2015: The Bubble Bursts!

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Discussion

emicen

8,558 posts

217 months

Wednesday 11th March 2015
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Wasn't this post about the car bubble bursting? More than enough existing, long standing, posts out there for wannabe FT columnists to pontificate on.

E46 M3 CSLs are going to be interesting to watch if the prices of Porsches start cooling. Still looking at over £30k for a 60-70k miler. Struggle to see them continuing to rise.

Mr Whippy

28,945 posts

240 months

Wednesday 11th March 2015
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Totally agree.

We want to start a family and I've been looking at S3, M3 and S4 for 6 months and use up some savings into something usable rather than say losing value for no gain, but it looks like used car values are going up quite hard right now as posters have noted.
£10,000 for a nice S4 Avant v8 a year ago, now £12,000 or so for similar, if not more!

But then that is a perfect example of an asset class that will drop hard if bad times hit again so on balance is something else better for now? Ie renovate house or finish off mortgage if possible for example.
The fact they've gone up so fast is leaving me weary of sinking £6,000 into a car upgrade!



I agree the UK could get fixed for now but the fundamental ponzi system will come to haunt us again.

Only if we abandon both state and private debt at such high levels (or not at all) will we have buffers to ride the rough times.

I don't believe banks and politics want to change by choice. It'll have to reach boiling point and pop before things will change for the better (better for the majority)


Imo the best thing we could do today would be QE and build new motorways, monorails, maglev, bridges, gigabit network to every property. Literally invest the crap out of the country.
And socialise the jobs. No contracts and crony capitalism, just jobs for UK people today and stuff to show for that debt for our childrens benefit tomorrow! smile

Just my 2p anyhoo. But it'll never happen because that is giving back to the majority who are taking the future debt burden, rather than us taking the burden to give to a select few frown

Dave

355Chris355

Original Poster:

134 posts

112 months

Thursday 12th March 2015
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BCA reports 3 consecutive months of used car prices falling:

http://www.motortrader.com/automotive-news/used-ca...

Highlights:
- increased supply from cars reaching end of their lease deals and
- strong new car sales generating more supply as people trade in

Mr Whippy

28,945 posts

240 months

Friday 13th March 2015
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I've been looking around and stuff 2-3 yrs old seems to be roughly following the 20% per annum loss rate.

But stuff in the 4-6yr bracket seems to be nearer 10% per annum.

It's making me think an older car is a higher risk for correction vs a newer car... and also newer cars on balance are also better value for money assuming either corrections or continuation of residual performance in the 3-6 yr period of age...

Hmmmmmmm.

Dave

jonny70

1,280 posts

157 months

Friday 13th March 2015
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We will eventually have another bust unless you belong to the school of economics of Gordon Brown " who claimed to have abolished boom and bust".

Q/E , super low rates have distorted asset prices (Central banks have never done this before in history) Thats why asset prices have gone through the roof since 2007. At the moment we have almost 0% inflation, 0% wage growth yet house prices rose 10% last year and the stock market is at an all time high!

We dont need interest rates to rise to burst this asset bubble just an external shock like an EU default or China slows down further etc

Inflation was suppose to erode debt especially the colossal amount being carried by the government .The BOE never anticipated for inflation to be so low and its worrying for them as it doesn't erode the debt over time atm.


jonny70

1,280 posts

157 months

Friday 13th March 2015
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jonny70 said:
We will eventually have another bust unless you belong to the school of economics of Gordon Brown " who claimed to have abolished boom and bust".

Q/E , super low rates have distorted asset prices (Central banks have never done this before in history) Thats why asset prices have gone through the roof since 2007. At the moment we have almost 0% inflation, 0% wage growth yet house prices rose 10% last year and the stock market is at an all time high!

We dont need interest rates to rise to burst this asset bubble ,just an external shock like an EU default or China slows down further etc (strong school of thought that central banks dont want to raise rates as they know asset rpcies will fall yet look at federal reserve in America majorly loosening monetary policy in the period after 9/11 where did that eventually lead ? The credit crunch so leaving monetary policy loose for too long can also be bad!

Inflation was suppose to erode debt especially the colossal amount being carried by the government .The BOE never anticipated for inflation to be so low and its worrying for them as it doesn't erode the debt over time atm.

