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RX Reven'
RX Reven' GRM+ Memberand UltraDork
1/13/22 2:40 p.m.
SV reX said:

In reply to Mr. Peabody :

Why not?  They do crazier stuff than that all the time. 

The only way I could see this working is if all dealerships agreed (colluded) to keep inventory low and prices high which would obviously violate antitrust laws.

In practice, dealership A will try to eek out a little more profit by carrying a little more inventory and offering a little lower prices.  The predictable tsunami of customers flood from dealership B to dealership A.  Dealership B takes notice of this and orders more cars / reduces prices while updating their billboard to read "plenty of cars to choose from" and  "we won't be under sold".

You know, capitalism. 

Mr. Peabody
Mr. Peabody UltimaDork
1/13/22 2:50 p.m.

Of course,  and you can't manufacture a vehicle shortage by opening up another dealership. It just doesn't work that way - not to mention the added cost of running a separate facility.

 

GameboyRMH
GameboyRMH GRM+ Memberand MegaDork
1/13/22 2:52 p.m.
RX Reven' said:
SV reX said:

In reply to Mr. Peabody :

Why not?  They do crazier stuff than that all the time. 

The only way I could see this working is if all dealerships agreed (colluded) to keep inventory low and prices high which would obviously violate antitrust laws.

In practice, dealership A will try to eek out a little more profit by carrying a little more inventory and offering a little lower prices.  The predictable tsunami of customers flood from dealership B to dealership A.  Dealership B takes notice of this and orders more cars / reduces prices while updating their billboard to read "plenty of cars to choose from" and  "we won't be under sold".

You know, capitalism. 

This, the most this dealership group CEO might eke out in the absence of an OPEC-like car dealership cartel would be a regional monopoly, which could eventually turn the area into new-car-buying flyover/drive-past country, or at best make him the owner of a boutique dealership chain that sells to customers who don't really care about the price.

The most generous reading of his intentions is that he's betting on a "forever pandemic" scenario that will restrict the supply of new cars indefinitely and he's optimizing his business for that supply-restricted low-volume scenario. If he gambles and loses, he could end up with dealerships optimized to move low volumes of cars in a world of high-volume car sales.

RX Reven'
RX Reven' GRM+ Memberand UltraDork
1/13/22 3:01 p.m.

In reply to GameboyRMH :

Agreed and as a career stats guy, I always say "shoot for the middle".  In this case that means start with historical sales rates and modify gently as a function of your analysis (pent up demand, age of existing fleet on the road, household incomes, etc.).

Said differently...the average is the average because it's the average cheeky 

SV reX
SV reX MegaDork
1/13/22 3:01 p.m.

In reply to Mr. Peabody :

I'm not gonna tell them how to run their business.  It's working for them, and they pay me for what I do.  I will have them call you when they need better advice on how to run their business.

My point was to share some interesting real-life facts that are relevant to this thread.  The GM and the owner have no interest in going back to the way things used to be.  Thought folks would be interested.  I shouldn't have speculated on anything beyond that.

I just checked for other dealerships.  They own ALL the market share for BMW from Atlanta to the Florida panhandle.  They will have no trouble selling BMWs no matter what they do.  

calteg
calteg Dork
1/13/22 3:26 p.m.

In reply to codrus (Forum Supporter) :

Correct on all points. Nearly all of my dealership clients have told me the same thing SV Rex is hearing. I made double (or more) profit with half the work and a fraction of the inventory. Of course they don't want to go back.

But that's a decision they can't make over the long term. The used car market is fed by the new car market. New car inventories swelling in late 2022/early 2023 will feed used car inventory in 2026. If an individual dealer wants to stock fewer cars, he can ride that gravy train for another few years, but eventually supply will outstrip demand and the market will correct.  

SV reX
SV reX MegaDork
1/15/22 10:15 a.m.

In reply to calteg :

The OP of this thread hoped to see a drop in used car prices in 2023, but didn't think prices would ever return to 2019 prices.  

Used car prices in November 2021 were 41% higher than they were in November 2019.  Inflation is currently at a 40 year high (and getting worse).

You are suggesting used car prices may drop in 2026, and that some dealers may push it a few years further.

We agree.  Used car prices will likely stay high for 4 or more years.  They won't get better in 2023, and by the time they start to correct they will have experienced at least 7 years of massive inflation above the 2019 prices.  They won't drop back to that level.  Anyone who is waiting for things to "get back to normal" is in for a shock.

We can call it a "bubble", but we may see no changes until 2026.  At that time when we get excited that the "bubble" has burst,  we will be comparing prices to 2025 prices.   They won't be returning to 2019 prices.

This is the new normal.  My $0.02.

