High Car Payments: A New Norm?You can sleep in your car but you can’t drive your house — why would somebody pay a thousand dollars a month for a car payment? Do you have a thousand dollar car payment? Let us know in the comments what you think about a thousand dollars a month for a car payment.
Rising Costs and Long-Term LoansAccording to Axios, thousand dollar car payments are very common now. Car payments look like mortgage payments. Well, that’s not true. They look like what mortgage payments used to look like. Now, mortgage payments are three thousand dollars, not one thousand, because the interest rates and the prices are higher.
Increasing Percentage of High PaymentsAccording to the article, twelve percent of buyers who finance their new vehicles in June have payments of at least a thousand dollars. That’s up from seven percent in ’21 and 4.6 percent in 2019. Look, that’s double just in two and a half or three years. And we’re talking about long-term loans — 36 percent of borrowers had loans 73 to 84 months. That’s six, seven years. Gone are the days of three or four-year car loans because new car vehicle prices are averaging forty-seven thousand dollars.
Understanding the Math Behind High PaymentsSo why are car payments that high? How do you get to a thousand dollars a month? Well, it’s not that hard. If you want to calculate the payment on a motor vehicle, use the number two. Use a factor of two. What does that mean? Whatever you’re borrowing, whatever the car cost, multiply that number times two, and that’s your car payment. So if you have a fifty thousand dollar car, times two is a hundred thousand. Take the first four numbers — that’s a thousand. That’s it. You can figure out a car payment on any car very quickly.
Considerations on AffordabilityNow, that’s figuring about a five percent interest rate on a five-year loan. So if you’re doing longer terms, the payment might be a little lower, or if the interest rate’s higher, might be a little higher. But the easy way to make a car payment is times two. Just multiply times two.
Moral and Financial QuestionsSo a thousand dollars a month really isn’t that surprising if cars are fifty grand. A fifty thousand dollar car is gonna have a thousand dollar car payment for five years. The question is, now that’s just the math part, that’s not the right or wrong part. The question is, is that right or wrong? Should you be spending a thousand dollars a month on a car payment?
Comparing Costs: Car vs. HomeWell, in order to have a thousand dollars take home, you probably need to make 1400 before taxes a month just for that car payment. Right? That’s 350 a week just for your car payment. That doesn’t account for insurance, gas, taxes, any other things that go into it. For most people, by the time you add up all the expenses for a new car, you could be talking two grand a month by the time you figure insurance, taxes, and gas for that car, or close to it. It’s a lot of money.
Shift in Economic RealityHow does that compare to a mortgage? Well, a mortgage payment on a house in 2017, an average house was two hundred, two hundred and fifty thousand with a three percent mortgage, you could be a thousand dollars a month for a house a few years ago. Now, you’re probably going to be twenty-five hundred a month for a house. But in three short years, four short years, a thousand dollars went from buying you a house to live in to a car. That’s a significant difference.
Financial Strategy: Old vs. New CarsWhat does that mean? Well, if you have an older car that has no car payment, you’re saving a lot of money. You might be saving fifteen, twenty thousand a year. You might have to spend a little more on maintenance, but as long as it’s a pretty reliable car, may not be the worst thing in the world. What about if you have a car with an existing payment that’s three hundred or four hundred or five hundred? You might want to hang on to that car because when you trade it in to get a new car, you could be facing a thousand dollars.
Engagement and FeedbackWhat are your thoughts? We’d love to hear your comments about what is your reaction to seeing a thousand dollars a month. Have you shopped for a car lately? Have you seen thousand dollar car payments? You know, it used to be that you saw ads on TV and in the newspaper for car dealers advertising no money down, one ninety-nine a month, no money down, two hundred a month, whatever for a car. Those days are gone.
Market Realities and Consumer AccessibilityAnd they would have thousands, hundreds of cars on the lot. Now there’s not cars in a lot. What most people say is that although there appears to be a steady stream of affluent consumers, most consumers, the new car market is growing increasingly out of reach for most consumers. The new car market is out of reach. Same thing with houses. Who would have thought that a new car was out of reach for most consumers? That means used cars are the wave of the future. Maybe electric cars.
