It used to be said “a car loses value the moment it drives off the lot.”
No longer.
The pandemic turned many a market on its head — commodity prices skyrocketed, tourism tanked, gasoline and oil values surged.
But few industry shifts have been as bizarre as auto manufacturing’s.
Case in point: four years ago, a brand new 2017 Ford F-250 sold for $52,000. Last week the same truck sold for $60,000.
“I’ve been doing this for 16 years,” Lynn Gaines, the finance manager at Siler City’s Welford Harris Ford, told me, “and I’ve never seen a market like this.”
Contributing factors are myriad. The most basic and straightforward is that demand has risen exponentially; for a year, many would-be buyers delayed vehicle purchases as they putzed around in their home hoosegows. Raw materials shortages have also made production more expensive for car manufacturers, limiting supply and inflating prices. And a global semiconductor chip shortage is delaying vehicle deliveries to dealerships.
“Currently we have four vehicles out there somewhere waiting on chips,” Gaines said. “And three of those are retail; we’ve got people waiting on them.”
During the pandemic, semiconductor demand boomed as production capacity narrowed. The small but all-important chips appear in dozens of products from household PCs and smart phones to warehouses of computers hosting cloud services. Just about every device these days needs a semiconductor chip, and cars are low on manufacturers’ priority lists.
They “are not only at the back of the line and don’t get priority (for chip orders) like smartphones, PC or cloud infrastructure (providers) would get,” Mario Morales, program vice president of the semiconductor group at the International Data Corporation told TechRepublic, but “ … it’ll take longer for them to recover.”
On Tuesday, Reuters reported Nissan would be halting production at several of its Japanese factories in response to the chip shortage. The automaker has said its setbacks would affect about 500,000 cars this year. Last Month, Volkswagen stymied production at a Slovakian plant for the same reasons. GM is likewise slowing down — more than 10,000 workers will have their hours reduced across at least six factories, slowing production of at least eight vehicle models in the GM family. And in April, Ford projected in its quarterly report it would produce 1.1 million fewer vehicles than planned for 2021. Previously, the company had estimated a 40,000 car deficit due to regular pandemic circumstances.
The shortage couldn’t have come at a worse time. New car scarcity arrives just when thousands around the country are finally ready to drive again. In turn, they’re buying used cars — and they’ll pay whatever it takes.
“It’s definitely a seller’s market,” Gaines said, “not so much a buyer’s market.”
Consumer searches for used cars have doubled in the last year, according to PureCars, a consultancy that advises dealerships on marketing strategies, as first reported by Consumer Reports. And according to the U.S. Bureau of Labor Statistics, used-car prices went up by 30% between May 2020 and May 2021.
So if you’ve got a car to sell, now’s the time.
“The silver lining for consumers is that even though prices are higher, your trade-in will never be worth more than it is today, and that may put you in a better position to purchase a newer car,” Lauren Donaldson, PureCars’ senior director of accounts, told CR. “And if you’re a consumer who recently bought a new car and you’re feeling a little bit of buyer’s remorse, now is a good time to sell and move on to something else.”
For dealerships, though, it’s not so simple. They can’t find inventory at reasonable prices. With some used cars selling at $2,000 or $3,000 above retail, it’s impossible to make a reasonable profit without gouging customers. For salesman such as Gaines, that’s impermissible.
“But I mean, we can’t just break even, right?” he said. “So we’re in the cross hairs of what’s good for the customer and what’s profitable.”
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• The Chatham Chamber of Commerce is looking for new and diverse board members with experience in human resources, auditing, legal and marketing and communications for its upcoming fiscal year beginning Oct. 1. Please contact the Chamber office by phone at 919-742-3333 or by email at info@ccucc.net for more information. All board members must be employed or own a business that is a current Chatham Chamber member.
Have an idea for what Chatham business topics I should write about? Send me a note at dldolder@chathamnr.com or on Twitter @dldolder.