Automakers and dealers make enormous record per-vehicle gross profits amid inventory shortages in the craziest market ever.
By Wolf Richter for WOLF STREET.
Hammered by the worst inventory shortages in memory, new car and truck sales had plunged five months in a row. But in October, sales ticked up to 1.05 million vehicles, from 1.01 million vehicles in September, which had been the worst September since the sales collapse in 2010.
This left October’s new vehicle sales down 34% from 1.6 million vehicles in March when there were still vehicles on dealer lots to sell, and down 22% from October 2019, according to data from the Bureau of Economic Analysis.
Sales of “cars” (sedans and muscle cars such as the Mustang and Corvette) dropped further to 207,100 units, the lowest in many decades except for the lockdown freeze in April 2020. Ford, GM, and FCA (owned by Stellantis) have exited the sedan market, leaving it to foreign automakers and Tesla.
Sales of “trucks” – pickup trucks, SUVs, car-like compact SUVs built on what is essentially a car chassis, and vans – rose to 839,200 vehicles. Vehicle sales are seasonal, and the low points in the chart are Januarys except during the lockdown last year and the low points this year when dealers ran out of inventory:
The Seasonally Adjusted Annual Rate (SAAR) of sales – which adjusts for the number of selling days per month and for seasonal factors – ticked up to an annual rate of 13.0 million vehicles, down 21% from October 2020, and down 22% from October 2019.
The plunge in sales is due to a supply shock triggered largely by the global semiconductor shortages that has hit some automakers much harder (for example Ford, GM, Stellantis) than others (for example, Toyota, Tesla, BMW), and dealers have essentially run out of popular models.
As a result, automakers have been prioritizing their highest-priced models and trim packages to maximize their revenues, given the plunge in unit sales. And there are enough consumers with big gains in stocks, real estate, and cryptos, and from their own businesses, fat compensation packages, the proceeds of the forgivable PPP loans, and whatnot, that these high-priced units flew off the lot.
Automakers have slashed their incentive spending to record lows. In terms of dollars, they slashed incentive spending to $1,628 per vehicle on average, according to estimates by J.D. Power. This is down from over $4,000 per vehicle in October 2019, and brought incentive spending down to 3.7% of MSRP, the lowest on record. Every dollar cut from incentive spending flows to the bottom line.
The prioritization of high-priced models and the cut in incentive spending caused the Average Transaction Price (ATP) to spike to a new record in October of about $44,000, according to J.D. Power, up 19% in the nine months since December 2020 and up by 26% from December 2019:
This explosion of the Average Transaction Price saw to it that, despite the plunge in sales, consumers (excludes fleet sales) spent $41.5 billion on new vehicles, the second-highest for any October, according to J.D. Power estimates.
Automakers and dealers are making enormous amounts of gross profits per vehicle sold, thanks to the simple but novel fact that Americans don’t care anymore how much they spend on a new vehicle and how much over sticker they’re paying – those Americans that are still buying new vehicles.
Dealers made on average $5,129 per unit in gross profit, including from finance and insurance (F&I) sales, in October, a massive record, and up by 75% from October 2020, according to J.D. Power.
And they’re getting away with it because consumer behavior has undergone a revolution – going from price-conscious to price-doesn’t-matter within the course of 18 months.
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Fed induced easy money extravaganza, and loose credit leverage galore.
Plus Americans needing vehicles to pump up their vain identities, and strut their “exceptional” social status, lining the pockets of automobile corporation stake-holders.
Seems to be a general human trait. For example, I’ve seen lots of top-end BMWs etc. in several countries where I’ve lived, where a sizable proportion of the population struggles to just get food on the table.
You are 100% correct on the BMW parked next to a tin shack phenomenon. In South Africa it is a bling disease where incomes go to flashy BMW’s & Mercedes Benzes while being strapped for cash to fill the tank or feed the kids: hence monstrous credit card debts and unsecured loans and corruption to plug the holes.
You ever try to find an armored Kia?…
Not easy, my friend…
And the “debt illusion lifestyle” applies to other players in this sick/stupid game as well.
We talk of car “sales” as though payment is certain and full as of the time of the transaction.
But 1) with 85% of “sales” being made via loans and 2) those loans being sold off at a discount (albeit too low a discount) to yield starved investors/savers, a whole bunch of people in this chain of delusion ain’t gonna get what they think they will.
Most significantly, the ZIRP victims herded into buying that spiked price loan paper.
When the manufacturers/dealers originate that spiked price loan paper, they know they will be selling off most/all of the risk of auto loan default.
So their loan due diligence? Likely “for sh*t”.
So many of those alleged “sales” are going to unwind into costly defaults and repos…so not so much a “sale” as doomed self delusion and temporarily inflated financial results.
And even with these carefully cultivated exercises in price-led deception/delusion, annual auto sales are going to fall millions short of a “normal” year (and far less than the late 1970’s peak).
cas127 – Thanks for this insight about the connection of price to loans. And how offloading of loans makes dealer irresponsible, only focused on hustling a price, while highlighting the zirp-lowered loan to the customer.
With most captive finance companies, dealers were never responsible for loan payments unless they carried the paper. Many auto loans are non-recourse or first payment recourse – which essentially means that once the first payment is made, the dealer is off the hook.
You might be surprised by how few customers default on their car loans. The captive that was part of the company I worked for had a very low level of repops, principally due to the quality of customer we attracted and that our subsidized rates were not available to credit criminals. The credit criminals paid through the nose or got placed elsewhere – if they could get hocked at all. Those that ignored that standard (i.e., Nissan) got their heads handed to them.
People will normally pay their car note before their mortgage because they can live in their car but they can’t drive their house.
Also, notably… the auto manufacturer is made whole when they sell the car to the dealer. What the dealer does with it from that point on is of little concern to the manufacturer. When complaints of price gouging came in at my old employer, the standard reply was the “dealers are independent businessmen” speech. If you read the Monroney label, it pretty much says that with the term “suggested” retail price – dealers are free to sell at whatever the market will bear.