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Inventory Woes in the New Car MarketAs you probably know, there’s a lot going on in the automotive industry. Both new cars and used cars have a lot of changes going on. We’re going to talk about all of them. We’re going to talk about some wild price swings on vehicles and also some changes in the new car market and even the electric vehicle market, something that’s been overlooked.
New Cars: Inventory Crisis DeepensFirst, with new cars, it’s getting worse with inventory. Look, you know a few months ago, beginning of the year, even last year, there was talk about does a chip shortage and inventory for new car dealers is less than it was. You probably have been driving by all of the new car dealers in your area and seeing empty lots or if you do see cars, if you look closely, they’re probably used cars, not new cars. Many large-scale new car dealers are down to single digit cars.
Severe Shortages and High DemandHere’s an article where a major Chevy dealer used to have 80 cars on a lot, then it went down to 40 or 50. Now today, we have five according to the general manager of that dealership. And this is just not from this article; we talk to dealers every day. A lot of our clients are major dealers. We have a large-scale car dealership client in Fort Worth, Texas. They used to keep 250 to 300 cars on their lot. Now they have none. Every car that comes in is delivered the same day.
Slim Pickings: Impact on Consumer ChoiceIf you want to go to that dealership to see cars, they’re not going to be there. New car dealers are short on cars. We have a client that we’re working with that’s looking to get a certain type of minivan, a Chrysler Pacifica minivan hybrid, and in their area within a 300-mile radius, there is one Chrysler Pacifica hybrid minivan. That one is pre-sold. In addition, the factory that builds them is shut down for a month and a half. New car inventory is thin and getting thinner.
Used Cars: Prices and Market DynamicsWhat about used cars? Well, used cars, a different story. This article talks about home prices going up, but car values are set to fall, and this is used cars. Used cars are dropping like a stone. Here’s why: for the last six or eight months, many people who wanted to buy a new car weren’t able to find one, so they bought used. Some of these used cars were selling for more than what they did brand new two or three years old.
Unprecedented Price FluctuationsSome dealers are actually raising prices of used cars that are sitting on their lot. It used to be that used cars depreciated over time. Every week or every month, the new book value came out, and it was less than it was the last book. Some of these cars are going up in value. And if you watch the auction results, Mannheim Odessa, the major auctions, some cars are selling for more than they did even a month or two before. When the dealership sees that the car under a lot is there selling for more, they might mark it up, not marking down cars like they used to, but marking them up over time.
Changing Market DynamicsThat’s all changing. There are big volumes of repossessed vehicles starting to hit the marketplace. More cars that are non-fuel efficient are going down in value: SUVs, larger trucks because of the gas price inflation is starting to create demand destruction. Meaning that as people spend more money on gas for their car, groceries, rent is going up, they have less money to spend on vehicles. So more expensive vehicles or extra vehicles are not being purchased, right?
Electric Vehicles: New Entrants and Market ReceptionWhat about electric vehicles? Well, there’s a new company called VinFast. It’s a Vietnamese startup that has electric vehicle crossovers. They’re going to start their first showrooms in California. 24 more stores open by the end of 22. So they’re going to have close to 30 dealerships by the end of this year and develop rapidly. They’re targeting high-volume production as well.
The Future of Electric VehiclesWhat are your thoughts on electric vehicles? Is this the wave of the future? Is it a fad? Is it something you’re interested in? If that was the only new vehicle that you could get, would you buy one? An electric vehicle in general or a new car company in particular? Or do you want to wait to see, are their vehicles going to be any good? Are they going to be reliable? Are they going to break down? Have you even heard of this company VinFast? If you’re in California, do you see where they’re constructing one of these showrooms?
Conclusion: Industry Challenges and OpportunitiesThe car business is probably right now at a historic moment in things changing in dynamic results of the industry. New cars are in shorter supply ever in history, used cars prices are dropping like a stone, and electric vehicles are having new offerings. Here’s something else about new cars: there’s an old joke back in the days of Soviet Russia, the USSR, that if you bought a car, you might have to wait two years to get a new car, three years to get a new car if you ordered one.
