Is the Automobile Bubble Bursting?

[Bflotomny]

Depends on one point of view.

"I wanna buy direct!!!!" " I hate salesmen!!!" "Tesla!!!!!" "The dealership model is obsolete!!!" "I don't wanna haggle!!!"

Well, lately, the public has gotten a taste of that.....full price, is a fair price. "Show me your invoice!!!" "Oh yeah? Show me your underwear". Things have changed due to supply shortages. So many got what they wanted - no haggle.

It will tame. As supplies come back - yes, it will tame but I highly doubt it's going to go back to the crazy discounts of the last generation. "I'm walking!! I'm going to the other dealer!!" "Well don't let the door hit you where the good Lord split you". *Some* OEMs are this time gonna try and keep days supply of inventory down. This cuts their costs via floorpan subsidies (paying for interest costs for inventory for 60-90 days). Less supply will mean less discounting than before.

Sure, it'll end and flow. Some OEMS - WON'T learn. They'll go back to over producing and retailers will discount more. There will always be ebbs and flows.

Another wish being granted....

"I wanna buy direct!" - OEMs are watching. The Tesla model is full sticker price.

Other OEMs are starting to force dealers to do the same thing - - ok, full price MSRP. People got their wish no haggle. Oh lets look at the sainted manufacturers to "buy direct " from. Let's put aside the KNOWN problems with airbags and other things that the sainted OEMs sold people - knowingly.

One OEM just now - on some units - is putting a MANDATORY $1500 on the sticker for subscription services. Imagine that -wanna buy the car? Well guess what, swallow this $1500 pill.

'The Dealer is greedy!"

Really? the dealer profit margins - are NOTHING compared to the Apple, MSFT, TGT and other margins that we all applaud all the time. Furthermore - when the Dealers are gone - who REALLY thinks that that profit margins will go to the customer? Look at Tesla? Their margins are GREAT - why? They keep the money - they don't give it to the consumers. OEMs care about pleasing Wall Street, not being a charity. It's not Our Lady of Toyota.

So yeah, prices will tame a bit though not today. A cursory look at insider sales reports shows - that many dealers have 120 days of SOLD factory. orders in the pipeline - at full sticker.

I know what I speak of - I personally have helped in "2" metro markets - and subserviently their profit margins went UP.

Lastly.... eventually it'll be more corporate like people think they want. Guess what? Open the chat box for service. No more talking to a real professional whose pay depends on you being happy with the service.


My bottom line: Prices will come down- but NEVER EVER to where they used to be, The leverage is changing, the tables are slow turning. I believe the dealer model will remain to an extent and guess what? Fewer people will own more dealerships and control the market. It's already happening, I've seen it not just in public reports - but as an insider. I've both suffered, AND profited due to this.

+1 Look around at your neighborhood dealer. The one who had screaming ads in the newspaper or TV. He not screaming any longer because he doesn't inventory cars in lots all over the area & gets help through floorplan subsidies. He has customers lined up paying full MSRP+. Used car prices will lower a bit but with new the game has changed.

 

[TripleLindy]

While I understand the supply/demand equation, I hope to never set foot in a dealership that uses a “market adjustment” to charge over MSRP. I came close to buying a heavy duty pickup earlier this year, as we also planned to buy an Airstream trailer. We came to our senses (thank goodness), but I was astounded by the markups over MSRP some dealers were asking.

We’re fortunate in that our older vehicles both have low mileage. My wife drives a 2001 GMC Yukon XL (we had 3 kids at home and 2 labs when we bought it) and I have a 2011 Buick LaCrosse. The Yukon has only slightly more than 100k miles and has had the stereo upgraded to a nice unit that supports wireless Android Auto and Apple CarPlay and a backup camera. We had the seats re-upholstered a few years ago. Buick has 70k miles. Both have been very well maintained and garaged since purchased new and are in excellent shape.

We’re planning a pretty long road trip in a month, which has us thinking of getting something new, as even though both cars are in great shape, I worry about a breakdown in the middle of nowhere. But dropping $35k-$45k on a new car nauseates me. Late model used are not currently priced much lower.

 

[Out of Steam]

What I have noticed, is Hyundai do not seem to be playing.

I don't have first-hand experience except for a test drive or two, but Hyundai and Kia dealers don't seem to have a good reputation.

 

[TripleLindy]

I don't have first-hand experience except for a test drive or two, but Hyundai and Kia dealers don't seem to have a good reputation.

If true, that’s too bad. Those are the brands at the top of our list. I looked at a Kia 10 years ago for my son’s first car, but they weren’t all that well established at the time and I thought they were overpriced compared to Honda and Toyota. Hyundai’s warranty is great, but if dealers have bad rep, I wonder if that includes service dept.

 

[Out of Steam]

Late model used are not currently priced much lower.

