Thread by @KashannKilson

Ok, I’ll try and keep this brief, but lets talk PT Cruiser and the 2007 recession. FYI, I’m not *blaming* the crash on the PT Cruiser, just generally laying out how the story of the PT Cruiser and the people who bought them provides an early window into the lending meltdown...

https://twitter.com/chuckletmilk/status/953713685792346113

(if you were in the car biz in the 00’s and want to chime in/check my work, feel free...just maybe turn your location off just in case any of your former customers are out there still pissed about what you did to them)

So rewind to the late 90s: economy was strong for a good chunk of consumers (definitely not everyone), and while lending wasn’t the free-for-all it was to become, it wasn’t terribly hard to get financing (again, a good chunk of people, but definitely not all)...

the auto industry was doing ok generally, but US companies were in a slump; GM and Ford were doing trucks, suvs, and a lot of fleet stuff (municipal vehicles, rentals, etc.) but were getting the brakes beat off them by Japanese companies when it came to passenger cars...

Which brings us to the third of the Big 3: Chrysler. They had Jeep, (which has always been pretty solid), the Ram trucks, (which weren’t quite putting up F-150 and Silverado numbers), and were doing really well with minivans. The problem is Chrysler wasn’t just making shitty...

passanger cars, they were making A LOT of shitty passanger cars. If you remember, they were making Chryslers, Dodges, and Plymouth, each with a full line of slightly differently badged heaps of junk (think Cirrus/Stratus/Breeze)...

Anyhoo, Chrysler was hemorrhaging money, but Daimler-Benz came in, saw some potential, bought a huge stake, and got to work on a major rebrand/restructure, which basically looked something like this:

Jeep: You’re cool.
Dodge: Let’s hit the gym and bulk up.
Plymouth: lolbye

But what to do with Chrysler?

The answer ended up being something pretty genius from a marketing standpoint: going full on Americana nostalgia with some really out-of-the-box design that harkened back to a time when Chrysler was a fairly upsacle brand. The result being...well, this...

And when this thing dropped??? HOLY SHIT!!!

People went absofuckinglutely bananas.

I know some of you youngs might not believe it, but there were 50-11 different articles claiming the *The PT Cruiser* was the sign the US auto manufacturers were going to reclaim ALL their former glory heading into the 21st century.

More importantly to this story, people around the country LITERALLY lined up just go get a look at this thing. In some parts of the country, there were so many pre-orders dealers were telling people there was a 6 month wait just to test drive one of them. It was madness...

But here is where it starts to get really interesting: the car caused such a mania that Chrysler couldn’t keep up with demand. This lead to two very important developments: 1. Chrysler, deciding they had a winner on their hands, started crushing out inventory over the few years..

2. The dealers saw they had a cash cow with the first wave of buyers and started charging all kinds of markup. You went in to the dealership for a PT Cruiser with an MSRP of let’s say $28,995, but between Regional Dealer Markup, Special Order fees, clear coat, extended...

warranties, and whatever else they could throw on top of it (on top of state taxes/fees), and you left with a contract for $35,000-$40,000 EASY...

So for the first couple of years at least, Chrysler was like:

and the dealerships were like

BUT as happy as they were when they got the keys, that first wave of buyers now owed $35k-$40k on a $30k *PT Cruiser* that immediately started to depreciated the moment they drove off the lot...

so over the next couple of years, the buzz kind of wore off; all of the first wave buyers finally got their cars, and as it turned out, there were a lot of people who just weren’t that enamored with bright purple, wooden panel cladded hatchbacks. PLUS it turns out that...

for all the innovative design, the PT Cruisers were basically the same shitty Chrysler K cars, just with more expensive options that needed fixing.

Now, remember that part about Chrysler deciding they needed to mass produce this vehicular messiah of the 21st century US auto industry?

So now Chrysler has WAAAAAAAAAAAAAY too many of these cars than they know what to do with. Just lots and lots full of misfit PT Cruisers that no one wants. Dealers are refusing to take delivery—like sending the delivery drivers away.

Chrysler: Look, y’all are going to start taking these motherfucking PT Cruisers or we’re not going to send you ANY new inventory. No trucks, no minivans, not a single new vehicle.

Dealerships: Used cars are more profitable anyway, so....where do we go from here?

So here’s where the financing part starts to get a little goofy: Chrysler’s financial arm says listen, we’ll loosen up our lending guidelines if Chrysler starts offering some rebates/bonuses and dealers agree to start taking inventory again.

All parties agreed, and at that point, chances were if you came within 500ft of a Chrysler dealership a whole squad of people were trying to get you out the door with a new PT Cruiser...

No down payment? No problem!
No credit? No problem!
Bad credit? No problem!
No verifiable income? No problem!
No pulse? Hey, these things already kind of look like a Hearse right?

Just please get these horrible hunks of ass of the lot!!!

But check out how the math works:

Dealers lower the MSRP from $27,995 to $25,995

Factory Rebate: $4,000-$5,000

The dealership, who will get a kickback for selling distressed product at a high volume adds another $4,000-$5,000 discount

so people who would have been laughed+

out of the dealership a few years ago are walking out now paying $15,995 for a brand new car. Chrysler is happy because they are moving metal and still making a bit of profit, the dealerships aren’t making much on the front end, but again, high volume and manufacturer kickbacks

and the finance company is the big winner because they are making money (first time/bad credit buyers pay a higher interest rate), but with the discounts, the contracts are all like 60% of the total value of the vehicle so not that big of a risk if a chunk of them go into repo...

