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With Fewer Chips, Automakers Are Prioritizing High-Markup Vehicles, Offering Fewer Deals (msn.com) 62

Posted by EditorDavid from the demand-on-supply dept.
When automakers were forced to make fewer vehicles with the chips they had available, Business Insider reports that "Naturally, they chose to prioritize those models that had the highest demand and made them the most money.

"At the same time, the reduction in the supply from all brands meant that dealers could make a sale without the traditional haggling over the vehicle's sticker price. The result has been a boon for automakers." Mark Wakefield, a consultant with AlixPartners in Detroit, told Bloomberg that US car companies were now making $3,000 more per car than average, as well as up to $10,000 more on certain pickups and SUVs.

One dealer who sells upgraded pickups in Ohio told Morning Brew that his dealership recently closed a deal in 52 minutes that would have taken four hours before the chip shortage. "The surprising part is the average selling price on those trucks is close to $100,000, and the consumer demand has still been sky-high," the dealer said.

Jim Farley, Ford's CEO, said in June that this new pricing power was "breathtaking" and indicated that the company wouldn't be returning to the days of guessing over how many cars it should produce and then marking them down until they sell. Mary Barra, GM's CEO, has also said that customer orders will play a larger role in her company's production strategy. Kevin Tynan, an auto analyst for Bloomberg, told Insider earlier this year that the industry has been trying to get off the incentives and discounting model for decades. "They don't totally hate this," he said, referring to the shortages. "Moving forward you're probably going to get an industry more like what we're seeing now, where supply is a little bit more managed, and incentives are not as aggressive as they've been."
The article summarizes the prediction of the Bloomberg auto analyst: "Good news for automakers and investors, but that also means consumers can expect to continue to see fewer options, higher prices, and a tighter used-vehicle market going forward."
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With Fewer Chips, Automakers Are Prioritizing High-Markup Vehicles, Offering Fewer Deals More

With Fewer Chips, Automakers Are Prioritizing High-Markup Vehicles, Offering Fewer Deals

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  • what about stop dicking around and just list the price at the dealer?

    • It almost makes you think that a lot of these supply constraint articles are all BS. If car makers are making more per unit but 10x less sales, their their profits should drop. If their profits aren't dropping with the supply constraints, then they are lying about it to trick people into paying higher prices and buying higher cost models.

      • Re: what about stop dicking around and just list p (Score:5, Informative)

        by phalse phace ( 454635 ) on Sunday October 10, 2021 @01:36AM (#61876859)

        It almost makes you think that a lot of these supply constraint articles are all BS. If car makers are making more per unit but 10x less sales, their their profits should drop. If their profits aren't dropping with the supply constraints, then they are lying about it to trick people into paying higher prices and buying higher cost models.

        What are you looking at that shows their profits aren't dropping?

        Let's use Ford as an example. Their most recent quarterly result was for 2nd quarter of 2021, so we'll compare that to prior 2nd quarter results.

        - 2Q 2016 [q4cdn.com]: revenue $39.5 billion, net income $2.0 billion
        - 2Q 2017 [q4cdn.com]: revenue $39.9 billion, net income $2.0 billion
        - 2Q 2018 [q4cdn.com]: revenue $38.9 billion, net income $1.1 billion
        - 2Q 2019 [q4cdn.com]: revenue $38.9 billion, net income $0.1 billion.
        - 2Q 2020 [q4cdn.com]: revenue $19.4 billion, net income $1.1 billion.
        - 2Q 2021 [q4cdn.com]: revenue $26.8 billion, net income $0.6 billion.

        $0.6 billion net income for 2Q 2021 is a lot less than the $1.1 billion for 2Q 2018 and 2Q 2020. It's also a lot less than the $2.0 billion from 2q 2016 and 2Q 2017 ( net income for 2Q 2019 took a hit because they were restructuring their businesses in Europe and South America [cnbc.com] )

        Revenue for 2Q 2021 and 2Q 2020 is also a lot less than the normal $38 billion+ they did during 2nd quarter fror years prior to the pandemic.

      • Re: what about stop dicking around and just list (Score:4, Informative)

        by e3m4n ( 947977 ) on Sunday October 10, 2021 @06:55AM (#61877233)
        Their profits are dropping. What you are seeing is a mitigation of losses by building cars with the highest trim levels in order to increase the profit margins. My wifes lease ran out on her Rav4 and she had decided more than a year ago that she was going back to a Highlander for the leg room on road trips. There was one problem; there just wasnt any highlanders on any car lots. In fact the 7 toyota dealerships within a 2hr drive collectively had 8 new cars across all models of cars in the toyota family. Highlanders are selling before they even reach the car lot, sight unseen. Any car that makes it to a lot unsold sells within 24 hrs. Its a sellers market. Yet its not a great time to be a salesman as all of them at the dealership sell two cars for the lot per day and split the commissions.

