US car trades 1/3 underwater is machinery next.

[mcfarms]

Just read an article in todays USA today which says a record one third of trade ins to US dealerships have more money owing on the vehicle than the vehicle is worth. When this happens the difference between the trade value and owed is added onto the loan value of the new car. Wonder if this is going to happen with machinery. didn't even get this high just prior to the subprime meltdown. The printing of money price inflation and devaluation of non "real" assets is getting pretty severe.

[farmaholic]

Simple solution..... drop the exaggerated price of the new stuff.... problem solved.

[AlbertaFarmer5]

Simple solution..... drop the exaggerated price of the new stuff.... problem solved.

How do you propose to drop the exaggerated price of a new car? The price keeps dropping all the while features, reliability and regulatory requirements keep increasing. I'd be interested to see if there is a like for like comparison for farm machinery over the decades. Its easy to say that a new combine is insanely priced, but if you compare features and capacity to an MF 860, are they really?

[farmaholic]

One a percentage basis, do the efficiency gains over the years equal the increased costs?

Highly unlikely. What ever the market will bear.

[Quadtrack]

Why do people keep buying if they owe more on the 'old' one than it's worth? Keep it, get it paid for, do some repairs if need be - is that out of style?
The amortization periods are too long on depreciating 'assets'. People buy more than they can afford or need.

[AlbertaFarmer5]

One a percentage basis, do the efficiency gains over the years equal the increased costs?

Highly unlikely. What ever the market will bear.

How much of the increased cost is the result of features that don't add to productivity? How do leather seats, beer coolers, cartoonish styling of side panels, satellite radio add to the productivity of the harvesting operation, how to separate those costs from the increased productivity costs?

[mcfarms]

Record number of car buyers 'upside down' on trade-ins
Greg Gardner, Detroit Free Press 4:24 a.m. EST November 27, 2016
AP CLUNKERS USED CAR DEALERS F USA NJ
(Photo: STUART RAMSON, AP)

DETROIT -- The wave of easy credit and longer auto loans has left a record percentage of consumers trading in vehicles that are worth less than what they owe on their loans.

In auto finance parlance, these folks are underwater, or upside down. They already are affecting the market as automakers boost incentives and subprime lenders monitor their delinquency rates more closely.

So far this year, a record 32%, or nearly one-third, of all vehicles offered for trade-ins at U.S. dealerships are in this category, according to research by Edmunds.com. When these people go to buy a new vehicle they must add the difference between their loan balance and the vehicle's value to the price of the one they want to buy.

For perspective, the lowest the underwater percentage has been was 13.9% in 2009, the depths of the Great Recession when credit was tight. The previous high was 29.2% in 2006, about when the housing market was near its frothiest point.

“There’s been a lot of water building behind this dam for some time because of higher transaction prices, lower down payments and long-term loans," said Greg McBride, chief analyst with Bankrate.com, a consumer finance information service.


The average new car loan is for 68 months, according to Experian Automotive, which tracks the auto finance market. But subprime borrowers, generally those with FICO credit scores in the low 600s or lower, are borrowing over an average of 72 months, or six years.

While those loans reduce monthly payments, they also mean that the buyer's equity, or the portion of the loan principal paid off,grows more slowly than the vehicle depreciates.

"It’s problematic for the consumer because there’s no foolproof way to eliminate his financial exposure," McBride said. "If the car gets stolen, is totaled or you get new car envy while you’re upside down then it’s a big problem."

This is happening as the average selling price of a new vehicle is near a historic high of about $34,000. Some of that increase is driven by consumers' preference for larger, fully equipped pickups, SUVs and crossovers.

The result is consumers borrow more to get the vehicle they want. The average new auto loan was $29,880 in the second quarter of this year, according to Experian Automotive. That's 4.8% higher than a year earlier.

Moreover, leasing, which has reached record levels of more than 30% of all vehicle sales, has grown more popular for several years.

Already, especially in segments such as subcompact, compact and midsize cars, used car values are falling as a wave of 3-year-old models are returned by lessees. This increased supply is pushing down the price dealers are willing to pay for them at auctions.

Just last week, Ford Chief Financial Officer Bob Shanks told analysts that the company's finance arm, Ford Credit, cut its forecast for 2017 pretax profits because of declining auction values for used cars.

