New Car Sales - 2008 To 2009 - Sliding Over The Edge

[WB2YGF]

Ah fellows, we may want to direct this back on track, lest thee who moderate be tempted by thine comments to pull thou post. 

Yeah, so sales of cars are down, but a new car is at the top of the list when it comes to expenses that can be cut.  Most people can make their cars last a lot longer than they do.  It's just that new cars are status and pleasure, not required for survival.  A brand-spankin' new car doesn't rate nearly as high when you are in fear of losing your job.

Warren Buffet says, Americans have a new attitude about spending and debt.  I don't believe it.  A spending diet is like a weight loss diet.  You go in with the best of intentions but eventually, you can't stand being deprived any longer and go back to old habits.

[k4kyv]

Then why is Medicare the largest cost growth amongst plans? Single payer plans aren't necessarily all that.

The Medicare "risk pool" is all high-cost elderly, and as the boomers retire, this population increases.  Meanwhile the population of young workers paying into the Medicare system is going down.

Add to that the fact that the overall cost of medical care, not considering the source of payment whether 3rd party or by the patient, is increasing at about double the average rate of inflation.

Insurance companies negotiate with doctors and hospitals for a deep discount.  If you are uninsured and have to pay fully out of your own pocket, you pay the full price.  You get to bend over and touch your ankles twice.

[Steve - WB3HUZ]

Not really. Usually the no insurance cost is less than the insurance cost. The docs know just how much they can charge the insurance and they charge exactly that much, whether it costs that much or not. Been there. Paid both ways.

[WB2YGF]

Not really. Usually the no insurance cost is less than the insurance cost. The docs know just how much they can charge the insurance and they charge exactly that much, whether it costs that much or not. Been there. Paid both ways.

This study seems to indicate that you can't make generalizations.  Sometimes the patient is required to pay list, sometimes not.  In most cases the cost was far greater than Medicare pays.  The insurance company price was probably not available to the researcher.

The Uninsured Patient Experiment
http://www.ucomparehealthcare.com/blog/20061127/the-uninsured-patient-experiment/

[Steve - WB3HUZ]

Did the study include all the uninsured patients who paid zero?

Not really. Usually the no insurance cost is less than the insurance cost. The docs know just how much they can charge the insurance and they charge exactly that much, whether it costs that much or not. Been there. Paid both ways.

This study seems to indicate that you can't make generalizations.  Sometimes the patient is required to pay list, sometimes not.  In most cases the cost was far greater than Medicare pays.  The insurance company price was probably not available to the researcher.

The Uninsured Patient Experiment
http://www.ucomparehealthcare.com/blog/20061127/the-uninsured-patient-experiment/

[WB2YGF]

Did the study include all the uninsured patients who paid zero?

Steve.  People who have no income or net worth, or qualify for medicaid, automatically pay zero.  You can't get blood from a stone.  What's to study?

If I have a job and can make payments over time, the hospital is not likely to give me a freebie.  They are in business to stay in business.

[WB2YGF]

Think it likely new vehicle sales, post-recovery, will be significantly lower than the average over the past several years. Purchase of big-ticket items by cashing out home equity is reduced for the forseeable future.

I have faith in the American consumers capacity to spend.  They will just go back to getting regular car loans just like the old days. 

Besides...my home equity credit line hasn't changed one bit, except the interest rate is a LOT lower.  I can't be the only one.

[K3ZS]

Cars are now much more reliable and don't rust out like they did in earlier years.  There is less of a new car culture than in the 50's.    I remember when I was a kid,  it was a special event when the new models came out every year.    Now I find it hard to believe that my first new car is 14 years old, still works like new and just got its first rust spot.

On the insurance topic,  I am retired without dental insurance, not such a big deal as compared to being without medical insurance.    Having had some dental surgery and implants, I negotiated with the doctor the price before hand.   This works for both parties.   The doctor gets a good check for the procedure before anything happens,  I get to pay about 50% of what would normally be charged if I had the insurance.    When I had insurance I was hit with a big bill because the dental insurance was "post max", i.e. it had already paid out all the yearly benefits.   If I had known what PM meant on my statement, I would have not paid for the next quarter for insurance that covered nothing.   