Lastly, those baffled by people driving cars beyond their financial means need to realize that a luxury vehicle is, at times, a replacement for the home that they don’t own (can’t afford) and gives them a feeling of success and achievement. They don’t have a 4 bedroom colonial, but they do have a Raptor with custom rims…… At a lesser level, it’s the new iGadget, Rolex, or LV handbag – even if it’s a knockoff.
Agree with much/most of what you say but my primary points were that,
1) Aggressive financing/crap underwriting can create a simultaneous illusion of affordability for the buyer and creditworthiness for the lender/ultimate paper holder (whoever that may be in this financialized, ZIRP’ed world) and,
2) The intermediary in this transaction, who largely runs/controls/games the underwriting process seems to have less and less skin in the game as the decades go by (I think you agree with this), and, most importantly,
3) Spiking prices simultaneously,
a) exploit this environment of loose financing (ZIRP) open to intermediary abuse (careless/corrupt underwriting made possible by risk sell-offs) and
b) greatly sharpen the consequences of poor underwriting since prices have been empowered to spike (increasing aggregate debt or pool risk profile even if aggregate debt falls due to price-driven sales volume declines).
Historic default profiles may become less relevant as outstanding balances per borrower increase (even small interest upticks against heavily indebted borrowers can throw their max’d out financial lives into turmoil) or because spiking prices bias the buyer/borrower pool towards “status symbol” buyers/borrowers who don’t have to live in their over priced car but know about “ruthless defaulting” should the financial need arise.
That said, I did appreciate the details you provided about the industry, I just think we may have different views on the ultimate implications of a changing auto loan ecosystem.
I personally havent bought a new vehicle or financed a vehicle since the early 80’s.
It’s ignorant to finance a new vehicle, you drive it off the lot and lose thousands by the time you hit the street. And why finance a vehicle then you just have to feed the pig more by buying full coverage insurance.
This country just loves to feed the pig.
And what your buying today is a tin can on wheels with most parts outsourced to mexico. Real quality vehicle your getting today. For the price a house use to go for. Quality of cars went out the door in the early 70’s. About the same time we reneged on our obligations to pay our debt in gold. Unless your vehicle has a frame under it. It will be melted back down into scrap. I call them throw away vehicles today. There not worth fixing. By the time its payed off its ready for the junk heap. I wouldn’t own a front wheeled drive piece of garbage if you gave it to me.
Back in the pre 2008 days my wife worked at Countrywide as a trainer. She would come home and relay stories of new hires in the call center that routinely had $50k+ cars and lived paycheck to paycheck. All about the bling.
Isn’t it just a sad shame that we have allowed the average price of a car become more than the average income!?!? All this zirp has done to the individual what it has done to the government where we all basically think the amount of money borrowed doesn’t matter and the payment is all that needs to be covered.
ZIRP has bankrupted America basically.
I thought by now the effects of older people having no money for retirement would be seen but it obviously isn’t. The stock market needs to fall 70% to wipe all the “credit criminals” out and bring balance back to the world.
What has ZIRP to do with to few chips for to many cars? Also having below zero real interest rates is not exactly uncommon.
ZIRP deranges aggregate private risk judgment by creating “phony” low interest rates (made possible by a money-printing government which transmutes crappy debt/loans into general inflation, hiding the source/cause of the fundamental economic problems).
Without ZIRP more people would have no hope of qualifying to buy chip-scarce cars, at a 20% year over year premium…they would just hold the old beater for another year.
But ZIRP makes them risk insensitive, increasing sales at the cost of generalized inflation (caused by the G printing money to a) drive interest rates down and b) likely cover up the loan defaults resulting from distorted risk pricing…caused by the G.
The cost of vehicles has increased exponentially due to government mandates. Things like backup cameras, crash standards (that forced many into exotic high tensile steels, aluminum body panels), ABS, multiple airbags (front, head, knee, side overhead), 9/10 speed automatic transmissions to meet fuel economy standards, auto start/stop, etc., and so on.
I took our vehicle in for service yesterday and they gave me a 2021 minivan to drive. It was the “base” model, yet it had active cruise control, collision avoidance braking, lane keeping assistance, blind spot indicators, power side doors, power rear tailgate, 9 speed AT (cheapie used to be a 6 speed), Bluetooth, XM, and loads of other stuff that I didn’t bother to explore. All included on the base model….. this was nothing fancy…. had a cloth interior. This is all beyond what that same trim package content used to be only 3 short years ago. In fact, a customer would have had to climb 3 trim levels 3 years ago in order to get that equipment.
That’s a good portion of why prices went up…..
The gouging? Dealers built these mausoleums at the behest of the manufacturer’s “image standards”. Now they have to feed them. With the supply of vehicles down, the prices have to rise to pay for all that infrastructure. Prior to my departure, I was questioning the wisdom of forcing the construction of these buildings due to the alternative fuel (aka electric) car revolution and the lack of general maintenance they require (oil changes, etc.,). They looked at me like I had sprouted antenna on my head. The thought of “growth to the moon” was unthinkable.
This is really just simple supply and demand. Supply is restricted, so people who need a car are forced to pay the premium price. Once supply increases, prices will fall down really fast.
There was also a huge shift as people stopped using public transportation due to COVID, so that added to the demand side, particularly for used cars.
In another 5 months, things will return to normal. Actually, I think with all the new investment in BEV cars coming, we are going to see prices under extreme pressure by mid to late 2022.
I don’t own a car. I live in a megacity and use taxis/uber.
A truly sad state of affairs. I have historically purchased used cars for the value they offer above a new car. Over the next couple of years this hysteria and low volume of new automobile sales will work it’s way through the available inventory of used cars guaranteeing that they too will become overpriced as well as more scarce.
the exact opposite. after the stimmy wears off and the hysteria wears off, there will be a glut of used cars for the taking.
