cool? Good god, it’s not even a comfortable car, and in my town, if you have one, it’s likely to get keyed for being so politically incorrect. But her husband didn’t put her in a car to make sense, and now they both know damned well how stupid a choice those cars were because every time they fill up, there goes another hundred dollar bill or more. Ka-ching! Ka-ching! And that dough is gone, gone, gone. It’s not even like buying Prada or Gucci…you don’t get to show off that gas, and folks all now think you’re a total tool to be driving a car like that.
Just wait ’til next winter when the poor folks who heat their under-insulated houses in New England with oil start not being able to fill up their tanks. It’s one thing to drop a hundred into your gas tank, but it’s going to cost a grand to fill the old oil tank in the basement. A grand a month… People will literally freeze.
Once you get beyond Maslow’s Heirarchy of Needs, “consumer spending” is mostly about emotions like joy, fear, confidence, and lack thereof. Gas, with it’s near hyper inflation, gets right to the point…which is that too many consumers have bought cars that are really stupid to own. Hummers… Did my ex-bookkeeper really drive a bright yellow Hummer to work three days a week solo? Did her husband have a mean looking gray one? Are they sorry now? You betcha. That damned thing must have cost her eight bucks a day in gas just to drive fifteen miles to my office and back home. All for what? Looking tough? Looking cool? Good god, it’s not even a comfortable car, and in my town, if you have one, it’s likely to get keyed for being so politically incorrect. But her husband didn’t put her in a car to make sense, and now they both know damned well how stupid a choice those cars were because every time they fill up, there goes another hundred dollar bill or more. Ka-ching! Ka-ching! And that dough is gone, gone, gone. It’s not even like buying Prada or Gucci…you don’t get to show off that gas, and folks all now think you’re a total tool to be driving a car like that.
Just wait ’til next winter when the poor folks who heat their under-insulated houses in New England with oil start not being able to fill up their tanks. It’s one thing to drop a hundred into your gas tank, but it’s going to cost a grand to fill the old oil tank in the basement. A grand a month… People will literally freeze.
That’s why we’re in Iraq.
That’s why we’re in Iraq.
The trouble with Blinder’s proposal is that the folks like Rick’s bookkeeper will be looking for a govt. bailout for their stupidity, and will lobby for including SUV as clunckers. With six months to go of this admin and congress, it would pass. And some little neo-con Brownie will be put in charge of setting the buy back rate. Imagine: Mr. Hernadez, your Neon has $20 buyback value, Mr. Schwarzenegger, we can only give you 2oK apiece on those Hummers, sorry guys.
The trouble with Blinder’s proposal is that the folks like Rick’s bookkeeper will be looking for a govt. bailout for their stupidity, and will lobby for including SUV as clunckers. With six months to go of this admin and congress, it would pass. And some little neo-con Brownie will be put in charge of setting the buy back rate. Imagine: Mr. Hernadez, your Neon has $20 buyback value, Mr. Schwarzenegger, we can only give you 2oK apiece on those Hummers, sorry guys.
The trouble with Blinder’s proposal is that the folks like Rick’s bookkeeper will be looking for a govt. bailout for their stupidity, and will lobby for including SUV as clunckers. With six months to go of this admin and congress, it would pass. And some little neo-con Brownie will be put in charge of setting the buy back rate. Imagine: Mr. Hernadez, your Neon has $20 buyback value, Mr. Schwarzenegger, we can only give you 2oK apiece on those Hummers, sorry guys.
Re: $1000 to fill oil tanks for heat & Morgan’s that’s why we’re in Iraq
It’s not like it was big surprise that fossil fuels are finite. We’ve alwasy known there was an end of the road. That our leadership watched as the world used increasingly more oil at faster and faster rates and didn’t start planning ahead and encouraging clean energy production decades ago is a major failing of that leadership.
F*cking up isn’t a reason to invade another country. The US is going to have to suck it up and transition painfully, while we figure out what comes after the oil standard. Scratch that, the lower and middle classes are going to have suck it up and transition painfully.
Re: $1000 to fill oil tanks for heat & Morgan’s that’s why we’re in Iraq
It’s not like it was big surprise that fossil fuels are finite. We’ve alwasy known there was an end of the road. That our leadership watched as the world used increasingly more oil at faster and faster rates and didn’t start planning ahead and encouraging clean energy production decades ago is a major failing of that leadership.
F*cking up isn’t a reason to invade another country. The US is going to have to suck it up and transition painfully, while we figure out what comes after the oil standard. Scratch that, the lower and middle classes are going to have suck it up and transition painfully.
