Eric51 alert; skip my post if you don’t like to read.
Yeah the USA automakers dropping MSRP is a fairly new behavior that we didn’t see pre-pandemic. In the good ol’ days, they would just stack on more incentives as you noted to reduce net pricing to the buyer (either through reducing the price of the car or reducing the financing costs).
Negative equity across many buyers is disastrous to the long term health of the US auto industry because the negative equity freezes people into vehicles (stops them from reasonably entering into new transactions). When the attitudes shift to becoming “just ride out your car for longer”, the USA auto industry suffers.
US Auto needs velocity/transactions to sustain itself, since every time a vehicle changes hands there is margin extracted and profit to be made. Look at how many jobs are in recon, ops, sales, finance, etc soley because people are able to transact vehicles. When people stop being able to transact vehicles, many jobs will be lost. Anyone who has studied the cyclical nature of US auto can easily identify how demand/velocity issues literally grind and the industry to a halt. Unfortunately US Auto lacks the buffers to effectively survive major downturns without subsidies.
Related to @Jshin’s experience, I’m afraid the gravity of what was happening with the price cuts wasn’t really sinking in because people would just mock anyone who experienced the issue. I used to frequent the Tesla forums a lot (since I was a dumb-azz-idiot with two Teslas, Powerwalls, and actually liked their products). When Tesla started to major pricing cuts, the echo-chamber Tesla owners would mock the recent (mostly 2022) buyers who were complaining that their vehicles were being de-valued mere weeks after they took delivery.
The die-hards would be like “you stupid idiot, you bought a depreciating asset and are now sad it’s depreciating? You looooser”.
What was lost in this mocking of Tesla buyers was that the extraordinary rate of depreciation recent buyers experienced was a real issue. Unfortunately the Echo chamber has no appetite to look at this, since they’d rather just mock people who bought Tesla in the last 24 months.
Back in the old days, general wisdom was for a vehicle buyer to put at least 20% cash down and finance up to 80% (usually 4 or 5 years). This rule of thumb was fundamentally based on what normal depreciation buyers would expect. The 20% equity would be effectively wiped out in the first year; since new vehicles depreciate dramatically in their first year. But, since the borrower was making reasonable principal and interest payments they’d at least stay somewhat neutral/zero in terms of exposure to becoming upside down.
The massive dip in MMR, extraordinary long loan terms, ADM that immediately vaporized, and people rolling negative means many 2022 buyers aren going to have a huge challenge changing vehicles until like 2028. I’m waiting for the USA government to step in and simply offer to buy people out of their negative equity cars haha. I’m sure a bill will be produced soon.
While GAP insurance is a thing to mitigate an insurance loss during an accident, it won’t help with job loss interrupting cash flow, a major repair, a unfortunate health event, or otherwise any situation where a different vehicle is necessary.
I had put 45% down on a 2023 Model X earlier this year before the lemon got bought back by Tesla. If I hadn’t wised up and dumped Tesla all together, that 45% equity would have been wiped out. It is a significant bellwether that buyers need 50% LTV loans to avoid being underwater in a vehicle… but here we are.
Good luck @jshin … looks like you’ll be hunting for snowy offramps this Winter.