Exactly, Jake. In fact, I think the worst is now behind us in terms of the “shortage.” As an example, GM’s plants are all up and running now, with no plans of any further shutdowns.
People are acting like all of a sudden cars and trucks are something that are rare and need to be purchased quickly at any cost. I foresee countless people who are upside down in their loans.
I was talking to a guy who sells RVs for a living. He was telling me that the entry level travel trailers – the small ones you can tow behind SUVs – have shot up in price more than 50%. They used to be like $19,000, and now they’re selling for more than $30,000. This is what happens in an overstimulated economy.
I can’t stand Larry Summers, but he called it. He said they were risking overheating the economy and that’s exactly what they did. This was an outrageous overreaction. All politicians and central bankers should be fired and have their pensions canceled.
The so called “stimmies” for the average joe are long gone. Maybe you mean Stimmies for Corporate Persons ? Are they still a thing ?
What is happening now is just speculation, or in some cases hysteria over hyper-inflation by the usual suspects. I don’t see the FED being enthused about hyper-inflation. They are, after all, just a caretel of privately owned banks. I think we will see a return to 20% interest rates before hyper-inflation.
The stimmies are not “long gone.” Many people were making more sitting on the couch than they ever did working. In some instances, people were making TRIPLE. And let’s not forget that they didn’t have to pay rent or a mortgage.
The idea that every one of these people spent it all up immediately is silly. Some did for sure. But many saved a bunch of it, and still have a large chunk of cash. That cash will still be going into the economy.
I expect more stories like Zillow. Mass layoffs that will have ripple impacts that cascade through the system. 25% of their workforce out of work in a blink. As more and more of those giants fall these workers are going to have to find work
While not 100% of this one company it will be felt as they topple
In the not so far future you will need an EV if you want a car*. There is no volume of old electric cars. But buying a cheap new EV will be possible unlike now when cheap cars just can’t compete with a second hand cars
*car as method of transport. You could buy plenty ICE as antique but you need an EV to drive within city limits.
Fed policy has got a lot of people price insensitive. Everyone I know who is spending money is paying top dollar for things and usually having to wait a long time. It’s amazing that only 12 years ago people most people were frugal as could be during GFC.
I’m also wondering how much speculation is going on…
Free or nearly free transportation for a year or two…
If you’ve got the money, why not…
Tons of speculation in every asset, no matter if historically was a depreciating asset. I read a lot of car and truck forums. They are rife with stories of people turning around and selling vehicles they just purchased less than a year ago. Makes no sense at all considering the transaction costs, etc.
My neighbor did exactly this. Bought a barely used Jeep SUV in April 2020. Sold it this past September 2021 for $4k MORE than they paid. They ordered a new Tesla (living with 1 car until January).
Mine is one of those stories. Sold my worn out 2003 Silverado for $4800 and traded a 2017 Oddesey ( bought used in 2018 for $27500) for $27000 for a new 2021 Ridgeline. Paid the difference (at sticker price) in cash. Great vehicle for a little depreciating cash and two no longer needed used autos.
I will never buy any electric vehicle that requires me to spend many hours charging my car at a charger, since I do not have a garage. I expect Toyota and Honda’s hydrogen cars will eat Texas’s lunch in the future because of that slow charging problem affects too many people.
H2 has the problem that it does not only have to compete with battery cars but also with plugin H2 hybrids. You drive your commute on cheap mains electricity and when you need to drive far you can use the fast refueling of H2. This is brilliant for car owners.
But it sucks for H2 gas station owners. That is why i don’t believe in H2 for cars
because during the gfc, people had to tighten their belts. here, the fed printed and congress transferred trillions of extra money to people beyond what they lost because of the shutdowns and downturn.
those on the political left said for years the gfc response was too small. now we know what they meant.
I think the people that historically make wise decisions or poor decisions regarding money remains the same. Unfortunately, there appears to be a great many of the ‘unwise’.
Yep, it sure feels good to sit up high on those leather seats but I can’t fall for it at these prices. Much less want to fill up the gas tank to the tune of about $75.
I’ve never seen so many new pickups on the road and parked in packed restaurants. People in my southern region overall do not have the income to support $50 -90k vehicles and it tells me they’re borrowed out to the max on everything they have. Eat drink and be merry and hot dog, Christmas is right around the corner.
It’s not IF this is ending badly, but when.
It is $189 to fill up the diesel tank in my truck if it were empty at today’s prices. And I only have a 35 gallon tank. The new diesel trucks are coming with 50 gallon tanks. That’s $270. High fuel prices will soon have their way with these debt junkies. The total cost of ownership for these new trucks makes them vehicles for 1%ers.
It is not just a matter of people paying any prices to get a new car, but that someone is willing to finance vehicles that are so overpriced and financially out of reach for their buyers. I remember when auto financing was much stricter and ones income dictated how expensive a car you could buy on credit. In 1993 a bartender or secretary did not walk in to the Mercedes dealer and walk out with a new E class on credit. Back in those days such a car was an actual sign of financial status because you needed the income or cash to buy one. But today, because of easy financing , cars are almost as useless a status symbol as designer handbags ( easily faked) orjewelry ( synthetics!).
“I remember when auto financing was much stricter and ones income dictated how expensive a car you could buy on credit.”
See my comment above on how ZIRP facilitates a “chain of delusion” between car buyer, manufacturer/dealer, and ultimate loan paper investor/yield starved saver. And a culture of corruption regarding auto “sellers” when it comes to due diligence in loan origination (don’t hold the paper = don’t give a crap).
This is the activity that the architects of ZIRP consider “economic growth”.
So of course in this hothouse environment of rank growth, price spiking is likely to occur (if a dealer doesn’t give a crap about a doomed $20k loan…he isn’t likely to care much more about a doomed $35k loan…just whatever it takes to move iron…then it is somebody else’s problem).