Pete. (l33t FS)
Pete. (l33t FS) GRM+ Memberand MegaDork
1/15/22 1:08 p.m.

In reply to SV reX :

How much is airfare?

Didn't someone just fly halfway across the country for a BRZ at MSRP?

bmw88rider
bmw88rider GRM+ Memberand UltraDork
1/15/22 2:29 p.m.

No no. I live in the middle of the US. I mentioned to PimpM3 that my local dealer still had an allocation but he found one locally. But I did pay MSRP for mine that I just took delivery on.

calteg
calteg Dork
1/15/22 5:27 p.m.
SV reX said:

In reply to calteg :

We agree.

Yup. Though I hesitate to use the word "bubble." Bubble implies speculation or the market increasing based on bad information (like the junk bundled mortgages which lead to the 2008 housing market crash). This is simply a case of extremely constrained supply meeting consistent demand. Bubble also implies a crash, which won't happen. 

I think there are a few sectors inside of automotive that might return to normal more quickly, but that's another topic.

Fueled by Caffeine
Fueled by Caffeine MegaDork
1/15/22 5:48 p.m.

Car manufacturers have reported higher profit percentages but overal revenue is down. 
 

The tail dosent wag the dog. The manufactures want to make as much as possible. 

SV reX
SV reX MegaDork
1/15/22 6:39 p.m.

In reply to Fueled by Caffeine :

Manufacturers overall profits may be down, but dealerships are not necessarily.  I can't speak for everyone, but the successful dealership group I work for is not experiencing that. 
 

Some dealerships have not been able to adjust to the new paradigm. Some have adjusted. And some have flourished. 
 

In the past, they have had to pay for a large quantity of excess inventory. They are not doing that any more.   (edit)  (Which means less money for manufacturers, and more for dealers)

GCrites80s
GCrites80s HalfDork
1/16/22 8:33 p.m.

The automakers are showing interest in having more people order cars and dealerships are also interested in carrying less inventory having seen how much money they can still make with lower inventory levels. Back in the '60s and '70s lots more people ordered their cars rather than taking them from dealer stock. The internet of course makes it easier to spec out a car exactly how you like without taking up the sales staff's time. And when cars are ordered rather than taken out of stock they are less likely to have to discount them or have the customer beat them up over every aspect of the transaction. I think about how much smaller dealership footprints were in the '80s when I was a kid.

eastsideTim
eastsideTim PowerDork
1/16/22 8:53 p.m.

In reply to GCrites80s :

IIRC, the Japanese manufacturers are who indirectly caused the shift to buying off the lot.  They minimized and bundled options, so there'd be fewer variations to build.  Also, lead time would be higher to custom order a car made halfway around the world. 

While a lot of foreign brands have factories in the USA now, there's still a lot of cars being made in Japan, Korea, and Europe, so there's going to be some push and pull between "off the lot" and "custom order".  Ultimately, I suspect we'll return to buying off the lot, just because it will be a competitive edge, and most manufacturers are unlikely to break out options any more than they already are.  Most buyers are still likely to buy immediately, if they can get close to what they want.  All it will take is one or two manufacturers to start ramping up production, and everyone else will dive in in an attempt to make money and hold onto market share.

If I had to make a guess, Toyota is going to want to hold onto the throne for most sales in the US, so will ramp up production as quickly as possible.  Near luxury brands depend heavily on leases, which I suspect will also depend more on cars on lots.  Mazda still builds heavily in Japan, so likely will still want to limit variety, and therefore might was well use the dealers to hold inventory.  Not sure about Hyundai/Kia, I think they build SUVs in the US, but their cars are still built in Korea.

If I'm wrong, I suspect one way manufacturers will be able to push towards customer ordering without increasing option packages too much, is more actual colors for their cars.  I remember VW had something like 40 colors for the Golf R a few years back, if you ordered one.  Had I been in the market for a hot hatch at the time, that would have been very tempting.

GCrites80s
GCrites80s HalfDork
1/16/22 10:14 p.m.

There certainly is something to be said about the impulsiveness of Americans and it still applies to cars too. "Optimization Culture" really took hold in the mid-late 2010s (where if someone didn't get things their exact way and did tons of research they didn't buy) but was then shattered by the supply problems and "take what you can get" culture of the 2020s so far. So we don't really know how things are going to go vis-a-vi the balance between a culture that rewarded impulsivity for so long vs. the possibility of supporting a return to Optimization Culture for both the consumer and the dealer.

Pete. (l33t FS)
Pete. (l33t FS) GRM+ Memberand MegaDork
1/16/22 10:17 p.m.

