It's A Seller's Market And Dealerships Are Raking It In

Illustration for article titled It's A Seller's Market And Dealerships Are Raking It In
Photo: Getty Images (Getty Images)

It’s a great time to be a dealer, Teslas cost more because materials cost more, and Joe Biden. All that and more in The Morning Shift for June 1, 2021.

Advertisement

1st Gear: Dealerships, Which Everyone Loves, Are Doing Fantastic Business

I will preface this item by saying that car dealers are basically Automotive News’s core demographic, so it makes all the sense in the world for Auto News to write a story about how amazing a time it is to be an automotive dealer right now. Still, this story from Monday does track with recent history in that it seems like it’s going to be a seller’s market in cars for a good long while.

The reason: we’re still in the midst of the chip shortage. It has squeezed new car inventories, which has piled more pressure on the used market. If you buy a car right now, you are not necessarily a mark, but also you might be.

“Dealers are exceptionally profitable right now,” said Tyson Jominy, vice president of data and analytics at J.D. Power. He pointed to figures released Friday, May 28, that show total retailer profit per unit, including grosses and F&I income, is on pace to reach an all-time high of $3,245 — more than double the $1,567 earned a year earlier. Grosses have exceeded $2,000 for nine of the last 10 months, according to J.D Power.

Automakers generally discourage raising prices above the MSRP, but they acknowledge that dealers are independent retailers that set their own prices based on local market conditions.

“GM and its brands do not approve of this practice,” the company said in a statement.

“However, dealers are independent and control local market prices. While temporary fluctuations may occur, our observation is that pricing for most models remains relatively consistent.”

A casual perusal of online new-vehicle listings shows several mainstream models — such as Ford F-150s and Kia Tellurides — offered for well over the sticker price. Some may have aftermarket add-ons that are not accounted for in the MSRP.

Of course, on the record, dealers talk a big game about being the good guys.

Asbury Automotive Group CEO David Hult said it’s a rare moment in time when demand is far outpacing supply.

“Oddly enough, and I don’t have insight, I don’t know this, but my gut would tell me those folks that are selling well above sticker are probably finding buyers for the car,” Hult said last month. He added that the group seeks to treat customers the same in good times and bad.

“We’re here for the long run, and it’s more about the relationship,” he said.

“So we just choose not to do it that way. It’s not really judging them or what they’re doing. It’s just not right for us.”

Advertisement

Most people after they’ve purchased a car manage to convince themselves that they have outwitted the dealer in some fashion, which is probably some kind of survival instinct. It’s not that dealers are particularly clever; it’s more that the deck is stacked against car buyers even in the best of times. Be careful out there.

2nd Gear: Also: The Chip Shortage Might Be Easing

If you want to buy a car right now, you should probably just wait a few months, because seller’s markets always eventually reverse. And also because there is some evidence that the chip shortage is easing. GM, for example, is restarting production at some plants after shutting them down because of chip shortages.

Advertisement

From Automotive News:

“It does suggest that things are improving — an early indicator that the industry maybe is starting to get on the other side of this,” said Jeff Schuster, president of global forecasting at LMC Automotive.

GM last week said only one plant — Fairfax Assembly in Kansas — would remain down because of the chip shortage beyond July 5. Fairfax, which has been down since Feb. 8, builds the Chevrolet Malibu and Cadillac XT4. CAMI Assembly in Ontario, which builds the Chevy Equinox and also shut down Feb. 8, is scheduled to reopen June 14 but pause for a previously scheduled two-week summer break in July. GM’s midsize pickup plant in Wentzville, Mo., went offline last week until mid-July for a model-year changeover.

GM’s aggressive restart plans affirm the bullishness the automaker showed this month when it reported first-quarter net income of $3 billion. Its projection of a swift rebound from the chip crisis contrasted with Ford Motor Co.’s warning that profits would be limited for the rest of the year.

GM’s optimism could be driven by early planning and a potential outsourcing of chips, analysts said.

Advertisement

3rd Gear: Toyota’s Hydrogen Party Trick

Toyota has a hydrogen-combustion racecar that sounds pretty good, and which it put through its paces last month. Automotive News was there for it. Toyota still apparently thinks hydrogen combustion is part of the future, which is a little dubious, but I appreciate the effort.

[Toyota president Akio Toyoda’s] message here was as loud as the engine’s redline wail: Policymakers should butt out of dictating battery-electric vehicles, because myriad other technologies — including combustion — can be green and clean.