Robert Elise

956 posts

144 months

Friday 13th March 2015
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jonny70 said:
We dont need interest rates to rise to burst this asset bubble just an external shock like an EU default or China slows down further etc
funny thing about the markets is that the clever guys in there know all the risks and that the total debt is too large to service on all sides. It'll be a genuine black swan (not predicted but always possible) that'll kick the house of cards down. Then the crash will be sudden and deep and a new set of pundits turn up on tv. It's Emperor's clothes right now, and nobody wants to call anyone else naked wearing just a torn loin cloth.

jshell

11,006 posts

204 months

Friday 13th March 2015
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Robert Elise said:
jonny70 said:
We dont need interest rates to rise to burst this asset bubble just an external shock like an EU default or China slows down further etc
funny thing about the markets is that the clever guys in there know all the risks and that the total debt is too large to service on all sides. It'll be a genuine black swan (not predicted but always possible) that'll kick the house of cards down. Then the crash will be sudden and deep and a new set of pundits turn up on tv. It's Emperor's clothes right now, and nobody wants to call anyone else naked wearing just a torn loin cloth.
They're all making too much money right now...

richie99

1,116 posts

185 months

Friday 13th March 2015
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Meanwhile back in the real world I'm looking to spend 10k on a vehicle to replace my wife's recently written off Volvo V70. Fancied something with a bit more comfort as well as space so started looking at Lexus RX. Completely spoilt for choice with other options though. Hundreds of 5 series, choice of Range Rovers, RXs, a few Jag XFs, high mileage Q7's (but might not fit the bill as I was looking for something which didn't have solid bars for suspension, not keen on diseasels either).

5517

1,952 posts

244 months

Fl0pp3r

859 posts

202 months

Saturday 14th March 2015
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fido said:
6 years of interest rates at 0.5% .. that is what has happened!!
+1

Mr Whippy

28,945 posts

240 months

Saturday 14th March 2015
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richie99 said:
Meanwhile back in the real world I'm looking to spend 10k on a vehicle to replace my wife's recently written off Volvo V70. Fancied something with a bit more comfort as well as space so started looking at Lexus RX. Completely spoilt for choice with other options though. Hundreds of 5 series, choice of Range Rovers, RXs, a few Jag XFs, high mileage Q7's (but might not fit the bill as I was looking for something which didn't have solid bars for suspension, not keen on diseasels either).
The bigger less popular cars (no offence on your choices), are doing quite well now.

We'd been looking at maybe an S3, mkV R32, mk6 GTi, E90 330i, and other fairly rare hoonable family type cars in the 08-10 region... so getting on for a double round of 50% depreciation by now.

The retained value vs purchase prices are bonkers for this kind of stuff. S3's that were £28k new in 2008 are now £13k or so, so just about halved after 6 or 7 years, when you'd expect them to be more around £7-8k.

We went to look at a few cars yesterday. The lower end ones that are still retaining a strong value, were shocking quality. Ie, no full histories and random tyres around the car, and tatty interiors.

To find a car that looked good for it's age meant paying £15,000 for an 07 model with just under average miles, and a full dealer history!



Yet, look towards the Volvo estates or Q7 (not sure why they've been hit so hard on prices, oversold new and under popular used?) and stuff and the prices seem about in line with what you'd expect for age, average miles etc. And often these are coming with proper histories.



Whatever happens it'll correct soon in one way or another as people won't bother paying money for older cars when they can just buy newer ones for not much more money.

Dave

richie99

1,116 posts

185 months

Sunday 15th March 2015
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No offence taken Mr W. A bigger less popular car is just what I want. The market does seem in a strange way. More asked for Q5s than Q7s, for example. My wife was always on at me to get a 'cheap hatchback' as a runaround and I always pointed out that they aren't cheap because everyone is after one used. Now she's had had a major smash in a V70 she's gone right off that idea.

Contrariness aside, I need more space than you are looking for, 6ft 4 son being one reason, wife and daughter who need to take all their belongings with them whenever they go anywhere, another. I just prefer big cars.

Crafty_

13,248 posts

199 months

Sunday 15th March 2015
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Mr Whippy said:
The bigger less popular cars (no offence on your choices), are doing quite well now.

We'd been looking at maybe an S3, mkV R32, mk6 GTi, E90 330i, and other fairly rare hoonable family type cars in the 08-10 region... so getting on for a double round of 50% depreciation by now.

The retained value vs purchase prices are bonkers for this kind of stuff. S3's that were £28k new in 2008 are now £13k or so, so just about halved after 6 or 7 years, when you'd expect them to be more around £7-8k.

We went to look at a few cars yesterday. The lower end ones that are still retaining a strong value, were shocking quality. Ie, no full histories and random tyres around the car, and tatty interiors.

To find a car that looked good for it's age meant paying £15,000 for an 07 model with just under average miles, and a full dealer history!



Yet, look towards the Volvo estates or Q7 (not sure why they've been hit so hard on prices, oversold new and under popular used?) and stuff and the prices seem about in line with what you'd expect for age, average miles etc. And often these are coming with proper histories.



Whatever happens it'll correct soon in one way or another as people won't bother paying money for older cars when they can just buy newer ones for not much more money.

