Monday, July 21, 2008

A Lucky Accident

I was talking with my friend Wade the other night, and he told me about a most fortunate accident. His 6 year old Ford Excursion was totaled in an accident where no one was injured. He had been thinking about trying to sell it, now that gas is $4, and thought he could get $3500 to $4500 for it.....assuming he could find a buyer at any price. Instead, he expects to get book value for it from the insurance company, around $7500. Maybe there is a market for people who know how to wreck cars without injury, because I'm sure there are a lot of SUV owners who would happily pay to get in Wade's shoes.

This brings up another ticking bomb for the finance industry. Today's WSJ had an article about how Chrysler's finance unit, which finances loans and leases for Chrysler buyers, and inventory for Chrysler dealers, will have to pay more for it's next round of financing. My guess is there are a lot of SUV owners who will be walking away from their loans rather than suffer the cost of driving their stupid gas guzzler. That means finance companies stuck with cars worth far less than their loans. Sound familiar?

And let's look beyond the consumer. The other day I drove past Boulder Toyota and marveled at the sea of SUV's in their parking lot. I can't imagine there are buyers for those things at any price. And that inventory is likely financed by someone. AND, the end of he model year is only about a month off.

And getting back to the Chrysler's finance unit.....hell, they have likely financed acres of Chryslers! Not too many saleable cars there!

I think there is a lot more feces headed for the financial industry's air conditioning. What is going to happen to whoever financed all the big cars on dealer's lots that can't be sold? Will the dealers go under, or the finance companies, or both? Not to mention consumers just pushing their SUV's off a cliff. I doubt this problem is the size of the mortgage mess, but on top of that mess, this is really going to hurt. I wouldn't be buying those financial stocks just yet.

1 comment:

Anonymous said...

Isn't Boulder where the government stores all it's pamphlets?