If you’re within an ear shot of someone buying a car, selling a car, or even just catching up on daily news, you understand the state of disarray the automotive industry is for consumers. Due in large part to a pandemic that we are still navigating, interest rates on loans have been at historical lows for an extended period of time. With the world returning to some sense of normalcy, consumers have been itching to offload some cash, and regardless of the chip shortage, all car markets have been turned on its head, as Doug DeMuro on his YouTube channel elaborates.
Loan Rates Have Allowed For An Influx Of Cash
A resident hero at HotCars, Doug DeMuro is mostly known for his quirks and features. But years prior, he honed his skills as vehicle allocation manager for Porsche of North America, allowing him to make educated assumptions as to what’s causing this major ripple effect.
Although the chip shortage has only exacerbated this car bubble, it isn’t the only direct reason. Coupled with historically low interest rates, people are willing to take on more debt than ever, and without any new cars available for purchase, consumers are willing to settle for used cars.
The Extra Liquidity Has Caused A Cascading Effect
With more people turning to the used car market than ever before, we have witnessed a bubble form, within the last 18 months, of epic proportions. As Doug also explained five years ago in an Autotrader editorial piece, when a regular Joe happens to sell his Honda S2000 at the right time, he may receive a premium price for it. Perhaps because of limited examples for sale or nostalgia from a specific buyer.
But when the rest of the S2K market sees the exorbitant price their car is now worth, the average enthusiast begins to offload their S2000.
This is where the people with liquid cash ruin it for the rest of the S2000 fanatics. They see a car rapidly gaining value, so what do they do? They throw the $20,000 they have lying around at it as an investment, further driving up the value. Once all enthusiasts have sold their S2000s, the market is completely dominated by collectors.
But this is where we can see an end in sight. Once the used car market is owned solely by collectors, and new cars catch up with demand, cars will once again return to a depreciating asset.
Sure, the obvious examples like E30s or air-cooled Porsches might never come back down. But once Honda Clarity plug-ins cease selling for twice the MSRP, the cascading effect will change course and reverse its direction.
Collectors will begin returning their focus to new cars destined to be future classics, and the regular S2K enthusiast will begin to find low priced examples. Thanks to collector fire sales in order to supplement their next purchase.