Except for unpopular models, late model used cars have seemed to be a poorer buy than new cars for some years.

 

[ikonomore]

We’re planning a pretty long road trip in a month, which has us thinking of getting something new, as even though both cars are in great shape, I worry about a breakdown in the middle of nowhere. But dropping $35k-$45k on a new car nauseates me. Late model used are not currently priced much lower.

Just rent something. While it may be expensive, it'll certainly be cheaper than buying a new car. Most rentals have unlimited mileage too.

 

[Chuckanut]

Why should Hyundai and Kia dealers have a bad rep? I am curious as to the source of this information.

 

[hpnutty]

What I have noticed, is Hyundai do not seem to be playing. I have 2 friends who wanted to trade in their 3 year old cars on a new one, both have luxury Hyundai cars. The "St"ealers offered them more than ~$7k in each case LESS than Carvana and Carmax would pay them in Cash for their cars. So one should do their homework before jumping in.

It's my understanding that this is not unusual. Carmax/Carvana will usually pay more because they have more ways to make money on your car than your dealer. While your dealers buys cars, fixes cars and sells cars, C&C and others buy cars, transport cars, fix cars, finance cars, sell cars, warranty cars - all under one roof. The prices they pay and interest rates offered are their flex options for beating the dealers. A good explanation is found on this thread from @cardealershipguy.

https://twitter.com/x/status/1566824894112866304

Two weeks ago we sold a 2011 Honda Civic with 106K miles to Carmax for $7,400. A car that we purchased 12/31/2013 with 23K miles for $14,300. If we would have sold in August it would have brought in over $8k.

 

[Piper20]

I’ve been watching the Jeep Grand Cherokee’s at the local dealership and they’ve been sitting for 3 weeks now. 2 months ago they were sold immediately.

 

[CincyDave]

Our cars are 2018 and 2020 models so thankfully, short of something happening to one of them, we are good for a while. We usually keep them pretty long.

 

[JDARNELL]

With Ford already closing the 2023 order bank for the Maverick it is safe to say when I get my 2022 in Nov/Dec the demand will still be there if I don’t like it. I am also grandfathered in on then 0% for 36 mo or the 1.9% for 60 mo. I may just be one of those high payment car guys. Looks like military retirement cola will be above 8% so I think all will work out.

 

[Out of Steam]

Why should Hyundai and Kia dealers have a bad rep? I am curious as to the source of this information.

Took me a bit to get back to this, as I was away. Here are several examples, the first two of being especially aggressive with dealer markups on vehicles, the last more general.

https://www.ioniqforum.com/threads/...oor-dealer-behavior-doing-the-opposite.42179/

https://jalopnik.com/a-kia-dealership-thinks-demand-for-the-telluride-means-1846888135

https://jalopnik.com/kia-will-have-a-hard-time-selling-the-stinger-gt-unless-1790975835

It's the sort of thing that makes me drive cars for years longer than I really want to.

 

[jollystomper]

We’re planning a pretty long road trip in a month, which has us thinking of getting something new, as even though both cars are in great shape, I worry about a breakdown in the middle of nowhere. But dropping $35k-$45k on a new car nauseates me. Late model used are not currently priced much lower.

Just rent something. While it may be expensive, it'll certainly be cheaper than buying a new car. Most rentals have unlimited mileage too.

I agree. We just completed a 1200+ road trip vacation, and rented. Back in June I almost bought a SUV to use for road trips (we did this when we had 3 cars), but decided not to rush into the purchase. Rental prices have gone down, and I have the benefit of being a Hertz Gold Plus member, so renting was the way to go.

 

[TripleLindy]

I agree. We just completed a 1200+ road trip vacation, and rented. Back in June I almost bought a SUV to use for road trips (we did this when we had 3 cars), but decided not to rush into the purchase. Rental prices have gone down, and I have the benefit of being a Hertz Gold Plus member, so renting was the way to go.

I think we’ll be ok with our own SUV. I joined AAA for peace of mind and they offer an inspection service that I’ll take advantage of before the trip. I had a mechanic check things out about a year ago when we had the brake booster replaced and he said everything was in great shape - didn’t even need new hoses or belts. I’m also a Hertz Gold Plus member but this trip is one that could easily get extended. I’d hate to have Hertz file a stolen vehicle report on me.

 

[jazz4cash]

It's my understanding that this is not unusual. Carmax/Carvana will usually pay more because they have more ways to make money on your car than your dealer. While your dealers buys cars, fixes cars and sells cars, C&C and others buy cars, transport cars, fix cars, finance cars, sell cars, warranty cars - all under one roof. The prices they pay and interest rates offered are their flex options for beating the dealers. A good explanation is found on this thread from @cardealershipguy.

https://twitter.com/x/status/1566824894112866304

Two weeks ago we sold a 2011 Honda Civic with 106K miles to Carmax for $7,400. A car that we purchased 12/31/2013 with 23K miles for $14,300. If we would have sold in August it would have brought in over $8k.

