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Opti
Opti Dork
12/30/21 10:57 a.m.

In reply to Mr. Peabody :

One of the Camaros I looked at seemed to be a little above what I was seeing elsewhere and needed a little work. When talking to them they said they couldnt move on price and they couldnt do any repairs, it was as is at the price listed. The sales manager admitted they paid way too much on it, and priced it as close to competitive as they could and had no margin. I told him I was buying in the next day or two and I could get a lower mileage one for less, if he couldnt do anything for me, and he let me walk.

Maybe it was sales bs but I was surprised they let me walk after going over financials.

What im seeing around here is the dealer prices goes up, which drives the private party prices up, which drives the dealer prices up and on and on and on.

I know people that are buying new cars at sticker and selling them used to vroom/carvana less than a year later for more than they paid

 

 

Fueled by Caffeine
Fueled by Caffeine MegaDork
12/30/21 11:07 a.m.

Guy I workout with is a supply chain guy for a manufacturer.  
 

he is thinking about reshoring all manufacturing.   I doubt they can meet their price points and margin goals as required by the board. 

SV reX
SV reX MegaDork
1/12/22 4:49 p.m.
codrus (Forum Supporter) said:
SV reX said:

I think this is the new normal. Manufacturers will continue to make profits on lower production numbers, and cars won't be sitting on lots. 

Nah.  You can't keep prices high by artificially constraining supply without collusion between the manufacturers and there's no way to make that actually stick (as in be a legal contract) without provoking the ire of the anti-trust divisions of a half-dozen governments.

I had an interesting conversation today with a dealership General Manager that made me circle back to this. 
 

He's the GM of a BMW dealership, part of an ownership group that sells about 17,000 cars per year. 
 

He said he's thrilled with the way things are, and has no interest in ever going back. Expenses are down, profits are up, life is good. 
 

He used to keep over 100 cars on the lot. With $10 million in inventory sitting still, his interest payments were over $30,000 per month. They had to work their asses off to stay ahead of those expenses. 
 

Now, when a car carrier arrives, all but 2 of the cars are already pre-sold. When buyers come on the lot, they almost never haggle with him. They can see there are only a dozen or so cars to choose from, and they know they will sell quickly. Haggling or walking away just means they won't get their car. 
 

So, his prices are up, his expenses are near zero, and he's killing it on profits. He has absolutely no desire to go back to the way things were. 
 

And it shows in my work. I've got a year worth of work ahead of me renovating his facility. We are REDUCING his showroom space, reducing his parking space, expanding his shop space by 60%, expanding his parts department by 50%, expanding his service writers, adding AC to the Service Drive, and improving the flow of his Service Area drastically. 
 

When a man is told that high speed doors will cost $37,000 EACH, and he says "Ok. I'll take 5 for my Service Area", it's pretty clear where his priorities are. 
 

I'm sticking with my assertion. I think this is the new normal. 

SV reX
SV reX MegaDork
1/12/22 4:58 p.m.

BTW, he also said that if I had asked him 2 years ago, he never would have believed this could be the case. He believed in the old way to do business, and was convinced there was no other way. 
 

Not anymore. 

eastsideTim
eastsideTim PowerDork
1/12/22 5:04 p.m.

In reply to SV reX :

From my admittedly limited knowledge, car dealers tend to be a lagging indicator for trends.  If the dealerships are seriously preparing for a world of low inventory, custom orders, and MSRP+ pricing now, I'm even more convinced that production will catch up to and exceed demand, I just don't know when that'll be.  Probably not until 2023 at the earliest, but maybe later.

Dealers have a big incentive to keep it this way, I just don't think they have any real control over the situation, or at least not as much as they hope they have.

SV reX
SV reX MegaDork
1/12/22 5:12 p.m.

In reply to eastsideTim :

Dealerships ARE  slow. They should have done this years ago. 
 

The question at hand is if prices will drop. I'm not sure manufacturing production is directly related to price drops. 
 

