National Motorists Association Blog

People who’ve longed to buy a classic car may be thinking now is a great time to go shopping for one.

Maybe. But classic cars are not like new cars or even used cars.

Classic cars are an indulgence, while new/used cars are necessary appliances. No one needs a classic car. Those who own them tend to be people who could afford the indulgence—who own one in addition to their “appliance.”

Some people will indeed need to sell their classic car to raise some cash due to the COVID-19 crisis, but the people who buy them will be people who can afford the indulgence.

Such still exist and will continue to exist, despite the Coronavirus.

Classic car prices will continue to be high, probably because the supply is inherently limited.

Even before the current crisis, classic muscle car prices were so high they priced most average people out of the market. Even fairly run-of-the-mill cars like my ’76 Trans-Am sold for about what you’d pay to get a new Camaro or Mustang, which is a lot of dough for most people. Unlike a new or used car, classics are harder to finance and much harder to justify to the wife.

For these reasons, it is doubtful there will be many deals on classic cars even if the economy collapses. The rich will always have money and be able to indulge.

However, there will be spectacular deals on new and used cars.

A tsunami of new car inventory has built up during the past two months of the lockdown. Dealerships are heavy with cars they haven’t been allowed or able to sell and are now desperate to move that accumulated inventory for two reasons: the money they owe on the cars that are piling up on their lots.

Dealers take out loans to buy their inventory; there is a debt outstanding on every car on the lot. The revolving debt rinses and repeats with each billing cycle. Every billing cycle that goes by without a sale means another payment to the finance company, which shaves an equal sum off the potential profit the dealer stands to make on each sale.

Dealers assumed they’d be making some cash, pre-Corona. They stocked up on cars back in January and February, and they assumed many of these vehicles would be sold in March and April. Back in January and February, dealers thought this was the smart thing to do because unemployment was at a record low and people with jobs tend to buy new cars.

Gotta have inventory!

The Coronavirus has been a devastating uppercut, followed by a killer right that no one saw coming. Now it’s spring going into early summer, and dealerships all over the country are overflowing with hundreds of thousands of unsold cars they have to move to stay afloat and not just to clear accumulating the debt.

These new cars have a limited shelf life, just like a supermarket avocado. A 2020 model is worth less and less as 2020 rolls along. The 2021 model year is already upon us, and they are considered the new cars now. That means the 2020s are beginning to show signs of over-ripeness.

By late summer, not too many months away, the remaining inventory of the 2020s will have to be fire-sold. Dealers need to get rid of them before fall and absolutely before the 2020 calendar year ends. The 2020s become last year’s leftovers, heavily discounted to make space on the lot for the arriving 2021s. The tsunami is coming.

Automakers are already helping dealers offload current models by offering free (zero percent) financing and no-payments-for months deals. Essentially, for car buyers, this means a free car for the duration of the deal.

This scenario will prove to be a catastrophic one for manufacturers. This reboot is similar to the early 2000s when Mitsubishi moved a lot of inventory when it “sold” cars for no money down, no interest, or payments for a year. The company found it had no cash flow and these car owners gave back the cars when the deal expired. Mitsubishi almost slept with the fishes over that one.

This time, it is likely several brands will sleep with the fishes. Nissan was green around the gills before Corona. Ford and GM seemed wobbly, too. “Gather ye rosebuds and ye cheap deals while ye can.”

There may be even better deals available on used cars. Or rather, on repossessed cars. There will be millions of these flooding the market because of 33 million and counting people have lost their jobs and with them, the ability to continue making car payments.

Try to imagine the mile-high wave of debt represented by all those financed cars; the outstanding loan balances that are going to have to be written off or written down, massively.

Each new car repo’d represents a loan and monthly payment predicated on a new car transaction price. The repo car is a depreciated used car. Ordinarily, this deficit might be made up for by higher interest (and thus, higher payments) on the used car loan. But 33 million unemployed people can’t afford that, either. Besides which, the sheer number of defaults and repos will be haltingly huge—a glut of cars that the system cannot absorb, even in good times.

But in catastrophic times?

There is an upside to this catastrophe if you are lucky enough to have money. Not debt, which afflicts most Americans. Money. The ability to stroke a check or put a stack of bills on the table.

If you are one such, you will enjoy the leverage of a magnitude unprecedented in the history of the American car business. Your ability to buy will make you king. Rather, autocrat. A czar—and not the Nicholas II variety. Think Peter the Great.

You will be in the driver’s seat and able to write your own ticket.

Comments?

www.ericpetersautos.com