Carvana’s success rides on used-car loans(wsj.com)
wsj.com
Carvana’s success rides on used-car loans
https://www.wsj.com/articles/carvanas-success-rides-on-used-car-loans-11629019801
138 comments
https://archive.ph/njgI4
My gut feel is we can tuck this away for future financial crisis reporting:
"Carvana uses a related party, Bridgecrest Acceptance Corp., for loan servicing. Bridgecrest is owned by DriveTime Automotive Group, a Tempe, Ariz.-based used-car dealer. Carvana was spun out of DriveTime, which is owned by Ernie Garcia II. He owns around 45% of Carvana and is the father of its CEO."
I led dev teams at DriveTime and Bridgecrest and worked regularly with Carvana devs. The relationships between everything legally and technically is definitely tighter than most people realize.
That said, The folks I worked with were all really great people. There's just a lot of interesting history. Fun fact, DriveTime used to be Ugly Duckling Car Sales.
That said, The folks I worked with were all really great people. There's just a lot of interesting history. Fun fact, DriveTime used to be Ugly Duckling Car Sales.
Same Ugly Duckling whose sign is one of my favorites at the Neon Museum in Las Vegas?
https://www.reviewjournal.com/local/local-las-vegas/ugly-duc...
https://www.reviewjournal.com/local/local-las-vegas/ugly-duc...
wow thanks for sharing thats ART! i love that museum btw. vegas isn't all 'cheap' (in the chintzy trump meaning) $10k bottle service lol. amazing climbing too.
Used car companies buying up all the inventory during a shortage and Zillow buying up properties in cash over their own online estimates. Regulation anyone?
> Zillow buying up properties in cash over their own online estimates
A discussion around this probably deserves its own entire page, but as I am currently looking for a home as a first-time buyer, seeing “Zillow owned home” labels all over the area in which I’m looking (as if it’s some sort of positive thing) has been infuriating. All they do is use their scale and data science to push me out of the market several times over!
I present no evidence, to prove this, but from what I can tell, this is what they seem to do:
First, they use scale and data science to find what they consider under-priced homes and buy them for cash. If I happen to find the same home for sale at the same time, what seller is going to go with a traditional loan over a full cash offer who could easily offer more if needed? I can’t compete with that.
Secondly, they don’t do anything to the house (aside from clean it up and taking nice pictures—no value added) and then resell it for multiple tens of thousands more than what they just paid. If this house was originally at the high end of my budget, bought by Zillow, then re-listed for more, I can no longer afford it.
Third, if that house DOES sell for more to someone else, it just drives up the rest of the prices in the neighborhood. A lose-lose all around for me and my family. I don’t see how Zillow being able to flip houses is good for anyone. And by flip, I don’t mean fix up—-I have yet to find a Zillow-owned home that has anything of substantial value added to it—-and saving 1% of closing costs or whatever their incentive is by owning a Zillow house is not enough value add.
FWIW, I’ve spent a LOT of time of the past few years trying to get a hold of reliable MLS market data to do my own sort of analysis to try and find affordable enclaves or diamonds in the rough or whatever and that data is damn near impossible to get free access to. So the fact that Zillow has this data and also has unlimited pockets and FTEs who work on this stuff all day…it doesn’t feel right to me.
And it’s not like they’re driving up prices of arbitrary goods or services—these are single family homes (in probably the most popular price range) they’re inflating when we’re already in the middle of a national housing crisis!
/rant
Edit: spelling/clarification
A discussion around this probably deserves its own entire page, but as I am currently looking for a home as a first-time buyer, seeing “Zillow owned home” labels all over the area in which I’m looking (as if it’s some sort of positive thing) has been infuriating. All they do is use their scale and data science to push me out of the market several times over!
I present no evidence, to prove this, but from what I can tell, this is what they seem to do:
First, they use scale and data science to find what they consider under-priced homes and buy them for cash. If I happen to find the same home for sale at the same time, what seller is going to go with a traditional loan over a full cash offer who could easily offer more if needed? I can’t compete with that.
Secondly, they don’t do anything to the house (aside from clean it up and taking nice pictures—no value added) and then resell it for multiple tens of thousands more than what they just paid. If this house was originally at the high end of my budget, bought by Zillow, then re-listed for more, I can no longer afford it.
Third, if that house DOES sell for more to someone else, it just drives up the rest of the prices in the neighborhood. A lose-lose all around for me and my family. I don’t see how Zillow being able to flip houses is good for anyone. And by flip, I don’t mean fix up—-I have yet to find a Zillow-owned home that has anything of substantial value added to it—-and saving 1% of closing costs or whatever their incentive is by owning a Zillow house is not enough value add.
FWIW, I’ve spent a LOT of time of the past few years trying to get a hold of reliable MLS market data to do my own sort of analysis to try and find affordable enclaves or diamonds in the rough or whatever and that data is damn near impossible to get free access to. So the fact that Zillow has this data and also has unlimited pockets and FTEs who work on this stuff all day…it doesn’t feel right to me.
And it’s not like they’re driving up prices of arbitrary goods or services—these are single family homes (in probably the most popular price range) they’re inflating when we’re already in the middle of a national housing crisis!
/rant
Edit: spelling/clarification
To me, a plethora of “Zillow owned homes” in an area is a negative signal for pricing outlook. Zillow is a non-user of these properties and therefore represent future selling pressure in the neighborhood.
I think they’re welcome as a market participant and, if they’re particularly good at pricing properties, they might be able to make some money by exploiting inefficiencies in the market.
I think it’s far more likely that they’ll be a net donor to most markets from their algorithmic operations (in trading terms, I doubt they’ll exhibit positive alpha from purely algorithmic buying).
I think they’re welcome as a market participant and, if they’re particularly good at pricing properties, they might be able to make some money by exploiting inefficiencies in the market.
I think it’s far more likely that they’ll be a net donor to most markets from their algorithmic operations (in trading terms, I doubt they’ll exhibit positive alpha from purely algorithmic buying).
I'm in Colorado and just bought a home over the last month. I went with a service called Accept Inc. You basically go through the underwriting process first, they then buy the home you want in cash (Giving you a cash offer to the seller), then you do a traditional mortgage to buy the house from them. No mark up.
Sounds great... but I can tell you that having a cash offer didn't mean anything if you weren't the top offer. I lost out on many homes because I didn't come out on top. Lost against those with conventional loans too. People will wait an extra 2/3 weeks if it means an extra $10K in the home price.
Sounds great... but I can tell you that having a cash offer didn't mean anything if you weren't the top offer. I lost out on many homes because I didn't come out on top. Lost against those with conventional loans too. People will wait an extra 2/3 weeks if it means an extra $10K in the home price.
Real estate agent checking in here... so yeah, cash is generally king, but a good agent can often recommend ways to make your offer stand out. Negotiating skills is one of the areas where an agent can shine and really earn their commission.
