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Auto watch: New-car incentives forecast to rise

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Comments (25)
  • funfun
    , contributor
    Comments (2568) | Send Message
     
    Accelerating the rapid deterioration in used car prices? Delightfully defective Chevy CoBALKS and Saturn IONS and a score of other fabulously flawed GM models.

     

    From an investor's perspective, millions of recalled GM cars under the dark cloud of serious defects and failing parts will pressure used car values and may require expensive new car incentives by GM. In short, a margin squeeze at GM?

     

    …funfun..
    13 Aug, 01:34 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (4198) | Send Message
     
    Recalls do not create a fall in used car prices. Used car dealers should only be selling cars that are up-to-date on their recall work. I've never met anybody who was afraid to buy a used car because they thought it might need recall work. Recalls are done at the expense of the manufacturer.

     

    Lower used car prices are caused by a greater supply of used cars or less demand for them, or a combination of the two. We know that the US car industry is up by 9% year-over-year, so that also means 9% more used cars going onto the nation's used car lots. Apparently there are not 9% more used car buyers.
    13 Aug, 02:03 PM Reply Like
  • funfun
    , contributor
    Comments (2568) | Send Message
     
    "Recalls do not create a fall in used car prices."

     

    Hmmmm…So the millions of GM cars with deadly defective ignition switches have had no negative effect whatsoever on used car values, the used car prices of Chevy CoBALKs? No damage to the GM brand? Like this massive consumer product fraud generating hundreds of deaths and injuries never happened? No "greater supply" of used CoBALKS because eager buyers are snapping them up?

     

    What a surprise. We learn something new every day about General Motors.

     

    …funfun..
    13 Aug, 02:15 PM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    Used car price changes in a free and open market are based on supply and demand.

     

    If the used car market is suddenly flooded with traded-in cars that were awaiting recall work, and there are not a corresponding number of used car shoppers looking for them, then yes the price of used cars as a class falls.

     

    Remember - some of those millions of recalled vehicles will be waiting for months to get parts for repairs. Some folks don't want to wait, especially if it is truly a matter of life and limb.

     

    But another factor should be considered. Used car prices were actually lifted during and after the recession going into recovery, as large numbers of concerned folks deferred buying or leasing a new car, and purchased a used one instead, and the used car supply dwindled accordingly. If the attitude of those folks in a growing economy is changing back to getting a new car with all the warranty and perks, then used car prices would naturally fall.

     

    So again - the price of used cars should be expected to fall in a high supply, low demand market.

     

    Whether as a result of declining used car prices, average folks who were already planning on a new car suddenly change their mind and go after a used one instead simply because the price is a bit lower, is a rather secondary effect and not well proven. In other words, it remains to be seen whether folks will actually change their minds and go used. Usually such changes in household strategy happen only as a result of major economic or political crises, or outbreaks terrorism and/or wars.

     

    What instead might sensibly be expected to happen is, those frugal folks who have been driving older vehicles beyond the normal age and miles (10 yrs, 150k miles), but never had any intention of buying new again any time in the near term, might be tempted to upgrade their old worn-out vehicle by a few years, if a great deal appears.
    13 Aug, 03:45 PM Reply Like
  • lemm
    , contributor
    Comments (407) | Send Message
     
    funfun,What is a CoBALK?
    13 Aug, 03:50 PM Reply Like
  • funfun
    , contributor
    Comments (2568) | Send Message
     
    A Chevy CoBALK is a Chevy Cobalt with a deadly defective ignition switch which can suddenly, without warning switch from "on" to "accessory" and cripple the steering and brakes and cancel the ignition of air bags. Hence, the parodic name, Chevy CoBALK. Most readers instantly got the mild humour

     

    For more information, read the court documents in cases brought for redress and justice by victims or surviving family members of dead victims, driving the Chevy CoBALK and their ensuing catastrophes.

     

    …funfun..
    13 Aug, 04:27 PM Reply Like
  • lemm
    , contributor
    Comments (407) | Send Message
     
    I know what a Cobalt is, and I think it was mildly humorless if you want to know the truth,actually kind of silly.I don't think you can tell me any thing about autos that I don't already know about the American makes such as GM and Ford.JMO.
    14 Aug, 05:52 AM Reply Like
  • Ryandan
    , contributor
    Comments (1614) | Send Message
     
    funfun

     

    You have really be pounding on GM lately, but they are still outselling Ford in market share, etc. Why?
    15 Aug, 01:41 PM Reply Like
  • funfun
    , contributor
    Comments (2568) | Send Message
     
    Like the intractably corrupt Bank of America has a larger market share in the banking business than superior-managed U. S. Bancorp or BB & T.