I’m really curious about Carvana business model. I see many rumblings that they are headed for BK on Seeking Alpha and elsewhere. Carmax has similar operations but seem to be more respected from a business standpoint. We bought a car from Carmax and it was a smooth transaction. The aftermarket warranty they sold us was even accepted by our local Chevy dealer.

 

[ExFlyBoy5]

I’m really curious about Carvana business model. I see many rumblings that they are headed for BK on Seeking Alpha and elsewhere. Carmax has similar operations but seem to be more respected from a business standpoint. We bought a car from Carmax and it was a smooth transaction. The aftermarket warranty they sold us was even accepted by our local Chevy dealer.

The Carvana model is pretty simple; buy low, sell high. If it's a good long term play remains to be seen but the folks who got in early have made their millions and probably don't care what happens to it. Since it was started by the same folks that run "Drive Time" (poor credit dealer), it's no surprise they are getting hemmed up for some of their poor business practices. I had zero issues selling to them, but I wouldn't buy from them...no way, no how.

Edit: Oof...I guess they are worse off than I thought. The stock is down 92% over the last year. Wow.

In August 2021, Carvana was issued a temporary ban by regulators in North Carolina due to its failure to properly conduct inspections and provide vehicle titles to customers as required by state law. Carvana was allowed to resume business in North Carolina in January 2022.

On May 10, 2022, Illinois indefinitely suspended Carvana's business license due to customer complaints, effectively banning the company from conducting business in the state. The Office of the Secretary of State of Illinois stated that the company had failed to provide titles to buyers for the vehicles they had purchased within 20 days, as required by Illinois law, and in some cases had illegally issued temporary registrations from other states to customers in Illinois. The state lifted the suspension on May 26, 2022, after imposing strict guidelines on the company's operations. On July 18, 2022, the Secretary of State's office announced that Carvana's suspension was reimposed after finding that company continued to engage in illegal conduct.

Similar issues have been faced in other states, including Pennsylvania where a class action lawsuit has been filed alleging that the company violated the state's Unfair and Deceptive Trade Practices Act by failing to properly transfer ownership to buyers, a matter in which Carvana denies any liability

https://en.wikipedia.org/wiki/Carvana

 

[googily]

I just posted in the other thread about how important the safety features are to me, looks like this thread has a lot of like minds.

Am following this (especially @Car-Guy!) as I am for the first time looking at selling the car I bought a year ago for something larger. (Like, from 2021 Escape to 2022 Edge) All hints and tips and tricks appreciated....

 

[Midpack]

Took me a bit to get back to this, as I was away. Here are several examples, the first two of being especially aggressive with dealer markups on vehicles, the last more general.

https://www.ioniqforum.com/threads/...oor-dealer-behavior-doing-the-opposite.42179/

https://jalopnik.com/a-kia-dealership-thinks-demand-for-the-telluride-means-1846888135

https://jalopnik.com/kia-will-have-a-hard-time-selling-the-stinger-gt-unless-1790975835

It's the sort of thing that makes me drive cars for years longer than I really want to.

You can find examples of dealers for ANY make of car who get scathing reviews. Finding a handful on Hyundai/Kia isn’t at all conclusive…

 

[Finance Dave]

Anecdotal evidence here, but...

I have a good friend in Virginia Beach area whose job it is to do used car interior repairs for local dealerships. He works with about 5 dealers in the area. They get in used cars, and he has all the equipment to look them over and make them look as close to new as possible with leather repair kits, dyes/stains, he can redo headliners, fix interior gashes on dashboards and consoles, polish headlight lenses, remove stains from carpets, and much more.

He has told me over the past 5 months or so that used car and new car inventories have both dwindled...he sends me photos of the lot from a year ago...full of new cars, and then one of the same lot recently, with maybe 15 cars instead of 150. In addition, I visited him this summer and went with him to one of the dealers. EVERY SINGLE car on their lot had an "ADM" (additional dealer markup) of at least $5k on it. Most of the pricier cars were $10k, and one very rare hi-perf car had a markup of $40k over MSRP!

He said the used car prices are higher too...used to be they'd say to him "if you have to charge us more than $x to spruce up the interior, don't bother because we'll never recover it." But now that $x has doubled...and they rarely turn down one of his estimates.

We are very fortunate that we live in a small town where we don't have to drive much, and both our everyday cars are in great shape...so we can wait 2-3 years, maybe longer, to buy. Being retired helps too....limits trips to work. We have two daily drivers, a 2015 and a 2016. Between the two, they only have 85,000 miles...and most of that is from some very long drive vacations like Dallas, Minneapolis, Green Bay, Raleigh, and Philadelphia (we are in Indiana).