Regarding the comments on appraisals below... so I work across a state line. In one market, the majority of appraisals don't have a problem unless the accepted price is really something ridiculous (and I'd argue the listing agent should have done a better job coaching their sellers to avoid that situation). In the other state though, we have a serious problem with appraisals. There aren't enough appraisers in the area, so they are coming from 2+ hours away and really don't know our market. This is compounded by many of them not being able to pull comparables from just across the state line. It's seriously messing with our market, for both buyers and sellers. Looking for a career post-technology? Become an appraiser or an inspector, we don't have enough of either.
Regarding the comments on appraisals below... so I work across a state line. In one market, the majority of appraisals don't have a problem unless the accepted price is really something ridiculous (and I'd argue the listing agent should have done a better job coaching their sellers to avoid that situation). In the other state though, we have a serious problem with appraisals. There aren't enough appraisers in the area, so they are coming from 2+ hours away and really don't know our market. This is compounded by many of them not being able to pull comparables from just across the state line. It's seriously messing with our market, for both buyers and sellers. Looking for a career post-technology? Become an appraiser or an inspector, we don't have enough of either.
how can an agent shine when the offer is not in the top or competing with cash? send a basket of roses to the sellers?
There are lots of things we can do to eliminate contingencies, things with earnest money, various ways we can accommodate the needs of the seller, etc. Does seller want to close early or do they need a delay? Do they need a little extra cash up front to assist with their move? Every state will vary, but there are a lot of built-in contingencies that many buyers will be glad to scratch and an informed seller will understand removes barriers to a successful sale. Sellers want to know their transaction is going to close on time, with minimal drama. There are lots of ways a good agent can advocate for their client and embody that contractually. Every market is different - the tactics I use are different than those of my peers in other markets.
It sounds weird because the house has to appraise at the correct value to get a mortgage. Otherwise you have to make up the difference in cash..
Appraisals are somewhat grimy IMO. When our house was being appraised, the appraiser asked for the P&S price as part of his research. To no one’s shock, the appraisal came in just over the P&S price.
(To some extent, I get it. I’m an arms-length buyer. I’m willing to pay $X. That’s strong evidence that that’s the arms-length market price.)
(To some extent, I get it. I’m an arms-length buyer. I’m willing to pay $X. That’s strong evidence that that’s the arms-length market price.)
We offered significantly over asking and offered to cover the difference between appraisal and our offer, if it didn’t appraise for our offer, in cash. Ours did not appraise for our offer and we had to cover around $14K in cash.
—-
As for the Zillow topic:
Zillow is fantastic for sellers. I was offered well above market for my house, paid at least 5% less in fees, I could do everything remotely, and I could close in 14 days.
Fuck traditional realtors. Our buying experience sucked. Zillow made selling a breeze and I would recommend it to anyone looking to sell right now.
—-
As for the Zillow topic:
Zillow is fantastic for sellers. I was offered well above market for my house, paid at least 5% less in fees, I could do everything remotely, and I could close in 14 days.
Fuck traditional realtors. Our buying experience sucked. Zillow made selling a breeze and I would recommend it to anyone looking to sell right now.
I asked my banker about this issue (as I had the same concern), and she shrugged and said usually it usually isn't a problem. What you bid is what we usually consider market value. This is the Greater Toronto Area in Canada (bangs head on wall).
Unless your offer is wildly above comparables, it’ll appraise at or above your offer price, assuming an arms length transaction.
Cash offers distort the market because they drag up prices beyond what income driven mortgage offers would.
Cash offers distort the market because they drag up prices beyond what income driven mortgage offers would.
This assumes that it's better for bankers to decide how customers spend their income than for the customers to decide that.
Also, "income driven mortgage" is really "salary from large employer driven mortgage". For everybody else it either underestimates, breaks down badly, or both. Especially business owners. "I sign my own payroll check" is not what a banker wants to hear.
Also, "income driven mortgage" is really "salary from large employer driven mortgage". For everybody else it either underestimates, breaks down badly, or both. Especially business owners. "I sign my own payroll check" is not what a banker wants to hear.
[deleted]
I'm not saying it's fair, but is is probably better financially for current home owners. Sell faster, with fewer/no contingencies and waiting periods, and Zillow may potentially price "hassle" lower— making deferred maintenance less expensive to take care of.
Is it better for people who are trying to break into the housing market now? No. Is it better for people who are trying to sell and move out in a low-demand area? Probably not, except it might speed up the process.
Is it better for people who are trying to break into the housing market now? No. Is it better for people who are trying to sell and move out in a low-demand area? Probably not, except it might speed up the process.
Okay so in Portland homes sell same weekend they're listed if they're priced right. I know this because My home sold after only a 2 hr open house. It's nuts. Zillow wanted to pay way under their zestimate and I ended up selling for more than asking. The offer I picked ultimately was a real family with a mortgage.
The zillow owned homes have been sitting on the market for a while despite being fair prices IMO. I think its turning agents away since zillow really wants the buyers to also use zillow.
The zillow owned homes have been sitting on the market for a while despite being fair prices IMO. I think its turning agents away since zillow really wants the buyers to also use zillow.
Realtor here, so sure, I'm biased... Zillow is engaged in arbitrage just like anyone else trading assets. It's possible to get a great price and low fees... or it's possible to get taken for a ride. Knowing what I know about real estate - I'd never buy or sell through Zillow or a similar service (Redfin, etc), and I'd never recommend it to a family member or friend. Everybody focuses on commissions, but if you sell your house below what you should have, you are leaving a lot more money on the table than the cost of my commission.
>>>> First, they use scale and data science to find what they consider under-priced homes and buy them for cash. If I happen to find the same home for sale at the same time, what seller is going to go with a traditional loan over a full cash offer who could easily offer more if needed? I can’t compete with that.
Loan offerings compete with all cash offering by offering more than what the cash offer is offering. The idea that you bid over asking and the cash offer will find out what you bid and meet your offer in cash is just not true. It’s not like an auction house where you each bid until one of each persons max has been reached. Seller agents just opt for the max for each offer from the start.
>>>> Secondly, they don’t do anything to the house (aside from clean it up and taking nice pictures—no value added) and then resell it for multiple tens of thousands more than what they just paid. If this house was originally at the high end of my budget, bought by Zillow, then re-listed for more, I can no longer afford it.
It costs tens of thousands in fees and cost to transfer ownership. I have a hard time believing they buy a home, clean and take pictures, then relist. Houses that are relisted in less than a year raise serious eyebrows in the industry as well.
As to your third point. The homes are worth only what a buyer is willing to pay. Period. All too often I’ve seen homes sell for less against a similar home right next door sell for less from the exact same builder with same features and sq footage within weeks.
This post is mostly for others looking to buy because you have in my professional opinion, unrealistic expectations and understandings of how the housing market works .