     

    As Bank of America is the country's leading force in serial fraud and law-breaking in the 21st century, General Motors is the leading force in consumer product fraud and cover-ups.

     

    …funfun..
    15 Aug, 01:46 PM Reply Like
  • Ryandan
    , contributor
    Comments (1614) | Send Message
     
    Great comment lemm.
    15 Aug, 04:24 PM Reply Like
  • mikeRetirement
    , contributor
    Comments (173) | Send Message
     
    "In short, a margin squeeze at GM?" answer: no.
    13 Aug, 01:36 PM Reply Like
  • june1234
    , contributor
    Comments (2626) | Send Message
     
    http://buswk.co/QFIUay. 27% of 13 auto sales were subprime. What are they going to offer next. We take 1 BK but if you've had 2 and promise not to do it gain we'll let you drive off the lot with the car. OK?
    13 Aug, 02:02 PM Reply Like
  • crazty4tennis
    , contributor
    Comments (542) | Send Message
     
    GM Cobalt and Saturn lines are the most ridiculously looking things on the road and in the wholesalers lots. These vehicles should be placed on the auto crusher wagon on hauled off to the used steel heaps!
    13 Aug, 05:14 PM Reply Like
  • rwbrown.bvf@gmail.com
    , contributor
    Comments (77) | Send Message
     
    I remember when the whole Saturn idea was supposed to be the greatest thing
    since sliced bread. "Bottom-line, no-negotiate sticker prices", dent resistant
    plastic body panels, BIG new $5 billion factory in Tenn., "feel-good" customer
    groups, etc. What another cruel GM joke. Like turning SAAB into an orphan
    company so GM could use their new modern plant to build Opels. Like siamesing
    the center cylinder exhaust ports on their small block V8 to save 50 cents per
    exhaust manifold (and creating a hot spot in the middle of the cylinder head).
    Like the Vega- it was always a race to see whether the engine would wear out
    before the body rusted back into the earth!
    13 Aug, 06:57 PM Reply Like
  • Ryandan
    , contributor
    Comments (1614) | Send Message
     
    rwbrown

     

    You should have included Ford in your rememberance. Both car companies are a disgrace when compared to the off shore companies.
    15 Aug, 01:47 PM Reply Like
  • J38765
    , contributor
    Comments (188) | Send Message
     
    The real takeaway from this article is the impact on domestic automaker stocks as the manufacturers begin to ratchet up incentives. Increased incentives lead to lower margins which lead to earnings misses which leads to lower stock prices. Once the incentives start to rise you can throw away all the carefully constructed estimated earnings calculations. The seemingly inevitable loss of pricing discipline is just one reason The Automobile company stocks are great for trading, but terrible long term holds.
    14 Aug, 07:28 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    It all seems to be based on a long train of dubious assumptions:

     

    1. Used car prices may be dropping on low demand as people are changing back to new car purchases in the post recession environment

     

    2. Seeing those used car prices dropping will make people change their mind about buying new, and switch back to used.

     

    3. Auto dealerships will see people flocking over to the used car lot across the street instead of the new car showroom.

     

    4. Automakers will be forced to give money to dealers in order to bribe consumers into coming back to the new car lot.
    14 Aug, 07:59 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    It all seems to be based on a long train of dubious assumptions:

     

    1. Used car prices may be dropping on low demand as people are changing back to new car purchases in the post recession environment

     

    2. Seeing those used car prices dropping will make people change their mind about buying new, and switch back to used.

     

    3. Auto dealerships will see people flocking over to the used car lot across the street instead of the new car showroom.

     

    4. Automakers will be forced to give money to dealers in order to bribe consumers into coming back to the new car lot.
    14 Aug, 07:59 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    It all seems to be based on a long train of dubious assumptions:

     

    1. Used car prices may be dropping on low demand as people are changing back to new car purchases in the post recession environment

     

    2. Seeing those used car prices dropping will make people change their mind about buying new, and switch back to used.

     

    3. Auto dealerships will see people flocking over to the used car lot across the street instead of the new car showroom.

     

    4. Automakers will be forced to give incentive money to dealers to use to bribe consumers into coming back to the new car lot.

