Auto Industry - Chip Shortage - New Car Prices - Used Car Prices - Inflation - (1 Viewer)

doublebooyah85

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Posted this in another thread, thought it would be an insightful discussion for anyone in the car market right now...

The "semi-conductor microchip" shortage has been a disaster. Here's a story on exactly why and what happened...

March 2020 was the onset of COVID, at that time, the Wuhan Virus, and it freaked out the automotive manufactures. They predicted an incoming pandemic and economy collapse so they cancelled the supply/parts contracts across the world. Specifically microchips. Well, who know, during a pandemic people would decide to spend billions on home improvements and cars. We actually had a huge demand in car shopping because people were at home, and couldn't buy anything. Everyone was flush with cash. They couldn't go out to eat, drink at bars, they had to cancel their spring breaks and summer vacations, and tax refunds just hit...then stimulus checks. So everyone was FLUSH with cash. Brought on a huge spike in car sales and also home improvements.

Well, as the auto manufacturers canceled their semiconductor chip contracts, Sony/Samung/LG/Mircrosoft swooped in and took the contracts. The personal electronic device manufacturers were always short and second in line to the auto manufacturers. In addition, electronic device sales went on fire everyone working from home. Reminds me of old money (Ford/GM/Honda) and new money (Sony/LG/etc). In addition, these companies (Sony/LG/etc) worked new contracts and the factories were charging way more, making much more money on them. This put the auto industry in the back of the line.

Now, there is only about 7 factories IN THE WORLD that make these microchips, and just oddly enough, one factory burns down in 2020 leaving only 6 factories. These same factories take YEARS to build and prepare. So this shortage isn't ending until 2023 best case scenario.

**Yes, same reason why computer parts are more expensive, and more limited. Yes, absolutely one reason why inflation went up.**

The auto industry is the most perfect example of supply and demand and economics 101. When we have a low supply, the demand outpaces the supply and prices sky rocket. Everything right now is at MSRP, and in the metro areas, it's above MSRP. Don't be surprised dealers charging more than MSRP. Remember MSRP is just MANUFACTURER SUGGESTED RETAIL PRICING. Customers sure were happy to pay thousands below for decades, it's okay for dealers who previously sold 80 cars that sell 25 need to charge more than MSRP. But if you want a discount, go outside the metro areas where demand is a little less.

Not all manufacturer supply issues are the same. Guess what, a resource/supply chain in Asia is having difficulty, guess who gets the shaft? And guess who gets preferential treatment. Ford/GM got the shaft, Honda/Toyota/Hyundai/Kia are getting the preferential treatment. No doubt everyone is impacted, but the manufacturers closer to the problem are getting the benefits. The US based auto giants were CRUSHED the first year of this pandemic, going MONTHS without new car inventory. If America had a valuable resource guess who would get the benefit. If Asia had a valuable resource, guess whose getting the benefit etc.

Now, the unique transition the auto industry happening now is most new car car buyers are required to order their vehicles and wait 2-10 weeks for the car to be built or incoming. Days of dealers with inventory on hand are currently over, and it will be interesting to see over the next 1-4 years, if this practice is adopted or will manufacturers not be able to resist and just send dealers every car they can build. The pandemic has been good to auto dealers and auto manufacturers for the most part. Discounts/rebates and incentives are no more. Just look at their stock values. Ford is over $20/share for the first time since the 90s!!!

NOW A STORY ON USED CAR SHORTAGES

Couple reasons why used cars have historic prices...

1) There are no new cars (duh)
2) There is no LEASING. When leases come off lease, they supply the used car inventory at dealers. This used car shortage will go on LONGER than the new car shortage because for the past 18 months, and next several years, the manufacturers have no incentive to offer attractive leases. They are retailing every car, and that's what they prefer. Therefore, the used car market will no longer get millions of cars dumped into (off leases).
3) RENTAL CAR companies cannot get new car inventory. The manufacturers cannot supply dealers, how could they supply rental cars and fleet? Therefore, they are buying everything up auction. For the first time in history, USED CAR VALUES at AUCTIONS are higher than retail. We are seeing 1 year old vehicles with 10,000 miles being sold ABOVE MSRP because HERTZ etc are desperate to get inventory for rentals.
4) Used car independent lots have no avenue for inventory. Atleast a new car dealer gets nice trades, but a used car dealer often doesn't get trade ins. So they are forced to buy at the auction, and are bidding against drunk Hertz LOL.
5) YES, when you go to buyout your lease right now, you will see your buyout is maybe $15,000 but the car is worth $22,500. Right now if you have a lease its a great opportunity to buy it....or trade it in AND TAKE THAT EQUITY.
 

KBNYY

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Can attest to point #5.