Loan offerings compete with all cash offering by offering more than what the cash offer is offering. The idea that you bid over asking and the cash offer will find out what you bid and meet your offer in cash is just not true. It’s not like an auction house where you each bid until one of each persons max has been reached. Seller agents just opt for the max for each offer from the start.
>>>> Secondly, they don’t do anything to the house (aside from clean it up and taking nice pictures—no value added) and then resell it for multiple tens of thousands more than what they just paid. If this house was originally at the high end of my budget, bought by Zillow, then re-listed for more, I can no longer afford it.
It costs tens of thousands in fees and cost to transfer ownership. I have a hard time believing they buy a home, clean and take pictures, then relist. Houses that are relisted in less than a year raise serious eyebrows in the industry as well.
As to your third point. The homes are worth only what a buyer is willing to pay. Period. All too often I’ve seen homes sell for less against a similar home right next door sell for less from the exact same builder with same features and sq footage within weeks.
This post is mostly for others looking to buy because you have in my professional opinion, unrealistic expectations and understandings of how the housing market works .
Given a bit of time, people will figure out how Zillow's buying spree works, and figure out how to game it to their own advantage. Perhaps put a fresh coat of paint on an old abandoned house that's about to fall down, list it slightly below neighboring houses, and wait for Zillow's stupid computer to buy it?
I think this has happened coincidentally with a very substantial increases in spikes in markets they targeted, more than increases in the general market. Maybe they are good, maybe they are contributing to it. You identified the mechanism by which they would create a feedback loop.
> I’ve spent a LOT of time of the past few years trying to get a hold of reliable MLS market data to do my own sort of analysis to try and find affordable enclaves or diamonds in the rough or whatever and that data is damn near impossible to get free access to. So the fact that Zillow has this data and also has unlimited pockets and FTEs who work on this stuff all day…it doesn’t feel right to me.
How is this different from hedge funds who do the same thing with equities, and outperform the retail investor as a result?
The advice to retail investors is "buy and hold", and I think the same applies here.
How is this different from hedge funds who do the same thing with equities, and outperform the retail investor as a result?
The advice to retail investors is "buy and hold", and I think the same applies here.
> How is this different from hedge funds who do the same thing with equities, and outperform the retail investor as a result?
Equities are not a necessity of life.
Equities are not a necessity of life.
There are also plenty of funds trading commodities, and many of those can be framed as "necessities".
As a former software developer turned Realtor, I concur with your findings... FWIW: even as an agent, trying to get MLS data into formats that are easy to dig into for interesting patterns is not easy. You might have better luck talking to your local title company or seeing if you can scrape data off your county tax assessor site.
In my market, I can absolutely tell you where those diamonds are, because I'm in the market daily. That might not be the answer you want, but finding a skilled Realtor you like / trust who can get you into opportunities is the fastest path.
In my market, I can absolutely tell you where those diamonds are, because I'm in the market daily. That might not be the answer you want, but finding a skilled Realtor you like / trust who can get you into opportunities is the fastest path.
None of this shit would be possible if we could build. When supply is restricted the way it is, it makes housing a scarce resource that is vulnerable to market cornering and manipulation.
that data is damn near impossible to get free access to
How much does access cost? You're making a massive purchase. If that data is going to help you save a substantial amount by finding a diamond (or even some lesser precious gem) in the rough, it seems like it would be worth a few $hundred to save much more than that.
How much does access cost? You're making a massive purchase. If that data is going to help you save a substantial amount by finding a diamond (or even some lesser precious gem) in the rough, it seems like it would be worth a few $hundred to save much more than that.
HouseCanary is a leading data feed and is $150k/year. MLS offers a limited feed for around $1,500/month. You can scrape Zillow and use a captcha handler tool for $30/month.
There are distinct differences in these approaches. Zillow’s data lags 3-4 weeks while HouseCanary’s is about as real time as you can get. MLS can be weird and is typically market-specific. With all of that said, you can’t just login to a website and have this available. There is legwork required.
There are distinct differences in these approaches. Zillow’s data lags 3-4 weeks while HouseCanary’s is about as real time as you can get. MLS can be weird and is typically market-specific. With all of that said, you can’t just login to a website and have this available. There is legwork required.
Wow that's expensive. I wonder if HouseCanary offers data limited to specific zip codes for less. It seems like that would be a logical product for small realtor business, but that might not be HouseCanary's target customer.
It looks like Zillow offers an API [0] though I'm not sure of the extent of its capabilities. Could be you don't need to go the scrape/captcha route though?
[0] https://www.zillow.com/howto/api/APIOverview.htm
It looks like Zillow offers an API [0] though I'm not sure of the extent of its capabilities. Could be you don't need to go the scrape/captcha route though?
[0] https://www.zillow.com/howto/api/APIOverview.htm
Are you not enjoying the disruption?
/s
I think it'd be risky for Carvana if they tried "cornering the market" on used cars - unlike houses, used cars fall in price pretty quickly and new-car production has the potential to increase as car manufacturers respond in a way that housing production does not. If Carvana buys up all the inventory to drive up prices they'll need a plan to unload as well - while keeping prices high.
Used car market in the US is valued in the $150B range. So something like that could possible have some affect.
The housing market in the US though is on a different level. $8-9 trillion, so I don't think any one player is going to even make the smallest of differences unless they are focusing in specific markets and maybe manipulating just that area.
The housing market in the US though is on a different level. $8-9 trillion, so I don't think any one player is going to even make the smallest of differences unless they are focusing in specific markets and maybe manipulating just that area.
That’s the value of the entire stock.
But that’s not the inventory that is being traded at any point of time.
The vast majority of housing in the US sits in a single family without switching hands for probably decades. So the actual market is probably 20-30 times smaller, and so a single major player is far more capable of having an influence on pricing.
Besides, housing is not a national market. A buyer does not usually decide that they want to own a house and then scour the entire country to find houses they could live in.
They usually decide a place they want to live in, and then look at a much smaller market within that area. So even if a single entity cannot impact the national market, they could definitely impact local markets.
But that’s not the inventory that is being traded at any point of time.
The vast majority of housing in the US sits in a single family without switching hands for probably decades. So the actual market is probably 20-30 times smaller, and so a single major player is far more capable of having an influence on pricing.
Besides, housing is not a national market. A buyer does not usually decide that they want to own a house and then scour the entire country to find houses they could live in.
They usually decide a place they want to live in, and then look at a much smaller market within that area. So even if a single entity cannot impact the national market, they could definitely impact local markets.
Like insider trading it doesn’t matter how large the market is, it’s a question of the individual transactions.
It’s not guaranteed that these companies will start intentionally misinforming people for profit, but that’s very much the risk.
It’s not guaranteed that these companies will start intentionally misinforming people for profit, but that’s very much the risk.
The Zillow thing seems to work pretty well for home sellers-- fast sale, cash, over asking price. That's pretty much a seller's dream.
