How Car Prices Broke America (And It's Own Industry)

[00:00:00]So, let's buy a car together. Oh, you know what? I'm thinking a BMW, a Lexus.

[00:00:05]Hm. What? Maybe a Chevy. But wait, hold up. You're telling me that the average car sold in the US is now 50K? Yeah.

[00:00:14]Okay, [ __ ] that. Let's just find something used. Wait, wait, wait. A used car from a few years ago now costs what?

[00:00:21]A new Mercedes used to? How the hell are Americans affording this? Oh, right. Uh, they're financing $50,000 [music] and paying $770 a month for 84 months. But you know what? I'm not falling for that.

[00:00:35]I'm smart. You know what? How about one of those cheap Chinese EVs? And I've heard that they're pretty insane.

[00:00:44]Uh, yeah. So, I guess that's not happening. But hopefully the good news behind all this is that, you know, the American car companies are absolutely killing it.

[00:00:53]Basic automobile is $50,000 or more.

[00:00:57]>> GM is laying off hundreds of workers.

[00:00:59]>> Chrysler, once an industrial giant, is a shell of a brand. So, you're telling me that even though prices keep going up to the point where many are spending half their income on a car, the companies selling them are now also going broke, too? Well, what I found is that the reason that they're falling apart is the same reason that you can't afford one.

[00:01:19]Because somewhere along the way, a decision got made about who was worth building a car for and who wasn't. So, I follow the money and what I found is that none of this is an accident. It's a playbook that's been running forever that's finally backfiring. And when it does, it won't be the people who built it that would pay for it. By the end, you'll see why waiting for prices to drop won't save you, but I will show you what actually will.

[00:01:49]So, I think everybody knows at this point to never trust a car salesman. At this point, everybody walks into the dealership with their butthole a little bit clenched. But to be fair to the dude, he's just doing his job. Because it's not his fault that car prices keep going up while the industry selling them is breaking. And it's not his fault that he can't really sell you a cheap car right now, even if you begged him. So to understand what actually happened, the best way is by showing you. And I'll do it by becoming the man who's really at fault. And since I've been dead for the last 60 years, we need to go back to the 1920s when I ran this little company called General Motors. I'm about to hand this entire industry the playbook that's still running today. that a car company does not exist to make cars, but it exists to make money, which is like no [ __ ] But the thing is, that's not how people used to think because cars were only popularized in America by this devil named Henry [music] Ford, who managed to do this by building one simple car made to last and affordable enough to be paid in cash. So, thanks to him, more people were now able to afford cars who previously couldn't. But I came onto the scene thinking, how is this maximizing shareholder value? The point of running a car company isn't to focus on making better cars. What we should be worried about is to not leave money on the table, but to get others thinking the same way, I had to fundamentally change how America viewed car ownership.

[00:03:22]So, I wrote down a few commandments.

[00:03:24]First things first, thou shalt redesign the car every single year so the one sitting in the driveway feels embarrassing within 24 months. This way, you won't need another car, but I'll just make you want one. And second, and most important, thou shalt sell the payment, not the car. So, a man never needs money to own a car, but what he will always need is to owe me. So, Ford may have died a legend amongst you, the consumer, but I, Alfred Sloan, died a legend amongst the entire industry.

[00:03:57][music] There's levels to this. It's why to this day, every car company follows my gospel to get you to buy a new one every few years to keep you in debt forever. It's why every dealer's been my preacher to push you towards a bigger SUV, the longer loan, all while he probably doesn't even know my name. But what we're seeing now is something that my commandments didn't even intend to do because today it's wiping every cheap car off the lot completely. Then the question becomes, is that decision at least paying off for these car companies? You see, a car maker almost makes nothing on a cheap car, but compared to an expensive one, that gap is probably even crazier than you think.

[00:04:35]Take a Ford F-150. It sells for about 45 grand, and they keep about 10 on every single truck. But if you zoom out, that one line alone is nearly 95% of Ford's entire global profit. But then if you look at a cheap little sedan, it might sell for about 22 grand, but in terms of profit, it's almost nothing. and sometimes they're even losing money on it. So, car companies now have started doing exactly what I would have done.

[00:05:02]Ford has executed nearly every passenger car besides the Mustang to focus on SUVs and trucks. And GM cut its sedans from 13 models down to three in just 5 years.

[00:05:14]But what makes me most proud is that these car companies learned to lie about all this so beautifully. They're pretty much now gaslighting you into thinking that you, the consumer, don't want cheap cars, even though that can't be further from the truth. Like when Chevy put out their Tracks model at around 22 grand, it became the third bestselling vehicle in the entire country. But since a cheap car will never make them what a truck makes them, car companies have also started manipulating price by stopping you from having one. Like when the chip shortage hit in 2021, they genuinely couldn't build more cars, but their CEO figured out that fewer cars meant higher prices, which is why they never went back to keeping normal numbers of cars on the lot. Because low supply and high prices was, in her exact words, better for the car company and the dealers. And that's exactly how in this 100-year-old lesson, in the first time in history, the average new car has now crossed $50,000.

