Automotive Industry Shocking Developments – Pricing & Availability

Inventory Woes in the New Car Market
As you probably know, there’s a lot going on in the automotive industry. Both new cars and used cars have a lot of changes going on. We’re going to talk about all of them. We’re going to talk about some wild price swings on vehicles and also some changes in the new car market and even the electric vehicle market, something that’s been overlooked.

New Cars: Inventory Crisis Deepens
First, with new cars, it’s getting worse with inventory. Look, you know a few months ago, beginning of the year, even last year, there was talk about does a chip shortage and inventory for new car dealers is less than it was. You probably have been driving by all of the new car dealers in your area and seeing empty lots or if you do see cars, if you look closely, they’re probably used cars, not new cars. Many large-scale new car dealers are down to single digit cars.

Severe Shortages and High Demand
Here’s an article where a major Chevy dealer used to have 80 cars on a lot, then it went down to 40 or 50. Now today, we have five according to the general manager of that dealership. And this is just not from this article; we talk to dealers every day. A lot of our clients are major dealers. We have a large-scale car dealership client in Fort Worth, Texas. They used to keep 250 to 300 cars on their lot. Now they have none. Every car that comes in is delivered the same day.

Slim Pickings: Impact on Consumer Choice
If you want to go to that dealership to see cars, they’re not going to be there. New car dealers are short on cars. We have a client that we’re working with that’s looking to get a certain type of minivan, a Chrysler Pacifica minivan hybrid, and in their area within a 300-mile radius, there is one Chrysler Pacifica hybrid minivan. That one is pre-sold. In addition, the factory that builds them is shut down for a month and a half. New car inventory is thin and getting thinner.

Used Cars: Prices and Market Dynamics
What about used cars? Well, used cars, a different story. This article talks about home prices going up, but car values are set to fall, and this is used cars. Used cars are dropping like a stone. Here’s why: for the last six or eight months, many people who wanted to buy a new car weren’t able to find one, so they bought used. Some of these used cars were selling for more than what they did brand new two or three years old.

Unprecedented Price Fluctuations
Some dealers are actually raising prices of used cars that are sitting on their lot. It used to be that used cars depreciated over time. Every week or every month, the new book value came out, and it was less than it was the last book. Some of these cars are going up in value. And if you watch the auction results, Mannheim Odessa, the major auctions, some cars are selling for more than they did even a month or two before. When the dealership sees that the car under a lot is there selling for more, they might mark it up, not marking down cars like they used to, but marking them up over time.

Changing Market Dynamics
That’s all changing. There are big volumes of repossessed vehicles starting to hit the marketplace. More cars that are non-fuel efficient are going down in value: SUVs, larger trucks because of the gas price inflation is starting to create demand destruction. Meaning that as people spend more money on gas for their car, groceries, rent is going up, they have less money to spend on vehicles. So more expensive vehicles or extra vehicles are not being purchased, right?

Electric Vehicles: New Entrants and Market Reception
What about electric vehicles? Well, there’s a new company called VinFast. It’s a Vietnamese startup that has electric vehicle crossovers. They’re going to start their first showrooms in California. 24 more stores open by the end of 22. So they’re going to have close to 30 dealerships by the end of this year and develop rapidly. They’re targeting high-volume production as well.

The Future of Electric Vehicles
What are your thoughts on electric vehicles? Is this the wave of the future? Is it a fad? Is it something you’re interested in? If that was the only new vehicle that you could get, would you buy one? An electric vehicle in general or a new car company in particular? Or do you want to wait to see, are their vehicles going to be any good? Are they going to be reliable? Are they going to break down? Have you even heard of this company VinFast? If you’re in California, do you see where they’re constructing one of these showrooms?

Conclusion: Industry Challenges and Opportunities
The car business is probably right now at a historic moment in things changing in dynamic results of the industry. New cars are in shorter supply ever in history, used cars prices are dropping like a stone, and electric vehicles are having new offerings. Here’s something else about new cars: there’s an old joke back in the days of Soviet Russia, the USSR, that if you bought a car, you might have to wait two years to get a new car, three years to get a new car if you ordered one.

Looking Ahead: Adaptation and Uncertainty
And that used to be an unbelievably kind of fantasy joke that nobody could understand like how could you wait that long? Well, here in the US, many types of cars, if you want to order one, might be a five or six-month wait. It’s not three years, but it’s also not a week or two. Call up any of your local dealers and ask them if you were going to order a new car, how long would it take? Whatever they tell you, take it with a grain of salt, add a little bit because they might give you a shorter optimistic number. But for most vehicles, if you get an honest answer, it’s five or six months and it could end up being longer.

Closing Thoughts and Engagement
The chip shortage excuse is no longer really an excuse. It’s more the companies are ramping down production because that’s the new business model for dealerships is to not have inventory. Let us know what you think in the comments. We’ll see in the next video episode.

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