Credit agencies, such as Moody's, Standard & Poor's and Fitch, so far, have expressed mild concern about the trend. Their focus is on the $38-billion market for securities backed by auto loans. These are bundles of auto loans, similar to the tranches of mortgages that collapsed in the 2008 crash of the housing bubble.

But they are also different. History shows borrowers are more likely to stay current on their car loans than on their house payments if the economy weakens. Lenders can repossess automobiles more quickly than it takes for mortgage holders to foreclose on a house.

Fitch reported that 60-days-plus delinquencies on subprime auto loans rose to 5.05% in September, the second highest level since 2001, and 13.2% higher than a year earlier.

"When you look at recessionary levels where unemployment was near 10% in 2009 and late 2008, we touched 5.04%," said Hylton Heard, senior director at Fitch Ratings. "Today you’re pretty much at that peak."

Fortunately, unemployment is down to 4.9% nationally. Prime borrowers have a 60-day delinquency rate of only 0.44%. Those factors tend to offset the higher risk in the subprime market.

New vehicle sales are expected to continue slightly below their record year-ago levels in November, according to J.D. Power and LMC Automotive.

Yet even their forecast flags some warning signs.

Incentive spending -- discounts or extras to lure buyers to close a deal -- in early November rose to $3,886 per vehicle, up 15% from $3,374 from November 2015 and the second-highest level ever behind the record $3,939 set in September.

"People's monthly payments are being kept very low by low interest rates that most manufacturers are willing to subsidize," said Ivan Drury, senior analyst at Edmunds.com. "But if we see those rates go up a bit, some of these people won’t be able to afford their cars."

[Retired]

Every one wants another 5 or 10% in wages just because they are there another yr,dont know what started that trend but once something gets a foothold sure is hard to get it back.
As for machinery if the BTOs didnt ask for more and more so they can farm more acres I dont believe the machinery co would buijd gust to set on trere lot and look pretty.

[tweety]

Why do people keep buying if they owe more on the 'old' one than it's worth? Keep it, get it paid for, do some repairs if need be - is that out of style?
The amortization periods are too long on depreciating 'assets'. People buy more than they can afford or need.

Is it out of style? Yes. People live without consequence. They buy waaay more then they can afford and if they go broke, who gives a crap, not their problem. Business corps do it, goverments do it, banks do it, why not society too.

It will invade more into agriculture as the mentality comes along with the newer generations who have only seen good times, continuously rising stack market, and low interest rates backed by old money.

[Oliver88]

You can't fix stupid when it comes to the average consumer. The careless spenders will force the rest of us conservative spenders to get a rate increase eventually.

Hopefully there ends up being some opportunities for us farmers to get a few deals, maybe not as much in ag as most FAMILY farms that have been around for a century or so are around for a reason.
The investment funds running farms will be the high risk enterprises most likely to "change hands" as we've recently witnessed on the prairies.

[farmaholic]

AF5.... I'm not arguing with that logic because you are right. Not alot of value in the stuff you mentioned.

But why is a monitor with proprietary programming worth a sickening amount of money when a generic computer costs much less. Or a module that will shut down a whole combine worth so much?

What are we actually paying for? The hardware or software? All too nuts as far as I'm concerned.


I just had to replace my 1995 farm beater with something. Instead of buying another piece of nearly wore out junk I opted for a private deal on a 2014 Chev 1/2 tonne with about 3200(yes, hundred) kms on it. Regular cab, long box, 4X4. No carpet on the floor... vinyl matting. No electric windows... crank windows. Has all the other creature comforts though... things that were once options that became standard equipment. Plain Jane to the max... I wasn't buying a Laramie or Longhorn to take to the field... and I still have the Ram(another plain truck) for pulling stuff. Too good a deal to pass up. Does it inflate my ego? No. Does it deflate my bank account? No... Perfect then!

[stonepicker]

Like! farmaholic.

[hobbyfrmr]

I struggle with buying newer anything. This farm is too small to cash flow any modern equipment for sure, but I really would like to buy better stuff. I have a high credit rating, lenders are favourable but the math bothers me. I fix up the old units, install air ride seats, radio and make sure the a/c is doing its job. Then we drive them all day until they break down, then I swear and fix and swear, then go at it again. Its not very efficient but sitting around wating for your dealerships laptop to tell you whats wrong is not efficient either.

[farming101]

Proprietary electronics is one of the biggest ripoffs going.

Lousy graphics
Archaic menus and navigation
Mega dollars to fix

[furrowtickler]

Short answer is yes
New pricing has up up too far too fast