[Steve - WB3HUZ]

That's my point. The study is flawed.

Did the study include all the uninsured patients who paid zero?

Steve.  People who have no income or net worth, or qualify for medicaid, automatically pay zero.  You can't get blood from a stone.  What's to study?

If I have a job and can make payments over time, the hospital is not likely to give me a freebie.  They are in business to stay in business.

[W1UJR]

Cars are now much more reliable and don't rust out like they did in earlier years.  There is less of a new car culture than in the 50's.    I remember when I was a kid,  it was a special event when the new models came out every year.    Now I find it hard to believe that my first new car is 14 years old, still works like new and just got its first rust spot.

Right, just like any purchase, car sales are driven by either "Need" or "Want".
This a lesson that car manufacturers, and some large retail stores, seem to have forgotten.
Of course, customers often confuse the two, but most buying right now is occurring from the "Need" folks.
Folks "Need" a replacement car because they current model crapped out, was damaged in an accident, the cost of repair exceeds cost of a replacement car, etc.

The "Want" sales, driven by the desire to have the latest and greatest, vanity, keeping us with the Jones, has largely dried up.
Think of the guy trading in his perfectly functional CRT TV (or old tube radio) for the a spiffy new HD unit.
Sure its nice, but does he really "need" it?
This is why the new car manufactures and dealers are choking, both domestic and foreign.
Unfortunately they are also taking a double blow because many folks are choosing to buy in the used market, after someone else has already taken the deprecation hit.

With that said, once one looks at the true cost to buy a new car, the costs of repairing sudden look very attractive.
We have a list of items we mention to clients considering getting rid of "Old Faithful", some of which include:

1) Deprecation of the car, cars are not an investment, new cars take the biggest hit
2) Financing/interest costs on the auto loan
3) Increased insurance costs
4) Increased excise tax/registration costs
5) More complex technology, often costlier to service
6) Uncertain resale value/future of company

I agree, cars are indeed built much better today, rust is largely a thing of the past, and in the Euro car lines, engine and transmission replacement are nearly unheard of. Our bread and butter has shifted from the "repair" to the "service" business, with scheduled maintenance now the largest revenue stream into the business. Of course there is a double pay off for the customer, scheduled service prevents "surprises" keeps the car going strong for hundreds of thousands of miles, and in the end, improves resale value.

For example, we routinely use Volvos as service loaners, most of which are at the 200,000 and one at the 330,000 mile mark.
It is a great tool to illuminate the value of maintenance to new customers. Quite frequently, when giving out a service loaner, many folks come back in an ask if the car really has 200,000 miles on it? We're always happy to answer yes, and that's low milage, when you get to 300,000, then we'll talk.

Of course some folks are still following the "Crisis Maintenance" mode, calling and bringing in the car only when it breaks down.
These repairs are almost always more costly, along with being more inconvenient to both the customer and shop. You can spot these cars and owners right off, they usually have a long laundry list of problems with the car, and the driving decision is just to fix what is needed to get it back on the road. The list never gets attended to, and grows longer each year. I find these folks generally make poor customers, they follow the same practice with other areas of their life, and are usually behind on other bills, don't keep appointments, and are generally not happy people, always being tossed about by life.

We have a little exercise we use with these folks as well, we figure the annual comprehensive service costs for most cars is about 3-5% of the new car cost. For most folks if you set aside just $100 per month for auto maintenance, which is considerably less than a new car payment, you'll do just fine. Sometimes we save a few, sometimes not.

What I've found in this economy, and directed our marketing toward, is the value of keeping what you already own, and have already paid for. Value, rather than style and trends, seem to be the new watchword now, and I imagine will be for some time to come.

[K1JJ]

Maybe TODAY is the beginning of the big short covering rally UP we've been waiting for?

I liked the price action over the last few days where the market made a new low, then rallied, then slowly settled back to form a double bottom. Those type formations often lead to a big move up, like today.

Time will tell how far this goes, but if could be a big one, though later on in the month(s) ahead it will probably turn back and break down to new lows again as the bear mkt continues down.

