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Crewleader Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-04-11 10:55 PM
Original message
What's Driving the Surge in Auto Sales?
Weekend Edition March 4 - 6, 2011

The Return of Subprime


What's Driving the Surge in Auto Sales?

By MIKE WHITNEY



Subprime is back!



Only this time it's popped up in the auto market where it's triggered an impressive surge in sales. According to Marketwatch, General Motors February sales topped 45% to a robust 207,028 vehicles, way above analysts expectations. But soaring car sales have less to do with the allure of those gussied-up Silvarados than they do with "easy financing" for people with less-than-stellar credit. Here's a clip from an interview on Wednesday's Nightly Business Report with Autonation's President Michael Maroone that helps to explain what's going on.

NBR's Susie Gharib: Another dose of good news today from the auto world, a day after Detroit`s big three reported strong February sales. Autonation, the country`s largest seller of new and used cars, reported a big jump in its numbers. New vehicle sales rose 29 percent compared to a year ago. And U.S. brands made up 40 percent of sales. GM models were especially popular..... Mike, what about any kind of special deals or incentives to entice consumers to buy?

Maroone: Well, almost every day there`s a new incentive. They`re used in a very tactical manner. The incentives are relatively flat with prior periods. But today we saw GM announce zero percent financing, up to 72 months on specific models. We`re seeing Honda increase their incentives. Nissan`s got a very aggressive program. Toyota has been aggressive. So almost every manufacturer has something and it varies tremendously. It`s certainly tactically driven and it is stimulating business.

Gharib: What about on the credit side, for someone that does need financing, is it getting easier to get a loan or is it still pretty tough?

Maroone: Susie, it`s gotten much easier. The big driver of the recovery in 2010 was the restoration of credit. The change in 2011 is we`re now seeing an improving environment for sub-prime. So last year prime and near prime were more normal and this year we`re starting to see the sub- prime segment come along and that`s very important for our industry. (The Nightly Business Report)

Repeat: "72 months zero percent financing" to people with dodgy credit. Sound familiar?


http://www.counterpunch.org/whitney03042011.html
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Newest Reality Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-04-11 11:11 PM
Response to Original message
1. Ha! An auto bubble?
Yup. Then comes a glut of repos we may or may not hear about.
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Manifestor_of_Light Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-05-11 01:01 AM
Response to Original message
2. I don't know anyone buying a new car.
Everybody I know is driving their old shitboxen into the ground.

If your repairs spread out over a year are more than a car payment would be, then it's probably time to get a newer one.

I'm driving a 17 yr old American made in Detroit Japanese car with 118,000 miles on it.


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appal_jack Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-12-11 05:07 PM
Response to Reply #2
16. that was basically my case
Volvo V-40 with 140 K miles cost me ~$4000 in two years (damn shitbox).

When it needed brakes, an oilpan, and more, (another ~$3000), I traded it in to my local Toyota dealer (for $1500) on a 2010 RAV 4. I lost ~ 5 mpg, but gained ground clearance and AWD (both of which I needed).

The car payment is not exactly fun, but it's an expense I can budget for, unlike those surprise repairs.

-app
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northernlights Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-05-11 07:11 AM
Response to Original message
3. pffft! 118,000 miles is barely broke in...
I'm driving a 14 year old 'murkin made Japanese with over 220,000 on it. Still gets over 30 mpg and purrs like a kitten.

Good, I'm glad there is an auto bubble. That means there will be an auto bust. Hopefully when the time comes I'll be able to replace my antique roadster for a song...
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happyslug Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-14-11 09:05 PM
Response to Reply #3
18. Hay, my 1995 Jeep Wrangle, has 250,000 miles on it, engine runs like a top
Edited on Mon Mar-14-11 09:10 PM by happyslug
The Exhaust system needs completely rebuilt (I have patch it over the years), the engine broke off its engine Mounts, it needs four new tires (the brakes I have not looked at in two years, but brakes on the Jeep last 50,000 plus miles so not a big concern, but close to replacement time, the brakes passed last year, but I have my question for this year), and the front spring leaf broke off. These need to be repaired to pass inspection, my mechanic estimates about $800-1000 dollars.

