The reason for the car price bubble may not be what you think: Doug DeMuro explains
If you’re within earshot of someone buying a car, selling a car, or even just keeping up with the daily news, you understand the bewilderment the auto industry is for consumers. Due in large part to a pandemic that we are still going through, interest rates on loans have been at historic lows for a long time. As the world returns to some sense of normalcy, consumers are eager to offload cash, and regardless of the chip shortage, all auto markets have been turned upside down, as Doug DeMuro explains on his YouTube channel. .
Lending rates allowed an influx of cash
Resident hero at HotCars, Doug DeMuro is best known for his quirks and features. But years before, he honed his skills as a vehicle dispatch manager for Porsche of North America, which allowed him to make educated guesses about the cause of this major ripple effect.
While the chip shortage has only exacerbated this automotive bubble, it’s not the only direct reason. Coupled with historically low interest rates, people are ready to take on more debt than ever, and with no new cars available for purchase, consumers are ready to settle for used cars.
With more people turning to the used car market than ever before, we’ve seen a bubble shape, over the past 18 months, of epic proportions. As Doug also explained five years ago in an Autotrader op-ed, when an ordinary Joe sells his Honda S2000 at the right time, he can receive a higher price for it. Perhaps because of the limited number of examples for sale or the nostalgia of a specific buyer.
But when the rest of the S2K market sees the exorbitant price their car is now worth, the average enthusiast starts unloading their S2000.
This is where people with cash ruin it for the rest of the S2000 fanatics. They see a car rapidly increasing in value, so what do they do? They throw away the $20,000 they have as an investment, which further increases the value. Once all the enthusiasts have sold their S2000, the market is completely dominated by collectors.
But this is where we can see an end in sight. Once the used car market becomes collector-only and new cars catch up with demand, cars will once again become a depreciating asset.
Of course, the obvious examples like E30s or air-cooled Porsches might never come down again. But once Honda Clarity plug-ins stop selling for double the MSRP, the cascading effect will change course and reverse its direction.
Collectors will begin to focus on new cars destined to be future classics, and regular S2K enthusiasts will begin to find low-cost examples. Thank you to the collector sales to complete their next purchase.
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