Dave
Agree with this. A local indie has a 3 year old golf gti mk6, granted only 18k on the clock but he wants £21k for it. You can buy a new one from a broker for £23kish.

I keep looking at used M135is, then go run the numbers on the new facelift car and there seems little point in buying used.

Far as S3s go, the local main dealer wants £20.5k for a 2012 car thats done 65,000 miles.

£20k it seems, gets you nothing, add a little more and you can be in a brand new car. I can't figure it out.

I don't know if leasing has something to do with this? are there only a finite number of used cars around ? in the case of the S3 there are only 5 within 50 miles of me.

Mr Whippy

28,945 posts

240 months

Sunday 15th March 2015
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I'm glad to see I'm not the only one struggling to grasp the current pricing.

It seems it all started in 08/09, so QE and super low lease rates from dealers has likely distorted markets a bit.

And I can't see many people buying cash outright either.

So people stumping for these expensive old used cars on personal finance must be supporting the prices, but Cripes they have a lot of equity to lose if prices do collapse ala 07/08 period.


It kinda has echos of the U.S.A sub prime auto debt written all over it.

Ok a different thing but the end result is people being sold over prices stuff they probably should afford on 5yr term loans at way above base rate interest.

After housing the ponzi moved onto cars to get it's fix of bad debt to leverage on.



Probably best not buying one now and keep the money in the bank though that isn't ideal either...

Or do a pure lease on a new car and call the monthly the depreciation you'd likely suffer in the next 2-3yrs on a stupidly over valued used car that is gonna drop hard enough to out-loss the new car on lease!

Dave

Crafty_

13,248 posts

199 months

Sunday 15th March 2015
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Maybe its related to the GFV values for PCPs and the like. Manufacturer puts those out, so when cars come back from their first owner there is a base price that everyone works from. Indy dealers look at main dealer prices, knock a bit off and we end up with high prices.

The surprising thing is that the cars do seem to move on - I've seen probably half a dozen M135s disappear off the AUC site in the past week or so, there are only just over 30 in the entire network.

Not sure I see any wholesale correction coming for stuff under 5 years old (classics may be a different matter). the reason I say that is no-one seems to be buying for cash. Loans or PCP on used are cheaper than the same on a new one, so instead of saving a chunk of money and buying, people are using finance more, they can't afford finance on a new one, so used is the route they go.
Certainly manufacturers are in no rush to drop prices on new stuff, which would help the used market become a bit more affordable/sensible.

Mr Whippy

28,945 posts

240 months

Sunday 15th March 2015
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Crafty_ said:
Maybe its related to the GFV values for PCPs and the like. Manufacturer puts those out, so when cars come back from their first owner there is a base price that everyone works from. Indy dealers look at main dealer prices, knock a bit off and we end up with high prices.

The surprising thing is that the cars do seem to move on - I've seen probably half a dozen M135s disappear off the AUC site in the past week or so, there are only just over 30 in the entire network.

Not sure I see any wholesale correction coming for stuff under 5 years old (classics may be a different matter). the reason I say that is no-one seems to be buying for cash. Loans or PCP on used are cheaper than the same on a new one, so instead of saving a chunk of money and buying, people are using finance more, they can't afford finance on a new one, so used is the route they go.
Certainly manufacturers are in no rush to drop prices on new stuff, which would help the used market become a bit more affordable/sensible.
I agree that stuff under 5 years old seems to become more sensibly priced, and current values more closely follow the expected depreciation curve for cars.

Obviously curves can change, but right now newer stuff is much much better value for money. If the curves are indicative of future performance, then buy newer as it'll retain value.
If the curves are not indicative and it's changing, then a newer car is 'on the curve' and won't correct adversely, an older one will... so buy newer.


So yes, anything in that 4-8yr range bought in the last 6 months or so is gonna be painful to have owned after a few more years.



Interesting times ahead is all I can say smile


Dave

355Chris355

Original Poster:

134 posts

112 months

Sunday 15th March 2015
quotequote all
Mr Whippy said:
I've been looking around and stuff 2-3 yrs old seems to be roughly following the 20% per annum loss rate.

But stuff in the 4-6yr bracket seems to be nearer 10% per annum.

Dave
The below link is an interesting presentation prepared by Manheim on the UK used car market:

http://www.bvrla.co.uk/sites/default/files/documen...

Slides 10 and 11 highlight the supply effects caused by the recession and help explain why depreciation on certain age groups of cars is not conforming to expectation.

jonah35

3,940 posts

156 months

Sunday 15th March 2015
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Arent cars gonna boom next month as people access pensions?

Guybrush

4,330 posts

205 months

Monday 16th March 2015
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jonah35 said:
Arent cars gonna boom next month as people access pensions?
It depends on what people want to do with their money. It'll be interesting to see the effects (of the pension freedom) all round after a few months.