In addition the windshield washer container is leaking and needs replaced, the driver's door is sometimes closing (It closes if you use the inside door release, but not the outside door release), the radio has NOT worked in years, the Glove box needs replaced (Both were damaged when the Jeep was last stolen), something is wrong with the front end (May be the spring, but I had to replace the connection between the driver's wheel and the front end a few years ago, it was holding together but clearly broken) and the front windshield frame is rusting. The Driver's side seat needs replaced (I am rough on seats). The Clutch was last changed at about 150,000 miles so while I have NOT felt any slipping, 100,000 miles on a clutch is a long time when it comes to a five speed manual transmission.

On the plus side, the engine and transmission work like a top, as does the four wheel drive (Which I used at various times this past winter).

Hay, it was a 1995 Jeep Wrangler, no one expects a smooth ride out of it (The 1995, while built by Chrysler had been designed by AMC before Chrysler took over AMC), it was a four wheel drive vehicle designed to go almost anywhere AND to be rebuilt to go places it was never designed to go. The carpet needs replaced and, while no holes at the present time, you can see the increase in rust over the last two to three years. It never did better then 22 mpg (most most trips it 20 mpg) but what do you expect from a Vehicle with all of the Aerodynamics of an open box.

I had to get rid of it last week (It is sitting in my mechanic Garage, he will get rid of it for me), the cost to repair exceeded its value and sooner or later you have to say enough is enough. I have a 1997 Dodge Dakota to drive, worse fuel economy but no car payments. The Dodge is in good shape, runs like a top (The Dodge has one bad side, no "feel for the road" like you had with the Wrangler, the Dodge has something called "Springs").

As to the bubble, it is mostly large Pickups and small cars. Large Pickup, mostly for the Construction, Farmers and other people who need a truck to move things (Mostly 3/4 ton trucks NOT 1/2 ton trucks), the difference is 3/4 ton truck has a truck undercarriage, while the 1/2 has a automobile type undercarriage, bodies on both tend to be the same but the key is the undercarriage (and thus a smoother ride with a 1/2 ton then a 3/4 ton, but you can haul more and it will last longer if you use a 3/4 ton). Most of the buyers of large Pickups are buying them having deferred replacing older vehicles over the last five years and sooner or later you have to replace them (Just like I am getting rid of Wrangler).

The other "big" segment people are buying are small fuel efficient cars. The Mid-size, Full-Size Cars and SUVs are not selling, it is the Compact and smaller cars (Thus you see ads for Buick, Cadillac. Mercury and other mid size and full size car models for they are NOT selling, but you see a lot less ads for Fords and Chevrolet do to ability to market smaller cars (GM, even before its bankruptcy was repositioning itself into two main segments, Chevrolet for the smaller car market, Buick and Cadillac for people who wanted larger cars, thus today Chevrolet does NOT need to advertise as much as Buick and Cadillac.

The present "Boom" in auto sales is more a "dead cat" bounce then a real boom (i.e as even a dead cat will bounce upward after being dropped from a large building i.e. the bounce is misleading it is a bounce as the market hits rock bottom). As to cars people have deferred buying a new car for years (Car sales since 2005 has been terrible) but Americans still need cars to go to and from work and you can only patch a car for so long till it has to be replaced. Thus, like the large Pickup market, this is more a market driven by people who has deferred replacing their cars that need replaced then any real new demand. I purchased my Jeep Wrangler new in January 1996 and used it till February 2011. I thus do not want a new car, I need a new car. Thus I am in the same market as most people buying a new car, out of necessity not want. That is NOT the grounds for a real boom in car sales, but only a slow return to normal car sales levels (and car sales are NOT even at the level of 2005, so this is NOT that much of a boom).
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barb162 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-05-11 04:14 PM
Response to Original message
4. Maybe at least a few people will turn in their SUVs and buy more
fuel efficient vehicles.

