In normal times, the worst day of a vehicle’s life is the day it’s driven off a dealer’s lot and instantly loses a chunk of its value. But these are not normal times.
“We live in a bizarro world where used cars are actually appreciating in value,” said Bernard Swiecki of the Center for Automotive Research.
Locally, one extreme example comes from WB Cavender, the manager at Cavender Cadillac and Land Rover San Antonio, who said he knows of a man who bought a Mercedes SUV earlier this year at $185,000, and recently sold it for a $60,000 profit.
The white-hot market for used and new vehicles has produced winners and losers in San Antonio. Among the winners: Toyota, who has so far mostly weathered the shortages and beefed up its market share; households that can afford to sell a car and potentially make a windfall; and to a lesser extent, dealerships, whose sales revenues have mostly stayed the same.
The losers include San Antonio’s favorite vehicle, the F-150, whose sales plunged in June due to lack of availability, as well as pretty much anyone looking to buy a vehicle.
Record prices follow tight demand
Used cars have soared to record high prices, accounting for nearly a third of the U.S. economy’s overall inflation in June, according to figures from the Bureau of Labor Statistics.
Evan Watson, a computer programmer who recently moved to the city and is working from home, said he spent several recent weekends looking on Craigslist for a used vehicle — preferably a small car with decent mileage — but was surprised by the lack of options and high prices. He’s decided to put off buying a car for now, opting instead to keep taking the bus.
“My last car I got for around $3,000 and it had less than 100,00 miles. But I couldn’t find anything like that around here,” he said.
The unprecedented inflation in the used vehicle market is a spillover effect from the new vehicle market, where an industry-wide shortage of microchips has choked supply at the manufacturing level. Several dealerships’ agents said the majority of new vehicles are being sold before they hit the dealership floor.
Albert Stevens, an internet sales manager at Gillman Subaru San Antonio, said that in previous years the dealership usually has an inventory of 150 or so cars on the floor; these days, there are usually only five to ten.
With fewer new cars available, those who would usually buy new cars are being pushed into the used car market.
At Luna Car Center, a used car dealership with a completely filled lot on San Pedro Avenue, sales agent Gonzalo Rodriguez said the dealership has seen more business from people who can’t buy new — “even people with money.”
Untangling the knots
Industry analysts say the shortage is complicated, given the globe-spanning supply chain involved in manufacturing vehicles. While supplier hiccups are not uncommon, the long duration and industry-wide scope of the problem is unprecedented. Analysts described lots full of cars almost completely constructed, waiting on suppliers who are waiting on their own suppliers — down to the level of circuits, steel, and plastics.
Untangling the knots will take time even after production returns to normal levels, as suppliers will need to get back in sync. Other shortages will create their own bottleneck, such as the limited number of delivery drivers to transport the vehicles.
“It’s a jigsaw puzzle at this point,” said Jessica Caldwell, executive director of insights at Edmunds.com, who like many industry analysts sees a relatively-normal market returning by the end of 2022.
Shortages are causing other problems too. Cavender said his one of his dealerships was expecting a vehicle to come in last week that a buyer had already begun the process of purchasing, but the vehicle never arrived. The manufacturer’s database updated to say the vehicle would not be available for another three months, but did not elaborate further, which he said put him in an awkward position with the would-be buyer.
“We are completely at their mercy,” he said of the manufacturers.
But the shortages and price hikes aren’t so bad for most dealerships. Even as the availability of new domestic vehicles plummeted last year, the average dealership in Texas sold $75.8 million worth of vehicles, or the equivalent of 2016 levels, according to an analysis from the National Automobile Dealers Association.
Powering those sales were the wealthy, who took advantage of low interest rates to buy even more cars than they normally do.
Rodriguez, from Luna Car Center, said business had been slightly slower than unusual, but in his roughly 25 years selling cars, “you get used to the ups and downs.”
And not all manufacturers are hurting from the microchip shortage. Some are doing just fine — or even thriving. Toyota reported its best-ever light truck sales for the first half of the year, as well as its best-ever June sales overall.
“Toyota is what we would call the recovery winner so far,” said Charlie Chesbrough, a senior economist at Cox Automotive, noting the manufacturer’s gain in market share over the first half of the year. He and other experts noted that Toyota foresaw the shortages more than others, thanks to its close connection with suppliers.
The Toyota plant in San Antonio produced nearly 16,000 Tacoma and Tundra trucks in June, more than the past two months and only slightly fewer than the roughly 20,000 it produced in June 2019.
Toyota said in a statement sent to the San Antonio Report that supply shortages continue to “periodically affect” production at its North American plants, and that their manufacturing and supply teams have “worked diligently to develop countermeasures to minimize the impact on production.”