Even Used Cars Are Becoming Unaffordable: Ep. 133

If you follow the auto industry or you've been shopping for a new car yourself, you know the price of a new vehicle has gone through the roof. To make matters worse, now, apparently, used cars are also becoming very expensive. To discuss this, on today's episode, we have on Karl Brauer from iccars.com, which just recently published a shocking new study about just how unaffordable even used cars are getting. Hang on. Awesome. Welcome back, Karl. Good to have you on the show once again. We'll dive into the nitty-gritty here in a minute. But, you know, how are things? Are you working on anything new? Are you driving anything cool these days? I'm just always curious what's going on in the lives of our guests. Yeah, thank you, Colin, for having me on. And always fun talking cars with you. And speaking of which, yeah, things are pretty good. You know, I'm putting together this weekly radio show podcast now that I do with Lauren Fix called The Drive with Lauren and Karl. We got it from Alan Taylor. It was The Drive with Alan Taylor. He had it since like the 90s, so it's pretty long-standing. And so that's kind of taken up a bit of my time now, but in a good way. It's fun. And unfortunately, I still have my 2012 911 Turbo S that's kind of my main toy. And just totally in love with the thing. I had it on six, no, four of the six longtail rallies I've done every year where I go on these like, you know, totally over-the-top drives with other people in their exotic cars. And we go like 1,200, 1,500 miles sometimes once a year. And that car is just a typical Porsche I call them. It's like, what do you want to do? Do you want to go fast on a racetrack? Do you want to cruise at 80 for three hours in comfort? Do you want to go down the tail of the Dragon and rotate a little bit around corners and have fun? I can do all that and whatever else you need. So it's just a fabulous car. That's cool. Good to see you actually put... That's a lot of miles for a Porsche driver. I have a friend here in Toronto who's not a close friend, but we've worked together a bit in the past. His name's Lucas Scarfoni. He does like high-end automotive photography. And he bought himself a GT3. And he's going to hit like the most miles for a GT3 owner. He packs on like... He drives it like a regular car and he's a photographer. So he's out every way going to some shoot and he drives it. And so he's putting on like 12,000, 15,000 miles a year on a GT3. I'm like, that's wild. I love that. Yeah. My car, I was fortunate. I found mine with 1,951 miles on it, believe it or not, in 2023. So just over 1,951 miles on this Ruby Red Sand Beige interior Turbo S. And it now has 13,000 on it. And probably 85% of that has been long-tail rally drives. So it sits for like 51 weeks a year, too much. And then one week of the year, it gets out and is utilized extremely aggressively. Oh, great. Good to hear. So maybe we should dive into the nitty-gritty. We could talk 911 Turbos all day, I guess. Yes. So of your many... You know, you always have your hands, I feel like, in a lot of different pies. And so one of them is iccars.com. And you guys published a study, the title, used cars under $20,000 getting much harder to find. So I feel like, you know, everybody knows that, I don't know, new cars are getting expensive, but now used cars are getting expensive. So I don't know if you can sort of walk us through what the highlights are. Absolutely. And, you know, the two are so tied together. We're like, what makes used car prices go up? More demand. What makes people demand more used cars? Too pricey new cars, right? So there's just more and more people who probably would have or were new car intenders, and now they're used car intenders because new cars have gotten so expensive. So, and if you need proof, we've got some. We looked at the price of three-year-old cars between 2019 and 2026 today, and they've gone up 38.2% or just over $9,000. And so that rise, we just looked at that one year because we feel like three years is a very representative thing. Obviously, two-year-old ones, four-year-old ones, you know, five-year-old ones, they're going to all have gone up in something somewhat comparable. But we just looked at one year because we wanted to be very specific. And three years is, of course, the least term. So that gives you a sense of, like, a lot of cars coming off lease, what they cost now. And so that's just a huge, a huge increase. It means that a lot of cars that were priced under $20,000 on the used market in 2019 are now priced over that. And in fact, in 2019, $20,000 got you access to 49.5% of the one- to five-year-old used car market. So a lot of people feel like, if I'm buying used, you know, someone like me, I'll buy crazy stuff from the early 2000s and stuff, old BMW E46s. But most people, when they're buying a used car, they try to get something that's five years old or less. And if they had $20,000 in 2019, they could get 49.5%, let's call it 50% of the market of the one- to five-year-old used cars they had access to. Now they have access to 11.4% of that market. So that's a bit of a drop, as you can imagine. You just don't have the