Gee, 6 yr no interest financing...sounds too good to be true.
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Kokonoe Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-05-11 05:32 PM
Response to Original message
5. People with dodgy credit should buy a ....
Toyota. Oh, I meant a Dodge.
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Kurmudgeon Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-06-11 05:01 AM
Response to Reply #5
9. I'm driving a 10 year old Dodge with over 230,000 on it.
My credit is good, and my Dodge still runs fine without ever a hint of uncontrolled acceleration, oil usage or any of the little foibles and eccentricities that foreign designed/powered cars tend to have. I could buy another vehicle, I just don't need to.
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notesdev Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-05-11 06:57 PM
Response to Original message
6. It's called "pulling forward demand"
GM will be bankrupt again inside a few years at this rate... this is exactly how they got into trouble before.
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girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-05-11 07:56 PM
Response to Reply #6
7. Yes, GM using the same playbook that failed miserably last time around.
Edited on Sat Mar-05-11 07:59 PM by girl gone mad
Running a car company like it's a bank. Relying on sales of overpriced, fuel inefficient trucks in the face of rapidly rising gas prices. Targeting consumers with bad credit and low income. What could possibly go wrong?

ETA: Pension funds will be left holding the bag on this one, too, since that's where the heavily diluted stock has been dumped.
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Adsos Letter Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-06-11 03:54 AM
Response to Original message
8. The fact that my daughters keep totaling my cars.
True statement.
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happyslug Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-14-11 09:17 PM
Response to Reply #8
19. I had a sister who did that to my 1990 Lumina
Every time she borrowed it, something broke. Generally it was tires (At least four went flat on her), then she was hit on the side as someone decided it was time to come out of his drive way as she drive by. She managed to get at least one more flat before she parked it in a safe, legal parking space, and as she walked to her home, watch a pickup lose its brakes on the ice covered roads and hit it, putting the final damage to that car. She claims none of the accidents were her fault (and none of them were but that did not stop me from saying she was the cause of the accidents) but she had no luck with that car. Another relative said it was because my sister called it a Lemonina when I first purchased it. The Car never liked the insult so went out of the car's way to NOT be driven by her.
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Cobalt-60 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Mar-06-11 05:30 PM
Response to Original message
10. Stupidity
Debt makes people into moneylenders' slaves.
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jacquelope Donating Member (364 posts) Send PM | Profile | Ignore Wed Mar-09-11 07:22 AM
Response to Reply #10
13. And sometimes
enough debtors go bankrupt and the moneylenders are sent crying for Government bailouts.
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AnneD Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-07-11 01:48 AM
Response to Original message
11. My car could have voted ...
In the next election cycle and was getting hit up for campaign donations.

I got a Doge Caravan 2008. Good gas milage and useful for gigs. It had low miles and I got a sweet deal. It is our work horse. We are in the market for another good gas milage car for distance driving. Our cars were starting to cost more to maintain. We drive them to the tire rims.
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phantom power Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Mar-08-11 03:29 PM
Response to Original message
12. That is pretty astonishing: that's a 6-year interest free loan.
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Taitertots Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-10-11 10:13 AM
Response to Original message
14. As long as they don't start securitizing them, dividing them into tranches, and converting those....
tranches into other highly rated securities, using those securities as collateral to purchase more auto loans, than we should be fine.

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golfguru Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-10-11 12:35 PM
Response to Original message
15. My wife bought a new Chevy last week because
Edited on Thu Mar-10-11 12:41 PM by golfguru
the dealer gave us invoice price + GM rebate for the model + GM loyalty rebate for
owning another GM car + accumulated rebate on GM credit card.

So we drove off with $10,000 off the sticker price! (on a $20,200 MSRP) with trade-in.
She was driving a 2001 GM car which was due for new tires, new battery, tune-up,
radiator flush, transmission oil change, new belt and hoses...all original equipment.
Plus I figured after 60,000 miles the car could need some repairs anytime.
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howaboutme Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-12-11 07:32 PM
Response to Original message
17. If it is about more debt
then Americans have learned nothing. Stay out of debt and let the banks starve should be the credo of all Americans. Punish the banks instead of going back to the same irresponsible ways.

I was hoping in a perverted way that the economy would be bad enough to created a long term mindset change among Americans, where we would understand that having it all now, is not as important as having it all paid for now.

The real impetus behind Congress handing out trillions in bank bailouts was to prevent behavior change. The big money people knew that once our behavior changes to become more responsible, that generations will pass before it reverts back to the irresponsible ways of old. Those that went through the Depression are still frugal.

The media and banks colluded with the politicians so that they are able to keep the hook in the consumer's mouth.
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Selatius Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Mar-18-11 02:36 AM
Response to Original message
20. What an idiotic way to drive demand, enticing people with unstable income to buy more.
This is exactly how the sub-prime disaster got going.
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