Auction Day: Irrational Exuberance

Did I really buy that car? Ohhh.... A base 1999 Jeep Grand Cherokee with 160k miles was coming to the auction block. Zip ties were holding up the passenger mirror. Options were minimal, and the various dings and dents did the trade-in no favors. It's the type of vehicle that usually does no more than $2500 during most times of the year. But with April comes tax season, and with tax season comes prices that hold only the lightest resemblance to reality. It sold for $4500. Plus $180 auction fee. Plus a fair amount of reconditioning costs… the dealer who bought it is likely looking at around $5000 for a 13 year old base SUV that is incapable of finding a second-tier financing source due to it's  high miles. At best, the fellow will yield a $1000 down payment on it and about $60 to $65 a week for 24 months. In two years they may realize a healthy 23% annual return over two years, or a brutal four figured loss. That may seem like decent odds if we were talking about a secured asset like commercial real estate. But the buy-here pay-here business is a far riskier endeavor for one simple reason. Most of the customers are riding on a proverbial pendulum that swings between 'debt' and 'broke'.  Tomorrow I will cover the nuances of helping debtors become owners. For some it's easy. For others, it's an allergy. But in the spirit of the light hearted banter of most Mondays, here's a list of this week's most interesting purchases. 2010 Dodge Challenger R/T (Loaded w/ 24k miles, cheap paint work from accident, good Carfax): $24200 2007 Ford Mustang GT: (Base w/ 29k miles, no sunroof, repo, paint work, bad Carfax): $16200  2000 Toyota RAV4: (Mid-model w/165k, dings and dents, sunroof, faded black paint): $3900 2000 Ford Explorer XLS: (Base model w/ 127k, Alloys & Automatic, cost just as much as one I bought four years ago that was two years newer and 20k fewer miles): $3300 and the one that blew me away 2002 Chevy Astro: (Mid-model w/182k, 3 door like all Astro's but AWD, Alloy wheels, Faded grey paint): $3100  Like the Grand Cherokee, this Astro is a low demand used car that effectively doubled it's 'real' wholesale value.   from The Truth About Cars http://www.thetruthaboutcars.com

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