I’m in the semiconductor industry so I have a little bit of an inside view on this, and it is getting better… when things will get back to full production of 2019… nobody really knows, but it could be the second half of this year. What that will do with prices is anyone’s guess, I’m sure car companies aren’t going to give up their record profits easily.
I think it’s more of our American culture… over 50% of Americans think any car more than 5 years old or 100k miles on it is “old” and they need to go trade it in for something new… that’s as big a problem as the chip shortage.
Financing is the only thing making this possible. No one should be buying a car thats 60, 80, 100+ percent of their annual income. But people do it all the time, and financing is the only reason.
After having friends in the car buainess for years, id bet your average $30k car sale is going to someone making $40-50k a year. Insane!
Im actually worried about how we finance wveyrhing in this country now. Every website that has items over $50 now offers financing options it seems. Kind of scary.
This is not to say financing is inherently bad or shouldnt be used. It is just way overused by people to live above their means.
Regardless of term…the average amount of time an auto loan stays on our books is approx. 30-36months. Meaning, on average, most people get bored and trade out of their car on average within 3yrs.
Fixing the chip shortage to where car lots can get back closer to 100-200 cars on their lots instead of 20 will do a TON for the supply/demand inequity we have right now which will absolutely drive down prices. Again…with inventory and the internet…dealers will be forced to advertise low margin pricing on the internet again just to get the customers to the lot. Fixing the chip issue will fix the inventory issue which will fix the supply/demand issue which will fix the dealer markup/pricing issue. But how long will that process take is anyone’s guess.
BTW…it’s amazing how over the last few years and now with inflation that 84mos financing is slowly becoming more and more common. That’s financing a car for 7 years!!
Actually, there are now a few lenders offering up to 96mos auto financing!!! 8 years…to finance a car???
Buying things we can’t afford is unfortunately the American way of life for many…but doing so on a depreciating asset is absolute lunacy!
There is a reckoning coming. Car loans at 96 months, $50 purchases financed into 4 payments, most consumers unable to withstand even a .50% bump to any of their credit lines/ mortgages/ LOC etc. Over 80% of consumers now not able to qualify for a mortgage in the top 100 markets. You can only correct lagging income growth with exotic financing but for so long till the music stops and no chairs are available. I think it could be brutal.
This is exactly my fear. I think we are due for a major consumer bubble burst across housing, automotive, and all consumer spending… I just can’t figure out if I’m biased by living in Charlotte for so long because our portion of the housing bubble has been so aggressive. But apparently we are also one of the biggest markets for suckers to the insane dealer markups for cars. It just doesn’t seem to be sustainable.
What happens when there arent enough people left who can qualify for financing to support these markups / “gains”?
I still cannot comprehend how many people are willingly paying $5k markups to buy a car that shouldn’t be more than $35k. That’s nearly 15% markup on a depreciating asset! Let alone the $10-$20k Kias are apparently commanding. I’m in disbelief that it’s being sustained for as long as it has.
Charlotte is not a big market for suckers…it’s supply and demand…basic free market principles.
Right now Charlotte is somewhere between the 15th-20th largest car market in the country. Raleigh sells considerably more cars than Charlotte but the numbers are the same across the country…every market top to bottom…I see the reports every morning.
When a dealer’s inventory drops by 50%-60% and sales per month drop by 30%-40%…all due to supply issues, if the margins didn’t go up at least marginally, dealers would have to cut staff or close their doors. The higher margins are allowing the dealers to remain operable and profitable with an extreme supply crisis and significant drop in sales.
It’s not price gouging or greed setting the prices…it’s the market…due to the supply issues. Then it’s people (not suckers) that need or perceive a need for a new car that panic buys because it is so hard to find what they want and when they find it if they don’t buy it someone else will. There’s not another one like it on the lot or maybe in a 3 state radius. So, do they pay 20%-30% more than usual or let someone else do it and then risk not being able to find anything similar or better or at a similar or better price?
