Car Insurance Reviews

Scarcity Tactics: Low on Inventory, Auto Dealers Cash In on Higher Prices

from the November 2021 issue of car and driver.

dennis groom, a stay-at-home husband from dexter, michigan, figured he could shop for a new car the same way he’d done it in the past: shop around, take a couple of test drives, pick your favorite, and bargain. the lowest price. then he went to some dealers.

Reading: Car and driver scarcity tactics

“Even if you see cars in parking lots, they’re not really there,” the boyfriend says. dealers are parking cars they can’t sell, vehicles shipped from the factory without critical microchips, to make it look like there’s inventory. Realizing those cars were just for show “was a kick in the pants,” the boyfriend says. “We weren’t going to be able to go to a dealership and get what we wanted.” he couldn’t even find someone willing to let him take a test drive. Desperate, he bought a 2022 Hyundai Tucson at sticker price without even sitting in one, simply because he was due to arrive at the dealership in two weeks and needed a car.

The current lack of new car inventory can be dire for a whole host of people: sales staff relying on commissions, auto workers facing temporary layoffs, suppliers facing temporary manufacturer closures, and of course, customers. , but it sure isn’t terrible for one group: the traffickers. Despite having next to nothing to sell, car dealers took in $42 million through July, according to the National Automobile Dealers Association, up from $36.7 million through July 2019, before the pandemic.

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“It’s not too bad for car dealers is one way of putting it. Great for car dealers is another,” says danhearsch, managing partner, automotive and industrial practice, alix partners. Dealers benefit in two ways: They can raise the price of new cars, often by selling them without a test drive to people willing to pay sticker price or more, and they’re also getting a boost from used car prices. . It’s such a sweet rush for distributors, Hearsch says, that it will be hard for them to readjust when inventory returns to normal levels, whenever possible. On a second-quarter earnings call this summer, Ford CEO Jim Farley said his company is committed to moving further toward an order-based system and keeping actual inventories lower than in the past. “I know we’re wasting money on incentives,” he said.

More than a decade ago, when the bosses of the Big Three automakers sat down in front of Congress asking for bailout money to stay afloat, this economic scenario would have seemed like a fever dream. back then usa automakers were prisoners of their own success. As they’ve grown over the years, they’ve added workers, given incredible health care plans, built new manufacturing plants, and opened dealerships across the country. that worked when sales were high, but as soon as the economy cooled off, the industry had to scramble to pay all of its obligations. Automakers used to resort to generous rebates and incentive programs to keep things running smoothly. And that worked for a while, too, until it all came crashing down in 2008. Eventually, domestic and international automakers had to rent parking lots outside of the Detroit airport and near the ports in Los Angeles to store the excess cars they had built for the clients. that did not appear.

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That economic situation has changed today. Recently, Jeremy Beaver, president of El Grande’s dealership group in San Jose, California, was perusing an inventory tracking spreadsheet at the company, which owns 15 dealerships and typically has about 4,000 cars in stock. “I’m watching it right now and it’s crazy,” Beaver says. “We have 600 new cars. Cars come in and they practically go immediately because people already bought them.”

and yes, beaver says that being on the happy side of the tug-of-war of supply and demand certainly has its advantages. But ultimately, the dealership group doesn’t want their customers to feel like they’re being ripped off. “Consumers shouldn’t have to pay the highest price available just because there’s no inventory,” she says. he hopes this period will be the start of an industry transition that makes car shopping a little more like other retail experiences, with a more modern approach that focuses on the guest experience, made a heck of a lot easier. with technology.

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It’s easy to blame a shortage of microchips on car inventory shortages, but Hearsch says it’s more appropriate to cite a generic “supply chain disruption” at this point. Even if the microchip shortage goes away by the end of the year, and there’s no guarantee it will, Hearsch says other problems in the chain will keep manufacturers from resuming full-throttle production for quite some time. There are labor shortages in the plants and ports where imported cars are unpacked, persistent covid issues, and political turmoil in countries like Malaysia where some parts are made.

And even if automakers could ramp up production and start making cars faster than ever before, it will be a long time before dealer lots start to fill up. newly produced cars will fill current customer orders first, then orders from rental car companies and corporate fleet customers, and finally surplus cars will head to dealerships to begin balancing the imbalance between supply and the demand. that will take “absolutely” until the end of 2022 if no more outages occur, sayshearsch, and until 2023 if things remain difficult.

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so feel comfortable buying a car without trying it out. Colby Buswell, a gym owner from Pinckney, Michigan, ordered a Jeep Wrangler 4xe without even sitting in one. Motivated to get better fuel economy than his current Wrangler offers, Buswell started looking online for a Jeep plug-in hybrid, but couldn’t find one. “You’d have to have driven 750 miles to find one in a lot to test drive,” says Buswell. “That made it a little less fun.” there was no negotiation on the price, although he was able to haggle a bit on the interest rate, and now he is waiting the promised 8-12 weeks for his new jeep to arrive. “I’m not in a hurry,” he says. “I can wait.”

hearsch predicts that those consumers who can wait will be rewarded in the future. American buyers who order early will be the ones who can get incentives and discounts, while people who need cars right away will have to deal with what’s on the lot and pay sticker price. eventually the situation will calm down, she promised. “At some point, the cyclical nature of the industry will kick in and demand will drop, as will prices,” she says. “But it will take a long time to get out of the pent-up demand that we currently have.”

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