Are the chip and vehicle shortages coming to an end?

Are we getting close to the end of the chip and vehicle shortages?

 

There is a more important discussion… putting aside your opinions on the “chip shortage,” the more pressing debate is “at what rate will manufacturers produce vehicles moving forward.”

Now that manufacturers have realized keeping inventory low raises prices (supply vs demand), because people always need vehicles, the concern will be whether or not lots will ever return to pre-pandemic norms.

 

I was going to mention something about that.

Lot counts might not ever return to pre-pandemic levels, but if they stay as low as they are now, most people are going to continue to keep their cars as long as possible.

 

People keeping their vehicles longer saves the consumer some dollars, but it doesn’t help vehicle costs. Now that dealerships have gotten the taste of markups, it will end in one of:
1. Direct to consumer sales
2. Manufacturers force dealers to stop markups
3. Crazy pricing continues

 

Either way, I think that my personal shift of a few notches towards "fix what I have," and a few notches away from "replace what's inconvenient," is going to be permanent.

 

I think all it would take is one manufacturer to decide to keep their lots stocked with vehicles. People who need a vehicle in a hurry (seems like there are always plenty of them) would end up flocking to that brand and all of a sudden every dealer will decide they need new inventory on their lots.

 

There is currently a beginning of a chip glut. Witnessed by the drop in the price of chip stocks. When this works through production channels is anybody’s guess.

 

How, exactly, would direct sales work? How would test driving, delivery, and service be handled?

I'm asking because I don't know, not because I'm questioning you.

Thanks.

 

That's kind of what I'm thinking as well.

Although in my area at least, the Dodge lots are full and everything else is empty.

 

If I had all the answers, I’d be very rich and daily driving something much more expensive than a Taco

But Tesla is a good model here. They have showrooms in storefronts to sit in and touch the vehicles. Employees to ask questions. You schedule a test drive online, then meet up somewhere to drive the vehicle. No pushy salesman, just drive the vehicle.

For service, you schedule an appointment and they come flatbed the vehicle to their service center.

 

Perhaps the long awaited extermination of the sleazebag car salesman is drawing near!

 

I was thinking the same thing. Wife and I were ready to buy a Highlander until we saw how shitty the cargo area was. Then we test drove a bunch of different options and landed on a couple we liked best before talking price with the dealers.

 

That sounds pretty good except flatbed for service would be expensive, I reckon. For an EV it's probably offset by the amount of service that's actually needed I imagine but how does that work for ICE vehicles?

 

Have a service center to drop off vehicles. Turn dealerships into service centers.

 

So, I bought a Tesla and it was the best car buying experience ever. I scheduled a test drive online. When we got to the service center the guy asked for my drivers license and proof of insurance. Then he walked us to the car, show us how to put it in drive and said "see you in 30 minutes." No sales pitch, and when we got back he answered my questions, no pressure, no bullshit. So that night my wife and I sat on the couch, checked a couple of selection boxes on their website, paid a deposit, done. Pickup day we signed some papers, gave them a check, they showed us the details of how the car works, and we drove off the lot.

In my neck of the woods Tesla service is done at their shop. No different than any other car dealer. And, my state is one of them that bars direct from manufacturer sales. It doesn't seem to slow them down though.

Compare that to the Toyota dealer. My Tacoma need a part so I drove to the dealer to pick it up. There were at least a dozen salesmen waiting at the curb with a predatory, sharks circling their prey vibe going on. I'd barely taken two steps before they were "how can we help you today!?" The air was thick with disappointment when I said "only here for parts." Bottom line I - will - never - buy - a - vehicle - from - a - traditional - dealer - again.

The chip shortage is coming to an end, but with a recession staring us in the face I don't think the car makers are going to be filling up the lots with cars people aren't buying.

 

I feel like this applies to a lot more than vehicles now. I realize that there are still some supply issues, but I don't think it's as widespread as it's been made out to be, or justifies the massive increase in pricing that we've seen over the last year or two.

I read random stories like the one linked below, among other things, and wonder to what extent larger corporations took advantage of the initial inflation, and are just drawing it out as long as they can.

https://www.cbsnews.com/miami/news/big-chain-stores-too-much-inventory-customers-keep-returns/

 

Just depends on the dealer. My experience test driving a Honda at one of our local dealers was similar. We didn't buy from them because they couldn't compete on price but I'll definitely be going there for service.

 

Economics 101 teaches about supply and demand and how much you can charge for your product in a free market. For a market to be free you have to have willing buyers and sellers that are minimally controlled by outside influences. Covid did screw/is screwing up the markets. Add to that the war in Ukraine, a recession and it's going to be a while be before things are normal. Gas, electricity, medical care, have inelastic demands. Meaning prices have little effect on buying. Raise your hand if you paid over $5/gallon for gas. (everyone raises their hand) Vehicles have an elastic demand, meaning prices have a larger impact. Raise your hand if you paid a big "market adjustment" at the dealership. (not as many people raise their hand) People buying expensive gas and paying big dealer markups are unwilling buyers, something is making them buy at the higher price. A rational buyer will choose to pay less if they can for the same goods. Because the car market is elastic a lot people looked at the BS in the car markets and decided to sit this one out. "I can get another year out of the old car." That is terrible news for the traditional car sellers. A big dealer "market adjustment" fee does not go to them. They need their dealers to sell as many cars as possible. Because cars are elastic in demand I don't think we will continue to see big market adjustment fees from the dealer. There's already some pushback from the manufactures already.

 

You know, we really should force high school students to take an economics/personal finance class to understand this stuff. Maybe then we wouldn’t have people paying $10k over sticker for vehicles.

 

The test drive is only part of the experience. It's closers to buying Sony Playstation. There are options, but it really doesn't matter where you buy it, the price is the same. I personally hold no illusion that as a once every couple of years car buyer I can get a good deal from a dealer that sells more cars by noon than I will in a lifetime. At best I can get a not as bad deal.

I am 100000000% in favor of education. I attribute 60% of my success to my teachers, 30% to luck, 10% to everything else.

There are a lot of reasons why someone pay $10K+ over sticker. Fear - I won't be able to get one later. Greed - I got mine and you don't. Need - my old car blew up and I have to have something. Wealth - 10K? pfft that's chump change. Desire - I just want it. Stupidity - what does being upside down in a loan mean anyway? Education only fixes stupidity, and a little bit of fear. The rest, well economics teaches that a willing buyer and a willing seller are what determines the value of anything. Those greed, wealth, and desire folks are saying cars are worth that $10K premium.