        These models are at a very high trim level. Not the L, the LE, but the XLE. The hybrid line was also months away before the dealers see another one of those. At this point your lucky to get the XLE without AWD.

        The problem with the high trim levels with its keyless start, remote start, Qi wireless cell charging, heated seats, stitched leather seats, third row seating, sunroof, etc, is that while increasing its sticker price, it does little to residual value down the road. You do get a little boost on trade-in value for the sunroof type features, but the overall depreciation is higher. So in essence the consumer might be taking on a higher trim level because they were left with few options, they are, in fact, financing the mitigation of overall losses in sales.

    • Manufacturers are not allowed to set consumer prices, though. They can just set a "Manufacturer's Suggested Retail Price (MSRP)".

      Many states forbid direct sales of cars and other motor vehicles to prevent price fixing. Look at where Tesla cars cannot be sold; those states probably have a law forbidding direct sales, to protect dealerships.

      • Re: (Score:2)

        by Bert64 ( 520050 )

        But they do set wholesale prices, so it is the dealer that profits from a higher price not the manufacturer.

      • Re: (Score:2)

        by Kremmy ( 793693 )
        This almost sounds like they're about to follow Tesla's lead.
  • In other words, they dream of an OPEC-like cartel.
  • Production rates of vehicles are somewhat influenced by labor and somewhat influenced by the cost of idled production lines. I think they're going to have some serious labor issues if they make this permanent, and that's disregarding the damage the auto market is doing to the consumer market with massive inflation in used car prices and moderate inflation on new car prices(both in real cost and in reduced incentives). It's not sustainable
  • The effect of supply and demand on pricing of finite resources with alternative uses continues to surprise no one.

  • Bet their resolve doesn’t last (Score:4, Interesting)

    by 93 Escort Wagon ( 326346 ) on Saturday October 09, 2021 @11:12PM (#61876665)

    This will only work if all companies go along and are willing to have a static market share. The moment just one company breaks rank, the rest will fall over with breathtaking speed.

    But, right now, it’s definitely not a great time to buy a car (as we experienced first hand, right after my wife’s 2003 Santa Fe blew a head gasket on the freeway).

    • Is the average age US car dropping? As a non-US person, one is astounded by the demand for thirsty 8 seat SUV's usually driven by one. In Europe, with highly taxed fuel, smaller cars are the go. Also on street parking is almost impossible these days, and parking skills have to be up there with Singapore drivers. Every new car sold = One used car to offload. I speculate excessive demand is caused by too easy credit, meaning those not paying cash pay a higher sticker price. So were are these used cars going

      • Re: (Score:2)

        by Kremmy ( 793693 )
        The streets are full of those massive SUVs, usually with all kinds of flashy add-ons like the wheels that have bolts all around the bead of the tire. People crave it.

      • Re: (Score:2)

        by Luckyo ( 1726890 )

        "I live in a large city, and I think that large cities are all that exists!" - The post.

        In real life on the other hand, small city cars are a tiny minority of cars sold.

    • Re: (Score:2)

      by fermion ( 181285 )
      In the US the auto manufacturers have been pretty lockstep. They produce cars to meet fleet efficiency requirements for fuel consumption, otherwise they leveraged the e epitome created to meet the needs of incompetent farmers. This resulted in SUVs created out of cheap metal and ancient cheap engines. High profit, low cost.

  • Moving forward you're probably going to get an industry more like what we're seeing now, where supply is a little bit more managed

    yep, a cartel.

  • in the used car market ?

    • in the used car market ?

      Turns out that old adage that vehicles only go down in value and drop 20% when you drive them new off the lot isn’t true anymore. Happened to buy a newer used vehicle December 2019 and it’s now worth almost 20% more than I paid for it. Considering I’ve been keeping my vehicles a decade or two at this rate it looks like I’ll have a few hundred thousand extra dollars I hadn’t counted on.

    • Prices have skyrocketed. Used car values in my area (Humboldt) have literally doubled in many cases, especially for high-demand vehicle segments like older 4x4 pickups. This is a great time to sell a car, and a terrible time to buy one (of basically any description.) I got my pickup (non-rusty 2006 F150 XL SC LB 4x4 w/ Max Payload and a fresh timing chain job) right before the chip shortage started to affect automakers, and I'm seeing similar trucks go for literally half again or more now.

      Total beaters have

    • One factor: supply surge in 2020 as rental companies sold cars that people were not renting, then demand surge as people bought used cars for price or availability. In 2020 there were photos of the area around Kahului airport, Maui, with idled rental cars parked bumper to bumper. Now we read that rental cars are scarce and expensive on Maui.

  • One dealer who sells upgraded pickups in Ohio told Morning Brew that his dealership recently closed a deal in 52 minutes that would have taken four hours before the chip shortage.

    That would happen a lot more often if credit checks happened faster in the dealership.

