In a previous blog article, I detailed the impact of the global semiconductor shortage on the Automotive Industry, calling out the reduced vehicle inventory and sky-high new and used car prices it created. Well, here we are several months later and the semiconductor shortage has combined with other supply chain disruption to create a sustained downstream effect on commodities, cars prominent among them. While some brands anticipate returning close to normal production levels for the 2022 model year, others continue to downsize their production volumes. Brass tacks, what does this mean for a car consumer heading into the end of 2021 and beyond? Unfortunately for consumers, large dealership groups are making record profits, and front end gross, the amount a dealership makes per vehicle sold, continues to grow. Customers that have resigned themselves to paying at or above MSRP for new cars have continued to exhibit this behavior, and the dealers are taking notice. My prediction; high prices are here to stay, even when inventory starts to return to normal levels. Prediction number two; dealers will migrate more toward custom orders rather than carrying huge levels of inventory on their lots.
Why do I say this? Commodity sellers, in this case car dealers, are masterful at creating artificial demand. However, there is now actual demand with not enough supply to meet it. Even when supply levels return, I expect dealers to leverage the ‘inventory shortage’ as the new normal, and adjust their sales model in perpetuity. If a dealership can sell 100 cars a month and attain the same front end gross as they did selling 300 cars previously, there is no incentive to return to that volume based model. Dealerships can remain lean on inventory expense and vehicle carrying costs, while still attaining their sales and revenue goals. In addition, rather than stocking their lots, I expect dealers to solicit custom orders more often moving forward. This helps assure the lean inventory expense I noted above, while reinforcing the ‘inventory shortage’ when customers see lots that continue to look more empty than they did in the past. For those hunting for deals, this dynamic increases the importance of researching lease and finance programs and average deals in the market. The chasm between a good deal and an average deal will continue to grow in this new environment, and savvy customers will be rewarded even more than in the past. This is only the humble prediction of one person, and one I hope does not come to fruition for the good of auto consumers everywhere. However, as buyers continue to pony up outrageous prices for new and used cars, you can position yourself at an advantage by doing your own research or employing the services of an expert negotiator. If you’d like to do the latter, check out my services or drop me a line for a free consultation. Thanks for reading.
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Luxury Lease Guy™ BlogInformation and education regarding car leasing and the auto market Archives
January 2022
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