Although the sleazier part might be people shopping homes on Zillow, which can then promote its own listings above those not owner by Zillow.
Although the sleazier part might be people shopping homes on Zillow, which can then promote its own listings above those not owner by Zillow.
Good call out. You have to wonder if Bridgecrest is really doing full risk reviews of the loans they are buying from Carvana or if the DriveTime/family connection is influencing the process. If Carvana could sell those bundles to other buyers at the same price, maybe everything is legit. On the other hand, if Bridgecrest is purchasing bundles that Carvana would have a difficult time selling to others, then Bridgecrest would be artificially propping up the financial performance of Carvana.
I was given a rate by Carvana without having any credit pulled. You just give them your income and they'll start quoting you rates and the rates aren't particularly attractive if you have good credit.
If people are actually taking those loans, there seems to be a decent amount of excess risk at play. I'm assuming Carvana eventually does pull your credit but I doubt they're lowering rates after doing so.
If people are actually taking those loans, there seems to be a decent amount of excess risk at play. I'm assuming Carvana eventually does pull your credit but I doubt they're lowering rates after doing so.
Wow! I did not know that relationship existed, but it makes sense as both concerns are subprime financing plays.
Now that I did not know! Wow!
"When Carvana makes a car loan to a buyer, it packages it with other loans and sells the debt to investors. While other auto lenders also sell loans to investors, they typically keep the debt on their books, recording gains and losses over time. Carvana, on the other hand, doesn’t retain the debt and immediately books gains on the cash sales."
This is precisely [edit: precise is to strong. "analogous to"] what happened in the financial crisis almost 15 years ago: https://en.wikipedia.org/wiki/Bank_of_America_Home_Loans#Sub...
"When Countrywide finances mortgage loans, they usually packaged them for sale to large investors as mortgage-backed securities. Fannie Mae or Freddie Mac can only buy loans which conform to the standards of government-sponsored enterprises. Non-conforming mortgages securities must be sold in the private, secondary market to alternative investors."
I don't know auto loan based securities (size, participants) but this should be a huge red flag to anyone with any sense of history.
This is precisely [edit: precise is to strong. "analogous to"] what happened in the financial crisis almost 15 years ago: https://en.wikipedia.org/wiki/Bank_of_America_Home_Loans#Sub...
"When Countrywide finances mortgage loans, they usually packaged them for sale to large investors as mortgage-backed securities. Fannie Mae or Freddie Mac can only buy loans which conform to the standards of government-sponsored enterprises. Non-conforming mortgages securities must be sold in the private, secondary market to alternative investors."
I don't know auto loan based securities (size, participants) but this should be a huge red flag to anyone with any sense of history.
There are some differences too, though.
- There is no expectation that a car should increase in value over time (except for collectibles), whereas there was and still is an expectation that houses should increase in value over time.
- Because of that, there is no such thing as interest-only, negative-amortization, or option ARM car loans. Those products were the worst-performing mortgage loans from the financial crisis.
- For a lot of Americans the biggest component of their net worth is the equity in their house, so a house price crash wiped out most of their net worth. Most Americans have little to no equity in their cars, so a car price crash would help more Americans that it hurt.
Will a lot of these loans default if there's an economic downturn? Of course, but as long as there isn't a "repo man moratorium", investors will still recover most of their principal.
Now, if Goldman Sachs is selling derivatives on these car loans, that's a whole different story.
- There is no expectation that a car should increase in value over time (except for collectibles), whereas there was and still is an expectation that houses should increase in value over time.
- Because of that, there is no such thing as interest-only, negative-amortization, or option ARM car loans. Those products were the worst-performing mortgage loans from the financial crisis.
- For a lot of Americans the biggest component of their net worth is the equity in their house, so a house price crash wiped out most of their net worth. Most Americans have little to no equity in their cars, so a car price crash would help more Americans that it hurt.
Will a lot of these loans default if there's an economic downturn? Of course, but as long as there isn't a "repo man moratorium", investors will still recover most of their principal.
Now, if Goldman Sachs is selling derivatives on these car loans, that's a whole different story.
IDK how much principal can be recovered. For used cars, depreciation is slower, but most cars purchased with financing are upside down immediately. You would recover a fraction of the principal after paying the repo man and then reselling the car at a wholesale auction.
Is this the case for used cars? What is a typical down payment for Carvana? Also, I assume they wouldn’t have to sell the vehicles at auction, since they could use their own platform.
[deleted]
Someone I knew in the used car business told me that the bottom-feeder used car lots would take a down payment that was more than what they paid for the car, wait for the borrower to get behind, repo it themselves, and repeat the cycle. No middlemen needed.
I've been in the auto lending business - I would like to point out that the scenario you described is for the REALLY BAD bottom feeding lots.
The financiers I worked with was MANDATED to send repoed cars to auction houses. I'm not sure how someone would get an exemption from that.
The financiers I worked with was MANDATED to send repoed cars to auction houses. I'm not sure how someone would get an exemption from that.
Price crash wouldn't help, it would hurt as many people overleverage to purchase a car - and that asset, while on a financial point of view DOES depreciate, many people are very well unaware at what rate, and most likely traded in an underwater loan, to get another car (negative equity) and are more and more overleveged.
With the past year, most cars appreciated in value on paper, only because of supply and demand and money inflation - that's it.
There is also very much a housing crisis and a huge population that do not have a house, and need to juggle the rent payment, the car payment, the insurance payment and well it seems unsustainable.
tl;dr you assume that the price of the asset is the same when repo'd, that is not true, very much the asset itself can be worthless if there's default across because it means there's no demand or need for cars.
With the past year, most cars appreciated in value on paper, only because of supply and demand and money inflation - that's it.
There is also very much a housing crisis and a huge population that do not have a house, and need to juggle the rent payment, the car payment, the insurance payment and well it seems unsustainable.
tl;dr you assume that the price of the asset is the same when repo'd, that is not true, very much the asset itself can be worthless if there's default across because it means there's no demand or need for cars.
This comment is spot on.
Also, there were "NINJA" mortgages before the 08 recession (No Income No Job/Assets).
Also, there were "NINJA" mortgages before the 08 recession (No Income No Job/Assets).
This is not about the asset class, it's about the business model of selling X, packaging loans for X, and the reselling the loans for securitization.
X can be anything. When the income stream for the financial product becomes large in comparison to the income stream for underlying purchase, it doesn't bode well.
X can be anything. When the income stream for the financial product becomes large in comparison to the income stream for underlying purchase, it doesn't bode well.
Enron (energy), GE (rails, aerospace, industrial), cars (GM/GMAC), homes (Countrywide, IndyMac), home loans (Lehmans Bros, Bear Stearns, AIG and others that repackaged the loans in addition to CDO and other derivative instruments), ad nauseum. The pattern is there. When you get out of the business of selling widgets to people and getting into the business of selling widget loans that you are originating to investors, that inextricably changes the type of company you are. You are going to optimize for the inevitably higher ROE business line of securitization, and you are going to eventually make bad widget selling decisions to prioritize widget loan sales.