breadth of options that you had in 2019 if you only have a $20,000 used car budget. And that's pretty jarring for people. Because also, don't forget, a lot of people keep a car for five, six years. So there's a lot of people out there shopping for used cars right now. And they are understandably freaking out at what the cost is that they have to spend. Because most people aren't data geeks like I am. And they're not watching this every year. And so they're getting blindsided by how much the price of used cars has gone up in the past six years. And I'm sure it's painful for many of them. And our study on iccars.com has really great, in the sense that illustrative, kind of depressing also. But really effective tables that show you things like price increases for high volume three-year-old used cars between 2019 and 2026. Hyundai Elantra, 2019, average three-year-old one, $12,295. 2026, $19,178. It's gone up by 56%. So again, the average three-year-old used car has gone up 38%. But some of them, like the Hyundai Elantra, is up 56%. Kia Sportage went from $16,312 in 2019 to $24,543. So there's one of those cars that just left the $20,000 budget market or below for a lot of used car buyers. Camry, $16,567 in 2019, $24,829 in 2026. That's wild. Yeah, I put up the slides here to see the price differences of what they're going. And I don't know if there's any insight on why. Is it just general inflation? Is it that regular cars have got so expensive that the new car, so this is just sort of the used car market, it's a supply and demand issue? Or is it that we're looking here at Hyundais and Kias at the top. All indications are that those are two brands that have moved from being sort of the cheap cars that you buy because you don't have a lot of money. And now people are choosing them as a first. They're like, this is the car I set out to buy. I think it's all of those things to varying degrees. One thing I would think probably plays a huge role is if you look at the list like you've got up now, look how relatively few SUVs, right? SUVs are a huge part of this market. They increasingly have been for the past 20 years. When you look at this list of these eight vehicles that are over the 38% that they've gone up, you've got one, two, three, four truck or SUV things like Ram 1500, Honda CRV, Toyota RAV4, and Kia Sportage. But then you have six non-SUVs. And I think among other things, Colm, SUVs were always more expensive. And when cars started getting so expensive on the used car market, a lot of people who otherwise might have wanted an SUV said, I just need a cheap car. In today's world, I just have to get the most least expensive car that I'm most capable of affording. And so I'll go get a Camry or a Civic or an Elantra or a Corolla that doesn't have that SUV value going for it or market cost going for it. And that drove all those cars up. So the reason these cars, a lot of these, six of these 10 cars went up so much is because they used to not be considered relatively desirable cars on the used car market. They were sedans. And it's like, yeah, yeah, that'll get me around, but I don't get as much utility. And all of a sudden it was like, are those the cheapest cars available? That's what I'm going for. And then they weren't the cheapest cars available anymore because everyone kind of rushed and filled that gap on the market. It's funny. It's not unlike I've sort of heard the story with the K-shaped economy and how things are changing that actually like Walmart is seeing like a huge surge. People are like, oh, I would think Walmart would be hurting. And it's actually because they're seeing that $100,000 a year income individuals who never would have shopped at Walmart are now shopping at Walmart. And so it's actually like you're thinking like, oh, well, I would think all the people who are low income wouldn't be able to buy the stuff. It's like, well, maybe they aren't, but people are, you know, they've turned away from higher end retailers and they're going to Walmart because they're like, yeah, life's expensive. Yeah. I need better value for my dollar now that I can't get it in an SUV in the car world and or at like Macy's in the retail world. I'm going to Walmart. Yeah. Interesting. You're the first slide too. I didn't really like you pointed something that I thought was really interesting about the you're saying that really only 11% of vehicles available three years old are under like that's to me that because I was sort of doing the opposite of looking further down and thinking that like you had to get to year seven. So a seven year old car, 50% of them are going to be like under 20 or so. But yeah, your number is almost more shocking the way I look at that. That's pretty wild. Yeah. Can you imagine that what I used to have the money for in a three-year-old car now requires a seven-year-old car to get? Yeah. And if you were, you know, if you're going on, you know, if you're flipping through a lot of, you know, cars.com, KBB, whatever, and you're looking at some used cars, if you pull up things under 20 grand, there's not going to be much there anymore. No, no, you're just, you're just limited in that. And then that other table we have in