Also people have more disposable income because for 2+ years they haven’t spent money on travel or eating out or going to movies like normal due to Covid. So they have 2+ years of excess $$ and they’ve been couped up in a house for so long…might as well treat yourself and buy a new car.
That’s a very generalized but accurate narrative that adds to some of this too.
Most of these people don’t actually need a car. They may have an older vehicle without as many features, but as long as it runs well, they don’t need a car. They’re just falling for insane markups via FOMO.
The other way you can tell that the markups are ridiculous is simply by shopping other markets. You can find the same vehicle somewhere else with either no MSRP markup or a much smaller one, if you just take the time.
Your Auto Advocate (YAA - former longtime Dealer) and many other websites / YouTube channels make these exact same points.
They also stress that once this bubble bursts, a bunch of people are going to be left holding onto cars they can’t even trade in, because they will be so upside down on LTV for these vehicles. They won’t be able to refinance their way out of a bad situation like in times past, specifically because of these high markups.
That’s going to remove a bunch of people from the perpetual “every 3-4 years” buying market that fuels the industry. Not everyone buys on that cycle, but a good part of the market does, and that’s what drives it. When you have a large section of those people in severely upside down loans in 3-4 years, that removes them from that central purchase group which will deflate demand even more. The bubble is going to crash hard unless supplies are artificially limited over the long term.
I don’t think any of it is sustainable, though the profits being made right now, which are far above those made on higher volume sales (another marker that it is gouging), are so addictive, that the dealers will game the system as long as they can, which will only increase the pain of the eventual correction.
Hendrick isn’t selling over MSRP, I know several other dealers aren’t either. People are just making rash decisions, even in the wake of low supply. No reason to buy a truck with a $10k premium on it from Victory Chevrolet if you can get something similar at City Chevrolet at MSRP.
Also, if people can just wait a few weeks, almost all dealerships will still order you something at MSRP. In fact, a lot of the agreements with the manufacturers prevent them from charging markups on custom ordered cars. Then you get exactly what you want too.
Hendrick Kia in Concord is charging makeups on Kias (we were shopping for Telluride, but they are doing it on all of their cars) as were the Toyota and Honda dealerships across the street. I don’t think Jeep was. Jeep might even cut a few bucks off of MSRP (though their MSRPs are kinda high depending on who you ask).
We also went to Gastonia to a place called Courage Kia, and they were absolutely smug about their markups (similar to the Kia dealership on Independence). The Courage GM told me that even if I ordered through them they would still charge a 10k markup. His entire attitude was entitlement. He seemed shocked when I laughed in his face and walked out.
As soon as more people figure out they have legs that can go in the other direction, this idiocy ends.
Interesting. I know two people who’ve bought Hendrick cars in the past couple of months and both paid MSRP. In one instance, the dealer was fretting about them buying to resale and made him promise he was buying it to keep it.
We should end the dealer-only requirement in NC. It’s crazy that I have to buy from a dealership in 2022, when I can go to Chevrolet.com, build the exact car I want to the spec, and then the factory builds it. There is nothing advantageous for me to going through a middle man who will make a $5-10k profit on me, if the manufacturer can handle financing for most people. It could allow manufacturers to have much more competitive MSRP too, or even an alternative MSRP, like a Factory Direct MSRP or a Dealer MSRP.
Then people who want (need) the hand holding and old fashioned buying experience can get it, and savvy people can save markup to not pay 30 salespeople, 5 managers, the mortgage or lease on a multi-million dollar dealership, and the markup to pay for the finance charges that the dealer has to pay just to keep the cars on the lot. You can eliminate A LOT of waste. And then maybe that delivery and destination fee is actually worth something because the car is delivered to your house.
