Detroit. I’m always amazed (not) when mainstream journalists stumble upon some detail of the auto business that fascinates them. In this case, a friend and former advertising colleague passed along a feature article in
The Washington Post that ran last fall, a story that has even more resonance today.
The two-part headline?
“More Americans are car poor as they misjudge trade-in math and pile on debt.”
And, “More than 1 in 4 consumers owe more on their car loans than the vehicle is worth, while car payments of $1,000 have reached a record high.”
Among the highlights of the story is that more than 27 percent of trade-ins applied to new vehicle purchases had negative equity, a figure that was a four-year high last fall and is even higher now.
These “upside-down loans” are rampant, with average amounts approaching $7,000. And, at the time of the data gathering, 23.4 percent of these drivers owed more than $10,000; not only that, a shocking 7.7 percent owed more than $15,000.
This story is the nitty-gritty “real deal” of the business right now. Simply put, consumers who lack the cash to pay off their previous loans are often rolling that negative equity into the new one.
Last fall, Ivan Drury, Edmunds’s director of insights said, “With a growing share of upside-down owners thousands of dollars in the red, many are at risk of getting stuck in a cycle of debt that only grows harder to break over time.”
At that time, an average monthly payment for buyers who rolled negative equity into a new loan was $915, a record high based on Edmunds’s analysis. And remember, this situation has grown even more dire over the past ten months, compounded by the nonsensical and capricious Trump tariffs, which, as I’ve often said, will decimate the car business as we know it.
And in another alarming statistic from a separate report, Edmunds noted that the share of new-car buyers with monthly payments of $1,000 hit an all-time high of 20 percent last year, a figure that has since been easily surpassed.
As of I’ve often railed repeatedly, affordability is the most serious issue facing the automobile business right now, and in fact it has been for at least the last five years. As one random consumer who was wandering around a Chevrolet dealership lot said to me, unsolicited, “This shit is just too damn expensive. I’ve been driving a ’22 Tahoe, but the way things are going, I can’t even think of a new one. I’m going to have to seriously look at an Equinox, or maybe even a Trax.”
That is alarming, on a number of different levels, but I don’t think it’s an unusual refrain at this point. Every time I’m engaged by people asking me about cars and car buying, they all say a variation on the same thing: This shit is just getting too damn expensive.
And what are the manufacturers (and their dealers) doing about it? The auto manufacturers – especially those headquartered in Detroit – are now gleefully pushing 84-month financing, which will make the “upside-down” situation for consumers exponentially worse. These manufacturers (and their dealers) rationalize this by saying that they’re just “doing their best to get consumers into vehicles by making the payments more affordable," or something like that. But, in effect, they are guaranteeing that their customers will be grossly upside down before these loans are even half-way through, which is simply egregious.
This business is heading toward a denouement that will have far-reaching and dire consequences. A wickedly sick cocktail is being ginned-up of one-part ridiculous tariffs + one-part lack of affordability + one-part the inevitable threat from China + one-part flat-out greed by the manufacturers (and their dealers), which will = a violent, seismic shift that will fundamentally alter this business as we know it.
Does anyone have a plan to counteract any of this? The thinking behind the Slate EV concept is interesting and laudable, but wake me when it is well and truly available to buy, and then we’ll see. Oh, and this just in: Jim "I'm a genius, just ask me" Farley is promising a pivotal "Model T" moment, which will be announced soon. He told analysts last Thursday: "On Aug. 11, that will be a big day for all of us at Ford," Farley said. "We will be in Kentucky to share more about our plans to design and build a breakthrough electric vehicle and a platform in the U.S. This is a Model-T moment for us at Ford. A chance to bring a new family of vehicles to the world that offer incredible technology, efficiency, space and features.”
It's no secret that Farley has been on a mission to break down the Chinese auto industry's advantages when it comes to producing EVs with advanced technologies
and affordability. Farley is insisting that he and his minions at Ford have "cracked the code" and they will rock the auto world with it on August 11. Remember, this is coming from a guy who has presided over the most dismal recall record in recent automotive history, so, excuse us why we look at this as another ginat "we'll see." Besides, i would venture to guess that Farley & Co. are chasing a rapidly moving target.
As for things that can be addressed right now, I’m waiting to see signs of life from the denizens of Detroit in terms of de-contenting their vehicles across the board, or at least offering one vehicle in their mainstream segments that will be packaged with the specific aim of affordability. The Ford Maverick was great when it was introduced, but price-creep and tariffs are laying waste to its value proposition. And where is a de-contented Chevrolet Colorado? This vehicle is ripe for a “special” package targeting affordability, but none is on the horizon, at least none that I’m aware of.
These manufacturers (and their dealers) are whistling past the graveyard on a number of fronts, not to mention the recall ugliness that is roiling Ford, which remains that manufacturer’s special place in Hell. And all that talk of “handling” the tariffs? It is unmitigated bullshit. Ford, GM and Stellantis are racking up huge hits to their bottom lines (Stellantis is taking a $2.7 billion hit this year alone).
What is going on right now in this U.S. automobile industry is simply not sustainable. The Detroit-based manufacturers are not even conducting their usual two-steps forward, five back dance of mediocrity. No, it will take radical, decisive maneuvers to stave off what I see as a dire end for what once was an illustrious, exciting business. And I just don’t see anything happening of consequence. Instead, I just see stumbling around wrapped in a lot of “wishing and hoping” that things will work out. This just in: Not Likely.
The ugly reality facing Detroit is that this collective business is just treading water at a time when the direct opposite is required.
Rest assured, this isn’t going to end well.
And that’s the High-Octane Truth for this week.
Editor's Note: Click on "Next 1 Entries" at the bottom of this page to see previous issues. - WG