here that shows you the car's average price in 2026, there's just, there's one, two, there's two cars. There's 21 cars that are kind of like these high volume cars we identified, you know, equinoxes and rogues. And of course, all the full-size trucks and the Wrangler, the Accord, and two of the 21 that we identified are still under 20,000. One of them's 19,971, the Corolla, and one of them's 19,178, the Elantra. Just, they're just making it. Yeah, yeah. So maybe here, I threw up the next slide. This is from your study as well. So this is looking at the largest price increases in overall and how really this is like, you know, it's hitting the luxury car market too, right? This is not, it's not isolated to the affordable space and the luxury car market. Like some of these, these numbers are wild. Like a, we were talking about 911s earlier, it's number two on this list. But the fact that the average price was in 2019 was 132 grand. If you wanted to buy yourself a Porsche 911, now it's 230. Yeah, like 74% increase in the price of 911s since 2019. And, you know, to me, what that represents is the K-shaped economy, among other things, what you're saying, Colin, is that there's a group of people that have no issues financially. And the 911 has just become like the representation of having a really cool, fun car. More so, not like it wasn't like that, you know, in the 80s, I remember in high school, 911s weren't, it's not like they weren't cool back then. But they have so become like this iconic representation, kind of like the car right below it. I feel like, what's the next car below it? The Mercedes-Benz G-Class, right? Like that's become like the SUV equivalent of the 911 in terms of, I want to be very clearly wealthy to everyone. I want to appear very clearly wealthy to everyone who looks at me and I think the G-Class is like, so, you know, there are people out there who are not suffering in the world of high inflation and whatever other challenges we've had over the last six years economically. And they want to be very clear where they're at. And the 911 and the G-Class are helping them do that. And they'll pay what it takes to get them. Yeah, yeah. And I think for the most part, again, those individuals, they're not hurting, so they can pay it. And for Porsche and Mercedes, hallelujah, they're saying we're cashing in all day long. These people can afford it. It's if you have, you know, if you've got a great stock portfolio and everything looks good, borrow against your home, get yourself a 911 Turbo, go for it, right? It's like it's not a hard ask. It's the life sort of gets easier for those who have more and get yourself a 911, I guess. Well, and I call it the Disneyland rule, right? So these are not high volume cars, the G-Class and the 911. And I think of it like I call it the Disneyland rule, right? Disneyland has a certain amount of people they can let in every day before the fire department shows up and screams at them because there's too many people there. And that number I'm going to make up, I don't know, but let's just call it 50,000. So 50,000 people can go to the Disneyland park on any given day. And if there's more than that, they get in trouble. And they did some calculations. They watched the behavior of their customers and they realized that they can get 50,000 people into that park if they charge $80 or $280 for a day pass. I'm running Disney, what do I charge? I get the same number of people coming in at $80 or $280. So they charge $280. Now, it means that there's a certain amount of people now who can't go to Disneyland, which is a little sad. But Disneyland themselves, they're making as much profit. That's Porsche and Mercedes with these cars. They're like, we're only going to make a given number of 911s and G-Classes every year. If we can sell all the ones we make at $132,000 or $99,000 for the G-Class or $230,000 and $172,000 for the G-Class, then what should we price it at? Let me think. Yeah, not hard to figure it out. It's wild. The ability for the automakers in this world, they could just keep jacking the rates and people will pay. It's funny because Ferrari was always the brand. I mean, they're probably just outside of this because they're not sort of even remotely mainstream. But they always had this idea they'd build one fewer car than demand to keep it going up. And while Porsche, they're not explicitly doing that, but it seems like that's kind of how it is. And I was actually reading, I think it was yesterday, and I didn't know this, that you can just order a GT3, but a GT3 RS, you can't. You actually have to be like, it's sort of similar to Ferrari. You have to do the whole, you know, ingratiate yourself to the brand. I don't know if that's true or not. But I understand for Ferrari, it very much is. No, and I think, again, you represented it well, that what used to be the kind of domain of super exotic limited production brands like Ferrari has kind of migrated now to what we all think of as more mainstream brands. Yeah. And I guess it's, I mean, similarly, there are even, we're getting off topic, but I think there's even higher end vehicles. Like the idea that like, if you look back 20 years ago, sort of