I have been in strong agreement with that position for some time now, but for a moment, I will argue the contra stance…
I’m a little concerned that the direct sales model will remove an element of competition, albeit one that right now is entirely broken. But in ordinary supply times dealers compete. They’re competing on a profit margin above and beyond dealer invoice that ostensibly the manufacturer wouldn’t charge… But that’s just it. Reminds me of my prediction of cable TV to streaming. For a couple of years there we saved a few bucks, but now we are back to paying the same kinds of rates for the same basic offerings, though the cable comparison isn’t that great because there still are cable companies and there are streaming service competitors offering some options. If we cut out dealers, it’s one price… And how long before the manufacturers are doing (hidden) “market adjustments” too? Just the cynic in me…
And without dealer networks what happens to service options? Much less of an issue with EVs, but as much as I champion those, I don’t think ICE cars are going away anytime soon, possibly not in my lifetime. Do we want servicing to move to a Pep Boys model? Maybe that’s okay, but I dunno about more complicated repairs. I think it may also drive more people away from becoming certified mechanics.
Also, that’s just another example of the Amazon model pushing out locally owned small businesses. Probably a net negative to employment nationally too.
It’s a tough issue. I can tell you that personally, I agree with you. I would rather just pick my trim / options on a manufacturer website and receive a delivery date. So much less stressful. That’s probably where we are headed, but as you know, there will be a significant legislative / legal battle from dealer networks. I don’t think it resolves anytime soon. I think instead manufacturers and customer will try to find ways around protective dealership laws and when they find cracks they will exploit them. Then it’s just a question of time and court battles.
My point in calling out savvy buyers vs buyers who need hand holding was to say that I don’t ever think regular dealerships will go away. They will still be there for service, and there will still be people who use a dealer. There are all kinds of people who fit that category:
Don’t know what they can afford
Don’t know what kind of car they want (this is shockingly a huge part of being a car salesman, which baffles me)
Don’t know how to obtain financing
Needs something immediately that day or is impulsive enough to demand something now on a whim
Still thinks you need to kick the tires and rip a test drive even on a brand new car
I’m sure there are more, but all that to say, I don’t think traditional dealerships will ever go away completely, but if we had a manufacturer direct model to balance them out, they’d be less common and likely smaller. So you can still get service done at the dealership, it just might be a little farther away and a little less convenient.
Also, it’s a little telling that threads about automobiles are as popular or more popular than the CUSA tournament thread on the day of our first game. No one has any real faith we can or will do anything. That alone is enough reason to find a new coach.
I get what you’re saying, but, to me, that was the only honest part of being a car (or any other type of) salesman. Product education. Specifically with cars, it’s often much more impactful to see things like size and features up close and hands on and side by side with other options.
The rest of being a salesman is just about trying to squeeze as much blood as you can from the mark… Err deal.
I do agree with you about men’s basketball. It’s depressing.
That explains a lot. The Tellurides are “hot”. They’ve been every reviewers darling for the past couple of years. Not to mention that Kia has the best warranty in the industry. Certainly there probably is some price gouging. But I also think there is some supply/demand going on with the Telluride. If that new vehicle sat on their lot for 6 months there wouldn’t be a 10k markup.
I don’t really see it that different as the price markup of an iphone, a pair of Air Jordans or a Starbucks cup of coffee.
It wasn’t just Kias. We saw it almost across the board. Probably 75% of the manufacturers, my best guess.
One of the common practices was to add a bunch of way overpriced fluff addons to justify the market adjustment. Services and such that you didn’t want and would never pay that much for. At least one dealer backed off of all of that when challenged. The others didn’t. They think Nitrogen in your tires (not a new trick, but now with an even more inflated price) is now a $499 must have, and you need a $2,000 Lowjack contract and so on. Interestingly, all the addons add up to $4,995 or whatever their markup goal was. Quelle coïncidence!
I did have fun telling a salesman that the air we breathe is already 78% nitrogen, and that was good enough for me. Was kinda shocked when he argued with me. I figured he would just laugh it off. But he doubled down. Time to let the legs do the talking again.