Looking Ahead: Adaptation and UncertaintyAnd that used to be an unbelievably kind of fantasy joke that nobody could understand like how could you wait that long? Well, here in the US, many types of cars, if you want to order one, might be a five or six-month wait. It’s not three years, but it’s also not a week or two. Call up any of your local dealers and ask them if you were going to order a new car, how long would it take? Whatever they tell you, take it with a grain of salt, add a little bit because they might give you a shorter optimistic number. But for most vehicles, if you get an honest answer, it’s five or six months and it could end up being longer.
Closing Thoughts and EngagementThe chip shortage excuse is no longer really an excuse. It’s more the companies are ramping down production because that’s the new business model for dealerships is to not have inventory. Let us know what you think in the comments. We’ll see in the next video episode.
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Today we’re going to talk about the very popular Vermont registration title process that many people use in all parts of the country to get valid ownership documents for their vehicle. A lot of questions come up about this. Do you have to be a resident of Vermont? What paperwork do you need? What about taxes? These are very common questions, and we’re going to look at all those and we’re going to get the information directly from the Vermont DMV.
Getting Information from Vermont DMVSo, we’re going to get it from the horse’s mouth like they say. We’re not going to use any kind of urban legends or old wives’ tales or anything that you might hear online. We’re going to get it right from the Vermont DMV. First, we’re going to look at the FAQ page on the official Vermont Government website.
FAQ Page on Vermont Government WebsiteFAQs:Can someone else fill out the registration form for me? Yes, someone else can complete it but you have to sign it. Application must be signed by the owners of the applicant, that’s you.How long do I have to get inspected? Well, inspection is only for newer vehicles, so it doesn’t really count as far as older vehicles.Do I have to be a Vermont registered resident to register a vehicle in Vermont? No, anyone can register a vehicle in Vermont. That’s key.Do I need a Vermont license to register? No, anyone can register a vehicle. Notice the answer is the same. So don’t let anybody tell you otherwise. As of right now, you can register as a non-resident.
Required DocumentsNow, what paperwork are you going to need? Well, we’re going to use their required document wizard. What do you need to have? It also tells you completing your forms prior to coming to the DMV makes it easier. Now, if you’re from another state, you’re not going to go to DMV, you’re going to do it by mail.
Types of Vehicles and EligibilityFirst, it’s going to tell you what type of vehicle do you have? Auto, Truck, motorcycle. So we’re going to put in Auto. The answers are going to be pretty much the same. Next is most important question is your auto 15 years or newer? 15 years or newer? This Vermont process is for vehicles that are 15 years or older. So if you have right now a 2008 model or older, that’s what’s designed to be used for this process. So remember, 15 years and older is what this process is for. So this question asks you is your vehicle 15 years or newer?
Required DocumentationNo, what do you need? Well, there’s no other questions, required documentation. Please complete the forms, VD119, VT005, fill in these sections, and either bring or mail the form to the Department of Motor Vehicles. That’s it, end of story. There are no more questions, no more questionnaires, right? So it’s very simple, you have to fill out the forms properly because we talked to Vermont DMV very frequently, and they tell us all the time that there are common errors people make on these forms. So make sure you fill it in right, but that’s all you need, required documentation, complete the forms.
Bill of Sale and Required FeesNow, one of those sections is about a bill of sale. You need to have a bill of sale for this, so make sure you do that.
Taxes and FeesRequired fees:What fees will be due, taxes is what people ask about. How much tax do I have to pay? Well, let’s see what Vermont says about that. Here’s their page on taxes, official government website. Purchase and use tax is due at the time of registration. It’s a percentage of the purchase price or NADA clean trading value, whichever is greater, minus the value of a trade-in, which normally doesn’t apply because you’re not buying it from a dealer, you’re not trading in a vehicle. So, this is where people kind of get a little bit anxious.