Ferrari, Lamborghini were it, right? Now there's these, you know, there's Pagani's and there's these other weird and bizarre things that are sort of like in a whole different realm. It's like yacht prices or something. So. Well, I always say that wealthiness isn't special enough anymore, right? If you're a wealthy person, you look around and you're like, man, I can't swing a stock portfolio around here without hitting another wealthy person. I need to be wealthy and special. So that's where it's, whether it's backstage passes to the, to the given show or access to the given club or the ability to buy the given vehicle. And so that's, and those things, those special categories and special feelings cost money. And so now that's the way it's like, I'm not just wealthy, I'm wealthy. And I've got a 911 GT3 RS. In a custom paint color or something too, right? Yes, of course, of course. Oh, crazy. So, so hold on, let me, I had one more slide here, I think. Oh, so this is, we go the opposite. The opposite are the cars that the pricing has not gone up on. Yes. And you know, Tesla's, Model X, number one, I don't know if you have any, any insight on like sort of the numbers speak for themselves, if there's any reasons why for any of these, if they're sort of a mishmash of all kinds of different things. So I think the Model X is an interesting study because yeah, it went down since 2019. It's down on its average. The average three-year-old Model X is 70% cheaper in 2026 than it was in 2019. I think the one easy explanation there is called the Model Y column. I think, you know, that vehicle was very unique and had these exotic doors and it was expensive when it came out, but kind of like the Disneyland rule, they made so few and enough people were Elon and Tesla fans that they just ran out and bought them no matter what they cost that they could charge, you know, six figures, I think was the common transaction price for those. Then all of a sudden comes the Model Y and it delivers 70, 80, 90% of what a Model X delivers for 40% less money. And so 50% less money, depending on which model year you're talking in market and all. So I just think the Model Y, I think it's, I think the Model X's biggest competitor was its brother in the lineup that pulled down its value on the used car market when there's a bunch of Model Ys out there to get that are much cheaper. And then, yeah, the Land Rover Discovery Sport is the only other car that's lost price. Three-year-old Discovery Sports are cheaper by 2.4% than they were in 2019. And that's an interesting one, but also not really that surprising. Land Rovers, and generally speaking, you know, this called British vehicles. A lot of people have a rule. British cars are cool. Never buy one new. And that's probably not a bad rule to follow. Yeah, yeah, yeah. My father just, he's always talking about getting a Defender and he just, he's just like, he's like, I'll kick myself if I do it. I know I will. He's like, he's like, I really want it. He's like, but I'm going to kick myself if I do it. Yes, yes, certainly new. If he wants to buy a three or four-year-old one, that's fine. Yes, well, he's gone far enough to ascertain that the Defenders are actually built in, I want to say it's somewhere in Eastern Europe. It's not, it's Hungary, Slovakia, something like that. And that, I guess, those, from a reliability standpoint, those dealerships are actually, those factories have a much better reputation, apparently. So vehicles that roll out of those factories are better than the sort of the traditional ones. And so I'm like, oh, you're slipping down the, you're going to wind up with one in your driveway before long. So, yes, good stuff. So, so like the big picture here, is there, you know, is this, will this solve itself naturally? Is this just the future? Everything's just going to be stupid expensive and people won't be able to afford cheap cars. So something to keep in mind that I think people forget, and I had to think about it for a while before I remembered, but we're on task to, on target to sell around 16 million cars in the US this year column. And we had 16.3 last year. If you go back 15 years, we were selling 10 to 15 years, we were selling around 15 million, 15 and 17 million cars a year. So, so what's different? What's different is there are a heck of a lot more humans on the planet than there were 10 years ago. There's a heck of a lot more humans with driver's licenses who should be, who want their own cars. So again, referencing the Disneyland rule, I think we are kind of seeing a situation where there's only so many new cars that are being built every year and sold every year. And we're seeing a narrow and narrower, wealthier and wealthier component of the population that are buying those. And a greater and greater number of percentage of the population that's being shuttled into the used car world. And they're buying older and older cars, as our data suggests, the same budget today, get you a seven-year-old car versus a three-year-old car. The good news is, is that we've also, we've got a huge longest lasting history of looking at the studies, you know, studying the data on vehicles and how long they last. And