Housing was same way needed 20% down to get loan bankers called it insurance
That’s $700 to $1100 per month on a 72 month term loan, depending upon down payment.
Agree that many buyers can’t actually afford it.
I’m currently paying $1,100 a month on a two bedroom apartment. Is a new pickup truck worth as much as a place to live? Easy question.
I’ll be sticking with my 2009 hatchback for a while, though once this cools down I am considering getting an older pickup with more ground clearance to go hiking or hunting in some of the areas around here that are only accessible by 20+ miles of dirt trails.
The fact that the “how many tricks can your tailgate do” ads are back sorta proves trucks are sold for the perceived achieving of some kind of desired image, and not for the need of one. (They still can’t make the bed dance, but maybe that’s coming, since nobody uses it, anyway)
A historic seller’s market.
Gives some well-needed oxygen to the automakers.
The automotive future is still not clear.
The future car is hesitating between essentially a manufactured product and essentially a high-tech service. That will determine if having physical plants is an advantage or a burden.
Don’t forget the massive amounts of cars the automakers have leased. If the change to EV goes to fast all those cars will be worth a whole lot less. In fact i don’t think the carmakers mind this situation
Please remind me of the cause(s) behind the global semiconductor chip shortage. Is misguided government intervention one?
Sand shortage, I think…
Could be wrong…
Inelastic supply coupled with rapid increase in demand, exacerbated by Covid in the few countries that actually produce them.
You mean the Second cold war. The one between the US and China?
I’m an industrial HVAC contractor in and around Boston. I have a small side business installing mini splits, heat pumps, and central air in residences.
I installed a central air heat pump at a clients house two months ago and liked it so much I decided to do the same project at my house.
I got a replicated quote earlier this week for the equipment. Condenser went from 2022 to 2570. Indoor air handler went from 1425 to 1920.
I complained (I know from experience these things aren’t flying of the shelf in New England in the fall)) about the huge mark up and they took a bunch of that off. New price was 2220 for condenser and 1590 for air handler. All the ancillary items went back to close to original price.
I’m wondering how much of this is price gouging/suppliers piling on to see if buyers won’t ask Amy questions. It reminds me of the auto market… currently want a new vehicle but at these prices I’ll fix my 2011 Durango until the wheels fall off.
If consumers did what you did, we wouldn’t have those kinds of car prices. If ALL car buyers said, “F-U, we’re not buying at these prices,” then sales would crash, and inventories would fill up, and prices would have to come down until sales got going again.
But the inflationary mindset has changed. It’s “buy NOW, to avoid higher prices later.” People have gone nuts. Inflation is in part psychological. If consumers go on buyers strike, the whole inflation show would end. But they’re not doing it.
right, which is why raising interest rates is so effective against inflation. it makes the cost of borrowing higher at all levels, and effectively forces people to go on buyers strike.
Absolutely dead on. The same price gouging tactic has been practiced in business forever WHEN the buyer does not object or SAY NO. Many organizations, public and private sector, think that saying NO is bad for the relationship.
Good negotiating skills can earn you a lot of respect, especially business to business. You have to know the dance and you cannot piss your partners off, but you should dance with them.
Muppets will always buy.
Let’s say I was a coin dealer. Nirvana for me would be my first customer of the day sells a coin to me. The second customer buys a coin. It alternates like this all day long, day after day. No inventory required. In fact inventory would be viewed as an investment. An investment as dealer I don’t want. As my inventory builds I get nervous that prices might crash and the losses on my inventory might wipe me out. In the back room I’m probably selling it off as fast as it builds.
Does an auto dealer have a “mechanism” to sell it off? Is the manufacturer willing to take it back? Do they sell new cars at auction? Or is lowering price the only way they have? Lowering price on your inventory “investment” strikes me as slitting your own throat.
Isn’t the end of the chip shortage going to cause such an inventory build for both new and used cards? Isn’t there going to be a lot of throat slitting?
Dealers can’t send the unsold cars back to the manufacturer. Think about this:
When times are normal (no parts shortages, no labor issues), the car manufacturers can make cars faster than the general public can wear (or wreck) them out.
When this nutty stuff ends, and it will, cars will be overflowing the dealers lots.
RR and AA:
Dealers can and do get very very good ”discounts” on their inventory from manufacturers,,, at least they did in the late oughts…
Bought a very nice 2007 Chevy 1500 extended cab for the better half,,, w all the bells and whistles that year for about 25% off MSRP,,, and happened to tell the sales mgr my ‘dream truck’.
He called me back with news he had my truck in stock at 25% off, but I demurred…
Eventually, after several such calls, I did get that truck at more than 50% off MSRP!!
Same guy begged me to ”finance” so the dealer could at least make a couple hundred, which I did.
Paid it off at the minimum term per his request…
Will that scenario happen again???
ALMOST certainly,,, in spite of the very clear manipulations by the Fed, etc., etc.
Identical vehicles are sold to the dealers at a fixed wholesale price. It’s Federal Law. (all dealers are equal) The only variance is equipment packages – which are also at a fixed price. The claims of “high volume so we buy them cheaper” are pure, unadulterated, BS.
Where the discounts come in are all behind the curtain activities. For example, the VVnV truck was likely subject to a model year end (or calendar year end) rebate from the manufacturer. The dealer also has holdback and other hidden rebates that do not appear on the invoice the dealer shows the customer (they’re there, but coded). So add the below the line (holdback, advertising allowance, fuel allowance, floor plan assistance, etc.,) margin to the discount… that can easily add another 10+% margin. So…. take the original margin of x%, add the below the line “hidden” margin, plus the rebate from the factory…. and then toss in a “stairstep” program (if available) that rewards the dealer for volume targets. Let’s say the dealer is 2 vehicles away from hitting a retroactive “stairstep bonus”, he can likely afford to give away 2 vehicles and profit handsomely from his efforts.