Dealers are learning that empty lots sell cars, and keep prices high (and expenses low). They don't really need more info than that. 
 

I know what this company would do if production caught up with demand. They'd open another dealership to keep the lots empty and the prices high. 

SV reX
SV reX MegaDork
1/12/22 5:14 p.m.

In reply to eastsideTim :

17,000 cars per year. 2021 sales are up from both 2020 AND 2019. 
 

I think they are doing ok. 

Mr. Peabody
Mr. Peabody UltimaDork
1/12/22 5:20 p.m.
SV reX said:

I know what this company would do if production caught up with demand. They'd open another dealership to keep the lots empty and the prices high. 

Not really sure it works that way

SV reX
SV reX MegaDork
1/12/22 5:32 p.m.

In reply to Mr. Peabody :

Why not?  They do crazier stuff than that all the time. 

Erich
Erich UberDork
1/12/22 7:25 p.m.

I'm inclined to think that BMW dealership was not representative, or rather that its success may have been due to outside factors beyond simply deciding to keep fewer cars on the lot. Less than 15 million new vehicles sold last year as compared to more than 17 million in a pre-pandemic "normal" year. If there were less down-market cars available, or if the prices of those cars rose, it stands to reason that some of those buyers decided to spring for a little more luxurious vehicle instead. Another factor could be excess money in the pocket of certain well-to-do consumers. 

If and when this market crashes, a BMW dealer might have a rough go of it trying to replicate so many sales with few cars on the lot. 

Put another way, car dealers didn't even have to try at all to sell cars at record prices this year, so of course they're happy. That's not going to be the case in perpetuity. 

John Welsh
John Welsh Mod Squad
1/12/22 7:36 p.m.

I'm inclined to agree with Svrx on this one. 

codrus (Forum Supporter)
codrus (Forum Supporter) GRM+ Memberand PowerDork
1/12/22 7:43 p.m.

Fundamentally this isn't a decision that the dealership can control.  I mean, yes, they can limit the number of cars they have on their lot, but customers have a demonstrated preference for buying new cars out of inventory.  Factory ordering has always been an option and the vast majority of people choose not to do it despite being able to get better deals and a vehicle spec'd the way they want it.

Once the supply problem is fixed (however long that takes) a dealer that chooses to keep fewer cars on the lot is going to get a lot fewer sales, because the customers will flock to his competitors who have inventory.

 

Pete. (l33t FS)
Pete. (l33t FS) GRM+ Memberand MegaDork
1/12/22 7:45 p.m.

The BMW dealer will be doing great until another one seeks to siphon away his sales by selling cheaper.

"Sure but they are 500 miles away".  How much is a plane ticket and a weekend trip vs. saving probably $10k plus on a car?  It isn't like we're talking about Corollas here.  Hell, if the dealership is near a touristy location, they could use that as an enticer.  See (x city) and drive home in your new X5. We'll pick you up at the airport!

That business model would also be able to pull from a very broad region instead of just a 50 mile radius, too.

 

 

z31maniac
z31maniac MegaDork
1/12/22 8:53 p.m.
codrus (Forum Supporter) said:

Fundamentally this isn't a decision that the dealership can control.  I mean, yes, they can limit the number of cars they have on their lot, but customers have a demonstrated preference for buying new cars out of inventory.  Factory ordering has always been an option and the vast majority of people choose not to do it despite being able to get better deals and a vehicle spec'd the way they want it.

Once the supply problem is fixed (however long that takes) a dealer that chooses to keep fewer cars on the lot is going to get a lot fewer sales, because the customers will flock to his competitors who have inventory.

 

Especially if keeping less cars on the lot means they get their allocations reduced compared to other dealers in their area. Obviously if you live in the middle of nowhere, that may not be the case, but if you live in a large metro area where you have 5+ different dealers where you can buy your Mustang or F150...............I don't see dealers keeping a low stock on purpose.

