Are you thinking about buying a car? Kimberly Walker, a mother of two in Columbia, S., can tell you exactly what it's like today. She recently found herself having to buy two vehicles at opposite ends of the market. She wanted a state-of-the-art electric Audi and, after looking around, was able to find a used 2021 Eton at a local dealership.
The price? A staggering $68,000 with no trading margin. “We went back and forth. We were there for four hours,” he says. “They didn't budge on that price. For her teenage daughter, Walker was looking to spend just a few thousand dollars on an old car. The experience was no better. For four months they tried with private sellers and kept losing bidding war after bidding war. Car Max didn't have a single option under $15,000. Eventually they found a car. There was only one problem.
"We ended up buying a 2009 Toyota Camry that wasn't actually running at the time," Walker says. "But the mechanic agreed to put in a new engine and gave it to us for $3,500. Buying a car has been a frustrating experience over the past year as automakers continue to struggle to finding computer chips and other essential materials due to tangled supply chains Unfortunately, that hasn't improved.
The University of Michigan has been surveying consumers for more than 50 years and asking whether they think now is a good or bad time to buy a car. Today, more people are saying it's a bad time than ever in the history of the polls. And for people on a tight budget, it becomes a real crisis. According to Kelley Blue Book, the average used car is now selling 42% more than before the pandemic. They're looking for the traditional $10,000 or $12,000 car that's got, you know, 95,000 or 105,000 miles - those people are going through a really tough time in that market right now,” says Matt Jones, TrueCar's chief communications officer. Are always of concern.
The auto market is still shaky after the pandemic completely upset the balance between supply and demand. Automakers have had to cut production as they struggle to find critical materials like chips, shorting the age of vehicles that has had ripple effects in new and used markets, and that's not the case. It's not just the number of vehicles they produce, but also the type. Automakers have responded to shortages by focusing on their most profitable - most expensive - cars. Compared to a few years ago, companies are producing fewer entry-level sedans and crossovers, and more luxury vehicles, SUVs and pickup trucks, all with extravagant features. This trend predates the pandemic, but the chip shortage has dramatically accelerated it.
"The companies have made a final decision that says, 'If I have that many chips, I'll put them in my most expensive models,'" Volkswagen CEO Scott Keogh told NPR in January. This drove up average new vehicle prices dramatically, and as people who decided to ditch new cars turned to used cars, every car buyer felt the impact. But it's a good time to be an automaker. Focusing on more expensive cars has been good for automakers' profits. Tesla and General Motors posted record profits last year, and executives largely focused on higher-margin vehicles like the Model Y for Tesla and full-size pickup trucks for GM. Ford had its best year since 2016, citing "strong mix," which is corporate jargon for a higher ratio of more profitable vehicles. It's also been good for unionized autoworkers: They'll get hefty profit-sharing checks — up to $10,250 for GM workers.
Dealerships also benefited. The rarity of vehicles flying out of the lot, and they too benefit from the transition to the top of the range. "It's very easy to operate as a car dealership in this environment," says Arnaldo Bomnin, CEO of Bomnin Automotive Group, a Miami-based dealership group. His company just generated $1 billion in annual revenue for the first time ever. How long can the car market stay like this? The reverse auto market has been so positive for automaker margins that it raises questions about whether some changes will become permanent, even when chip supply chains return to normal. (As for when that will happen, optimists believe the slump will ease in a few months, while pessimists also predict shortages next year.
Auto executives told investors that these very fruitful months had made them realize that they could produce too many cars before. At one point in 2019, there were 4 million cars waiting to be sold; the current stock is around one million vehicles. Offering volumes higher, lower prices and more options.
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