The thing with these bear market rallies is that they are AGAINST the main trend. Corrections against the trend are MUCH harder to forecast than with the trend.   For example, when the market was in a bull market for all these past years, the corrections down were swift and fleeting as the market then moved to new highs. Now, the corrections UP are swift and sometimes fleeting.

Though, this particular correction up, if it pans out, is due to be of sizeable magnitude to correct the major damage done in the past 6 months.

Expect to see the talking heads jumping up and down and coming up with all kinds of specific NEWS reasons for the rally. Mostly BS. In reality, the reason for the rally is cuz the intermidiate bear time cycle has ended for now and the wave pattern has completed. Time for the correction up to unfold for a while and take a breather.  Just like an army that moves forward then retrenches for a while...

T

[W1UJR]

Maybe TODAY is the beginning of the big short covering rally UP we've been waiting for?

I sure hope so Tom, wish it was a real rally!
There is no one more than I that wants to see things change around, but I keep thinking of, and chuckling about, your "dead cat bounce" theory. 

[Steve - WB3HUZ]

During the Great Depression, new lows were hit in the 36/37 timeframe. This was often referred to as the depression in the depression. Many think it was the result of flawed government action.

Maybe TODAY is the beginning of the big short covering rally UP we've been waiting for?

I liked the price action over the last few days where the market made a new low, then rallied, then slowly settled back to form a double bottom. Those type formations often lead to a big move up, like today.

Time will tell how far this goes, but if could be a big one, though later on in the month(s) ahead it will probably turn back and break down to new lows again as the bear mkt continues down.

The thing with these bear market rallies is that they are AGAINST the main trend. Corrections against the trend are MUCH harder to forecast than with the trend.   For example, when the market was in a bull market for all these past years, the corrections down were swift and fleeting as the market then moved to new highs. Now, the corrections UP are swift and sometimes fleeting.

Though, this particular correction up, if it pans out, is due to be of sizeable magnitude to correct the major damage done in the past 6 months.

Expect to see the talking heads jumping up and down and coming up with all kinds of specific NEWS reasons for the rally. Mostly BS. In reality, the reason for the rally is cuz the intermidiate bear time cycle has ended for now and the wave pattern has completed. Time for the correction up to unfold for a while and take a breather.  Just like an army that moves forward then retrenches for a while...

T

[K1JJ]

I sure hope so Tom, wish it was a real rally!
There is no one more than I that wants to see things change around, but I keep thinking of, and chuckling about, your "dead cat bounce" theory. 

Heheheh... I see you've been reading my articles, Bruce...

Yes, the "dead cat bounce" would be the very weak rallies UP we've seen along the way this last 6 months. Because the main trend was down, these rallies are weak and instead of springing up strong, they hit the floor and bounce like a dead cat instead...

However, it's all matter of degree and where the market is in a cycle. If this is an intermidiate rally of a larger degree, this will not be a dead cat bounce but rather a sharper one up. The dead cat bounces will now start to occur on the downside in the form of shallow corrections down as the market trends higher for a while.  Everything reverses in pattern and magnitude for a while. (Assuming the rally is real.

BTW, hat's off to Eric/CAU who posted the other day that he thought the bottom was here.  (We're sounding like the talking heads now applauding and setting ourselves up for disappointment, right? ) 


Steve, from memory, I think the actual Dow bottomed in July, 1932 at about 40.5   -  It was about the time the banks were closed.  This was the lowest low in the Dow Index for the depression era.  Though, as you said, the bad economic conditions still persisted into the Panic of 1938, which didn't make a new low in the Dow Jones average itself.  That small sign of strength in the Dow didn't help the average citizen, however.  But it did signal a major double bottom over a five year period - a subtle, but major  signal of what was to come in good times.

T

[k4kyv]

Right, just like any purchase, car sales are driven by either "Need" or "Want". . .
The "Want" sales, driven by the desire to have the latest and greatest, vanity, keeping us with the Jones, has largely dried up. . .

Sure its nice, but does he really "need" it?
This is why the new car manufactures and dealers are choking, both domestic and foreign. . .