I have commented more than enough, so just going to tack this on, but people may forget that loan ownership and "zombie debt" was a big problem in 2008. It is not a great sign that Carvana was banned from selling cars in a mid-market due to title delivery issues: https://www.cbs17.com/news/local-news/wake-county-news/ncdmv...
I have commented more than enough, so just going to tack this on, but people may forget that loan ownership and "zombie debt" was a big problem in 2008. It is not a great sign that Carvana was banned from selling cars in a mid-market due to title delivery issues: https://www.cbs17.com/news/local-news/wake-county-news/ncdmv...
> not a great sign that Carvana was banned from selling cars in a mid-market due to title delivery issues
My girlfriend bought from Shift. They didn't get anything to the DOL for nearly 4 months from purchase.
At one point, with expiry of temporary tags, Shift put her in a rental car for _a month_ while they "dealt with it".
Apparently not uncommon.
My girlfriend bought from Shift. They didn't get anything to the DOL for nearly 4 months from purchase.
At one point, with expiry of temporary tags, Shift put her in a rental car for _a month_ while they "dealt with it".
Apparently not uncommon.
Banned from selling cars at one of their locations. That seems like the rough equivalent of one fast food franchise location getting shut down by the health department.
> There is no expectation that a car should increase in value over time (except for collectibles)
Except for the last 18 months.
Except for the last 18 months.
Yep, about 2 years ago mine was worth $8k. I just traded it in for $16k.
Car debt is a very different thing than real estate debt.
No one is expecting cars to hold or appreciate value, even if some have in the past year.
And no one buying used car debt has any delusions about the potential rate of defaults. Not to mention that default recovery is much cheaper and easier than mortgage foreclosures.
No one is expecting cars to hold or appreciate value, even if some have in the past year.
And no one buying used car debt has any delusions about the potential rate of defaults. Not to mention that default recovery is much cheaper and easier than mortgage foreclosures.
I am sure they are tranching the debt and selling the senior tranche as investment grade.
Can someone explain why this is bad practice?
If I loan someone $100 with 10% interest, and immediately sell the loan to someone else for $102, why should I care about anything other than $2 profit?
If I loan someone $100 with 10% interest, and immediately sell the loan to someone else for $102, why should I care about anything other than $2 profit?
Your question is the answer. The incentive is to get your $2, and you don’t care about the $100.
So the business process has an incentive to just write loans, period. It sounds like in this cases there is a compromised relationship with the lender as well.
So the business process has an incentive to just write loans, period. It sounds like in this cases there is a compromised relationship with the lender as well.
The seller works out great until the buyers decide they no longer want the product. In the housing crisis this was because the sellers of the security had them rated far higher than they should have been. Will these be rated properly? Very hard to m know.
But the seller ends up I trouble if they can’t sell the security because they are relying on the cash flow to finance the rest of the business.
It all works fine as long as the pipeline flows.
But the seller ends up I trouble if they can’t sell the security because they are relying on the cash flow to finance the rest of the business.
It all works fine as long as the pipeline flows.
Regardless of the rating, the risk is entirety different, since vehicles almost always depreciate, and do so faster than the debt is paid off, whereas people expect real estate to appreciate long term.
Even a highly rated vehicle note is still based on the fact that the asset will fully depreciate somewhat in line with the outstanding debt.
Even a highly rated vehicle note is still based on the fact that the asset will fully depreciate somewhat in line with the outstanding debt.
Faster than usual depreciation would still ruin some loans.
We're talking packaging the loans into a bundle, so it'd need to be faster than usual depreciation across the market, for some unforseen (aka not priced-in) reason. Otherwise it'd average out.
Skin in the game, forces you to consider the quality of the loan. In theory.
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why should I care about anything other than $2 profit?
That's the point, right? Securitization serves individual short-term interest, at the cost of stability of the system. We saw that in 2008, and even then the politically connected players made out like bandits.
That's the point, right? Securitization serves individual short-term interest, at the cost of stability of the system. We saw that in 2008, and even then the politically connected players made out like bandits.
> this should be a huge red flag to anyone with any sense of history.
It's a small red flag and not at all concerning as a macro risk. In the scale of the US economy and US household finances (including disposable income vs debt service payments), Carvana & pals could hardly be more meaningless. Overall the subprime car loan industry is a modest rounding error sized problem (ie it can't cause even a small fraction of the damage the housing implosion did, that you're referring to re sense of history). For the auto industry subprime is around 7% of new vehicles and a quarter of used vehicles (both figures have decreased over the past year as the employment picture has improved). In a very bad outcome scenario, only a minority share of those subprime loans will go bad. The subprime sector risk is, realistically, measured in the tens of billions of dollars, not trillions (as the housing market risk was). Tens of billions of dollars is as close to meaningless as non-trivial things get against $137 trillion in US household assets and the US income figures.
People get overly paranoid up as a matter of routine, looking for the next financial crisis. Every year there are typically a few items that the financial media will run headlines with in terms of clickbait doom, blaring about how x y z is the next impending financial crisis doom-cause agent. Subprime auto loans are not a big threat to the US economy.
If you want to be worried about something, there are only two primary financial categories domestically to pay serious attention to: housing and the stock market. Nothing else much matters by comparison, those are the two giants, by a very dramatic margin (subprime auto loans, student loans and credit card debt are each trivial compared to housing & stocks, in terms of risk to the US economy).
It's a small red flag and not at all concerning as a macro risk. In the scale of the US economy and US household finances (including disposable income vs debt service payments), Carvana & pals could hardly be more meaningless. Overall the subprime car loan industry is a modest rounding error sized problem (ie it can't cause even a small fraction of the damage the housing implosion did, that you're referring to re sense of history). For the auto industry subprime is around 7% of new vehicles and a quarter of used vehicles (both figures have decreased over the past year as the employment picture has improved). In a very bad outcome scenario, only a minority share of those subprime loans will go bad. The subprime sector risk is, realistically, measured in the tens of billions of dollars, not trillions (as the housing market risk was). Tens of billions of dollars is as close to meaningless as non-trivial things get against $137 trillion in US household assets and the US income figures.
People get overly paranoid up as a matter of routine, looking for the next financial crisis. Every year there are typically a few items that the financial media will run headlines with in terms of clickbait doom, blaring about how x y z is the next impending financial crisis doom-cause agent. Subprime auto loans are not a big threat to the US economy.
If you want to be worried about something, there are only two primary financial categories domestically to pay serious attention to: housing and the stock market. Nothing else much matters by comparison, those are the two giants, by a very dramatic margin (subprime auto loans, student loans and credit card debt are each trivial compared to housing & stocks, in terms of risk to the US economy).
