In my area (SW Virginia) regular unleaded can now be purchased for less than $3 a gallon. Most people are smiling – the smile of the simple-minded. Or the dazed. Or perhaps, the forgetful. Does no one remember that a mere handful of years ago, gas sold for less than $2 a gallon?
And now, they’re happy about paying less than $3… .
Meanwhile, the average price paid for a new car (as of this past April) now exceeds $30,000 (news story here).
In 1990, it was just over $16,000.
So, we’re paying twice as much for gas – and for the cars we put the gas into.
Hence my not smiling.
Inflation accounts for a lot of this, of course. $16k in 1990′s money works out to an inflation-adjusted $28,630 in 2013 money. And $1.10 in 1990 dollars is equivalent to just under $2 today, in terms of real purchasing power. But, income inflation has not kept pace with dollar inflation.
Most of us have been treading water for the past five years . . . with one hand.
Before 2008, I didn’t personally know anyone with serious money (or job) troubles. Now, literally everyone I know has money – or job – troubles.
This is anecdotal, of course. But for me it’s a barometer of the true state of the economy – as opposed to the Happy Talk warbling out of the radio, which I regard as not unlike the “good news, comrades!” about the increased chocolate ration coming over the loudspeaker in Orwell’s 1984.
I don’t believe a word of it.
Yet, people are buying cars. The industry reports its best year in years.
Perhaps buying is not the right word, though.
That word (like “freedom”) is much-abused. If one is making payments on something, then one is making payments on something. One hasn’t actually bought it. Because the seller still has legal claim to it. One has agreed to make payments toward its eventual (theoretical?) purchase – and during the interval, the seller merely allows you to retain possession and use (under conditions). Fail to make a payment, and the seller may take back his vehicle.
But the point remains: The touted uptick of new car sales is almost certainly another spec-bubble created by financial flim-flams. It has to be – given that new cars cost more than ever – and given that most people have less real financial wherewithal than they used to have.
I will give you two specific examples:
My wife and I know a couple. The man is a part-time manual worker; the wife a part-time minimum wage worker. I doubt their combined annual income is more than $30,000 – if that. We know they are are mortgaged to the Adam’s apple and live paycheck to paycheck..
Both of them drive new cars.
The man came home a few months back in a 2500 series Chevy with a 6.2 liter V-8 and a sticker price close to $40k. The woman has a new AWD crossover SUV that cost close to that $30k average sales price mentioned earlier. I doubt their house (which they don’t own) is worth much more than the combined value of these two vehicles – and it boggles me that any lender agreed to write them a note. The man has told me himself he was surprised they did. He also said he wasn’t concerned about not making the payments. “They can take it back,” he shrugged.
Then there’s Dom’s story. Dom – the Web High Master of EPautos – got a letter from Toyota inviting him to swap his three-year-old Yaris for a brand-new one at no additional cost. Just turn in the old Yaris, drive home in the new one – and pay the same payment. I realize I didn’t make it beyond trigonometry in high school (and that, barely) but the math eludes me.
How is Toyota making money on this deal? How did Chevy make money on my neighbor?
Did you know you can drive a new Volt electric car for just $200 a month for the next two years?
The Volt’s MSRP is $39,145.
My nose may be blocked up with congestion right now (I walked into a sneeze-cloud at Wal-Mart last week) but the smell of fish is stronger than a dead grouper stuffed behind the drywall.
Remember Jenga? The game? You try to stack up little wooden blocks as high as possible and win by not being the guy who puts the block on top that topples the whole thing down.
How high can this Jenga tower go?
I guess we’re going to find out, soon enough.
Throw it in the Woods?
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