The above is a thumbnail sketch of the back story… but you get the picture.
“If consumers go on buyers strike, the whole inflation show would end. But they’re not doing it.”
That only works for consumption of discretionary items.
Until some ridiculous high price point is reached, prices won’t affect consumption of essential items and then substitution happens.
High interest rates won’t affect essential items either as people need to eat.
High prices won’t affect the supply of these items in the short run either (growing seasons) and some factors such as weather will decimate or increase supply.
Some recent price increases in Australia at the grocery store:
Store brand facial tissue went from $A1 a box to $1.30. Name brand price unchanged, but twice as much. Store brand contents made overseas and packed in Australia. Was off the shelves for about two weeks before the price increase.
John West tuna in cans. This one went up inn price some time last year. Was A$2 can (95 grams) and is now A$2.30 a can. Usually on sale at half price every couple of weeks. Made in Thailand.
Birds Eye frozen hash browns box of six was $3 and is now A$4. Went up in price about 2 months ago or so. Made in Australia.
Heinz canned baked beans three pack of 95 gram cans was A$3 and is now A$4. Went up in price about a month or two ago. Made in New Zealand.
Steak has gone from A$10 to A$13 for the pack we buy over the past year or so. Most recent price increase was about a month or so ago. We could buy mince, but that too has gone up from A$8.00 to A$9.50 a pack.
We can do without the hash browns and make our own. Only bought for convenience.
The beans can be bought in larger cans which are on sale more often, but then again these are bought for convenience and a quick meal. Who wants to eat beans for three meals straight when you buy the big cans.
The tissues are an essential item and get used depending on the hay fever situation and for daily use. Price doesn’t matter.
Tuna we have to have so no getting around that one either.
The two meat items are both grass fed meat and we could buy the cheaper non-grass fed or cheaper cuts, but then the quality and taste stink. I wonder at what price point we’ll spread out the time between purchases or just eat some potatoes instead for a meal….
So prices are going up on certain grocery items here. Don’t know about the price of other prepared foods as we don’t buy them.
“If consumers go on buyers strike”
All the workers being fired for not getting the jab will be going on a buyers strike. Maybe they are the Fed’s secret weapon against inflation. And economic growth.
Consumers are morons. You find a great deal on a used F-150 but it has a problem with the fuel injector. For a lot of people the story ends there.
You make a few calls and find a fuel injector at the junkyard.
Problem solved. Undervalued truck with a little elbow grease.
My friend and I have resurrected plenty of equipment. People don’t know how to to fix things so they are forced to buy new.
MG-was it that long ago that America was known as a ‘nation of mechanics’?
may we all find a better day.
The designer handbag companies have been increasing prices every couple of months for the last two years. It has gone from ridiculous to insane. Yesterday watched a video of designer bags piled up for sale at a discounter, priced about the same as two years ago. There’s a message there somewhere.
The Made In USA men’s clothing manufacturers that I sometimes buy things from have raised their prices considerably. A wool coat that used to be $450 is now $650, and it seems people are buying as they are quickly out of stock.
I’ve had all my dress clothing (mostly what I wear even casually) custom made from top fabrics on my trips to South America, at noticeably lower prices than the ones you quoted. I have enough to last the rest of my life.
Bought wool sweaters, leather shoes, and leather belts down there too, though these are from stores. Still cheaper than here.
I do buy moderately priced dress shirts (from Macy’s or Dillard’s) that I know will wear out with regular wear. But other than that, only things like socks.
First I look at the purse…
How come men don’t have expensive accoutrements, what’s the most a wallet could set you back?
I bought my last leather wallet on Amazon $11
Brand new, unused, in box American made Amity Bronco leather eight card foldover with original protector inserts intially priced by GEMCO at $13.99 (when stamps were 22-cents)…picked up on half price tag for total of $2.49. And don’t even need it yet. Who says the buck can’t stretch any further? More, it hasn’t even been downgraded to that crappy flex-fabric stuff yet.
Men do have expensive accessories, mostly gadgets like phones, but expensive watches too. I’ve bought plenty of expensive wallets for men as gifts. A nice wallet on the cheaper side sets you back at least $100. And men carry expensive bags too these days. All the designer companies make accessories for men.
I have used a couple of heavy rubber bands as my “wallet” for over 40 years after a leather wallet slipped out of my back pocket with a substantial amount of cash. I can put my little bundle of CCs and some cash in my front pocket.
No guy I know and some worth millions would like announce he has an expensive designer bag.
My friend a rolex last month
She had to wait 4 months to get it
The Pfizer pill is making headlines – what do folks think about a long/short book of reopening-stocks (airlines, cruises) long against an equally sized S&P or Nasdaq short? It seems like the obvious play, I’m a few hours late on the news, but imagine the idea should be in play for a while.
what reopening hasn’t already been priced in many months ago? nobody cares about covid anymore. it’s not relevant to the economy. what’s relevant to the economy is massive inflation and excess demand leading to supply chain problems.
Airlines and cruise ships rallied 5-10% today on the news, not sure about being priced in.
that’s what you get when you have a combination of an asset mania, free fed bucks, and algorithmic trading. i wouldn’t read much into that.
I think that ship has already sailed, pardon the pun. I made a good sized long bet on travel going into the reopening that paid off fairly well, although I didn’t pay close enough attention and missed selling near the highs. People are traveling like crazy, with the pent-up demand, but I expect that there’s going to be a disappointing Xmas season for retailers, Q1 22 will be a lot of earnings disappointments. We’re getting the early returns. Zillow may be a one off but I think they’re more like the canary in the coal mine, making stupid bets so they’re the first to get hurt when RE starts slowing down. Amazon didn’t have a great quarter when they reported. Lyft, Peloton, and Moderna all blew up yesterday. Seems to me that there are a whole lot of little earthquakes happening. I’ve resisted becoming a bear for years, in spite of every instinct screaming “ITS OVERPRICED!” but now, I think it’s time. Seems to me that luxury goods and services like travel are going to be in a world of hurt by about Q2 ’22. I’d love to be wrong. I just canceled a trip overseas (due to life circumstances, not money), I’d love a vacation after working like a crazy person for 18 months, but looks like a staycation for me this time.