What I've found in this economy, and directed our marketing toward, is the value of keeping what you already own, and have already paid for. Value, rather than style and trends, seem to be the new watchword now, and I imagine will be for some time to come.

People are finally wising up to the "Invention is the mother of necessity" mentality.  That is what got us into this mess in the first place.

I remember thinking, during the contrived energy crisis back in 1974, whenever I would hear the dire warnings about how much trouble we were in because we were "running out" of energy, about how much more trouble we will be in if we don't run short of energy.  It took 35 years for that prediction to reach fruition.

http://www.citizensugar.com/1754626

[w3jn]

I would be sorely pissed if I had to spend $100 a month to maintain my cars.

Example:  94 Chevy K1500, owned 6 years, now has about 250,000.  I've put about 125,000 miles on it.

Clutch, linkage, and slave cylinder (thanks to my sister-in-law): $1200, fuel pump, $300, tires, $300, starter $30, alternator $50, front brakes, $50; plugs and wires, $100; total $ 2030 div 72 months = about $30/month fixing busted stuff.  Oil changes, etc., let's add another $10/month... and that's for a 15 year old vehicle that I paid $4000 to begin with.

The 04 Chrysler Sebring convert had 78,000 on it when my wife got broadsided.  Total busted stuff repairs in that time: $0 (only warranty repair was a leaking convertible top seal).  oil changes only in over 50,000 miles.  Would have needed tires and perhaps brakes in another 25,000.  So let's call that $500, plus 2 dealer checkups ($100 each), plus oil changes, let's say $1000 total over about 4 years, $21/month.  30 MPG, too 

[WA1GFZ]

$100 a month for car repair. Man I average less on payments over the life.
Are there people out there who pay that much. I wonder how I could get them to pay me to cut their lawns.

[WB2YGF]

With that said, once one looks at the true cost to buy a new car, the costs of repairing sudden look very attractive.
We have a list of items we mention to clients considering getting rid of "Old Faithful", some of which include:

1) Deprecation of the car, cars are not an investment, new cars take the biggest hit
2) Financing/interest costs on the auto loan
3) Increased insurance costs
4) Increased excise tax/registration costs
5) More complex technology, often costlier to service
6) Uncertain resale value/future of company

These are just my observations responding to your observations YMMV:
1) New cars need repair less often.  Time and aggravation have a value.
2) I pay cash, no finance cost
3) My insurance only goes up about 10% or so for a new car (assuming same coverage level).
4) Registration cost for a new car is the same as an old car in NJ.  I consider sales tax part of the purchase price.
5) I have never noticed an increase in cost for newer technology.  In fact, I see the opposite.  They still charge as much or more for a "tune up" and "lube" when there are no longer any points to adjust and grease fittings are sealed.
6) I typically run my cars till they have no resale value or I give them to relatives in need.

The other thing I notice is that as I track the running TCO/mile, I always get to a point of equilibrium.  The original cost/mile goes down when amortised over more miles, but at the same time the cost and frequency of repairs goes up and they end up canceling out.

So I have a choice.  I can keep riding in an old car indefinitely, or buy a new car and eventually get back to the same point of equilibrium.  IMHO, there is no advantage to keeping the old car if the cost/mile doesn't keep decreasing.

[WB2YGF]

$100 a month for car repair. Man I average less on payments over the life.

Unfortunately, my biggest expense is to take the car to the dealer for the 15K, 30K and 60K.  That alone can come out to $2000 or $44/month over 4 years.  The other two dealers are even more expensive.

[W1UJR]

Unfortunately, my biggest expense is to take the car to the dealer for the 15K, 30K and 60K.  That alone can come out $2000 or $44/month over 4 years.  The other two dealers are even more expensive.

Yep, toss in occasional tires, brakes, exhaust and other items not on the 15/30/60K list, and you are at that magic $100 figure.

Can it be lower? You bet! It can also be higher.
Like most stats, it is a bell shaped curve, where most fall in the middle, and a smaller number on either side.
Which reminds me of a great book by Herrnstein and Murray.

[Ed W1XAW]

$100 a month for car repair. Man I average less on payments over the life.