“The ultimate goal is carbon neutrality,” Toyoda said after completing the Fuji Super Tec 24-hour endurance race, where he rotated behind the wheel with five other drivers. “It shouldn’t be about rejecting hybrids and gasoline cars and only selling fuel cells and battery-electric cars. We want to expand the choices available in the path to carbon neutrality. This is the first step.”

To skeptics, Toyoda’s May 22-23 run in the foothills of Mount Fuji may seem like a desperate last stand for a technology on deathwatch. Or a fig leaf for Toyota’s slow, seemingly reluctant shift into battery-electrics, as competitors at home and abroad invest billions into EV-only futures.

But seen another way, Toyota Motor Corp. is opening a new front in the war on greenhouse gas emissions. Toyota believes technological breakthroughs, such as this one, can give internal combustion a new lease on life — saving jobs as well as the environment. It is a debate over the best road to net-zero carbon, with a pushback against government mandates that reflexively phase out internal combustion in favor of EVs.

Advertisement

Akio Toyoda is 65 and still out here racing cars, god bless him.

4th Gear: Teslas Cost More Because Of Price Increases On Materials

Or so CEO Elon Musk says. Tesla prices have gone up in recent weeks on some models, as part of an alchemy that is probably impossible to understand, because it’s hard to take anything Musk says at face value.

Advertisement

From Reuters:

“Prices increasing due to major supply chain price pressure industry-wide. Raw materials especially,” Musk said in a tweet.

He was responding to an unverified Twitter account called @Ryanth3nerd, which said, “I really don’t like the direction @tesla is going raising prices of vehicles but removing features like lumbar for the Model Y...”

[...]

In response to the removal of lumbar support on the passenger side in Tesla’s Model Y, Musk said, “Moving lumbar was removed only in front passenger seat of 3/Y (obv not there in rear seats). Logs showed almost no usage. Not worth cost/mass for everyone when almost never used.”

Advertisement

He was responding to an unverified Twitter account called @Ryanth3nerd.

5th Gear: Cruise Lobbying

Cruise, the (striving) autonomous outfit that GM owns the majority of, has asked the Biden administration to ease rules on autonomous car testing in the U.S. This is because we are falling behind China, or so Cruise claims.

Advertisement

From Reuters:

The chief executive of Cruise, Dan Ammann, in a letter to Biden dated May 17, asked him to back legislation raising the cap on the number of vehicles that a company can seek to have exempted from safety standards that do not meet existing federal requirements that assume human drivers are in control.

The cap, Ammann wrote, “acts as a U.S.-only impediment to building these vehicles at scale in the United States.” Cruise provided a copy of the letter to Reuters.

“China’s top down, centrally directed approach imposes no similar restraints on their home grown AV industry,” Ammann wrote. “We do not seek, require or desire government funding; we seek your help in leveling the playing field,” he said, citing research that AVs are “estimated to create and sustain 108,000 jobs over the next five years.”

The White House declined to comment on Monday.

I’m not even sure that Cruise is confident it will get to autonomy even with fewer rules, as the whole proposition seems dodgy.

Advertisement

Reverse: Nissan

Advertisement

Nissan pre-Carlos Ghosn was the most neutral of the East Asian manufacturers; it was hard to feel anything about them. A fourth-generation Sentra, for example, was a perfectly fine car that, if you had any sort of opinion about it, it was most certainly, “Meh.”

Neutral: How Are You? 

It rained all weekend in New York, which was great weather for Belmont Park on Saturday. I lost $40 betting on the ponies. Most normal I’ve felt yet.

News Editor at Jalopnik. 2008 Honda Fit Sport.

DISCUSSION

Saigon_Design
Saigon_Design

1st GEAR: When will the used/new car market go back to normal? I’m considering selling my car as pricing is quite attractive and I’m WFH for the foreseeable future, but if I need to buy a car later, I don’t want to be stuck.

3rd GEAR: I’m a Toyota fan, so take this with a grain of salt. I agree with Toyota - there are multiple paths to clean energy, and they may have looked far  in the future to see how battery demand will impact raw material cost, and decided hydrogen is a cheaper alternative. We’ll have to wait and see, but hydrogen seems to be in-line with Japan’s needs.

4th GEAR: OK, it’s Tesla. I’ll bite. So many questions.

- Don’t companies have pre-negotiated contracts for materials and parts that are built into the price? Seems like Tesla is ordering at retail what they should’ve been buying at wholesale, no? This doesn’t speak well of their supply-chain/logistics team if they can’t factor in costs and risk-analysis.

- How and why are they tracking lumbar cushion usage? If the cushion is that expensive, what about the sensor monitoring its use? While I admire the attention to analyzing customer use, I’m not sure this is where Tesla should be focusing their efforts.