The slowdown in China is hurting the luxury markets the most, because that’s where all the growth was coming from. The Evergrande et al situation is going to affect markets around the world.
Fantasia also hit the wall, stock down 30 %. The RE sector in China 25 % of GDP, was achieved after 20+ years of CCP boosterism. Then starting not much more than a year ago the CCP started making cautious sounds after it was way too late with EG alone committed to hundreds of projects.
The comments about how different China is: ‘houses are for living, not for speculating’ are among the most gullible. Don’t they know that most development land in China is sold by local govts, all of which will have CCP members in charge?
It is NOT what things are worth…
No one knows what MONEY IS WORTH.
Thanks be to the Fed, and who ever controls the Fed.
EXACTLY. If you don’t know the cost of money you can’t value anything.
I jmoved from Seattle to Cape Town ….and doing the Uber thing and MyCiti bus……which is very cheap and dependable. Our WHOLE Condo parking lot is Audi’s BMW’s and 60% new Mercedes. I am floored by the Ferrari’s and Exotic cars that fill the streets and every 5th car is a luxury import that gets hit with 15% VAT and import taxes. Cars cost 2X what they do in U.S.A. I know I shopped. I have never seen this many luxury cars in LA or Seattle…. and yet we have 30% unemployment and the average wage is $19,000 US per year. Here they finance a car like a lease… you pay for 5 years then there is a Balloon payment for all the principal you were NOT covering over the last 5 years.
And just think, when the Feds do the CPI calculation the hedonic adjustments will say that car prices fell 2%.
One cannot underestimate the effects of the housing bubble and cash out refis on these prices. We found out Shillow was overpaying for houses by 10%-20%. Every time Shillow overpaid, a refi junkie got their wings. When you suck $200,000 in cold, hard cash out of your house, buying a new truck and RV (partially on credit) with the proceeds, keeping $100,000 in the checking account, you’re livin’ large.
Anybody think Everyone and Zillow mark the top of the asset market. All we need is a Tesla indictment.
I like the plain spoken Mark Bristow CEO at Barrick. If you get a chance watch any of his videos for a plain spoken CEO. They are working to go green with five large trucks that are EV. He says technology isn’t there yet, but they will keep working with manufacturer to try to close the gap. He has been around the block a few times about real world stuff and financial system.
Evercore instead of everyone. Spell check strikes again.
LOVE the analogies DC, or whatever is the proper name!!
Please keep on doing your best with these kinds of clever comments that are OK with Wolf’s very clear commenting guides, praise the Wolf!
Otherwise, as he said, do NOT post anything on his full of wonder site that might get him,,, and YOU, in trouble with the guv mint…
Thank you for your insights,,, and just hope you can ”get out of dodge” soon enough.
“Every time Shillow overpaid, a refi junkie got their wings.”
Wolf…any recent stats on refi cashout volumes?
So automakers are going to use this windfall to rebuild their balance sheets and catch up on much needed modernization?
A: Probably eventually blown on stock buybacks and overpaying to buy out existing start-ups.
Ford to repurchase up to $5 billion in junk bonds as it restructures its balance sheet in hopes of restoring credit rating
Right after COVID hit many corporations not knowing what to expect took out loans via junk bonds with values up the wazoo. Not many people knew the FED was going to do it like ServPro and make it like it never happened.
…Ford expects to fund the buyback with cash on hand, which totaled about $31 billion to end the third quarter
We need a third class for vehicles, as ‘cars’ are still cars — sedans, coupes, convertibles, etc. — but trucks include everything from big F-350 pickups to tiny ‘crossovers’ that are in reality simply tall cars.
I propose ‘smucks’.
The stock market is absolutely on a tear now. Are you going to cover your short, Wolf? I think this thing’s going to 50,000. Too many trillions were printed, and Weimar Boy has the pedal to the metal.
If you believe correlations, the stock market will roll over when QE begins tapering.
The tapering has actually already begun, and the stock market is on a rocket ship ride. Too many trillions sloshing around, and Weimar Boy still has his foot to the floor.
When people start chewing over the Zillow disclosures (Hmm…what if Skynet had a lobotomy…) and the implications, that point may prove to be a top.
If the past is a guide, it will be balance sheet reduction and not tapering that kills the market. Reduction is not even on the table now.
The S&P started to roll over in 2015 about 6-8 months after the QE3 taper was finished, but then rose dramatically even without further QE until 2018 when the Fed started *reducing* its balance sheet. During that interim 2015-2018 period, the Fed kept its balance sheet fairly steady. What’s different this time is that everything is so juiced to the gills that perhaps a decrease in the rate of money printing will cause a shock.
This is just going off of online charts and google searches, hopefully the data is legit.
depth charge, the printing only explains part of the asset mania. I think inflation is closer to 15% this year, which explains why house prices are up about that amount. but the stock market and crypto are up over 100%. that’s not printing, that’s printing induced mania, which isn’t quite the same thing. even assuming zirp forever, assets still are overpriced, and by quite a lot.
Meh, the Fed assures this is all transitory, and the Regime doesn’t even address it at all so it must be temporary.
I’m waiting for the prices to plummet back to $31,000!
Wake me when this is over.
So many misconceptions regarding people who buy new cars in this environment but not a peep about folks who lose cars to total losses such as collisions and natural disasters such as floods. Not to mention the people who leased two, three, and four years ago and have to replace a vehicle.
Also, many vehicles are totaling in this environment because they can’t get collision parts in a timely manner.
Not all new vehicles are selling for MSRP or over MSRP either. I replaced two Fords this year at invoice minus incentives and will replace another Q1 2022 with the same deal. I have a relationship with this dealer like many folks do.
