Dracula and the Dawning Sun

Did you know that the percentage of new cars sales that are actually leases has risen from about 3-5 percent in the early-mid 2000s to more than 30 percent as of this year?

It appears about a third of the population — about five times as many as used to be able to — is no longer able to afford to buy new cars.

At least, not the cars they want — the $30,000 and up ones, laden with all the latest gadgets they want (plus the ones mandated by Uncle).

There are still new cars priced under $20,000 — and most people can still afford those. But they’re the slow-movers. And they’re disappearing — both because they are slow-movers and also because the government-corporate nexus is pushing electric and hybrid-electric cars, which are on track to become the only kinds of cars we’re allowed to buy.

The average car transacted for more than $30,000 last year. The average electric car will transact for much more.

But the monthly nut on a $30k-plus transaction is too high for about a third of the car buying population to grapple with — even when the payments are stretched out over seven or more years.

And so they rent — just like people who can’t afford to buy a house.

But there is an important difference. A house (or an apartment) is a thing of enduring value while a car is a depreciating appliance, like a washing machine or toaster.

But a house or apartment that X rented for $800 per month this year will cost the same $800 per month when Y signs the new lease next year.

Possibly, it will cost more. It is not unheard of for landlords to raise the rent.

Cars are very different.

They leak value almost from the moment they leave the assembly line — and hemorrhage it the moment they are driven off the dealership’s lot. At the end of its lease, a car is always worth less than it was worth at the beginning.

Usually it is worth about 30-40 percent less.

There is even a term for this — residual value.

As in, what’s left of its former value.

This is why payments can only be stretched so far. The new car’s price goes up, consistently — while its value goes down over time, just as consistently. That’s not good math — if you’re trying to sell new cars.

Or finance them.

Meanwhile, the ex-lease car goes on the used car market — where it will be sold for 30-40 percent less than its original value.

This is very good news for people in the market for a used car.

But the unprecedented deluge of ex-lease cars that are now flooding the market is very bad news for those trying to sell new ones. Because of the alternative they present to high-priced new cars. Keep in mind that most of these ex-lease cars are hardly used cars. Most will have less than 50,000 miles on them — and be less than five years old.

These cars may have lost 30-40 percent of their original value, but most have plenty of life left.

When good used cars were hard to find, it made sense to buy new — particularly for people who haven’t got the time, interest or ability to nurse along a fixer-upper.

This is what has driven the record-high number of new car sales (and leases) over the past ten years, since the crash of ’08.

One reason good used cars were hard to find circa 2008 was that Uncle had so many crushed. You may recall the odious Cash for Clunkers program.

We may see a repeat of this orgy of gratuitous destruction — in order (as before) to “stimulate” demand for new cars.

Another ominous harbinger of something not-good coming is the news last week that the private banking cartel which controls the country’s money supply — the “federal” Reserve — will be raising interest rates.

Dracula just saw the dawning sun.

Even a slight uptick in the cost of money will result in more leases — and an ongoing tsunami of hardly used off-lease vehicles flooding the market, each successive wave stronger than the last.

The car industry is utterly dependent on ready credit — and cheap money. If a third of new car “buyers” can’t — and have to lease — because the monthly payment is too high when there is no (or almost no) interest tacked onto the bill, what will happen when it is?

And what will happen if 40 percent — or even 50 percent — of all new car transactions are leases? Will everyone sign up for perpetual revolving debt?

Or will the government simply order the destruction of hundreds of thousands of owned cars in order to “stimulate” demand for the new ones fewer and fewer of us can afford to buy?

Got a question about cars — or anything else? Click on the “ask Eric” link and send ’em in!

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One Response to “Dracula and the Dawning Sun”

  1. James C. Walker says:

    Many people have found ex-lease cars to be the best bargains available, especially if they pay the roughly $1,000 extra for a Certified Pre-Owned vehicle that carries an extended warranty from the manufacturer. We purchased our second ex-three-year-lease 3 Series BMW last year at almost exactly 50% of the original sticker price. It was from the same dealer who originally leased the car, so the full service records were available. It has been great.