So it looks like the crisis has been acerted for Chrysler, BUT...

Remember all of the first wave buyers? The folks who left the dealerships a few years ago paying $40k for the same PT Cruiser your cousin Curtis just picked up for $15k and change?

So around the same time, a lot of those forgotten first-wavers were starting to realize that perhaps, maybe just maybe, they were a bit impulsive buying their bright purple clown car after all...

And across the country, they started driving to their local dealerships and inquiring about getting out of their PT Cruisers and into something that maybe....wasn’t a massive hunk of trash...

And car salespeople from across the country had to look those first-wavers in the eye and ask them pretty much exactly the same question I’m going to share with you now...

“If you can go buy a brand new PT Cruiser for $15,995, what do you think your PT Cruiser, 4 years older, with 40k miles, a CD player that won’t spit out your copy of Hotel California, and whatever that stain is that won’t come out of the driver seat, is worth now?”

And as someone who was on the asking end of that question dozen and dozens of times, I can tell you the ensuing chain of events generally ended with grown adult people openly weeping or the cops being called (or sometimes both).

Because, understandably, there is a certain amount of...let’s it call white hot rage...that happens when some asshole in an extra-medium dress shirt tells you that the car you gleefully paid $40k for 4 years earlier is now worth about $3950...

(“Yes Mr. Smith that is using Kelley Blue Book’s ‘excellent’ value, and no, I’m sorry the wood panels don’t really increase the value...and...uh, no, fixing the dent in the rear quarter panel isn’t really worth it...I’m so...so...SO sorry.”)

Ok, so I’ve failed miserably at keeping this, what has devolved into the worst written and most poorly thought out episode of Drunk History, brief, so I’m going to get back to the main point and wrap this shit up...

Ok, so....Mr. Smith just found out his 40k PT Cruiser is worth $3950 and is (rightfully) pissed.

But the tears/calls to the police don’t really start until Mr. Smith remembers he still owes like $12,000 to the bank for that same PT Cruiser...

So now Mr. Smith, and the thousands of Mr. and Mrs. Smiths like him across the country, are finding out that to get into that resonable, reliable Toyota Camry or Honda Accord or whatever, need $23,000 for the new car, and then figure out the $8k or so to cover their negative+

equity (the difference between the value of the biggest mistake they ever made vs. the amount they still owe to the bank for said biggest mistake they ever made)...

Because until you pay a car off in full, the finance company still technically owns it, and you best believe you aren’t doing a damn thing with their car they get their money.

So to tie it back to the original point, by the mid 2000’s a lot of people still had disposable income, and desperately wanted to spend it on things like cars, BUT a lot of folk like those first wave of PT Cruiser owners were horribly upside down in their current vehicles...

And in fairness, PT Cruiser owners certainly weren’t the only people who came into car lots owing more on their cars than they were worth, but they we’re almost without exception SO BURIED they became emblematic of negative equity buyers...

Anyway, the problem became so pervasive that manufacturers and dealers started turning to their financing arms to solve the problem like Chrysler turned to theirs to help git rid of all the unwanted PT Cruisers...

The manufacturers got their lenders to start doing all kinds of wacky shit to offset all the negative equity so they could keep moving new units. They’d start approving loans for 140%-150% (more with a good credit score) of the MSRP of the car, and encourage people to extend+

the loans out to 72-84 and even 90 month contracts to keep the payments low. Just really unwise shit. And then independent financing companies (banks/CUs) started offering similar types of contracts to compete with the manufacturers, and...

by like...late 2004/early 2005 the damn broke wide open. You could go into a car lot and these financing companies were so desperate to push paper, you could walk away with just about anything wanted...New car? Used car? The couch in the service lounge? Ok, sign here pls.

Anecdotal, but I can tell you the company I was working for ar the time approved a sale of a $50,000 truck to a guy, no money down, 84 months. Buddy’s occupation on the application was “bass player” and the only POI he brought in was an old bank account statement and+

a poster from a show his band was going to play later in the week. But what really stood out about it was that he had recently gotten what turned out to be an ARM mortgage from a major lender for $375,000. And it was pretty much right there where everyone in the office including+

the loan officer went “Oh fuck. This whole thing has gotten a little bit out of control.” And, of course, we didn’t know it then, but just like a lot of the sub-prime mortgages, auto lenders were bundling and packaging all these goofy ass car loans and selling them off...

So anyway, to finish this fucking mess of a brief thread that ended up being anything but brief, the case can be made that if you follow the path of the PT Cruiser, the people who bought them, and the people who sold them, you get a sort of ground level window view of not only...

how the economy imploded (it was the only logical conclusion), but how consumers, producers, or lenders kind of saw it happening in real time, but really didn’t give a shit until it was too late.

and with that thanks for following along to those who followed along and sorry for those who dont care about any of this shit but haven’t blocked/muted/ or unfollowed