There is absolutely no doubt that the cost of buying a new or used vehicle has risen during the post pandemic economy.
By most estimates, Used car values are up 40-45% and new cars have risen as well, mostly due to supply and demand issues, lack of Manufacturers incentives as a result, and the need for dealers to hold the pricing discounts due to a general scarcity of inventory and the resulting lighter volume.
So the obvious question becomes "should I hold off on buying a new or used car until things "go back to normal?" The answer might be less complicated than you think.
Personally, I do not think the supply chain issues, chip shortages, transportation issues and vehicle pricing are going to cure themselves anytime soon. I should make a disclaimer here that I am not an expert on supply chain issues, I do not know as much about these things as I would like to, and my opinions are just that, opinions. But I have been around since Jesus was an Altar boy and I am fairly well read.
Here's how I think we got here, and what I think is going to happen. In early 2020, our industry, like any industry, was rolling along per usual. Bear in mind that our supply chain was already stretched in the United States but we were managing to get the goods to market in a timely fashion. Eventually, when President Biden asked the Ports in Los Angeles to open up around the clock, they did. And when they did it really had no impact as there was simply no transportation infrastructure to deliver the extra goods that were being unloaded.
Then Covid 19 hit. I was living in South Carolina and I had taken a position selling RV's. I was there about a month and it was like someone turned the lights out. We simply had no customers coming on the lot. Being the new guy I was one of the first to go. Eventually that company laid everyone off. When Covid dug it's heels in, the world shut down. For months, nothing was manufactured, businesses were shuttered and the sky was falling.
It did not take very long for the pendulum to swing though and people wanted to start spending money. 3.2 Trillion dollars (?) injected in to people's bank accounts, unemployment paying better than most jobs, people working from home, still getting paid and not spending their money and sheer boredom settling in.
But no one wanted to be around other people. In my little housing development, my friends and I would gather in someone's driveway in the evenings, spaced way apart in lawn chairs, and socialize.
The economy quickly changed from a goods and services balanced economy (think restaurants and new cars) to a goods only economy. People needed to spend money and they needed to spend it on cars and trucks, computers and stereos, appliances, new RV's, home improvements or even new homes. More and more businesses that were not goods related, such as restaurants, cruise lines, travel agents, airlines, bus lines, etc....simply went away. Mass Exodus from cities to the country due to cities being toxic and also basically shut down. Remember the pictures of NYC with all of the storefronts boarded up. It has not changed. And this draining of cities in to less populated areas is going to continue for years. Don't look for home prices to come back to earth. Period.
For A minute, when the dam burst, life was awesome for Car dealers, and any other business that had hard goods on hand. The faucet was reopened. We were selling everything we could get our hands on. Remember, our inventories had not yet shrunk. Everyone had all kinds of vehicles on the ground and the factories, in an effort to keep things moving, were still heavily incentivizing them. But that only lasted for a few short months.
At the same time that people were starting to spend their money and pent up demand was beginning to be satisfied, manufacturers tried to come back on line. But now we had workers that were happy with unemployment, scared to go back to work, or in many cases, that had simply decided that they had enough, and retired. The workforce had suffered a serious downsizing.
So now, you have pent up demand, being elevated by increased demand, and being serviced by a smaller workforce. In addition to that, The Chip shortage became a real thing. All the tech equipment takes semi-conductors. All vehicles take between 100 and 3000, depending on the level of gadgetry.
The result is that we are so far behind that it is going to be a long time before we can stabilize. I have had vehicles that I ordered for customers dropped off by a boat at the port in Rhode Island, unloaded and sit on the apron for a couple of months only to be loaded back on a boat and shipped out to sea. Why? No truck drivers to deliver them.
Today, in the Car Industry, we have less vehicles available than ever before and more people that want them. And this problem has gotten worse over the last year. None of us see an immediate end to this. If I had to guess, It will be well into 2024 before the supply chain evens out. The engine is just too big.
But what about pricing? Pricing may level out but I do not think we will see the rebates and incentives that we had in the past. The factories are figuring out that they are better off building one less than one more. They can be far more profitable by not giving the enormous incentives that we have all gotten used to.
So, should you wait? I do not think so. Remember, your current vehicle is worth more now too, and that gives you a very nice offset when negotiating a deal. And I know that some of you are thinking, "I cannot pay sticker". Get used to it. Make sure you find a dealer that is not charging mark ups as there are many that do. But at the end of the day, as a dealer I know that we do not make thousands when you pay sticker. I would say that the average mark up on a 50k vehicle is around 12-1800 dollars. The discounts now for the longest time have been controlled by the manufacturer. Do your homework, buy a car that you love, and understand that the days of huge discounts are likely over.
Pull the trigger, it only hurts for a minute.
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