Automakers keep inventories low and prices high

interesting article : https://www.autoblog.com/2023/02/18/new-cars-expensive-rich-people-only/

emphasis mine

interesting as to maybe why tundra's and maybe all models at toyota dealers are low across the board.

 

Not surprised at all. At the end of the day no matter what brand you are "loyal" to, the manufacturer wins and the consumer loses.

 

Agreed. It's not really surprising. There is no benevolent "Good Guy" in a for-profit business model, especially when shareholders are involved.

COVID inadvertently taught the auto industry (& many other industries actually) that they can create incremental profitability as a byproduct of limited inventory. There is a significant "carrying cost" for unsold inventory. If they can reduce unsold inventory and also reduce aged inventory days (i.e. the time it sits on a car lot unsold) then it reduces costs for both manufacturers and dealers alike.

Even if they don't increase MSRP to boost profits, reducing the carrying costs of unsold inventory will have a measurable positive impact on bottom line profitability. If they can do both (increase MSRP & reduce inventory), then it's even more of a windfall for them. Tack onto the fact that dealers will keep taking advantage of this limited inventory strategy for "in demand" models by continuing the practice of ADMs and the dealers salivate over this.

 

true but the days of 10% of msrp is probably out the door if they keep inventory low. i think i was lucky at $4900 off msrp. have to see after this week.

 

So I just heard this morning that regular Corollas are hard to find in California... And they go for $5k above msrp around my area without any negotiation!

Corollas!! Not hybrid Tundra, I'm taking about a regular corolla here.

 

Not surprising about Corollas. They're one of Toyota's few fleet vehicles. They have large supply contracts with several of the rental companies and consumers are having to compete against the likes of Hertz/Enterprise/Budget for inventory. Many of the rental companies sold off HUGE portions of their fleets during COVID and are now hurting to keep up with demand. In Vegas, rental companies were renting just about every vacant patch of dirt they could to "store" cars that weren't being used before they eventually sold off huge #'s. Having tried to rent a couple of times due to travel lately, I can tell you that many airport rental counters are still lacking inventory to keep up with demand.

 

oem's love this, sell less cars and make the same amount of money as before. from what i heard toyota is like 12% lower than last year on sales but still on track to make more money.

 

Very true. It's all about demand. The hot commodities right now are: Full size trucks (sans a lot of Rams), "Off Road" any thing (Broncos, etc), EVs & hybrids, and certain fuel efficient compacts.

I stopped at a local Chevy dealership last month to have my wife's car serviced. The sales guy said they had a flat $12k ADM on any Trail Boss or ZR2 package and $6k on another trim with 4WD. In his words, "People will pay anything for off road capability right now." Most 2WD models had no ADM except for the one 2WD High Country trim they had on the lot.

Side note: We didn't buy our car at said Chevy dealer. I just get the regular maintenance done there often because we bought from an out of town Chevy dealer who didn't charge any markup.

You're not also hearing of big ADMs on Kia Souls, Chevy Equinox, or Buick Encores. hahaha.

 

This doesn’t make sense to me since mfg make same profit with or without ADM, dealers are the ones raking in the money here. What’s best for MFG is to move more product.

 

Not with chip shortages. This is one of Ford "Holding Lots" of 99.9% finished F-150s that are just waiting on chips due to the shortage. I'd be willing to bet that Ford wished they had throttled manufacturing more. These trucks are costing Ford bug money each day they sit there. This is exactly what each auto maker is trying to avoid. If they can avoid this scenario AND make more $$ per vehicle, it's a win-win right now.

 

for toyota's the dealer is just shooting themselves in the foot long term. allocation system takes input from your previous quota fulfillments during the quarter/fiscal year and will adjust it for the next quarter/fiscal year. if you adm your inventory to the point no one is buying, then the dealer allocations will dry up.

and some dealers are betting on the kickbacks from toyota if you meet the quota's for the quarter/fiscal year. some toyota dealers are learning that you make more money in the long run earning the quarterly kickbacks than nickel and dime'ing your customers on every vehicle.

at least that is how my dealer works. i know they are making way more on the quarterly kickbacks.

 

I was directly responding to OP’s article. But to your point, this is not entirely true with Toyota since they stockpiled on chips after the Fukushima nuclear accident. If you look at their global production numbers, it remained unaffected with the shortage. As a matter of fact they sold more vehicles in 2021 vs 2019.

 

That was true, but they've already stated that their surplus has essentially run out. Link to Reuters article: Toyota expects to cut full-year output target due to chip shortage

You're also seeing the impact of the chip shortage recently with Toyota as they're no longer giving 2 keys with many new cars. You're getting a voucher for the second key.