Had two cars, didn’t drive one. Turned in our 2019 Highlander 7 months early back to the dealer and received a check for $7,587 (after shopping it around of course).
 

doublebooyah85

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Can attest to point #5.

Had two cars, didn’t drive one. Turned in our 2019 Highlander 7 months early back to the dealer and received a check for $7,587 (after shopping it around of course).
Also; if you have a Toyota lease, only Toyota dealers can buy it. Same for Honda, Hyu, Kia, Ford. Previously you could sell your lease to any dealer, the manufacture banks (Honda of America, Kia Financial etc) HAVE FROZEN/LOCKED anyone out of buying the lease other than the leasee (you, the customer) or the dealer of the the exact manufacturer. Honda lease, "any" Honda dealer can buy it or the leasee (you). You can't take that equity and go buy a Ford or Subaru etc.
 

MoT519

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Good insight. I hadn't looked into the chip shortage and just assumed it would resolve itself by 2022 summer. I guess I'll be waiting until 2023 to upgrade.

Has car demand actually gone up or is it strictly because of the supply shortage? With so many people working from home, I would have guessed demand fell a little.
 

doublebooyah85

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Good insight. I hadn't looked into the chip shortage and just assumed it would resolve itself by 2022 summer. I guess I'll be waiting until 2023 to upgrade.

Has car demand actually gone up or is it strictly because of the supply shortage? With so many people working from home, I would have guessed demand fell a little.
Demand is relative to supply. Yes demand is exceeding supply. Did annual sales go up from previous years? No, we are selling less new cars annually. Around 14 million when we did sell 17 million in the USA.

In regards from people working from homes and driving less, that has helped customers because their trade values have gone up, and their mileage is way below what they expected via lease terms.

In the beginning of 2021 when the stimulus checks cashed we had month after month of RECORD breaking used car sales. Everyone that needed a used car cashed in their stimulus money to get what that needed.
 
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doublebooyah85

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And if any of you guys are ever in the market for a new Honda, Subaru, Hyundai, Kia or Ford, I am more than happy to answer any questions you may have or provide you with pricing.
 

joepro

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I was thinking the micro chips were one chip per vehicle. I just found out that most cars have 2-3 DOZEN chips, with some models having over 100!
 

justsomedude

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Good insight. I hadn't looked into the chip shortage and just assumed it would resolve itself by 2022 summer. I guess I'll be waiting until 2023 to upgrade.

Yep, the chip shortage is getting worse...

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Has car demand actually gone up or is it strictly because of the supply shortage? With so many people working from home, I would have guessed demand fell a little.

Probably a bit of both... supply shortages and emotionally (hysteria?) fueled demand. When people realize they can't get something, they WANT that something... look at the runs on ammo, storable food, toilet paper, etc. over the last 20 months.

Now there's word (hysteria?) that people possibly won't be able to find a car to buy, so they knee-jerk try to go and buy a car, further ramping up demand. The human psyche is truly fascinating.
 

Josh Kifer

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It's funny, I bought a new Truck in 2017, and it's kept it's value like a boss. I actually should be paying it off in the next few months. I got a reservation for a F150 Lighting, but not sure it's gonna be doable, even with a fully paid off trade in. Weird times right now.
 

doublebooyah85

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It's funny, I bought a new Truck in 2017, and it's kept it's value like a boss. I actually should be paying it off in the next few months. I got a reservation for a F150 Lighting, but not sure it's gonna be doable, even with a fully paid off trade in. Weird times right now.
Definitely buy the Lightning, even if you just sell it. Ford has sold enough to satisfy 3 years worth of anticipated sales. Ford is scrambling to figure out how to build enough to justify the demand and fill the existing reservations. The new Ford Bronco is going for $10-$20,000 over MSRP if configured correctly. And since Ford has a new sold reservation system, almost all Ford dealers are selling them at MSRP, and the customer then can flip them for over MSRP.
 

Josh Kifer

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Definitely buy the Lightning, even if you just sell it. Ford has sold enough to satisfy 3 years worth of anticipated sales. Ford is scrambling to figure out how to build enough to justify the demand and fill the existing reservations.
That's kinda what I thought. If I can cover 35K with my trade in and credit for a mid one, it would be worth getting just to flip IF I didn't dig it. But that's also under the assumption the dealer will A. Process me somewhat soon and B. Not charge me a markup.

I chose the good Ford dealer here, and they already said they are just waiting for the bank to open for me to come on down, but I'm expecting the worst.
 

doublebooyah85

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That's kinda what I thought. If I can cover 35K with my trade in and credit for a mid one, it would be worth getting just to flip IF I didn't dig it. But that's also under the assumption the dealer will A. Process me somewhat soon and B. Not charge me a markup.