Unfortunately, my biggest expense is to take the car to the dealer for the 15K, 30K and 60K.  That alone can come out to $2000 or $44/month over 4 years.  The other two dealers are even more expensive.

Don't these services actually amount to little more than very expensive oil changes and a lot of checking?    I think Click and Clack were saying recently that the best thing to do with these is find an independent shop that can perform the checks at a fraction of the cost without messing up your warranty.   

Bruce,  In my mind the best savings thing you can do with a car is to buy an inexpensive model to begin with.   Buying the Scandanavian stuff is more for status or feel than overall cost as althought they do last forever, they cost a lot to begin with and the little white jacket service isn't cheap either.   I know that Crown Vics are capable of all the mileage that the Scandanavian and German stuff racks up, I'm reminded of this on my monthly trips to NY where the taxi fleet is mostly extremely high mileage Fords.   

Ed

[W1UJR]

A little more than just oil changes Ed, although there is a good amount of checking involved, some of the services do take several hours to complete. I'll post the service schedule for run of the mill Volvo below. I'm sure that you understand that this is not just a Volvo thing, Ford, GM, and other brands are similar, they all have a maintenance schedules, and require adherence to such while the car is in warranty.

As for service, yes, "Click and Clack" largely have it right, however, most qualified independent shops, those who have invested in both the training and proper diagnostic equipment, are not "cheap", let us use the more accurate term "inexpensive", either.
Comes into the old "cost vs value" discussion.

New car dealers are saddled with a huge set of stranded costs, and the margin on new car sales has gotten paper thin.
Some have sought to recover the aforementioned costs via the service department, once viewed as a necessary evil, now as a profit center.  Trouble is, service can not entirely subsidize the costs of the sales and other departments alone, hence the higher inherent service costs at dealership level. Most dealer service departments are staffed with pretty good folks nowadays, they have factory training, tooling, and have stepped up efforts to be more personable. I advise my folks when traveling, should they have a car problem and don't know a qualified, competent independent shop, to default to the dealer.

As for what car is best, that is the great thing about America, we have free choice to spend our money as we see fit.
Some folks like Burger King, some like Ruth Chris, neither choice is wrong. It's that old cost vs value discussion again.

When it comes down to to it, it really is like anything else, owning a car, or owning a home, both require regular attention and maintenance, and it is up to you what, when, where and even if you have it done.
Given the current market, looks like this analogy is even more accurate, as both are unfortunately now depreciating assets! 

Cheers,
Bruce

[k4kyv]

In the mid 70's a knowledgeable mechanic who had earned my 100% confidence, told me that I could expect to spend $300 a year for car repairs.  I entered that figure into the Westegg Inflation Calculator for 1976, and it spat out $1081.50 for 2007.  That jibes closely with the $100/month figure.

[WB2YGF]

Don't these services actually amount to little more than very expensive oil changes and a lot of checking?    I think Click and Clack were saying recently that the best thing to do with these is find an independent shop that can perform the checks at a fraction of the cost without messing up your warranty.   

A little more than just oil changes Ed

A little more?  My 60K includes replacing:
Air Filter
Fuel Filter
Spark Plugs
Coolant
Timing Belt

[W1UJR]

A little more?  My 60K includes replacing:
Air Filter
Fuel Filter
Spark Plugs
Coolant
Timing Belt

Answer again is...yep, you guessed it, "it depends".

Volvo
Timing belt service is not until 105K miles.
Same with the fuel filter.
Coolant, we like to flush as 60K, cheap insurance.
Trans fluid, synthetic, supposed to be lifetime
Spark plugs, on Volvo, generally 60K.

BMW
Trans fluid, lifetime on the automatics
Oil services about 10-15K miles

Mercedes, different story.
No timing belt, just chain, keep the oil clean, lasts the life of the car.
Spark plugs, 100K miles.
Fuel filter, newer cars, esp C class, don't have one, just a "screen" on the pump.
Trans fluid, synthetic, considered lifetime

Remember all of those "check and inspect" items, well sometimes it turns out that checking shows the part/fluid actually needs replacing.

Yep, its a brave new world.