So supply vs demand will just fall by the wayside because of Covid?

 

If you are flexible, you can make it work. I also sold and got a descent deal on Mazda's (sold CX5 and bought a 3). I got about $4k over what I would have pre-covid for the CX, but had to travel a bit for the new one (I was, anyway). Recieved about 5% off (with rebate and credit for the GPS chip I didn't want). Worked out well.

 

The costs to manufacture cars are not dramatically up, and yes material costs are normalizing already. There is too much competition for manufacturers to raise MSRPs, things will go back to how they were 6 months ago. This is an artificial supply interruption, not a long term trend.

For example, I've been shopping to finish my basement, estimates now are 40% less than I was getting just 2 months ago.

 

I too was able to work out an okay deal on a CX-5, but to be fair you were trading a high demand vehicle and buying a low demand vehicle.

 

Uh, no. The lumber prices are dropping, at this is why your basement construction estimates are down, but there were never really lumber shortages - just increased demand, and suppliers taking advantage of it. There were short periods of shortages during the blm riots and election time last year when everyone was boarding up their glass storefronts in every major city, but the supply was always strong.

This is not the case with everything else. The electronics shortages are only getting worse, and metal supply is also getting worse. Some of it is due to global shipping disruptions, some of it is due to US ports not working full force and not unloading cargo ships, but a lot of it is due to US mills only working one shift instead of double/triple shifts due to covid nonsense and labor shortages. These mills are making higher profits now, and they are not in any rush to go back working three shifts and making razor thin profits.

With that being said, perhaps we'll have a lot of manufacturing come back to the US. While it seems lucrative for corporations to use cheap labor overseas to do their manufacturing, their whole business model falls apart when supply disrupts. For instance there are a ton of brand new cars rotting away at manufacturer lots because they don't have enough computer chips. I'll gladly pay higher prices if it results in more US jobs and stronger US economy. We'll all benefit from this.

 

If I'm the manufacturer, I would slowly and I mean very very very slowly ramp up production with no incentives given to see what the limit is. As of right now, everyone is making money hand over fist even with the shortages.

 

Yup, average prices are still increasing. I thought we were maybe at the peak, but they continue to inch up. Up ~25% YOY for the industry. https://www.cargurus.com/Cars/price-trends/

 

In the car business, thats really not the case. Talk to some car salespeople and dealership managers, their revenues are down because of dramatically lower volume.

 

Sorry I misspoke. I meant margins.

And I dont feel sorry for them. They could have made money with my car, but they decide to be shortsighted and lowball me. So there will be no tears shed for them.

 

I don't think many sales people and managers are going to willingly share that they're largely benefitting from this situation, that wouldn't make them look good to the avg consumer who is still somewhat price sensitive. And yes, for some dealers here and there, revenue is likely down somewhat due to the lower volumes. But overall the industry is doing extremely well right now.

AutoNation, the largest, is up huge, both margin and revenue. The year over year is obviously inflated over the pandemic issues of 2020, but they're achieving some of their most profitable quarters ever. Costs are down as they likely cull sales people and push more people through some form of online/digital purchasing, etc.

 

You would hope that this is the case. However, every manufacturer is racing to ramp up as much as they can as quickly as they can in order to "steal" marketshare. Would absolutely love to see more measured production levels to see Americans finally get weaned off the excessive levels of incentives that they've been now accustomed to for so many years. Increase custom orders/configurations that customers can then wait a few months to receive, etc. Again, I'd love for the industry to move this way, I just don't know if they all have the ability to steadily do it.

 

I am curious as to why you as a consumer could care about incentives or wish for more "custom orders"? The incentives are figured into the pricing model for the vehicle from the beginning. Sometimes money is saved when the market is hot and sometimes money is lost in a very cold market. Sometimes the manufacturer just has an inferior product trying to sell into the market.

The manufacturer books the "sale" to the dealer the moment the vehicle is produced off the assembly line. Most of their labor costs and facility costs are fixed regardless of volume produced and with a guaranteed sale to the dealer the advantage is in building the product. Ramping up or cutting down on labor costs are not so simple as to just send them home. Labor contracts for the most part guarantee pay and the cost of finding and training new personnel is expensive when they are lost due to spotty work availability.

Despite the "pie-in-the-sky" proclamations of new management, building cars and making them available on the dealer facilities has been the rule of the business for a hundred years. This is unlikely to change when the market returns to the real world of supply and demand. This whole theory is a repeat of the manufacturer's wishes right after WW2 when just finding a car was difficult. It didn't last long then either!

 

I know personally several car salespeople and dealership owners/GMs. They are not doing well right now, its a very frustrating time to sell cars.

 

According to most of the sources I've seen, most of this computer-chip crisis in the auto industry started when the manufacturers, facing a downturn in sales, strongly dialed back their orders for computer-chips.....which, in most cases, were supplied by contractors. Then, when the original pandemic eased several months ago (before the Delta-strain got widespread), demand for chips began rising for production of other hardware (laptops, cell-phones, TVs, etc...) as demand for those household products strongly increased when people started shopping again. The suppliers simply couldn't produce enough chips for those industries AND the auto industry at the same time, as both industries tried to lay catch-up, so the other industries got priority for the chip-production, since they already had new orders in and the auto industry didn't.

Even over and above all of this, though, my own personal view is that if the industry hadn't made today's vehicles so complex electronically (and/or not jumped on the electric-vehicle bandwagon), we wouldn't be having most of these problems, and the need/demand for so many chips. I won't complain about all the electronic features, though, because I actually like some of them.

 

Even baby toys have computer chips in them. Harkening back to the days of yore with "less complex vehicles" is not reality.