Here is the latest minor consumer insult: owing more on your vehicle then its worth. Its not the same as being underwater on a house — you can always drive the car until it falls apart, so its market value is irrelevant.

“For consumers, the credit crunch may have a silver lining.

“Dealerships are desperate to sell cars,” said William Ryan, who follows the auto finance industry for Portales Partners, an independent research firm in Manhattan. “The reality is, you are probably going to get a pretty good deal if you can afford it. There is a lot of heavy discounting going on.”

On average, automakers are doling out incentives worth more than $2,675, up 23 percent from a year ago, according to the auto information site Edmunds.com (which lists rebates on its site). Some dealers are discounting S.U.V.’s by more than $10,000.

Automakers have reported falling sales numbers for months, with the annualized sales rate for October the worst in 25 years, according to data compiled by a trade journal, Ward’s Automotive Reports. Automakers are on pace to sell fewer than 11 million vehicles in 2008, about a third fewer than the annual average of the last decade. Although 2009 models are in showrooms, last year’s vehicles remain on dealership lots, and unusually high inventory-financing costs are giving dealers more reason to clear out the surplus by offering sweet deals.

“It’s a buyer’s market right now,” said Adam J. Renie, sales manager at Gray Auto, an independent used-car dealership in Greenfield, Ind. “Anybody who is an able buyer, you are making sure they end up in your vehicle.”

I suspect you may see even more incentives next year . . .  but don’t dawdle too long.

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Source:
Strategies for Car Shopping in a Time of Tighter Credit
ERIC DASH
NYT, November 20, 2008

http://www.nytimes.com/2008/11/23/automobiles/23LEND.html

Category: Digital Media, Markets

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2 Responses to “Underwater Cars”

  1. awilensky says:

    You don’t know the half of it regarding motorcycles, in particular, Harley Davidson. They issued loans to every stiff with a paycheck stub, sometimes with the name not matching the loan docs.

    Their default rate is approaching 80%, HD credit has cut back consumer loan underwriting for all but the highest FICO scores. HD’s in defualt are easy to crash, to burn, and to strip. Need I say more, other than that HD is about to close its Yorktown, PA plamt.

  2. DP says:

    You know, a lot of people technically “underwater” in their house did actually buy a house they could afford to live in and bought it because they wanted to live in it. Other than speculation there was this whole group of crazy out of touch people (like me) who bought a bigger house because they wanted to live in a bigger house with no real thought for what it’s value might be in 5 years. Perhaps that’s dumb, because it’s based around mundane things like enjoying your life, raising a family and finding a better school than it is market returns, but it is what it is.

    I’m technically 150k down on this house, but either (a) I continue to live here as planned or (b) I move “up” another level and the next house is probably 250k+ less than it would have been at the peak, so really, am I better or worse off? In reverse, if this house had gone UP 150k on paper instead then either (a) I continue to live in it as planned or (b) the next house costs me 250k more than it would.

    Not to downplay the overall situation, obviously it is bad. Just making the point that “2 million people underwater in their house” does not necessarily mean “2 million people about to default”.