2007 Calls Again As Auto Market Shows Serious Weaknesses

In addition to the collapse of the housing market in 2007, another major event that took place was the destruction of the automobile industry, something that has also shown few signs of recovery in the last twelve years. Now it is being reported by Bloomberg via Yahoo! News that the automobile industry is happening to show, at the same time of the current housing and economic crisis, its signs of weakening to the point of another potential failure.

he auto industry — already fretting lengthy factory shutdowns and depressed new-vehicle demand — is starting to sound the alarm about a potential used-car price collapse that could have far-reaching consequences for manufacturers, lenders and rental companies.

Used-vehicle auctions are for now virtually paralyzed, much like the rest of the economy. The grave concern market watchers have is that vehicles already are starting to pile up at places where buyers and sellers make and take bids on cars and trucks — and that this imbalance will last for months.

If that fear is realized and prices plummet, it will be detrimental to automakers and their in-house lending units, which likely will have to write down the value of lease contracts that had assumed vehicles would retain greater value. Rental-car companies also will get less money from selling down their fleet of vehicles, which are sitting idle amid a global pandemic that’s been catastrophic for travel.

“Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market,” Dale Pollak, an executive vice president of Cox Automotive, which owns North America’s largest auto-auction company, wrote in an open letter to auto dealers last week. “Cars are coming in, but they aren’t selling. Today’s huge supply of wholesale inventory suggests supplies will be even larger in the months ahead.” (source)

This is good for the common man. Basically, you’ll be able to get cars cheap if you have the cash.

For the auto manufacturers, dealers, and other vendors, this is really bad. It means a lot of coming closures and foreclosures due to the inability to service debts.

I have been warning about this for the last three years, noting that the auto industry was weakening seriously and it was not a matter of if, but when 2007 was going to rear its head once again. Unfortunately, it appears that time may be at had.

There really have been no fundamental changes to the economy since 2007. It was already bad, but like a dam holding back floodwaters, it eventually broke through in 2020. The virus simply enabled to happen naturally what was inevitable. That said, it is not to argue about what could be done to fix it, but to allow it to run its natural course, come what may, and to deal with the effects after.

There will be a lot of business closures.

There will be a lot of economic pain.

However, the pain could not have been stopped, even ten years ago. It is just being forced to be dealt with now.

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