Thursday, July 31, 2008

August 4, 2008---Used Cars For Sale By The Lake

Consider This for August 4, 2008---Used Cars For Sale By The Lake

Here is the list of what we hear about on the news every night. The leading economic indicators as determined by the powers that be in the world of economics.

1. The average manufacturing-worker workweek (from the employment report)
2. Initial jobless claims
3. Manufacturers' new orders for consumer goods and materials (from the factory orders report)
4. Vendor performance (from the Purchasing Managers' Index report)
5. Manufacturers' new orders for nondefense capital goods (from the factory orders report)
6. Building permits (from the housing starts report)
7. The level of the S&P 500
8. The inflation-adjusted measure of the M2 money supply
9. The interest-rate spread between the 10-year Treasury note and the fed funds rate
I would like to add another one that I have watched for years.

The number of cars parked on Highway 9 near the High School. You all know the place. The parking area overlooking the outlet of the Breckenridge Sewer Plant where all of the birds sit because the water is warmer from the effluent of the plant.

It used to be called Church Camp Road but since they burned down (on purpose) the old Church Camp I am not sure what the name is now. It is a haul road for beetle kill trees that come off of what is referred to as Iron Springs above the High School.

Enough of the geography lesson and on to the new leading economic indicator I have added to the list.

The Unofficial Used Car Lot By The Lake Near The High School Economic Indicator.

When the economy goes bad people try to raise cash to pay bills. They can do it by eliminating a payment (car payment) or raising cash by selling their car.

Your car is the second most expensive thing you will ever own after your home. I paid $12,000 for my first house in New York City and I paid over $20,000 for my small economy car recently so the numbers have changed a lot too.

The sad part of the array of cars parked by the lake is that many of them have signs in the window asking over $20,000 or $30,000. They will never get that. People are looking for bargains and will only pay what they think is a price far below the book value.

In the car business it is referred to as an “upside down” loan. It is when the poor car owner owes more on the car than the car is worth. It is a no win situation.

People forget that they can lose nearly one half of the price paid for a new vehicle just by driving it off the car lot. The great new $40,000 SUV becomes a not so great $20,000 SUV in a matter of a few feet on the highway. That is not a new phenomenon. I remember being told that by people in the car business for many years. When you buy a new vehicle you should plan to drive it for the life of the vehicle if you expect to get the full value. It has nothing to do with the make or model. It is a function of the business.

Even if they took it back to the dealer where they bought it a couple of weeks earlier they could not come close to getting what they owe. The dealer would probably offer them a good price on a trade-in for an even more expensive vehicle but that just increases the debt load of the owner and does not solve any problems except letting the dealer sell another car this month.

By the way the dealers are really hurting. Car sales are the lowest they have been in years and it does not look like that is going to change in the near future.

So as you are stuck in traffic at the Highway 9 improvement project, glance over at the line of cars for sale by the lake and imagine that it is just another indicator of how our economy is going down the toilet. Probably an appropriate metaphor as it is so close to the sewer plant.

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