I’m also ordering my wife a new Tahoe at $7K off MSRP because I can Family Plan through my grandmother.
“Also, many vehicles are totaling in this environment because they can’t get collision parts in a timely manner.”
Wow another unanticipated side effect.
I was reading the other day that toy vendors are placing orders anywhere and everywhere. The debate was about whether the orders could be filled. If not filled, shortage. If filled, glut.
I’ve set up my pieces on the chess board and barring some major news I’m sticking with my allocation. I can’t jump around like water on a hot skillet any more.
Of course you can MG,,, Very clearly that our species is totally,,, TOTALLY ABLE AND WILLING to jump around on ANY skillet or other skill net that our owners, AKA these days oligarchs put to us…
While WE the PEONS have clearly made at least some progress since the magna carta, when the ”LORDS” made quite a bit of progress,
,, it has not actually been very much in terms of the relative wealth of WE Peons compared with the oligarchs of that day and every since.
And, thus, WE the Peons are in almost the same condition/situation today as then,,,
the really and truly great exception is that WE the Peons today do NOT have to accept our brides being raped by the Lords as was the normal situation then…
SO, progress, eh
over 1 million new vehicles and over 1 million used vehicles were sold in October, over 2 million total. The number of vehicles that were totaled is minuscule compared to the 2 million vehicles that were sold.
Nevertheless, it’s more unanticipated fallout no matter to what degree.
The hysteria of vehicle buying (new & used) has filtered down to the repair facilities.
Two/three weeks for body shops turn around time (assuming crash parts are not on back order).
What used to ‘crushed’ (repair costs > than net value of vehicle) are being repaired irrespective of costs (many repair shops are carrying clients 90-120 days).
“Pots & pans” (beater trade-ins) that new car stores use to wholesale are serviced/detailed out & put on front line. Detail shops are exclusive (sounds like a dating app response) to large stores demands.
As always, ymmv.
The FED thinks they found the new magic elixir – printing massively to paper over any hint of a downturn. They are smitten with themselves. Instead of a depression, they created the most fantastic boom/bubble in history, and with no consequences whatsoever when they doctor up their inflation stats. Look for more money-printing at the first hint of a slowdown. We’re just in the beginning stages of this new MMT experiment.
The first and second act were fantastic. I can’t wait for the main show!!!
Seriously how do they trump what they have already showcased? no pun intended
Higher new car prices must not be effecting AVIS. Blowout earnings caused a huge short squeeze of a 200% stock appreciation in one day.
Anyway they had their best revenue quarter ever and this was with a smaller fleet. How…..their average rental per day ($68) was 18% higher than pre-covid rentals per day ($56)
Plus I am guessing their fleet of used cars pre-covid depreciated much less than normal?
Any….another example of inflation
Have you rented a car recently? I just returned mine in Tulsa, OK. This is where the revenue gains come from, and I helped today by a whole bunch, even in Tulsa. This is called inflation out the wazoo.
Their 18% average was likely for their global business. I’d say it’s a lot higher in the US.
I rented a car for a Island vacay in Feb.
It was 100% more than the last trip 2 years ago.
I probably missed it somewhere but how did used vehicle prices compare during the 08/09 market lows to 07?
My nephew is a sales manager at a Toyota dealership. He showed me his pay stub the other day…he’s made $447,000 so far this year and still has two months to go. He says they’ve added $4000 to the price of everything on the lot, and it’s “take or leave it”. And most people are taking it. They have money and they want cars or trucks or whatever you got. Management was astute at the start of the pandemic and gambled by buying every used car they could get so they could have plenty of inventory. Even at that they had to space cars twelve feet apart to make it look like they had a full lot.
i hope their customers remember who was gouging during this at the next downturn and go to another dealer. that’s what we’ve done.
Don’t worry, Jake… they won’t.
And, if they do, they’ll go down the street to “Brand X” that is part of the same dealer group or public company and the money goes into the same pot anyway.
Supplies?, we ain’t got no supplies.
We don’t need no stinkin’ supplies!
Tried to buy some grey electrical pipe for undergrounding a powerline. Zero on the shelves, except for two sizes too large. Will have to pay many hundreds of dollars more for something that would have cost less than fifty a couple years ago.
Vehicle prices, Wolf?
Jobs, Jobs, Jobs!
Though I bet you already working a piece.
I’m now at the DFW airport getting moved from gate to gate. Trying to make it back to San Francisco today, if possible, please.
Went to see off one of the most important men in my life, who’d passed away.
So working on it, but it’ll be a while.
Wolf-my sincerest condolences.
may we all find a better day.
Godspeed, may your friend RIP.
I’m doing the same. It’s important!
What works for automakers, which make up the top tier of car manufacturing, doesn’t work for the rest of Automotive supplying components.
Carmakers can compensate for lower production volumes by concentrating on cars with higher margins. Component suppliers cannot do this, or only to a very limited extent. At these low production volumes, component production is unprofitable. Production lines often run only a few hours a day.
I work for Automotive myself, we supply machines and production lines. From March to the end of 2020, no new orders were received at all. In 2021, new orders are about 30% of the previous state.
I bought 2 new cars this year through the Costco program. A 2021 CX-5 for $ 39,000 it was $500 under MSRP which is a total rip off but traded in our other SUV for $2000 more than what we paid for it 2 years ago. The other was a Hyundai Sonata that sold for $3,000 more than what it was appraised for at CarMax just a year before that one was traded into a company called SHIFT who I have never heard of before. Purchased. A Hyundai Kona also $500 under MSRP which is also a total rip off as it should have been over invoice. With this ridiculous trade-ins it made it all worth it. By the way, I paid cash as I felt I had too much with inflation coming on strong.
The 2022 Kona I bought has a CVT transmission that gets $800 a year better fuel economy. They had a 2021 Kona with a six-speed mechanical with a $1,500 rebate.