Tax Rates and OptionsWell, NADA, it seems like it’s too much money. Well, maybe it is, maybe it’s not. However, you have a few options. It says NADA clean Book value is due and less exempt. We have a couple options. First of all, their website says NADA clean trade and Book value. However, the Vermont statutes, the actual laws on the books, tell you that you can use some other value guides if they’re accepted on some older vehicles, on some trucks, on some alternate vehicles. You can use other guides. Now, NADA still might be less, but you can look at the other guides if you believe the vehicle’s value is less than NADA value, you can submit an appraisal form. Well, that’s one of the things that we prepare a lot for our clients, is this appraisal form because they want to come in with a lower value. So be aware, you can do that.
Tax Credits and Special VehiclesThen you have some other options. If you are claiming a tax credit for a vehicle registered to you out of state, send a copy of the registration certificate. This normally doesn’t apply, but you may have already paid some taxes for this vehicle that you get a credit for. And here’s your tax rates. Tax rate basically is 6 percent across the board, except for short-term vehicle rental, which is 9 percent, but everything, ATV, auto, boat, motorcycle, motorhome, trucks, 10,000 pounds in over or under, all other vehicles, everything is 6 percent.
Special Vehicles and Maximum TaxNow, there’s a couple things from this table which are very, very helpful. First of all, on some larger vehicles, 10,000 pounds or more, or other vehicles which are, you know, kind of specialty vehicles, there’s a maximum tax of $2,000. So you might max out your taxes.
Conclusion and Additional InformationAlso, it tells you what type of vehicles you can register. People ask all the time, can I do an ATV? Yep, it’s right here on the classification. Motorboat? Yep, you can do that too. Now, you notice it says motorboat, it’s not kayak, canoe, gotta have a motor. Motorcycles? Yep. Motorhomes? Yep. Trucks, doesn’t matter if it’s above 10,000 pounds, 10,100 actually, you can register it. The taxes where people get tripped up, you may believe that your vehicle is not worth that much and you don’t want to pay that much tax. You have two options. You can fill out the Vermont appraisal form or you can look at another title method that’s not through Vermont that maybe doesn’t have tax. So if you want to use the Vermont method, you have to pay them their tax. Their law says you have to use book value. If you don’t think you feel like you want to pay book value, that’s fine. Look at another method. Maybe buy the title, maybe lean title, maybe magistrate title. There’s other methods. You’ll see them on our website that maybe don’t have taxes, but they may have something else you don’t like or use the Vermont appraisal form, which we provide when we do the order. Vermont can make it their determination. Maybe your vehicle is worth less than the book value.
Additional Instructions and LimitationsSo that’s an overview of the Vermont process as of December 2022. We’re doing this in advance of 2023. Remember that there’s other instructions you need to follow. You need to have a bill of sale. You need to have a proper vehicle. You can’t have one that’s salvage or parts only or junk or things like that. You have to have a legitimate vehicle. And there’s other limitations we’re going to talk about in another video about military vehicles, these former military surplus vehicles that are now something that could be a problem for some applicants. Hopefully, that helps. Check out our website, we’re glad to be of assistance.
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Look, we promised to try not to keep beating this dead horse with Carvana, but there are some interesting developments. Even though we’ve been touching on it every week or so and we think that’s the last you’re going to hear of it, there’s more.
Stock Performance and DeclineHere’s the thing: Carvana, even though it had fallen from 300 plus down to 50, then to 30, then hovered around 20 for a while, took an even bigger nosedive last week. It went down from the mid-teens (15, 16) down to eight point something. You can see their chart here. This is a one-year chart. It was up 300; now it’s down, you know, in the eights.
Reasons Behind the DeclineWhy is this? What’s going on with Carvana? We’ve talked about before what some of the risks might be. What’s the automotive industry component of this? What is the automotive structural documentation part of this? Well, every aspect of their business is in decline: their top-line sales, their net profit, their profit per vehicle, their expenses are up, and now they have some debt obligations to take into account. Their gross profit is off more than a third, and there are a few aspects in play.
Title and Registration IssuesWe’re going to talk mostly about the documentation part of it—the title and registration part of it. When you have a major automotive company like Carvana, or any large dealership, that has chronic documentation problems, that in itself is a canary in a coal mine. Look, every dealership can run into a title problem. We deal with this all the time with vehicle titles. We do titles for dealerships, auctions, lenders, financial institutions—all the time. Anybody can run into a title problem. It’s not that nobody’s immune to it, but normally it’s an exception to the rule. A dealership might have one or two title problems a year; a bank might have a few title problems a week if it’s a large financial institution. For a public company the size of Carvana to have ongoing title issues and chronic title problems, that means something.