[00:06:11]But my favorite part in all this is that even when you can't afford it, you'll still buy it anyways. Cuz remember, my real trick isn't to sell a man a car, but [music] to sell him a payment. And I meant that literally. It's exactly why the monthly payment now has hit a wholly new record of $777.

[00:06:28]And it all works because a longer loan hides the everinccreasing price of a new car. 18% ON THEIR CAR. WHAT? WHY? ALL thanks to me, these car companies are experiencing record prices. record payments, record profits, and yeah, so except that last part isn't really true because if that plan was still working, then these companies should be having the best year of their lives right now.

[00:06:52]But truth is, a lot of these car companies are having one of their worst.

[00:06:56]So, if charging people more money than ever is making them lose more money than ever, then why are they still doing it?

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[00:08:37]And to understand what I'm talking about, you first have to see what happens when a company goes all in on this strategy of just charge more. Best case study is Stellantis, the one behind Jeep, Ram, Dodge, and Chrysler. The man running it was Carlos Tavarez. And since taking over, his plan was simple. Take a brand like Jeep, push the prices way, way up, and soon enough the profits will follow. Because come on, who the hell doesn't love Jeep? It's true, because I wanted a Jeep for the longest time myself, too. So, on paper, this just kind of made sense. But in reality, no one wants to paying $70,000 for a Jeep.

[00:09:15]And soon enough, there's a bunch of these overpriced unsold Jeeps on the lot. But even though the numbers kept plunging and plunging, Tvarez held steady. and his hope all along was that the market will soon view Jeep as an upmarket car. But then something never before seen happened. In September 2024, the council that represents Stellantis' own dealerships sent Tavarez an open letter to be read by the press. That over the last two years, Dave expressed multiple warnings that his plan was going to be an absolute disaster.

[00:09:48]Tavarez was doing exactly what Sloan taught to kill the cheap stuff, sell the expensive stuff, and take the fatter margin. So then, where did it all go so wrong where your own salespeople are destroying you for destroying the entire company? Because there's one thing Sloan never mentioned, which is what a cheap car actually does. Because every year, fewer and fewer people can actually afford a car. So when your pile of customers is shrinking, you usually have two options. A normal business responds to the market by building something cheaper to win people back. But this industry is doing the complete opposite.

[00:10:25]They're letting the cheap buyers walk and squeezing the ones who stayed to cover for the fact that there are fewer of them every year. And the thing is this all ends up working for a while. It makes the quarterly numbers look great and Wall Street becomes happy because of that. And from the outside the company looks strong. But underneath, a car company only makes money when the line keeps moving because it roughly costs you the same amount to run the plant whether you build 400,000 cars or 200,000. So volume is what pays for the engineers times, the machines, and especially the bad ears. So Sloan was right that the money is in the expensive car. He just never said what happens when the cheap one disappears and takes the volume along with it. Because by the time the letter was read and Tavarz finally realized it was too late.

[00:11:17]Stalantis' US sales fell 27% and it dropped from the fourth biggest seller in America to sixth. And by December of 2024, he was gone. But only after taking home $36 million as the highest paid car boss in the world. But where this all comes full circle and where it becomes a little ironic is what his replacement promised to his investors. that the only way out of this mess that Tavver has created was to start building affordable cars again. So again, the fix is obvious and it's out there because if people are already getting squeezed at 7-year, $777 payments, you think that the rest of the industry would learn from Stellantis and also start building something more affordable, right? Nope. They just found new ways to sell you an expensive one because Wall Street started rewarding anyone who went all in on an electric.

[00:12:11]So Ford's big bet was on a $50,000 electric truck that after 3 years and $32 billion later was killed for a lack of sales. Honda also went hard on electric and on more expensive cars and now posted its first annual loss since 1957.

[00:12:28]And just a few months ago, they finally realized that they need to go back to their more affordable roots. But for Volkswagen, whose name literally means the people's car, the consequences of their actions might be too late. Not only did they shut down a plant for the first time in its entire history last year, they're planning to close four more along with 100,000 jobs. So, an entire industry decided that the ordinary buyer wasn't worth building for. And now they're finding out that record prices may also mean record losses. But not only are they finding out that that was the thing that was holding them up, but if you really think about it, they're also trapped in the exact same machine that they trapped you in. Because the second any one of them starts making cheap cars again, they're back to earning a couple hundred bucks a unit while the competitor focusing on expensive ones makes 10 grand on a truck. And Wall Street isn't going to be responding kindly. So, I guess all this to say is that the companies who broke this aren't going to be saving you. So, then what? The advice everybody gives you at this point is buy used or just wait it out until prices go back down when everything breaks. But what I found is that both of those are gone. And once you understand why, you'll realize why this was never really a real market and what this also says about America at large.

