We’ve hit a new milestone in this country! The Wall Street Journal just announced it…
This isn’t exactly news to me. I primarily drive a 2014 Ford Expedition (but I also have a 1979 Ford F250 pick up).
But the article went on to talk about pretty much what you’d expect: that the car market is pretty much in a state of inflationary chaos…
New car buyers are faced with skyrocketing prices thanks to the production disruptions not to mention the semiconductor shortage — both caused by the global lockdowns. The Journal article mentioned a pretty startling fact:
“New-vehicle prices also continue to rise with auto executives saying the inventory crunch on selling lots could spill into next year. For instance, the average price paid in April 2021 for a new 2021 model-year vehicle was $38,585, according to J.D. Power. In January 2022—nine months later—that same model-year vehicle was selling for an average of $48,765 as a slightly used vehicle.”
That’s a 26% bump! In less than a year!!
And the prices of older used cars — which started depreciating the minute you drove them off the lot new — are actually going up faster than new cars. Of course, sometimes these market dislocations can actually work for you…
Bruce Steinhardt, an 89-year-old Florida resident, said he was surprised to find that the Hyundai Sonata he leased three years ago was worth more than the roughly $15,000 buyout price negotiated as part of his lease. He said he decided to buy out the lease and then sell the car to the website CarGurus for $23,600. The deal netted him about $8,100, helping him recoup nearly all three years of lease payments, he said.
Good for Bruce!
People are holding on to their cars longer because they can’t afford new cars (or even new used cars). This is a trend that’s been going on for the past five years.
Sure inflation is at the heart of the price rises, but it’s key for investors (and just plain consumers) to understand what’s behind these soaring prices.
This Inflation Isn’t by Chance
This round of inflation is going to be different.
The truth is, the Fed can’t fix it. And frankly the current administration doesn’t want it to…
Because there are a lot of benefits our leaders as a whole accrue from inflation. For one, it helps them manage their debt addiction.
It also can shape consumer behaviors. How?
Part of the massive upswing in prices has been in the energy sector. (One sector they take out of the “core” inflation calculations because they’re “too volatile.”)
Sure it’s volatile, but anything that can add 25-30% every month needs to be addressed:
US Energy Inflation
And the other week the President pretty much did (albeit unknowingly)…
“Here’s the situation. And when it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over.”
– The POTUS
Gas prices so high they’ll make your first EV purchase seem like a bargain? (I warned this was coming back in April…)
So while the Fed is busy publishing surveys telling you everything is OK… the wizard behind the curtain is pulling whatever levers he can to stomp all over the fossil fuel industry and keep gas prices high (the occasional gaffe, like the one above, notwithstanding).
The reality is that while they’re trying to tell everyone to “remain calm, all is well!” the public is expecting the worst.
US Inflation Expectations (12 Months)
Whether all this is by design we really can’t know (unless Biden makes another ultimate gaffe!) But it is the direction that things are going.
In the meantime, my recommendation, schedule that next oil change…
Make the trend your friend,
Editor, Streetlight Daily