Nature of Title ProblemsIt doesn’t necessarily have to be nefarious, like they’re selling stolen vehicles or they’re not getting titles from lien holders or they’re not paying off cars. It doesn’t necessarily have to be that, but it does mean that one area of their business—managing title paperwork—is not being executed properly. That’s just one small area. There is marketing, sales, finance, and then you have title paperwork. Title paperwork is not the most complicated part of a dealership. It’s not the hardest to do. It doesn’t require the most people. It’s actually pretty straightforward. The rules and the processes for doing car titles are established. You can read the requirements at the DMV checklist. You can get instruction from the titling division in the state. There’s no mystery to it.
Complexity of Other AreasSales, on the other hand, has some mystery to it. Marketing has a lot of gray area; in marketing, there’s a lot of art versus science. So, if a company is not doing well in sales and not doing well in marketing, you can kind of say, “Well, they’re at least trying. They may not be great at it, but there’s some gray area.” If the one part of retailing motor vehicles, which is car titles—something very specific and very etched in stone—is not being executed, that’s a management question. How do you not have the ability to execute something that is very clearly defined within a company, a small part of that company, and something that every dealership gets right for the most part? Even dealerships that fail financially usually get their titles right.
Speculations and HypothesesNow, there’s been a lot of speculation about why that’s the case. Maybe they didn’t hire enough people. Well, Carvana has a lot of employees. Maybe they’re just unorganized. Well, that’s a problem. If you’re unorganized in that area, that kind of indicates that you might not be organized somewhere else. Maybe it’s something more nefarious. Maybe there are problems with these titles. Maybe there are problems with liens. Maybe there are floor plan loans that are not being paid off fast enough. Again, we’re not accusing of anything, but we’re just speculating on what could be the reasons without conspicuous or transparent reasons from Carvana why these title paperwork problems are still happening. You can only speculate, right? You don’t have a reason to know what the actual fault is inside the company.
History of Title ProblemsAnd it’s not something that just started. This has been going on for several years. The first complaints about Carvana’s car title paperwork problems were at least as far back as 2020. Sometimes you can go back and find some in 2019. That’s two or three years ago. If you can’t solve a title problem in two or three years, maybe it’s not solvable. Maybe it’s something chronic within your business that you cannot solve. It’s probably not just a numbers game because bigger companies obviously have more problems, but it’s happening in all of their operating areas. All the states that they operate in have had some title problems—some minor, some major. Some of the states have shut them down. In fact, this week another state shut down Carvana’s license because they didn’t get titles out fast enough. There are some people still waiting more than a year for titles for vehicles.
Market SentimentsAgain, not to beat a dead horse or kick somebody when they’re down. We’re not trying to disparage Carvana. We don’t know if they’re a good company or bad company. We do know that a lot of people in the financial side are betting against them because their stock has gone down. People that put their money where their mouth is with their opinions say that their opinion is, “We don’t like Carvana. We’re selling the stock down to eight dollars and below.” One of the large financial research companies put a one-dollar stock estimate on the price of their shares. They say their stock could be worth a dollar. Basically, it’s nothing.
Concluding ThoughtsSome of it has to do with the headwinds in the economy: inflation, interest rates, car prices, many other things. But when you have a part of your operation that’s relatively straightforward—it’s not simple, you know, car titles is hard to do, but it’s straightforward, it’s easy to define and understand—you can put people in a room, tell them exactly what to do, there’s no question about it, and that’s not getting done, that might indicate that they’re not running a tight ship, right? That there are other parts of it that are loose. And in an environment like we’re in, with inflation and interest rates and vehicle market upheaval, if you’re not running a tight ship, you’re probably not going to survive. Even if you are running a tight ship, it’s going to be a struggle. If you’re not running a tight ship, it might make it even harder or impossible to dig yourself out of such a hole. Allegedly.
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