Y'know, I wonder just how much of an impact places like Carvana have on the market, with respect to paying ridiculously high prices for used cars.

mr2peak
mr2peak Dork
1/16/22 11:36 p.m.

Supply and demand.

Lumber prices went way up, then they came down again.

Car companies want to make as much as they can, but they also have to compete with each other.

The classic cars will likely stay high, very few people cross-shop classics and new cars


F355s and Z3 M Coupes seem like they haven't changed in price much during the pandemic, because theose buyers aren't cross-shopping new cars.

Mr. Peabody
Mr. Peabody UltimaDork
1/17/22 10:30 a.m.

In reply to Pete. (l33t FS) :

I've asked that same question a couple times now, once in this thread.  I think it's predominantly the large and new dealers driving it.

dps214
dps214 Dork
1/17/22 10:46 a.m.

In reply to mr2peak :

I haven't been paying super close attention but while lumber prices are down I don't think they're all the way back down, right? That's also a much simpler market than we're talking about here.

A little off topic, but I'm really not surprised that m coupes haven't ridden the wave. But pretty much the whole collector car market is way up, and nobody is cross shopping any of those cars with new.

ShinnyGroove (Forum Supporter)
ShinnyGroove (Forum Supporter) HalfDork
1/17/22 12:03 p.m.

Many of us are happy believing that good old-fashioned capitalism, as described by Adam Smith, dictates the rules of our economy.  That supply is strictly correlated with demand and price, that the market is free of barriers to competition, that consumers make rational and well-informed buying decisions.

The truth is that very few sectors of the economy actually work this way, and maybe least of all the auto industry.  Dealerships establish local monopolies, control pricing and obfuscate information about their practices.  Manufacturers jam dealers with inventory they don't want or need to make quarterly or annual revenue targets.  Service plans encourage people to buy from the dealer closest to where they live, rather than shop for competitive prices.  Price collusion is rampant- ever gone to two or three dealerships of the same make in the same day?  Dealer #1 has called Dealer #2 by the time you drove off of Dealer #1's lot.  The majority of consumers make buying decisions emotionally and irrationally, and buy cars they really can't afford with imaginary money.

TL;DR version: almost none of the "rules" of capitalism apply to this market.  Right now dealers are lower on volume but have higher margins and better cash flow; any CFO will tell you to ride that wave as long as you can, and I'm sure most of them will.

 

Steve_Jones
Steve_Jones Dork
1/17/22 4:46 p.m.

In reply to ShinnyGroove (Forum Supporter) :

If you really think dealers are calling each other to discuss customers, you really overestimate the effort any car dealer puts into anything. 

Rusnak_322
Rusnak_322 Dork
1/17/22 5:06 p.m.

Well Ford has 0.9% financing and $1,000 bonus cash on 2021 F150s on their website right now, so you know they are going to go back to their old ways sooner rather than later. It makes business sense, the old GM "lose money on every car, but make it up in volume".

MSRP doesn't excite buyers as much as money off, even if they wind up the same out the door price. They are always better off selling more cars than fewer - that goes for manufactures and dealers. every car sold allows financing and other adders to be tacked on. Every car sold is potential service and spare part business for the future.  

I know that there are a chunk of fairly new cars that need to get replaced. Lots of companies have car reimbursement programs that have specific requirements of a 4 year or newer car. So people have to trade up or lose a decent chunk of money each month. 

Steve_Jones
Steve_Jones Dork
1/17/22 6:56 p.m.

In reply to Rusnak_322 :

Since Ford has 800,000 or so 2021 F-150s sitting around waiting on parts and it's already 2022, I'm surprised it's not a bigger rebate. 

codrus (Forum Supporter)
codrus (Forum Supporter) GRM+ Memberand PowerDork
1/17/22 7:05 p.m.
Steve_Jones said:

In reply to ShinnyGroove (Forum Supporter) :

If you really think dealers are calling each other to discuss customers, you really overestimate the effort any car dealer puts into anything. 

Yeah, no kidding.

Also consider that "employee retention" basically doesn't exist for car salesmen.  Something as rampantly illegal as the price collusion described might last a week before a disgruntled former employee turned them in.

 

ShinnyGroove (Forum Supporter)
ShinnyGroove (Forum Supporter) HalfDork
1/17/22 7:51 p.m.
Steve_Jones said:

In reply to ShinnyGroove (Forum Supporter) :

If you really think dealers are calling each other to discuss customers, you really overestimate the effort any car dealer puts into anything. 

You're probably right in most cases, but it actually happened to me once. I was cross-shopping Honda Odysseys for my wife at three competing dealers... by the time I got to dealers 2 and 3, they knew I was coming and held the line at the same price as dealer #1.

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