I looked to see how much they put them up for and the CX-5 sold to shift listed it for $2000 more than I sold. And the Sonata I traded in they listed for $7,000 more than I sold.
What’s not mentioned by Wolf is that Ford is trying to get back to investment grade. They are using this profit windfall to get their bond ratings up.
Which is fascinating considering junk bond yields are garbage too. I swear the milky way went into some weird wormhole at the end of 2019 and we are in an alternate universe where this should all naturally make sense but doesn’t to mere mortals who took actual basic economic courses.
DXY is still incredibly strong. Garbage domestic spending power but what the hell is the reference point??????
Every other currency sucks worse????? I don’t get it. As bad as the inflation is here, the EU must be a complete nightmare. At least that’s what DXY is saying……anybody wanna weigh in from Europe? Because this doesn’t make any sense from a macro perspective at all.
I am starting to get the feeling that every factual indicator you can use to develop a theory and maybe even a hint of a plan is manipulated and fake. Because there is no way that yields should be going down on the 10 year or that DXY should be unaffected by inflation nor should precious metals be so flat.
You have to zoom gold out to a 20 year term to gain any perspective really, and even then what the hell does that even indicate when DXY just sits there?
Hey but the S&P has gone nuts. Is that the true indication? Maybe bizarro-AI will rain down some logical platypi or something that will make sense of all this.
One things for sure: Ford is still a junk bond. Lol.
1. Inflation is raising. Soon, the prices of cars will keep climbing up. So the prices today will be justified.
2. Yes, people took loans. I agree. These cars can be paid back for a price of a marble
3. Lot of public transportation in big cities and medium tier towns are in reduced mode. Car is now essential part of American life.
4. Due to the supply chain crises, cars cannot be made in US in a few months. They will not be available even if you are willing to pay any price. So, the buyers are justified.
5. Obviously americans are bigger than the rest of the world. Hence the need for bigger cars not the compact versions
6. The trucks are essential for the side hustle. The larger SUV can be useful for the entire family, and so on. They are really useful than the compact cars. Dogs do not even get inside the smaller cars.
7. Unit sales are down because, average life of cars on road is getting better.
Free markets move on the “marginal” action. In this case, I think that’s the person who needs a car now because they don’t want to take public transit due to covid.
The marginal act does not have to be in large numbers. They act (buy) due to a perceived need.
Due to this, there can be add-on effects, such as those people who might have extra money, or extra “desire” to get a better car after being locked down, etc. So, the price spikes.
It will not last forever.
Need to set 2022 prices in our firm next week. Yes our costs have gone up … so an increase is warranted, but with everything else going up, wondering just how high we can push it and get away with it. Probably higher than I ethically want to go. They really need to up rates a bit to stop this stupidity before it really takes off and requires much stronger action.
Did buy a new 2022 Honda Civic for less than my 16 year old Jetta diesel (which still runs) cost me then (both base models). The increase in tech at the low end price point is impressive (although the sturdiness of the build is a lot less). Not much selection in cars these days – hopefully higher gas prices will bring them back and kill off some of the ridiculous SUVs. and trucks,
You people crack me up. Until 2020, I didn’t own a car built in this century.
I have 5 cars and a 1999 GMC. I bought a 2002 BMW 525I that needed a G3 computer rebuild and a spare tire. It took me a couple of months to sort out the little computer, and I Bondoed a dent in the back of the car.
I paid $900 for the car that was going to be given to Goodwill. It runs perfectly, has 140,000 miles on it , and my wife loves it.
It took you a couple of months but you work for free. I see why it was worth $900. It is also a 19 year old car.
I work at one of the largest volume Chrysler,Dodge, Ram dealers in New York State. I am absolutely amazed at the number of people that are willing to go into massive debt for a vehicle. New trucks in the 60 to 100 k range flying off the lot. Then once you have it you have to insure it and feed it at 3.50 to 5.00 a gallon.
Kids that still live in mommy’s basement but are driving a 60k truck on a lease for 500 to 700 a month. People buying 85k wranglers and willingly paying 5 to 10 k over sticker.
A shipment of wranglers comes in and they are all sold before they are unloaded.
Then the total idiots paying over sticker prices for 3-4 year old used cars because it might be a hard to find model and they just have to have it.
I’ll just stick to my 20 year old vehicle that has 250k on it and still drives fine.
I thought EVs were supposed to be the answer to the affordable vehicle. What the heck happened?
what is the semiconductor footprint of bitcoin mining and does it impact auto manufacturing? i don’t have a clue, it’s just something i’ve been wondering, with miners fleeing China setting up shop with buildings full of computers across Texas, and even up here in the states around Lake Erie…
It took me two months to repair the little computer (that resides behind the glove box) , because I was unfamiliar with the electronics and had to teach myself how to diagnose it. With five other vehicles and a bicycle, I survived, as have two of its siblings, including a 1979 Corvette and a 1937 Cord 810.
You sound like a man with two right hands and octane for his blood. But a lot of us have two left hands.
I am 71 years old and am a retired corporate and airline pilot. I never wanted a real job (hence the flying gigs), so I spent my years learning how to fix things. Anyone can fix things if they investigate. YouTube has taught me more in ten years than I learned in the previous 60 years.
Please don’t take offense, but there is no reason that anyone can’t learn just about anything.
Priorities are important.
Just ask my daughter, who can do light maintenance on any of my cars, and her almost new Nissan Armada; a wonderful machine in my opinion.
michael/triple-check, but many must learn to recognize and swim upstream against decades of covert/overt mental conditioning (modern mass-entertainment/mass-advertising the great handmaiden, here) that posits that individual respect and mastery for any form of the ‘manual’ skills can be dismissed as either too-dirty and beneath one ‘s station or too-much ‘rocket science’ to aspire to…
You’re living proof that it ain’t necessarily so-may many more come to the same realization…
may we all find a better day.