Hopefully they get the supply chains fixed and all these markups reduce or go away. I hate to vote for a recession, but that might help the demand side of the equation also.

 

[CaptTom]

Have you spoken to the friend who does detailing lately? Things were crazy over the summer, but my sense is it's changed a LOT since then.

My son just bought a used car this week. He had found several he liked, in his price range, private sale. They were still for sale days or even a couple of weeks after he first saw them. The owner he bought from didn't seem to be pushing him to hurry before anyone else bought it.

I drive by a local wholesale auction place regularly. On auction day, it had been mobbed with buyers over the summer, and the lot nearly empty. Now, the lot is just starting to fill back up but there are visibly much fewer buyers.

That's all I've got to go on. It's indirect evidence at best, but I think it's significant.

 

[Bamaman]

I’m really curious about Carvana business model. I see many rumblings that they are headed for BK on Seeking Alpha and elsewhere. Carmax has similar operations but seem to be more respected from a business standpoint. We bought a car from Carmax and it was a smooth transaction. The aftermarket warranty they sold us was even accepted by our local Chevy dealer.

There have been a number of complaints filed about Carvana. In May, their stock price was down 90%. Illinois pulled their business license for various rasons--including people not getting titles. They reinstated their license in late May, and suspended the license 7/2022 when customers continued to not get titles on purchased vehicles. There's a class action in Pennsylvania against Carvana pending too.

What you have here is a company not run by "car people." The automobile business is dog eat dog--a very competitive and tough business run by very savy businesmen that cut their teeth in the automobile business. Carvana's principal is a Stanford educated high finance individual--not a car man.

There was something said about Carmax. It is an offshoot of Circuit City electronics retailers. Circuit City got the car business going well enough to split it off and do a stock offering--then Circuit City went bankrupt. CarMax continuesin business and are trying to change with the times offering at home shopping also. And they've added some new locations recently. They seem to offer more to purchase used vehicles than the other large national retailers.

 

[REWahoo]

12 Month History of Trade-in Value

This Edmunds website shows the monthly average trade in value of a vehicle. Input year/make/model/trim/mileage and see how the value has changed over the past year.

I entered a few vehicles and the trend over the past couple of months was definitely downward. YVMV (Your Value May Vary).

 

[jazz4cash]

I put my car info into an online service and Carvana came out on top followed by Carmax and some others I did mot recognize. It was 15% higher than a bid I received 2 weeks ago.

The carmax origin story is interesting. We bought a car there for DD and it was a smooth transaction.

I just learned that Carvana is related to Drive Time. I was scanning Drive Time’s website and my phone rang. It was the local Drive Time dealer asking for me by name. I don’t recall entering my number. I vividly recall when Carvana went public the CEO was on CNBC touting a used car vending machine. It seemed like a joke or maybe the idea came to him on the spot. The hosts seemed confused also. A few weeks later the vending machine was featured in commercials. I’ve seen several youtubers insinuate that Carvana is basically a scam designed to benefit the founders. Even if true it doesn’t mean that it was their intention from the start. Carmax and Carvana should’ve done extremely well due to the tight supply of new vehicles but both stocks are tanking and CVNA is subject of BK discussion. GM is launching its own used car distribution channel soon.

 

[MichealKnight]

wow

There have been a number of complaints filed about Carvana. In May, their stock price was down 90%. Illinois pulled their business license for various rasons--including people not getting titles. They reinstated their license in late May, and suspended the license 7/2022 when customers continued to not get titles on purchased vehicles. There's a class action in Pennsylvania against Carvana pending too.

What you have here is a company not run by "car people." The automobile business is dog eat dog--a very competitive and tough business run by very savy businesmen that cut their teeth in the automobile business. Carvana's principal is a Stanford educated high finance individual--not a car man.

There was something said about Carmax. It is an offshoot of Circuit City electronics retailers. Circuit City got the car business going well enough to split it off and do a stock offering--then Circuit City went bankrupt. CarMax continuesin business and are trying to change with the times offering at home shopping also. And they've added some new locations recently. They seem to offer more to purchase used vehicles than the other large national retailers.

Nailed it, 100%

 

[Out of Steam]

Anecdotal evidence here, but...

I have a good friend in Virginia Beach area whose job it is to do used car interior repairs for local dealerships. He works with about 5 dealers in the area. They get in used cars, and he has all the equipment to look them over and make them look as close to new as possible with leather repair kits, dyes/stains, he can redo headliners, fix interior gashes on dashboards and consoles, polish headlight lenses, remove stains from carpets, and much more.

I was in such a business a couple of months ago, getting the drivers seat of my car fixed. There were ten or so cars in the lot with dealer stickers waiting for work, including from Carmax.

I inquired about having my car's interior detailed while it was there, and they referred me elsewhere, saying they were too busy with more extensive work.