>I don't know auto loan based securities (size, participants) but this should be a huge red flag to anyone with any sense of history.
I agree but there are far less pesky regulations surrounding the repo and sales of cars than of houses so that does a lot to cap the downside. You also can't generally be in debt for a few times your annual gross income on a car.
I agree but there are far less pesky regulations surrounding the repo and sales of cars than of houses so that does a lot to cap the downside. You also can't generally be in debt for a few times your annual gross income on a car.
Yes but the federal government will go to the mat for any of the Big Three automakers while everybody knows REITs can go dangle.
I don't understand your point. The big three (do you still count Chrysler/Stellantis?) make things and produce jobs. Carvana is not a REIT and is substantially a financial services company per this article.
They are a logistics company, not a financial company. I have no affiliation with Carvana but I am familiar with the market they operate in.
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well, by definition the Big Three are 3 large car companies that employ thousands. a particular REIT employs far less and has far less impact on the market. I guess the lesson is, for govt to bail you out, get too big to fail. but we already knew that.
While other auto lenders also sell loans to investors, they typically keep the debt on their books, recording gains and losses over time.
How do you sell a loan but keep it on your books? That makes no sense.
How do you sell a loan but keep it on your books? That makes no sense.
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I thought 5% vertical slice retention was a Dodd-Frank requirement for originators in ABS (I’m not an Auto guy though, maybe that’s not true in this sector)
2008’s issue was leverage and redundant ownership
(A bank that originated the loan and sold a CDO may have bought essentially an ETF of CDOs which contained its own original loan. When the individual stopped paying, nobody know who was on the hook for the car property or who to ask about)
Having better lending standards, ownership data and less leverage allows this to flourish to much greater heights
(A bank that originated the loan and sold a CDO may have bought essentially an ETF of CDOs which contained its own original loan. When the individual stopped paying, nobody know who was on the hook for the car property or who to ask about)
Having better lending standards, ownership data and less leverage allows this to flourish to much greater heights
Yikes!! What are they going to do when the shortage ends? They'll have a bunch of loans with little collateral.
Carvana puts a ridiculous mark-up on used cars - I'm talking several thousand more then the same car brand NEW in some cases. Further their inspection process leaves a lot to be desired, and best practice is to take the car for inspection after receiving it for how often they "miss" things.
It just does not make sense to throw thousands of dollars away to save a couple hours at a dealership.
It just does not make sense to throw thousands of dollars away to save a couple hours at a dealership.
That's not necessarily Carvana. Near me dealerships are calling up people halfway through their lease asking to buy them out at a profit to the leasee, and are then selling those cars at a higher price than new cars-- because the have almost no new cars to sell.
That's just the market we're in right now. I recently sold my car on a trade-in for 2x the price it was worth 2 years ago when I've looked at things.
That's just the market we're in right now. I recently sold my car on a trade-in for 2x the price it was worth 2 years ago when I've looked at things.
Six months ago, I was considering buying a car from Carvana or similar, and their prices didn't seem outrageous: the market was also much more liquid than any other I was aware of. The difference wasn't just a "couple hours" at a dealership—it was all in time and attention.
I wound up with a new Tesla, partially because used car prices were so high. The amount of time and attention buying cars still commands, in most cases, is ridiculous, and the efforts of Carvana to lower both, however imperfect, is commendable.
I wound up with a new Tesla, partially because used car prices were so high. The amount of time and attention buying cars still commands, in most cases, is ridiculous, and the efforts of Carvana to lower both, however imperfect, is commendable.
I was searching Carnava also a month ago for a Crossover and their prices were better than the used car lots in my area.
The price difference was about $3000 cheaper for lower mileage of the same year vehicle.
Best to avoid dealerships altogether. They all have their markups. Have cash in hand and shop private sellers on local CL or Facebook.
An exception might be if you live in a rust belt area where they salt the roads in the winter. Then you might need to go to a dealer who sources southern cars.
An exception might be if you live in a rust belt area where they salt the roads in the winter. Then you might need to go to a dealer who sources southern cars.
Private sellers around here are even more optimistic about what their used stuff is worth. It's bad with cars and trucks, even worse with off road vehicles.
That's because people are getting those prices, if they're even willing to sell at all. The used truck and tractor market is extremely hot. In fact, older tractors can be worth even more than new ones in the same class, because they are much less expensive to maintain and repair.
Probably the best way to get used trucks, if you are an astute buyer, is to go to estate auctions, but that's obviously much less convenient than FB marketplace or what have you.
Probably the best way to get used trucks, if you are an astute buyer, is to go to estate auctions, but that's obviously much less convenient than FB marketplace or what have you.
Yep, they do value add on and make it "zero" fees and then want you to use their financing option so they can sell your financing among others in a contract very similar to a CDO that has an expected depreciation curve (with high APR)
Where I am, If I want to buy an EV then either I'm going to have to make a long trip, or I'll buy from Carvana. Other options?
Most dealerships will deliver a car if you ask.
Used car prices are skyrocketing. It's a function of the market. Compare apples to apples - used prices are higher on other sites, too.
> Used car prices are skyrocketing
Yup, any car buying right now is going to cost extra - but even in that context Carvana overcharges (and offers laughable financing). IMO - I spent the past 3 months researching this topic for my own purchase, limited mostly to sedans and cross-overs.
Yup, any car buying right now is going to cost extra - but even in that context Carvana overcharges (and offers laughable financing). IMO - I spent the past 3 months researching this topic for my own purchase, limited mostly to sedans and cross-overs.
I don't get it. People in the market for used cars are presumably price sensitive - at least more so than new car buyers - who are already quite price sensitive.
Who are the used car buyers that are paying 20% more and getting bad financing terms? Are they selling a lot of cars to subprime buyers?
Who are the used car buyers that are paying 20% more and getting bad financing terms? Are they selling a lot of cars to subprime buyers?
They are also falling for the User Experience, much similar to what car max started with "no haggle" pricing, no needing to wait fir F&I from the dealer, etc.
That's it - same old processes, but they have the UX to make it "nice."
And people are paying a premium for that.
That's it - same old processes, but they have the UX to make it "nice."
And people are paying a premium for that.
The Carvana UX is smart and coercive. You get a (possibly artificial) time block to buy the car, which I’m sure drives conversions.
It's an amazingly high premium. I just looked up the same car I just bought last week from a used car dealer for $13.5k.
Same model, year, trim and pretty close mileage are on Caravana, listed at $19k and $21k. So a 50% premium.
Same model, year, trim and pretty close mileage are on Caravana, listed at $19k and $21k. So a 50% premium.
They're using the same idealogy of overpricing stuff and listing it in Amazon, so they have the first exposure, even if most expensive, it's most convinient.