I chose the good Ford dealer here, and they already said they are just waiting for the bank to open for me to come on down, but I'm expecting the worst.
A) As long as you configured the exact build out with the dealer, it will be processed by Ford based on parts available and how early of a reservation you made. You have a unique reservation #.
B) I don't know ANY dealer charging over MSRP in regards to this new Ford reservation ordering system. It's just too difficult/unethical to charge a customer over MSRP when they go onto the Ford site build/price and order.
 

Josh Kifer

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A) As long as you configured the exact build out with the dealer, it will be processed by Ford based on parts available and how early of a reservation you made. You have a unique reservation #.
B) I don't know ANY dealer charging over MSRP in regards to this new Ford reservation ordering system. It's just too difficult/unethical to charge a customer over MSRP when they go onto the Ford site build/price and order.
A - that was my hope, because I can pay off my truck in two months and make myself look good to get it processed.

B - Reddit is rash with dealers asking 20k on top for immediate processing. Of course, the few that do are going to make it look bad. But that's where I hope I went with the really good Ford place around here. They are the ones that fix stuff without asking and survive off customer service. So I'm hoping they just call me this month and we roll.
 

kirchhausen

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If you can get your Lightning at MSRP I would absolutely buy now. I would be shocked if you can get it at that price but good luck. Our Ford stores are ADM-ing (ading additional dealer markup) on most models. A new model like the Lightning will probably be selling for way more than MSRP.
 

Josh Kifer

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If you can get your Lightning at MSRP I would absolutely buy now. I would be shocked if you can get it at that price but good luck. Our Ford stores are ADM-ing (ading additional dealer markup) on most models. A new model like the Lightning will probably be selling for way more than MSRP.
Yup. We shall see. No real risk tho. Worth a shot.
 

doublebooyah85

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If you can get your Lightning at MSRP I would absolutely buy now. I would be shocked if you can get it at that price but good luck. Our Ford stores are ADM-ing (ading additional dealer markup) on most models. A new model like the Lightning will probably be selling for way more than MSRP.
I don’t know hardly any Ford dealers in Ohio and Pitt zone doing that. You CAN transfer your reservation to a different Ford dealer. Transfer me your reservation and I’ll process it :). Location south of Akron Ohio.
 

doublebooyah85

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Ford will email you an invite to update your reservation and build out your lightning very soon if they haven’t already and they are being built this year most likely.
 

Josh Kifer

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I don’t know hardly any Ford dealers in Ohio and Pitt zone doing that. You CAN transfer your reservation to a different Ford dealer. Transfer me your reservation and I’ll process it :). Location south of Akron Ohio.
If the taxes are less, screw it. Don't tempt me. I love Ohio. Go browns.
 

Budha

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I’ve been hearing similar stuff around here in TX as well. Truck prices are through the roof and trade/resale in values as well.

I’m not in the market, but heard people are paying well over sticker for new trucks around here.
 
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Jake14mw

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Yeah, it is a bad time to be in the market to buy a car. We totalled our 2012 Mazda CX-9. I couldn't believe what used car prices are at! So, I'm sure I thought what everyone else did. "Well, if I'm going to have to pay $15k for a crappy used car, I'll just get an inexpensive new car." Ha, ha, yeah, too late to that party. There are none left.

The one silver lining? ... There are now customer parking spaces at car dealerships :)
 

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I know a guy who reserved one of the new Broncos...base model, base engine, base wheels...everything base. Paid less than $40k. Sold it for $75k. Don't know the details or legitimacy but that's what I was told. Now I wish I had listened to my son and kept my reservation :(
I do know that the new Corvettes we being flipped for considerable profits as well.

I ended up buying a new Jeep Gladiator and could probably make about $10k if I flipped it now. But I'm VERY happy with it and refuse to entertain the notion; although I could buy maybe a few racks of NAGB chips if I did
 

Littleluck55

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Posted in other thread but will respond here.

The higher prices in used cars has a trickle down too. In KY, we pay property tax every year on our vehicles when we register them. They just announced their valuation on used vehicles are rising on average 40%. So more taxes out of our pocket when we renew our plates. Ugh.
 

JoeBGo

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So what will the market look like when the chip shortage is caught up? Dealers will have 1&2 year old “new” models they’ll need to get rid of? Could it have the reverse of the current situation? I’m asking because I don’t know.
 

kirchhausen

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So what will the market look like when the chip shortage is caught up? Dealers will have 1&2 year old “new” models they’ll need to get rid of? Could it have the reverse of the current situation? I’m asking because I don’t know.
Well that will allow manufactured to ramp production back up to normal. Eventually dealer inventories will probably be what they once where but it will probably be a couple of years.

Demand will take care of any additional production in the short term, as many people are golfing putting off buying (if they can) because of the astronomical prices.
 
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