I don't think, 1 person's experience with 1 high-end dealership is representative of the entire industry and country. 

codrus (Forum Supporter)
codrus (Forum Supporter) GRM+ Memberand PowerDork
1/12/22 9:22 p.m.
Pete. (l33t FS) said:

The BMW dealer will be doing great until another one seeks to siphon away his sales by selling cheaper.

"Sure but they are 500 miles away".  How much is a plane ticket and a weekend trip vs. saving probably $10k plus on a car?  It isn't like we're talking about Corollas here.  Hell, if the dealership is near a touristy location, they could use that as an enticer.  See (x city) and drive home in your new X5. We'll pick you up at the airport!

That business model would also be able to pull from a very broad region instead of just a 50 mile radius, too.

Also, for a $10K price difference most people would just go buy an Audi instead.

Duke
Duke MegaDork
1/12/22 9:47 p.m.
codrus (Forum Supporter) said:

customers have a demonstrated preference for buying new cars out of inventory.  Factory ordering has always been an option and the vast majority of people choose not to do it despite being able to get better deals and a vehicle spec'd the way they want it.

In my pre-pandemic experience, buying a car by ordering it always meant paying sticker price.

The reason for buying off the lot was to get a discounted price on spec inventory the dealer wanted off their books.

 

z31maniac
z31maniac MegaDork
1/12/22 9:50 p.m.
Duke said:
codrus (Forum Supporter) said:

customers have a demonstrated preference for buying new cars out of inventory.  Factory ordering has always been an option and the vast majority of people choose not to do it despite being able to get better deals and a vehicle spec'd the way they want it.

In my pre-pandemic experience, buying a car by ordering it always meant paying sticker price.

The reason for buying off the lot was to get a discounted price on spec inventory the dealer wanted off their books.

 

When I customer ordered my '13 Mustang GT track pack, I paid about $2500 under MSRP. 

Fueled by Caffeine
Fueled by Caffeine MegaDork
1/12/22 11:07 p.m.

Here's the deal. 
 

when supply returns, because it will. Dealerships will realize that making 10k profit on two sales a month is worse than making 2k profit on 50 sales a month.  Some dealerships will hold to the "high price model". But one or two will break ranks and go fro the volume seller strategy.  Once they do the dominos will fall.  
 

it's pretty simple. 
 

also about low stock. Most new car places can't.  They have quotas to buy from the manufacturer. Once the volume comes back they'll buy. They are obligated to do so.

 

scarcity is what we are dealing with  

https://www.investopedia.com/terms/s/scarcity.asp 

codrus (Forum Supporter)
codrus (Forum Supporter) GRM+ Memberand PowerDork
1/12/22 11:38 p.m.
Duke said:
codrus (Forum Supporter) said:

customers have a demonstrated preference for buying new cars out of inventory.  Factory ordering has always been an option and the vast majority of people choose not to do it despite being able to get better deals and a vehicle spec'd the way they want it.

In my pre-pandemic experience, buying a car by ordering it always meant paying sticker price.

The reason for buying off the lot was to get a discounted price on spec inventory the dealer wanted off their books.

I've ordered three vehicles in my life (2 Audis, one Ford truck) and every time I paid less than I would have for one off the lot.  Once that was sticker (when the cars on the lot were going for $5K over), the other two times it was for a grand or so over invoice.

Mr. Peabody
Mr. Peabody UltimaDork
1/13/22 10:20 a.m.
SV reX said:

In reply to Mr. Peabody :

Why not?  They do crazier stuff than that all the time. 

Because the market force that is creating the favourable situation is going to be gone once production catches up with demand, and you can't create a false supply/demand situation unless you're the only caterer in town. And then maybe not because if your prices are too high people will just buy something else as there will be an abundance of new vehicles.

I find it really difficult to believe that the GM of a dealer that sells that many cars doesn't understand how the market works. He can't possibly be that naiive.

And what is this (other) crazy stuff they're doing all the time?

alfadriver
alfadriver GRM+ Memberand MegaDork
1/13/22 10:30 a.m.