[00:13:51]And it starts with addressing the two ideas you're still probably holding on to. Let's start with waiting for prices to come down. Because if everything I explained to you is correct, then prices will soon be coming down, right? Well, guess what? You depend on a car to exist in America. So, it's not like most people can just wait. But also, what you're waiting on might be breaking because the whole market is propped up on one thing. People making payments that can barely already afford it. And people with the worst credit are starting to fall behind on their car payments at the highest rate in 32 years, worse than during the 2008 crash.

[00:14:29]So again, it won't crash the economy like housing did in 2008. But point [music] is, prices might only come back down once a lot of people start losing their cars first. So fine, buy used then. And honestly, this one makes a little bit more sense, especially because used was always the default when you couldn't buy a new one. Except used prices have now just hit the highest since 2023. And it's the cheapest models that are getting the most expensive because everyone is fighting over the same used Civic that you were also counting on. Which means that in a country where you really do need a car, most people have exactly one option left, [music] which is to bite the bullet, take the long loan, and make the payment. And that's exactly what Sloan and the dealers were counting on this whole time to feed this chain because your loan doesn't just stay with your bank. Your 7-year payment gets bundled up with thousands of other similar loans and sold off to Wall Street as a bond.

[00:15:30]And that market alone is already worth $ 160 billion in a single year. So when all rows lead to this chain where the car market gets to sell an expensive car, the dealer books a longer loan, and Wall Street gets another bond to trade, you can again see why you're like, "Damn, all I really wanted was a cheap car." But then there's still something that really doesn't make sense, and I think it's the most important question.

[00:15:57]If millions of people are this desperate for a cheap car in a country that does consumerism better than anyone else, that's a pretty big market opportunity that's just waiting there. And so why is nobody racing to grab that money? Well, turns out somebody is. It's just you're not really allowed to buy it. BYD, the Chinese company, sells a fully electric crossover for around $14,000.

[00:16:24]But if you want, in the US, there's tariffs of around 100% stacked on Chinese electric cars. But then you might think, even if you double the price of a $14,000 car, that's still going to be cheaper than the cheapest electric car an American company will sell you. But that's exactly why on top of the tariff, America has also banned the software that's inside the cars. And it's exactly why the car is essentially illegal to use on an American road in the first place. And what gets crazier is that it's one of the only things that both parties agree on where, funny enough, Biden was the one who built that wall and Trump was the one who made it even taller. But to be fair, a flood of cheap Chinese cars could pretty much wipe out a couple hundred,000 American jobs in a snap of a finger. And I know that because here in Sa Paulo, Brazil, almost every car you see now is a BYD.

[00:17:15]So it does make sense why America would block this. And anyone who tells you otherwise is being disingenuous. But at the same time, none of that still changes what this all means. And that how the same companies that kept telling you that nobody wants a cheap car anymore is also on record saying that a cheap Chinese car would be an extinction level event for the American industry.

[00:17:37]So to make it simpler, it's either nobody wants a cheap car or a cheap car is so dangerous to them that it has to be banned. Both of those can't really be true at the same time. And I think [music] that's exactly what bothers me most because in all honesty, I don't really care much about cars. I've never really been much of a car guy, but what bothers me is that as someone who believes in free capitalist markets, if that truly was the case, a company or collection of companies that are pricing out its own customers is supposed to get destroyed by someone who doesn't. But instead, we're just switching the market off and everyone is worse off. And this is especially happening in a country where the car was always the promise. It was a key part of the American dream built on the idea that [music] anyone could show up and build something better. But all this feels pretty hypocritical. So what do you actually do about it? I know a lot of you say that a lot of these videos end too much on doom or no. So I'm going to speak directly to the majority of those who watch this channel that are either employed and are either comfortable or getting by. That's what you guys told me. But for you guys, you guys do have some level of choice.

[00:18:44]Not financial advice, but a car is one of those assets that loses value the second you drive it home. So, if you can buy used and pay cash if you can, because clearly the American dream is changing. And I think the real American dream now is not owing anybody a damn thing. So, I'll be curious what you guys think in the comments, but I'll actually be going deeper into this in my free newsletter in the video description. And so would definitely want to hear your thoughts on it. But if you haven't seen my first video on why millions of Americans are about to lose their car, I think you're going to like this video next. And please like this video.

[00:19:22]Thanks.