Interesting Article on Prices

https://www.cnn.com/2022/02/19/business/car-buyers-sticker-shock/index.html

Most interesting are the comments from the AutoNation CEO towards the end of the article. It appears the hope of dealerships is that once supply gets closer to normal, the new "floor" on price will become MSRP and the days of discounts below MSRP and big manufacturer's incentives will be a thing of the past. Seems like they think we will be so happy not to pay market adjustments any more that we will accept MSRP as the new normal.

 

Why would anyone pay a mark up?

I can see if you need a vehicle and don't have choice.

If manufacturers get rid of incentives, how are they going to sell people more vehicle than they need?

 

But I have to believe that at some point, the need to compete with their rivals will kick back in. It's like the gas stations that sit across the street from each other; one drops their price by a penny to attract customers, then the other one responds.

God, I love the smell of capitalism in the morning!

 

The big problem here is people are still willing to buy: “Demand is through the roof, and supplies are historically tight,” said Ivan Drury, senior manager of insights for Edmunds. He said if a buyer isn’t willing to pay above the sticker price, the dealer can be confident there will soon be another buyer who will.

@Buck Henry is right. It's capitalism at it's finest. Why are dealers charging premiums over MSRP? Because they can, and people will still buy. They'd be crazy not to charge what the market will bear.

 

This^^^. Dealerships can “hope” for anything but the free market will dictate their actions based on supply and demand. If every Toyota Dealership for 100 miles has 30 Tacoma’s aging on their lots...the prices will fall. Not sure that will happen any time soon, but it will eventually.

 

True, but the market isn't going to last. Just like all of the other inflated marketing bubbles, this one will burst.

 

Once interest rates go up, sales will drop off. Eventually, dealers are going to have to start giving discounts to move vehicles. When that happens, is hard to predict but it will happen eventually.

 

Once supply gets back up people won't pay markups and dealers will have to start undercutting one another again. It's just some asshat CEO trying to get people/buyers to believe they aren't the ones with all the power/leverage in normal circumstances.

 

This mess will take a half a decade to completely sort itself out. Every dealer in my area save for a couple threaten price increases constantly as means to get people to buy whatever is on their lot.

The only way to beat that shit is not to give those types your business and instead buy from the dealers without any bs markups. But if ~”80%” of the buyer pool is paying markup it’s not something that will change soon and dealers know it.

Quite honestly, leading up to the pandemic, dealers had not been giving a shit about price negotiating unless you played some serious hardball or walked out. Used dealers included. And Covid only affirmed that position.

 

It's insane. I actually just bought a used 17 Tacoma yesterday and the dealer was making a huge deal about them not asking over MSRP on new cars. Of course I paid about 4 grand more than I would have pre-pandemic for the truck but I got more for my 4Runner trade in too.

 

I work for a pretty large bank, and word is that interest rate hikes are finally going to happen. Last I heard, the FED had 7 rate hikes planned. Bad news for borrowers but great if you want to put money back in a safe vehicle like a money market account and actually make some (relatively) risk free money.

 

Yep, I'm hearing a full point jump coming in the next 2 months. If that happens, sales will drop. If it's I crime talk, 7 hikes will be 2 points - that's a huge difference from now. Most people won't be able to afford a $50k truck at 5%.

 

I was in for service at my dealer earlier this week and overheard the sales manager trying to talk someone waiting for service into trading up. When the customer raised an objection to the mark-up, their way to overcome it was to tell him that yes, we are charging 10% over MSRP but we are giving you a lot more for your trade, so the net result is a wash. When I left the customer was still thinking about it and talking to sales.

We have the power collectively to combat this market if everyone who didn't absolutely need to buy now simply waited. When their sales fell through the floor their tactics would change, but right now dealers are making record profits because people are willing to buy anyway.

 

Will rate hikes cause a sell off of crypto?

 

Not sure I agree with you. As of today, the Fed has not raised the rates that banks pay for money. But banks have already increased mortgage rates significantly (from 2.7% in Jan to almost 4% now). Pure profit. But they have not increased the rates they’re paying depositors. I can assure you, the rates borrowers pay will go up long before you see an increased rate on deposits.

 

That's a damn good question and I am afraid I really don't know! Large financial institutions like the one I work for have resisted dipping their toe into the crypto pool as it is still kind of "out there" from the mainstream currency market perspective.

And for you Crypto fans, don't crap on my pancakes here! I am not knocking Crypto, I am just saying it is still kind of fringe right now and most major banks are taking a wait and see attitude.

 

Well, I guess we shall see! I am just passing on what I am hearing, and my intel is coming from a pretty good source. But you never know with the FED! They are notorious for saying one thing and then doing another.

 

Agree...but in either case, banks have already used the gossip to raise rates and pad profits.

 

Agree that the market will eventually correct these "adjustments" from dealers, but it's going to take a longer time than most people think. Demand is still crazy and the chip shortage has not been fixed yet. And it isn't just vehicles... Appliances, electronics, building materials, etc. are still out of whack. Raising interest rates will help cool things off a little bit, but the rich keep getting richer and they'll pay whatever it takes for popular items like a Tacoma. Much like the housing market, interest rates don't matter much when buyers are paying cash.

 

Banks are also anticipating rate hikes from the Fed, which are basically guaranteed at this point.