the numbers keep going up. So, so the good news is that if you're forced to buy an older car or a used car versus a new car, even cars in general last longer, they're better built, tighter tolerances, better engineering. So the idea that 100,000 miles is the sign of a disposable car, which for decades it was, and it should have been, isn't really true anymore. You can now go buy a 100,000 mile car and it might be a, you know, two thirds to half its mileage that's still left on the vehicle. And certainly if you're buying a sub 50,000 mile vehicle, that's got any kind of, you know, reputation for quality and, you know, it's come from a good brand and you do maybe a PPI pre-purchase inspection to make sure it's been cared for properly, you probably have a long time left to keep driving that 50,000 mile car. So that's the upside. But the downside is I don't necessarily see pricing ever going back to $20,000, getting you half of the one to five year old used car market. I just don't think that's ever going to happen now. Gotcha. It's nice that the upside is, yeah, cars do last for a long time. I was, I had like this exact same conversation with some colleagues the other day and chatting I remember when I bought my very first car, it was, it was a very, very used Honda Civic. And, and, and my father at the time was just like, why would you, he said like all the best years of its life were gone. And, and I said like, that used to be true in the sense that if your car only lasted nine years, it was pretty used up. It was, there wasn't much left. But now, you know, if a car lasts 15 years and you buy it at six years old, you're still going to have it for nine years. And chances are that, that 15 year old car, you know, it seems like they're not going in the garbage at 15 years either. They're not going to the junkyard, you know, maybe you don't want it anymore, but somebody out there will still buy it for a low price and use it for who knows what, but, but they, they sort of, they, they seem to live on for a long time now. So I've got a 2002, I mentioned old E46, it's 2002 BMW 330CI convertible. And I found it with 54,000 miles on it. So that was pretty amazing to have that kind of low miles. But what really got me excited about getting a column was that the car it replaced was a 2001 BMW 325CI convertible that I sold with 217,000 miles on it. And when I sold it with 217,000 miles on a column, it was running fine. I didn't sell it because it was worn out. I sold it because it was still gray with a black interior and it had a smaller engine. It also had a manual shift, which a lot of people would actually prefer anyways. I bought, but I do live in LA, the three pedal thing is debatable on whether it's good or bad way to go. I found this 2002 with 54,000 miles, automatic, steel blue, the big air engine, the 330, and a blue top, tan interior. I loved the spec and I love the low mileage and I love the automatic that made it so I could drive through the LA mess and not feel like I wanted to kill myself because of the third pedal that I had to play with all the time. And so that's what's driving. That's my primary daily driver right now is a 2002 BMW. That's my primary driver. And I paid less than $10,000 for a column. So to me, the trick now isn't trying to afford a new car. The trick is identifying used cars that are high value and high remaining lifespan left and they're out there. Trust me. Think about this. I bought that car at 54,000 and sold the other one to the, it was the, by the way, it was the dad of the guy who sold me mine, my 330. The dad bought my 325. These guys like dealing E46s and he was thrilled to get my 325 because of the condition it was in. 54,000 miles on the one I bought times that by four. What is that? That's 216. So theoretically, the car I bought was at one quarter the miles of the one I sold and it was running fine when I sold it. It wasn't ready for the junkyard. He bought it. I think he's driving it now and he loves it. So how long could I potentially drive this E46 that I bought with 54,000 miles? Probably as long or longer than I'm going to be alive in theory, depending on how many miles I put on every year. So that's the way to go if you're trying to get value for your personal transportation dollar. Oh, very good. What do you think about just, I was thinking of this as when I was reviewing sort of what I wanted to say today and I was thinking about there's all these sort of quasi rumors, I guess, like the slate truck and Ford's got this fathom coming out for really cheap. And I guess, I don't know if I have a specific question, but just kind of curious to get your thoughts because I'm thinking about, so we also own motorcycle.com. And so I talked to the motorcycle guys all the time, the others, and they're telling me for years and years, the industry was kind of like, young people don't want motorcycles anymore. And it's a problem and we have to get them to be into motorcycles. But the problem turned out to be that all the brand new bikes were like 18 grand. And if you sell an $8,000 Honda motorcycle, 18-year-old kids will buy the crap out of it, right? Like that's what they were, it was more of a pricing thing. So do