I, value 50% of the car's price and don't mind spending 3-6 hours to save $10,000~ but many people, simply have an old car, the mechanic says it needs a new engine, they have a shift working minimum wage-esque and go with the first option of visibility thinking it's a good deal.
Financially poor, financially ignorant and time poor.
The perfect American customer.
I, value 50% of the car's price and don't mind spending 3-6 hours to save $10,000~ but many people, simply have an old car, the mechanic says it needs a new engine, they have a shift working minimum wage-esque and go with the first option of visibility thinking it's a good deal.
Financially poor, financially ignorant and time poor.
The perfect American customer.
I think it is more likely they are targeting budget conscious people that are busy with a high paying white collar job and who don't have the time to visit dealers and haggle and want the luxury of just coming home and having the car delivered.
I agree with all that except financially poor. Most sellers I imagine would prefer their clients be wealthy (because wealthy people on average value a marginal dollar less)
People are starting to take out 6 and 7 year auto loans. Some people only look at the monthly payment to figure out if they can afford the car. Because of this, some “budget conscious” buyers are effectively price insensitive.
Convincing a buyer to be a ‘payment’ buyer is an old trick in the car market. Don’t fall for it - always buy on price and then let the payments work out. With all the online calculators and soft pull applications (no credit hit, but accurate prices) it should be strait forward to figure out roughly what you can afford. If it seems like magic, it likely is.
A huge fraction of the used car market is not price sensitive. They are the same old idiots who finance a boat at 20%. The reason they're in the used car market is because they've been told their whole lives that depreciation is for suckers and therefore they should buy a used car. They aren't price sensitive, they're just doing what they think they're supposed to be doing.
I bought from carvana 2 years ago because they had:
A. Lower interest rates than the local credit union or the banks, and
B. Better prices on the vehicle I wanted than anyone else in the area.
A. Lower interest rates than the local credit union or the banks, and
B. Better prices on the vehicle I wanted than anyone else in the area.
I had the same experience. Granted, the market is completely different today than it was even a year ago.
I'm in the middle of a transaction with Carvana, so I guess in some ways I'm somewhat surprised by this.... sure it would have been easier to have them as the loan provider, but their rate was more than double what I was able to find elsewhere. Would be very interesting to know if the buyers who are accepting their financing are doing it because its the only option available. Because I went with outside financing, the transaction has definitely been a longer and more complicated process than I expected, but Carvana has overall been responsive and good to work with. Their customer-facing site and app were a better experience than their competitors. That said, it's clear there are aspects of their back office that aren't as polished as the store window makes it appear.
I’ve sold a car to carvana and I have to say it was the easiest it could possibly have been.
Fill in a web form, get a number (higher than the other guys), set a meeting and their person comes out, does paper work and trades you a check for the keys and title. (Later someone comes to get the car.)
So I’d say at least part of their success is developing a really nice input side.
Fill in a web form, get a number (higher than the other guys), set a meeting and their person comes out, does paper work and trades you a check for the keys and title. (Later someone comes to get the car.)
So I’d say at least part of their success is developing a really nice input side.
I'm buying a car right now. I own two German cars that have both been on the road for over a decade. Great cars, but they're at the end of their life now. I want one of the most common possible sedans you can purchase today to replace them: the Toyota Corolla. Should be an easy process, no brainer, in and out in less than half an hour.
And yet, the whole experience with dealerships and Carvana-likes is utter dogshit. It is a 1000% ripe market for any small shop who wants to own the entire experience Amazon-world-domination style.
And it will happen. There's too much free capital in the world right now.
And yet, the whole experience with dealerships and Carvana-likes is utter dogshit. It is a 1000% ripe market for any small shop who wants to own the entire experience Amazon-world-domination style.
And it will happen. There's too much free capital in the world right now.
I've recently bought two used cars -- one from Carvana (about 2 years ago) and one from a dealer (in the last month).
In both instances, I paid with a certified check, so financing complications did not come up.
In my experience, Carvana was a substantially easier process. I picked the car out online, "ordered" it, and they showed up a few days later with a flatbed and put the car in my driveway. I signed some paperwork and we were done in less than an hour at my house.
The dealership took almost 3 hours to get me out of the door even though we had done a fair amount of work up-front to avoid having to spend time at the dealership. I suspect a lot of this could have been mitigated by the dealership if they were better with paperwork and interfacing with the DMV or doing some work ahead of time.
In the end, however, I'd rather not buy from Carvana again. You have no room to negotiate and their customer service is not great. Their prices generally aren't better than the dealer's prices BEFORE you negotiate with the dealers. If you're buying a newer used car (I usually buy cars that are 2-3 years old), the certified warranties that the car manufactures offer are a really nice bonus that Carvana can't offer.
For example, I just picked up a certified 2019 with around 19k miles. It's basic warranty will now run until 2025 or 100k miles. And the manufacturer warranties, in my experience, are substantially better than after-market warranties since the dealers' service departments work directly with the manufacture on servicing them and the dealers are more aligned with your interests than the manufactures' since they make a lot of money off doing repairs. Whereas third-party warranties are more like insurance and you better have your ducks in a row if you actually need to make a claim and expect to have it paid.
In both instances, I paid with a certified check, so financing complications did not come up.
In my experience, Carvana was a substantially easier process. I picked the car out online, "ordered" it, and they showed up a few days later with a flatbed and put the car in my driveway. I signed some paperwork and we were done in less than an hour at my house.
The dealership took almost 3 hours to get me out of the door even though we had done a fair amount of work up-front to avoid having to spend time at the dealership. I suspect a lot of this could have been mitigated by the dealership if they were better with paperwork and interfacing with the DMV or doing some work ahead of time.
In the end, however, I'd rather not buy from Carvana again. You have no room to negotiate and their customer service is not great. Their prices generally aren't better than the dealer's prices BEFORE you negotiate with the dealers. If you're buying a newer used car (I usually buy cars that are 2-3 years old), the certified warranties that the car manufactures offer are a really nice bonus that Carvana can't offer.
For example, I just picked up a certified 2019 with around 19k miles. It's basic warranty will now run until 2025 or 100k miles. And the manufacturer warranties, in my experience, are substantially better than after-market warranties since the dealers' service departments work directly with the manufacture on servicing them and the dealers are more aligned with your interests than the manufactures' since they make a lot of money off doing repairs. Whereas third-party warranties are more like insurance and you better have your ducks in a row if you actually need to make a claim and expect to have it paid.
I sold an S5 to Carvana, got $1-2k over trade in offers, it had a broken windshield and bad brakes and there were zero issues with the process. They showed up, had to bring a specific person b/c it was manual lol, and wrote me the check right there. It was as painless a process as I've ever had with a vehicle transaction.
I sold a car to carvana and had the exact same experience. I thought for sure that there was going to be some kind of catch because it took just 15 minutes and they did all the work and hauled it away from my house. It was too easy it seemed unreal.