     

    5. Automaker earnings at the wholesale level will be reduced.
    14 Aug, 08:00 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    It all seems to be based on a long train of dubious assumptions:

     

    1. Used car prices may be dropping on low demand as people are changing back to new car purchases in the post recession environment

     

    2. Seeing those used car prices dropping will make people change their mind about buying new, and switch back to used.

     

    3. Auto dealerships will see people flocking over to the used car lot across the street instead of the new car showroom.

     

    4. Automakers will be forced to give incentive money to dealers to use to bribe consumers into coming back to the new car lot.

     

    5. Automaker earnings at the wholesale level will be reduced.
    14 Aug, 08:00 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    It all seems to be based on a long train of dubious assumptions:

     

    1. Used car prices may be dropping on low demand as people are changing back to new car purchases in the post recession recovery environment.

     

    2. The supply of used cars is at record highs because people are finally trading in their old cars after years of deferring such purchases. Many are also trading in their lease cars, getting a new one.

     

    3. But seeing those used car prices dropping will somehow make people change their mind about leasing or buying new, and switch back to used.

     

    4. Auto dealerships will see people flocking over to the used car lot across the street instead of the new car showroom.

     

    5. Automakers will be forced to give incentive money to dealers to use to bribe consumers into coming back to the new car lot.

     

    6. Automaker earnings at the wholesale level will be reduced.

     

    Not saying it can't happen, but it comes back to the REASON why used car prices are dropping is specifically because so many people don't want them, and there is now a glut of them due to people finally trading in their old worn out used cars after deferring purchases in the Great Recession, and their expiring lease cars.

     

    Some folks who were perhaps on the fence on replacing their old car with a new car, versus getting a slightly less used car, may well see an opportunity to make a modest upgrade for now, and in the process get some of those 10+ year old cars off the road and into the junk yard.
    14 Aug, 08:01 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    OK - no idea what happened here with the multiple posts, appears to be a system glitch.

     

    If a moderator could delete the 'extras' that appear before the last one, it would be appreciated.
    14 Aug, 09:42 AM Reply Like
  • J38765
    , contributor
    Comments (188) | Send Message
     
    Interesting that Ford launched a major escalation in incentives weeks ahead of the traditional holiday sales period. GM of course followed Ford as the incentive "arms race" heats up. My fear that Ford would quickly lose its pricing discipline after Mullaly left appears to be playing out. As incentives rise you can expect a corresponding decline in margins and profits that will upend profit forecasts for 2015 and 2016. It seems the manufacturers will never learn their lessons on incentives. The drive for market share consumes them and leads to overly ambitious production volumes that must be cleared out by ever escalating incentives. Ford will hit $15.00 long before it it's $18.50.
    15 Aug, 08:08 AM Reply Like
  • Tdot
    , contributor
    Comments (3894) | Send Message
     
    You are aware of course that it is the time of the year for autumn clearance sales, yes? Actively clearing out the dealership inventories of current 2014 models to make room for 2015 models, which should be coming in droves soon if not already? Selling leftover 2014 models side by side with 2015 models naturally pushes down net pricing on both, and the solution is to get rid of the 2014s.

     

    Of course, it makes it a buyer's market instead of a seller's, and folks looking for a god deal for the "back to school" season are looking for a compelling reason to buy right now. Waving an extra $300 under their noses, for a vehicle with a $7500 average markup to sticker price, is not that big a deal.

     

    Even so, there is no proof that any such thing is happening! TrueCar simply ASSUMES that incentives will go up 11% over the next 2 years as used car lots deal with the glut from trade-ins and lease returns. As assumptions go, this one seems a little presumptive.

     

    Ford, for their part at the least, says every time they are asked that they are not interested in trading profits for market share, which is what drove the (other) automakers into bankruptcy in the first place. Ford adjusts incentives for each vehicle line, to balance and optimize sales for maximum profits, not for maximum market share.
    15 Aug, 10:02 AM Reply Like
  • Ryandan
    , contributor
    Comments (1614) | Send Message
     
    J38765

     

    Right there with ya J. More and more people are coming around to the fact that Ford and GM have peaked out and all the P/E formulas in the world aren't going to drive those companies much higher. Ford gets hammered if it even touches 18, going past that would take a major effort and you'd be standing on a trap door higher than 18.

     

    An article that was out a few months ago showed that analysts are wrong 50% of the time. Which makes them useless.
    15 Aug, 01:55 PM Reply Like
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