SUMMARY:
- Retail price of pre-owned cars and trucks jumped a record-breaking 10.5 percent in June, after rising 7.3 percent in May and 10 percent in April.
- The demand is outstripping supply because of a shortage of microchips.
- One of the biggest culprits in the microchip shortage was a sudden shift in U.S. trade policy. In 2018, motivated by national security concerns.
- Consumers are willing to pay above MSRP because of media panic buying stories.
- Prices of new, and used, cars will come down as demand starts to decline.
Supply and demand and panic buying. From toilet paper to houses and cars, new and used car prices are insane. On Tuesday, the Department of Labor reported that the retail price of pre-owned cars and trucks jumped a record-breaking 10.5 percent in June, after rising 7.3 percent in May and 10 percent in April. It doesn’t matter if your heart is set on a tricked-out new Ford F-150 or you just want a lightly used Honda Civic to inconspicuously cart you from point A to point B. The market is brutal for everybody. The demand is outstripping supply because of a shortage of microchips that are not caused by the pandemic.
According. to Foreign Affairs “the supply of semiconductors was at risk long before the pandemic and the virus is only partly to blame for today’s shortages. One of the biggest culprits was a sudden shift in U.S. trade policy. In 2018, motivated by national security concerns, the Trump administration launched a trade and tech war with China that jolted the entire globalized semiconductor supply chain. The fiasco contributed to the current shortages, hurting American businesses and workers. Now, the Biden administration must pick up the pieces”. Ouch
Not only are new cars going above MSRP, some used cars are going for more than when they were new, and cars with over 100K miles are also commanding big bucks.
Why would consumers pay over MSRP on a new car? A couple of reasons beyond simple supply & demand. First, the media promotes that car prices are off the charts, even though that’s not true for 90% of brands. When I was shopping for a new car recently, the Kia dealer told me repeatedly that the Telluride was the “hottest care in the country” when it came to sales. He also tried to get me to lease the car because it could be worth more in two years than new.
People are willing to pay high “market adjustment” prices because they have a lot of cash. During the lockdown, most consumers stayed inside and didn’t spend a lot of money. Now they’re in a spending mood, and extra pricing is damned.
Then there is the panic buying psychology.
“People tend to overbuy on the rumor and oversell on the fact,” said Winston-Salem State University economics professor Zagros Madjd-Sadjadi, who used to be the chief economist for the city and county of San Francisco. “There’s been a huge amount of rumor about supply disruption and, of course, there is a fact about supply disruption as well. But, the thing is, the rumor is ahead of the fact,” Madjd-Sadjadi said.
Those of us who have spent a lot of time in marketing understand that the panic buying of cars will eventually disappear and that some dealers are going to have an issues getting people back into their showrooms.
The other issue that nobody seems to want to discuss is how franchisees are hurting the brands they represent. There is s strong likelihood that consumers who are asked to pay thousands over stickers will not return to those dealers when prices come down.
Kia recently issued a statement that they have no power over how their dealers set new car prices. That’s a huge mistake, and it’s going to hurt their brand strategically.
I was able to find a great new car (Genesis) and I paid below sticker. Deals ARE out there if you just look and do your homework and skip the panic buying media stories.