It is one of Tesla's underappreciated innovations.
Where are you shopping? I bought a new Honda in March and it was dirt simple. Traded a few text messages with salesman to agree on price, show up at dealer, sign a pile of pre-printed paperwork (mostly loan related, Honda had better rates than my CU at the time), and on my way. I was there maybe 30 minutes.
That’s awesome! I walked into a highly regarded area dealer, ready to buy, and the guy pulled out pre-printed four-square sheets. Took about five minutes of that before I walked out and got online, coincidentally with Carvana, where I found exactly the trim I wanted at a better price than any of the local dealers.
Wow, I'm amazed they still try that nonsense. I guess there are still plenty of suckers out there buying cars.
Just in case anybody is wondering how "easy" a new car purchase can be... I sold my previous car to Carvana a few months prior (didn't need a car last winter due to COVID). So, that wasn't in play.
I tested a few cars at various local dealers (cross-shopped Tacomas, Rangers, Ridgeline, and a few similarly priced SUVs). All were easy enough to deal with - told them up front I wasn't buying that day and just wanted to test drive. Only one asked me to wait for the manager to chat - annoying, but whatever.
Once I settled on model/trim, I emailed every dealer within an hour's drive that had one in stock (several didn't - COVID shortages) and asked them to text their best price. First response was within 30 minutes, and a few texts later, I had the price down to my target (which was based on asking around some make/model forums online). The dealer did make me go through the whole extra warranty, tire care, and other add-on bullshit, but it was by phone and basically just me saying "No" a half dozen times. Annoying, but expected.
Anyways, the process is still a bit tedious and requires too much back and forth, but at least it can mostly be done via text or phone. The actual in-person stuff is pretty painless (and would be even easier if I brought my own financing).
Just in case anybody is wondering how "easy" a new car purchase can be... I sold my previous car to Carvana a few months prior (didn't need a car last winter due to COVID). So, that wasn't in play.
I tested a few cars at various local dealers (cross-shopped Tacomas, Rangers, Ridgeline, and a few similarly priced SUVs). All were easy enough to deal with - told them up front I wasn't buying that day and just wanted to test drive. Only one asked me to wait for the manager to chat - annoying, but whatever.
Once I settled on model/trim, I emailed every dealer within an hour's drive that had one in stock (several didn't - COVID shortages) and asked them to text their best price. First response was within 30 minutes, and a few texts later, I had the price down to my target (which was based on asking around some make/model forums online). The dealer did make me go through the whole extra warranty, tire care, and other add-on bullshit, but it was by phone and basically just me saying "No" a half dozen times. Annoying, but expected.
Anyways, the process is still a bit tedious and requires too much back and forth, but at least it can mostly be done via text or phone. The actual in-person stuff is pretty painless (and would be even easier if I brought my own financing).
I couldn't believe it either - when he first got up from the desk to go "talk to his manager" I teased him he'd better not come back with a foursquare. Several trips back and forth and a whole lot of stalling later, he comes back with a pre-printed foursquare form. Guess we've entered the digital age of car buying.
I expect it is not actually profitable to let a customer out the door for the same price that brings him in the door. If a dealership shifted their pricing from last minute upsells into the advertised price, would anyone come?
Decade-old cars is around the midpoint of where I’m usually buying them, not when they’re end-of-life.
Not German cars I hope...
My 1998 Mercedes E300D (bought by me in 2009 at around 180K miles) was one of the best used cars I'd bought in terms of reliability. We drove it 7 years until New England salt ravaged the disastrous "environmentally friendly paint process" (which served to provide an early retirement for a mechanically sound car, the overall environmental benefit of which I cannot see).
Mechanically, in the 7 years/~35K miles we drove it, it needed brake pads once each axle, oil changes, wiper blades, one glow plug, tie rod ends, and one tire plug. That's not quite EV level of low maintenance, but it's pretty solid.
Best thing about the German car reputation is that some people are afraid to own them past the warranty and many are afraid past the 8-10 year mark. It makes them (911s aside) reasonably priced to buy used.
Mechanically, in the 7 years/~35K miles we drove it, it needed brake pads once each axle, oil changes, wiper blades, one glow plug, tie rod ends, and one tire plug. That's not quite EV level of low maintenance, but it's pretty solid.
Best thing about the German car reputation is that some people are afraid to own them past the warranty and many are afraid past the 8-10 year mark. It makes them (911s aside) reasonably priced to buy used.
I have had similar experiences with Mercedes, New England salt included. Bought an E series for cheap with only 24k miles and drove it with only regular maintenance to 300k miles before the salt won. I’ve heard many other people with the same complaints about Mercedes as the parent but my two cars have been excellent.
Any article on anything to do with used cars at this point in time, should include the caveat that (in the US at least) this is a very strange year for used cars.
That said, I bought a car from Carvana a couple years ago, and the process was much better than one associates with buying a used car, generally. I think they have created an actually improved process/business, rather than just sucked up a lot of VC money to undercut on price. They are getting lucky with being in the used car business during a time when that is the hottest thing going, but they are also just better at it from the consumer's point of view, and it's not mostly about price.
That said, I bought a car from Carvana a couple years ago, and the process was much better than one associates with buying a used car, generally. I think they have created an actually improved process/business, rather than just sucked up a lot of VC money to undercut on price. They are getting lucky with being in the used car business during a time when that is the hottest thing going, but they are also just better at it from the consumer's point of view, and it's not mostly about price.
i bought a car from them three years ago and was very pleasantly surprised w how smoothly everything went (fwiw i did not get financing from them).
it was definitely not about price for me. it was about selection and minimizing hassle. i’m still reluctant to buy a guitar online but had no problem w buying a car that costs 15x as much online.
i’ll definitely buy my next car online too.
it was definitely not about price for me. it was about selection and minimizing hassle. i’m still reluctant to buy a guitar online but had no problem w buying a car that costs 15x as much online.
i’ll definitely buy my next car online too.
For years GM's financing division provided most of its profits. (They were hit hard during the housing bubble because they also got into home loans)
https://www.wsj.com/articles/SB108371503435402235
https://www.wsj.com/articles/SB108371503435402235
Car Loans in the US are a part of all car companies whether they sell new or used. So this like a good ad for Caravana. Most people in the US expect to buy a car with some kind of financing but as people get price out of more and more homes you can see the Used car market growing more and more.
Something is very very wrong with the used car market right now. I purchased a brand new 2021 Tacoma 3 months ago for 33k, and the average listing price for an identical used model with ~10k miles is $38k. Surely no one is buying these things when that's the case, so what gives?
I bought a BMW i8 through Carvana recently. Having gone through the full purchasing flow (and afterward re-financing their loan because their rate was insane) this makes total sense to me.
Car dealer makes money from financing loans....no surprises!
Collateralized debt objects are lucrative, just dont leverage up 50x like the investment banks in 2008 did
Duh