you think there's any hope that maybe the automakers coming out with these much more affordable vehicles could sort of open a path for these new buyers to take it from, and maybe would take it from 16 million new cars a year up to 16 and a half or something. Like, do you think there's hope there or am I being too positive? I think there is. Well, I think there's theoretical hope, but I think the market is the market and that Disneyland thing comes in every time. Look at the Ford Maverick is my favorite example. That car, when it debuted, I think its starting price was like 21 or 22 and a nicely equipped one was like 25, 26. I remember as soon as that car hit, I'm like, that is an incredible value. And this was post pandemic when that car hits. Prices were already starting to go nuts on new and used cars. And that car was an incredible value. Well, guess what? Ford sold a lot of them. They couldn't keep up with demand. They were backlogged. And what did Ford do? They played the Disneyland executive rule. Well, we can only build so many of these and we're selling more than we can build at 21, 22. Guess what the price of a Ford Maverick is today? It's not 21, 22 starting price. It's like 28, whatever, 27, 28. So that's the problem is that if you really come out with a successful, popular, low cost new car or motorcycle, if it sells the way it should sell because it's well-priced, demand will drive up its price and the manufacturer will figure out, oh, we can be having a higher profit margin per vehicle on this than we thought. Yeah. It just keeps going on and on. So, all right. All right. Good, good, good, good. I always sometimes say that I'm never skeptical enough. I feel like, you know, you got to have a, you know, it's like no matter how you look at things with like a sharp eye, you should be like, no, if you're, Colin, you're not skeptical enough. You got to be even more because like you said, it's like, oh, you come up with something great, it's cheap. And then four years later, it's not so cheap anymore. So, but then I guess maybe the industry opens up for yet another player to come in and offer you something affordable. That's kind of the constant push pull, right? Is that, and I mean, look at the history of the automobile, right? Like all the U.S. cars and the European cars got expensive. And then came this company called Japan, country called Japan. And they brought out all these great low priced cars that were alternatives. And they were really good when it was high, high fuel prices and all, they had little engines in the seventies. And now they are pretty much on par with the U.S. car, U.S. cars. And then came another country called Korea and they started, you know, undercutting. And now Hyundais and Kias, they still represent better values often than their competitors, but they're not the substantial savings versus the competitors that they were 10 or 15 years ago. No, no, you're right. They're not, they're not, they're getting pricey now too. Awesome. Thank you so much for your time. I really appreciate this. I think we were chatting before, you're probably going to be a repeat guest coming on here again in the near future. So I don't know if you wanted to tease what we're going to talk about on the next episode. Well, it's so fitting because we were just talking about the ability to buy used cars and have them last longer so that the higher prices they cost or the older versions you have to buy, at least you've got something on your side. And one of the things we've done since 2014 at IC Cars, 12 years now, is look at the longest lasting vehicles. And we have a way with the listings and the odometer readings to really calculate effectively and accurately the predicted lifespan of vehicles. And so if you go to the website and you look at all the listings we have for new and used cars for sale, it's cool because we'll have predicted lifespan for each of the used car listings. And that's unique to our site. But once a year, and we just did it, is we have our longest lasting list. And we tell you the longest lasting brands and then the longest lasting models. And so I would be happy to come on in the spirit of helping people find cars that are lower cost used models that will go a long time after they purchase them and identify the longest lasting cars out there so people know which ones they should consider if they're trying to buy a used car and plan to drive it till the wheels fall off. That's the way I do it. By the way, that's the way I always tell people new cars are cool. I certainly don't deny it. If you're trying to be the most cost effective in personal transportation, buy a three plus year old used cars, drive it till the wheels fall off and rinse and repeat. That's how you get yourself around for the cheapest money. Yeah, yeah. Awesome. Well, thank you very much for your time, Carl. Good talking to you, Colin. Take care. Awesome. That was a fascinating study. Always love talking to Carl. Thanks for watching, everyone. As I've mentioned before, there's no algorithm for podcasts. So please give us a review on Apple Podcasts or Spotify or wherever you listen. And if you're watching on YouTube, please like and subscribe.