In reply to Mr. Peabody :

It also suggests that the GM of that dealer think that their customers don't have any other choices to get cars from.  But that's hardly true.   Not only do we have a big number of manufacturers- where just one needs to discount prices to regain market share to make them all do it, there's an even bigger number of dealers.  And buyers have shown the ability to drive to save thousands of dollars.  

The biggest driver of demand for many years has been the permanent removal of cars from the entire fleet- which was 12M/year when I last saw it many years ago.  That's well over half of the new car market.  If new car's can't keep up with that, the supply/demand will very much not balance.  

z31maniac
z31maniac MegaDork
1/13/22 10:48 a.m.
z31maniac said:
codrus (Forum Supporter) said:

Fundamentally this isn't a decision that the dealership can control.  I mean, yes, they can limit the number of cars they have on their lot, but customers have a demonstrated preference for buying new cars out of inventory.  Factory ordering has always been an option and the vast majority of people choose not to do it despite being able to get better deals and a vehicle spec'd the way they want it.

Once the supply problem is fixed (however long that takes) a dealer that chooses to keep fewer cars on the lot is going to get a lot fewer sales, because the customers will flock to his competitors who have inventory.

 

Especially if keeping less cars on the lot means they get their allocations reduced compared to other dealers in their area. Obviously if you live in the middle of nowhere, that may not be the case, but if you live in a large metro area where you have 5+ different dealers where you can buy your Mustang or F150...............I don't see dealers keeping a low stock on purpose.

I don't think, 1 person's experience with 1 high-end dealership is representative of the entire industry and country. 

Just for fun I looked this up, OKC is a relatively small metro area, I have 10 Ford dealerships within 35 minutes of my house. And I'd happily drive down to the DFW metro for a good deal. 

DWNSHFT
DWNSHFT Dork
1/13/22 12:00 p.m.

It's been a few years but it used to be that the world-wide auto industry was over-capacity by 40%.  The manufacturers were killing themselves trying to gain market share any way possible as the only way to survive.  I agree that with low production in 2020, 2021 and 2022 there is a deficit of cars in the national fleet.  But I'm confidant the manufacturers will break their legs racing to ramp up production to capture what remains of the above-msrp pricing and to capture market share.  And that will have a serious downward effect on prices, both new and used.

 

The manufacturers want to please the customer, and the customer generally wants low prices.  Capitalism works and out-sized profits attract competition.  What might gum up those works is government interference and I don't try to predict that.

SV reX
SV reX MegaDork
1/13/22 1:55 p.m.
Mr. Peabody said:
SV reX said:

In reply to Mr. Peabody :

Why not?  They do crazier stuff than that all the time. 

Because the market force that is creating the favourable situation is going to be gone once production catches up with demand, and you can't create a false supply/demand situation unless you're the only caterer in town. And then maybe not because if your prices are too high people will just buy something else as there will be an abundance of new vehicles.

I find it really difficult to believe that the GM of a dealer that sells that many cars doesn't understand how the market works. He can't possibly be that naiive.

And what is this (other) crazy stuff they're doing all the time?

The GM doesn't spend the money. The CEO does. It's a $700 million business. 
 

They bought 9 different dealerships in the last 5 years (all brands), just so they could own most of this town. 

It's working for them so far. 

SV reX
SV reX MegaDork
1/13/22 2:08 p.m.

Also...

 

I was pretty clear that THIS particular dealership is BMW. They have other brands- Including some that are higher volume, lower markup (like Toyota, Nissan, and Chrysler). 
 

The average BMW buyer is not an internet bargain shopper. They want to touch the product, and keep their money local. They are members of the Chamber of Commerce, and do business with local businesses. 
 

They understand the market deeply.  Much deeper than internet armchair quarterbacks. 
 

They have absolutely no reason why they need to sell BMWs like other dealers sell Priuses. They will keep their prices as high as they can, their expenses as low as possible, and maximize profit, not volume. 

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