It’s a good time to be a repo man. . . again.
Lots of business picking up used cars
people stopped making payments on.
According
to S&P Global Ratings and an article in Bloomberg News, defaults on these subprime
loans are at their highest water mark since the subprime collapse of 2008 and
the “recovery rate” – what the lender ends up recouping of the original debt
principle – is a mere 34.8 percent.
It’s a
lot of money flushed.
But how is it that cars – all of them, not
just the used ones – bleed value this quickly and this much?
It’s because they’re not really worth that
much, to begin with.
As distinct from what their price was,
to begin with.
New car prices are hugely inflated –
mostly because of electronic gadgets that dazzle when new and for which people
will pay (that is, finance) top dollar . . . but which get old and lose
value quickly.
They don’t get old in a calendar year or
wear-and-tear sense but in terms of their “latest thing-ness,” which vanishes
like a late April snow shower. Think how quickly your smartphone or
computer hags out. Now consider the screens and apps and other such they’re
installing in cars.
How useful is a five-year-old GPS system
with a non-touchscreen and without the latest version of
whatever-the-latest-apps are? It probably doesn’t even have the latest
app to version up to.
And how much is a five-year-old laptop
worth? It cost $1,200 new.
Today, it’s worth $200.
Cars have become similarly short shelf-life
items because they are a bundle of computers and apps and screens as much as
they are gears and cams and wheels.
Another problem, beyond almost-immediate technological
obsolescence of the gadgets, is that in-car electronics and gadgets have gone
from peripheral amusements to embedded in the DNA of every mechanical
system in a modern car. And the electronics do not hold up as well over
time (the time usually corresponding to the duration of the warranty) as the
mechanical parts.
The engine in almost any car built
since the ’90s is a marvel of durability with a useful service life three to
four times as long as an engine made back in the ’70s. What was once burning
oil and knocking rod bearings by 75,000 miles is today hardly even broken in.
But the electronics that are critical to
the operation of the engine won’t last that long.
Eric Peters [send him mail] is an automotive columnist and
author of Automotive Atrocities and Road Hogs (2011).
Visit his
website