    • One dealer who sells upgraded pickups in Ohio told Morning Brew that his dealership recently closed a deal in 52 minutes that would have taken four hours before the chip shortage.

      That would happen a lot more often if credit checks happened faster in the dealership.

      The "making them sit and wait a while" is part of the sale. The salesman isn't doing a credit check at all, he's having a coffee. When he finally comes out you're so tired/annoyed that you can't be bothered to haggle over $200 any more (but he can - he practices it every day).

  • With all the hubbub about these shortages I have to wonder when an automaker is going to take the initiative to build simpler machines that have less reliance on specialty components like chips. I bought a particularly old truck to avoid the entirety of the overcomplicated electrical systems in more modern vehicles. There are people who have real desire for simpler and more reliable builds that won't be caught non-functional because a chip that you can't get burns out. Use the modern advanced design tools t
    • There are many reasons why engines have electronic ECUs: temperature, air pressure, variable fuel quality, fuel injection⦠The result is that a mechanical control system cannot get very good fuel consumption.

      • A fully mechanical diesel can get really good efficiency (within a few percent of a modern one) and even not smoke much except under the same conditions where a new one would, but it will emit a bunch of NOx doing it. Otherwise totally true.

  • Does this mean that suburban 'Muricans are having to make do without buying a great big shiny new gas-guzzling monster truck every 3 years or less? Oh noes! It's a crisis!

    • Re:Oh noes! (Score:5, Interesting)

      by DarkOx ( 621550 ) on Sunday October 10, 2021 @06:45AM (#61877223) Journal

      You say that but it kind of could be. Part of the selling model for cars in the US assumes the consumer is somewhat price insensitive. It used to be auto loans were 12 or 24 months. Now the norm is probably 36 months and they go as long 60.

      Most buyers don't really care about the sticker they care about what it will cost them monthly. Most of the 'new car market' does not keep cars beyond five years. So the model is they trade their 5 year old or newer ride and pass it onto the use market at the time they buy their new one. There is a lot of equity in it, to retire the old loan and decrease the principle on the new one.

      Now what happens when buys are pushed into higher stickers now with finance incentives, the price of autos comes back down destroying their equity, when they go to do the next transaction? They are going start with higher principles on the new loan even if the sticker is lower. Because most of the residual value will go into covering the old loan. These people don't realize it but they locking themselves into higher costs for not just one cycle but at least two. This will drag suburban American discretionary spending for a decade.

  • At one time in the recent past, No car had a chip! Shocking to many /. readers but true nonetheless.

    Surely GM, Ford, and other auto manufacturers still have the plans? How hard is to pull these older plans out and adapt them to cars today?
    Sure, they might not have all the electronic gadgetry but generations lived their lives and drove their cars without electronic. Things were also simpler to maintain, repair, and upgrade.

    Sure it might take some time but the chip problem and the pandemic will likely

    • Re: (Score:1)

      by DewDude ( 537374 )

      How long ago do you think that was? Trust me....cars have had digital circuitry in them since the early 80's. Those cars were not very fuel efficient and did not run well. Not to mention most of the regulations require safety systems that demand chips. I mean it's current regulation that cars HAVE to have TPMS in them...that's just the fuckin tires.

  • Everyone left the cities at the beginning of the pandemic....now they'll have to return when they can't afford transit.

    • Re: (Score:2)

      by Gonoff ( 88518 )

      Everyone left the cities at the beginning of the pandemic....now they'll have to return when they can't afford transit.

      How much transit do they need for WFH?

  • A while back I started a new position with a large multinational company that includes quite a bit of driving for me, hence they provide a leased car to me as part of the package. We don't get a lot of say in our cars - generally the trim level is dictated by the company - but we do get to pick the color combination. However with the shortages on the line, the company we lease through had to resort to shopping local dealerships for new cars that match our color requests and meet or exceed the company's tr

  • Wasn't Musk excoriated on /. about 100 times for doing this?

  • I've been looking to get a vehicle to replace my wife's lease that is ending, but every GM/Ford dealer I've been to is adding $10-15k over MSRP and one Cadillac dealer I went to was adding $60k over MSRP... I may be desperate, but I'm not stupid.
  • I was considering buying a work van but no one would give me a price or even a delivery time. They all wanted me to come in and test drive one... I have driven one of the vans for the last 8 years, a van is a van! Find out that they are trying to move high mileage used vans with new paint for lots of money. So I found the guy they were buying them from and got one of the used vans for about $10,000.00 less than the dealer was trying to off load them and a fresh coat of crappy paint! Still, $15,000.00 f

  • Perhaps it is because I am not in the USA but what people want is not necessarily the most profitable item. I have no interest in buying something that costs >$100,000 but could be very interested in something a quarter of that.

    I have been told that, in your country, a car has the primary function of being a statement about how we you are doing in life. I don't know if that is true but, on this side of the pond, the primary function of my car is to take me to work. Other tasks include social and leisu

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