Dealers Are Raking In Profits Buying And Selling Used Cars

The used car market is overheated, providing an opportunity.

We may earn a commission from links on this page.
Image for article titled Dealers Are Raking In Profits Buying And Selling Used Cars
Photo: Getty Images (Getty Images)

Dealers are cleaning up, Stellantis has a big idea, and Tesla. All that and more in The Morning Shift for August 10, 2021.

1st Gear: Dealers Are In A Strong Position

I will admit that, about a year ago this time, I didn’t totally grasp how the economy worked in terms of dealers and used cars: They are all pretty much coming off leases, right? Well many of them are, for sure, but also dealers buy used cars to sell them at a mark-up, which I learned only after my local Honda dealer started calling me months ago in an attempt to buy my Honda Fit.

Advertisement

I had taken it to the dealer for service off and on for years, so they knew a lot of its service history. They said it was well-maintained and worth good money and they were interested in buying it. I wasn’t interested in selling, so we never actually got to the part where they told me what the price was, but they called four or five times before giving up a few months ago.

Nowadays, of course, the used market is bananas, and the owner of my local dealer told Reuters this week that they have made quite a lot of money buying and selling cars recently.

Early this year, Brian Benstock, a Honda and Acura dealer in New York City, convinced his banker it would be smart to buy more vehicles than he could fit onto his parking lot.

The bet has paid off. Popular SUV models are getting snatched up by customers as soon as they reach his dealership. Automakers cannot build new ones fast enough because of semiconductor shortages. Like his peers, Benstock is in the happy position of applying additional charges to sticker prices.

“Dealers really don’t have a choice with supplies so low. Without the additional markups, they might find it difficult to keep the doors open,” he said.

Advertisement

Benstock is far from the only one.

While high vehicle prices cause anxiety in Washington, they are fueling record profits for U.S. auto dealers. Auto manufacturers are enjoying pricing power they have not experienced in decades.

U.S. aggregate dealer profits from new vehicles in July are projected to reach an all-time high of $5.1 billion, with average profit per vehicle estimated to top $4,200, according to JD Power.

[...]

For online used car dealer Carvana Co (CVNA.N), acquiring vehicles is less of a problem, said CEO Ernie Garcia, but the company faces a different kind of supply constraint.

“Over the last several quarters we’ve actually bought more cars from our customers than we’ve sold them,” Garcia said. “But we don’t have the capacity today to certify as many of the cars as we could buy and we have more demand than we can handle as well.”

Advertisement

Benstock gives a lot of interviews to the media, which is great for him. But when my car was at his dealership a few weeks ago for a recall, I heard nothing about it for two days and tried to call the dealership and was put on hold for 30 minutes and then finally got through to a call center who didn’t know anything about it, either. I then gave it another day and did the whole routine again, before asking the call center for the actual number to the dealership, called that and was told, “Oh, yeah, right, uh, we had to order some parts or something, it’ll be a few more days.” Then, out of frustration, I messaged Benstock, which is not something I ordinarily would do, as asking to speak to the manager is lame and usually pointless. I will give you one guess as to whether he responded. No, I’m not still mad about it, but I am peeved that Benstock pretends his dealership is any good.

2nd Gear: Dealers Doing Just Fine In The UK, Too

Dealers in the U.S. like to pretend that their business is so tough all the time, which is funny because they are protected by franchise laws, though maybe that is a universal thing. The Financial Times reports that dealers in the U.K. are “relieved” over the recent used car boom. Used car sales there were the most in the second-quarter ever.

The global chip shortage has constricted the supply of new cars but boosted purchases of used vehicles, which doubled to about 2.17m units in the three months to June compared with the same period a year ago, data from the Society of Motor Manufacturers and Traders showed on Tuesday.

Mike Hawes, chief executive of SMMT, said the results were a relief for car dealerships whose businesses have been hit by Covid-19 restrictions.

“More motorists are turning to used cars as supply shortages continue to affect the new car market and the increased need for personal mobility with people remaining wary of public transport as they return to work,” he said.