Re: $1000 to fill oil tanks for heat & Morgan’s that’s why we’re in Iraq
It’s not like it was big surprise that fossil fuels are finite. We’ve alwasy known there was an end of the road. That our leadership watched as the world used increasingly more oil at faster and faster rates and didn’t start planning ahead and encouraging clean energy production decades ago is a major failing of that leadership.
F*cking up isn’t a reason to invade another country. The US is going to have to suck it up and transition painfully, while we figure out what comes after the oil standard. Scratch that, the lower and middle classes are going to have suck it up and transition painfully.
“Our leadership” are oil men.
Morgan thinks the price of oil is going to go down now that we’ve won in Iraq. Well, it may go down relative to July of 2008, but relative to July 2007? Not…
What’s wrong with these pictures? Bad logic.
“Our leadership” are oil men.
Morgan thinks the price of oil is going to go down now that we’ve won in Iraq. Well, it may go down relative to July of 2008, but relative to July 2007? Not…
What’s wrong with these pictures? Bad logic.
“Our leadership” are oil men.
Morgan thinks the price of oil is going to go down now that we’ve won in Iraq. Well, it may go down relative to July of 2008, but relative to July 2007? Not…
What’s wrong with these pictures? Bad logic.
zak, again, I know you think that nothing from the past, has ever been planned to turn out this way – but WHAT IF, we’ve been saving those Iraqi oil fields for decades?
You might think that is fucked up, but it isn’t “fucking up” – that would be a plan that worked out as well… planned.
My guess (conspiracy hat on) is that Iraq has more than 500B barrels of oil, and that the way we have planned for some time to keep the Peak Oil hockey stick from hitting us any faster than necessary, was to bring Iraq online in a free market, not working in conjunction with OPEC… forcing OPEC prices in the future down by half or more – I’m talking about an extra 10-20 years, where oil costs $250 instead of $700 a barrel – which ain’t peanuts. It also means our enemies selling much more of their oil (their treasure) at the $250 price (say 2-4x as much sold) in order to prop themselves up – depleting their resources faster, and keeping our money in our own country for the next 20-30 years. This could quite frankly be WHY the next two generations of Americans (our sons and daughters) may/can/will continue to live at the top of the heap globally – until it is their job to figure out HOW to buy another two generations the same privilege.
That’s just my conspiracy theory, but its my gut.
zak, again, I know you think that nothing from the past, has ever been planned to turn out this way – but WHAT IF, we’ve been saving those Iraqi oil fields for decades?
You might think that is fucked up, but it isn’t “fucking up” – that would be a plan that worked out as well… planned.
My guess (conspiracy hat on) is that Iraq has more than 500B barrels of oil, and that the way we have planned for some time to keep the Peak Oil hockey stick from hitting us any faster than necessary, was to bring Iraq online in a free market, not working in conjunction with OPEC… forcing OPEC prices in the future down by half or more – I’m talking about an extra 10-20 years, where oil costs $250 instead of $700 a barrel – which ain’t peanuts. It also means our enemies selling much more of their oil (their treasure) at the $250 price (say 2-4x as much sold) in order to prop themselves up – depleting their resources faster, and keeping our money in our own country for the next 20-30 years. This could quite frankly be WHY the next two generations of Americans (our sons and daughters) may/can/will continue to live at the top of the heap globally – until it is their job to figure out HOW to buy another two generations the same privilege.
That’s just my conspiracy theory, but its my gut.
zak, again, I know you think that nothing from the past, has ever been planned to turn out this way – but WHAT IF, we’ve been saving those Iraqi oil fields for decades?
You might think that is fucked up, but it isn’t “fucking up” – that would be a plan that worked out as well… planned.
My guess (conspiracy hat on) is that Iraq has more than 500B barrels of oil, and that the way we have planned for some time to keep the Peak Oil hockey stick from hitting us any faster than necessary, was to bring Iraq online in a free market, not working in conjunction with OPEC… forcing OPEC prices in the future down by half or more – I’m talking about an extra 10-20 years, where oil costs $250 instead of $700 a barrel – which ain’t peanuts. It also means our enemies selling much more of their oil (their treasure) at the $250 price (say 2-4x as much sold) in order to prop themselves up – depleting their resources faster, and keeping our money in our own country for the next 20-30 years. This could quite frankly be WHY the next two generations of Americans (our sons and daughters) may/can/will continue to live at the top of the heap globally – until it is their job to figure out HOW to buy another two generations the same privilege.
That’s just my conspiracy theory, but its my gut.