My real point is simply that there are maco-economic conditions at work that have caused the legacy business models to change. That's not to say that in 2-5 years, it won't go back to "volume" manufacturing and just pushing as much metal as possible.

 

Have a friend bought a GMC Denali 2 years ago. Because of the chip shortage his truck was semi complete. No heated or cooled seat, no rear window defog or mirror defog, no electric mirrors, no heated steering wheel, no intermittent wipers…..sold it back to the dealer 2 years later.
I hear the dodges are like that

 

funny how the 3 domestics still selling vehicles w/o enabled features you paid for. at least toyota isnt doing that.

 

Whoa. That's crazy. Hopefully he didn't pay for those features.

 

of course they did. thats the scam right now, pay for a feature they will add later and hope you dont follow through. win win for the oem since they save the chips for another vehicle and still charge you for something that didnt exisit.

 

I was pleasantly surprised when I got my Tundra and everything worked. It was the first thing he asked when he saw it…. ” What doesn’t work” lol

 

right now the only thing thay is waiting is 2nd key fob on trucks. right now its a hit/miss. some are getting both some are on a 6m minimum wait for a 2nd fob.

but at least you have 1 fob. knowing the 3 domestics, they probably wouldnt even give you the first fob,

jk /s

 

The problem starts and ends with us, the consumer. In a fairy tail land of unicorns and rainbows, the consumer would give the finger to the manuf/dealers for the shit they are doing, forcing them to come back to reality. But just like all the videos I have seen of people flexing their 800, 900, 1000plus vehicle payment, of course manuf/dealers are raping people left and right. My dealer has been on my ass about my lease. I told them get me in the same SR5 I have now with the same payment +/- a few bucks ($383) and we have a deal. There is no way in gods green earth that I am going to pay the ridiculous price the dealer wants for a truck. My truck works perfectly fine and I don’t need the new shiny toy that after 6 months is just another truck. But hey more power to you if you want to dump all that money.

 

I did that at the grocery store. My little treat I buy myself is this package of 10 aged white cheddar. Other day I am in the store, looked at the price and said F’K that, not a chance. Price has exploded since the Putin massacre started.

 

Tell people to stop buying if you want to solve the deleted options, one key, and low inventory problems. Otherwise it's only going to get worse.

 

Yup the chip shortage has caught up. I’m one of the lucky ones who got 2 fobs with the Tundra. Regardless, the chip shortage didn’t impact Toyota until lately and not during 2020- mid 2022.

 

I tend to agree with most of what you said, but like everything, you cant paint every picture with a broad brush.

as a business owner, I had to buy a van and looked everywhere, I wound up paying 20K over. This was at the peak and my other van got hit.

Was I happy about it, HELL no, but there were 0 alternatives. That said, we do get to depreciate the piss out of it since it was a transit 350

so my point is sometimes your not able to just wait around for years for the old style market to come back.

 

Or, you waited for the 3rd gen, waited another year for it to show up and you’re 60 years old….time to wait is at a premium. No more wait in my life……..fine I will take it. In my case it was a better deal than the ordered one but personally, life is too short to dick around over a bit extra.

 

I 100% agree with you. If you have to, you have to. And I have said it before, I am no one to tell people how to spend their money, but, I have seen people trade in a pretty much brand new 21 just to say they have the newest shiny toy. Or they traded a 22 for a 23 because they wanted heated steering wheel. And this is where manuf/dealers keep giving it to them without the Vaseline (sandpaper is free gift).

 

I have a protein shake every morning. I use to pay around $40-45 for 5lbs. Then it went up slightly to around $55, Covid times. Now it’s going for $75. I said fuck you I will go with another manuf or eat/drink something else.

 

Good read, thanks for sharing.

As someone who is in the market and knows what he wants, I still find myself waiting for prices to come back to reality, but I'm not sure if that means I'll be waiting forever.

My '05 F150 broke the frame (rusted out, even capped it 4 yrs ago to extend the life, but alas) and now my '07 Explorer is over 200k. I am hopeful that I can continue to limp this vehicle until used prices fall further, or MSRP decreases/incentives return.

 

That's fine assholes, I'll just keep my two newer vehicles running until I'm dead, instead of trading every 2-3 years!

-T

 

That's crazy... Do they realize they are missing out of frequent traders like myself? I mean I am never trading the Tundra, because I don't care for new Tundra, but my commuter car would be traded every 2-3ish.. It all evens out!