Sales of second-hand cars in the last quarter surpassed pre-pandemic levels by 6.6 per cent but were roughly similar to the period from July to September 2020, when restrictions from the UK’s first lockdown were lifted. Summer is one of the busiest seasons for used car transactions.

Advertisement

3rd Gear: Driverless Cars And Jobs

It seems fairly obvious that our possible driverless future will cost many people their jobs, but that is still a long ways away and not even a sure thing that we’ll ever get there to begin with. In any case, Bloomberg says that some jobs will actually be created in the process.

Today, autonomous vehicle companies are starting to flesh out plans to commercialize self-driving technology. As they progress, some say many new types of AV jobs will be created. It’s too early to assess whether the jobs will be a net positive or negative for wages and employment in the transportation sector, but they do offer a glimpse into the future. One example is remote vehicle operators — these are the people who sit in front of video screens and communicate with robot cars for a living.

There’s a lot of jargon used to describe these jobs — tele-operators, remote assistance drivers, tele-assistants — but the main thing the AV companies want you to understand is that they are not remotely driving the car from a gaming console somewhere. The operators respond to questions from the car’s brain when it can’t figure out how to handle a situation: Is that car parked, or about to move? Is there room to navigate around roadway construction?

AV companies are embracing these roles and betting they are going to need them for a long time. Waymo uses remote human operators. So do Aurora, Zoox, Cruise and Argo AI. Motional, the joint venture between Hyundai and Aptiv, plans to offer robo-taxi services with Lyft in U.S. cities starting in 2023. Last month, it signed a multi-year contract with an Israeli startup called Ottopia, which sells software that allows automated vehicles to communicate securely with human sitters, IT technicians, or customer service reps.

Remote vehicle assistance “will be an important part of our mass deployments for the foreseeable future,” Laura Major, Motional’s chief technology officer, told me in an email.

Advertisement

A lot of this, it seems like, is companies doing one thing while trying to convince you that they are doing another, but the jury is very much still out.

4th Gear: Tesla’s Most Recent Results In China Are Bad

Tesla is in China because China is the world’s biggest car market, but its road there has been real bumpy this year. Bloomberg said Tuesday that in July, Tesla’s results were bad, if not totally unexpected.

Elon Musk’s electric-vehicle pioneer reported domestic China shipments of just 8,621 units in July, a 69% plunge from June when Tesla’s Shanghai factory shipped 28,138 cars to the local market. Exports however soared to 24,347 versus 5,017, with most of those vehicles destined for Europe. That meant overall Tesla China shipments in July decreased just 0.6% to 32,968.

[...]

Tesla is facing fiercer competition from local EV startups like Nio Inc., Xpeng Inc. and Li Auto Inc., which has just raised $1.5 billion in its Hong Kong listing that will help fund research and development and infrastructure expansion. Li Auto delivered 8,589 cars in July, while Xpeng sold 8,040 vehicles last month. Nio delivered 7,931. It’s the first month that domestic upstarts have recorded similar deliveries to the American giant.

“Tesla tends to be aggressive in exports regardless of the domestic market in July,” PCA Secretary General Cui Dongshu said during a briefing Tuesday. “The fact that Tesla’s domestic deliveries didn’t reach 10,000 is normal and fine.”

Advertisement

5th Gear: The National Transportation Safety Board Has A New Chair

Jennifer Homendy has been on the board since 2018. She was confirmed by the Senate on Monday.

Advertisement

From Reuters:

She was the on-scene board member during the investigation into the January 2020 helicopter crash that killed Los Angeles basketball great Kobe Bryant, his 13-year-old daughter and seven others, as well as a September 2019 dive ship fire that killed 34 people off the California coast.

Homendy previously has criticized the National Highway Traffic Safety Administration for failing to ensure that driver assistance systems or nascent self-driving vehicles are safe. In an NTSB probe into a fatal March 2018 Uber self-driving crash, Homendy said NHTSA had “put technology advancement here before saving lives.”

Advertisement

Reverse: Pinto

Advertisement

Neutral: How Are You?

I ordered an entire Peruvian chicken for dinner last night, along with some sides. It was an extremely good decision.