© 2021 KOSU
Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations
Help us answer phones and take pledges during our upcoming membership drive on Dec 6th & 7th. Sign up here!

Automakers and dealers are rolling in it thanks to demand for new cars

SCOTT SIMON, HOST:

This is a really tough time to try and buy a car. According to Kelley Blue Book, the average used car is selling for 42% more than pre-pandemic. NPR's Camila Domonoske's been talking to shoppers and sellers.

CAMILA DOMONOSKE, BYLINE: Kimberly Walker recently dove into both ends of the auto market. On the luxury side, she financed an electric Audi for herself at a price that made her eyes pop. The dealer wanted 68,000 for a late model used vehicle.

KIMBERLY WALKER: We went back-and-forth. We were there for four hours. They did not budge on that price.

DOMONOSKE: Then her daughter needed a cheap, older vehicle. At their $5,000 budget, pickings were slim.

WALKER: We ended up purchasing a 2009 Toyota Camry that actually was not running at the time. But the mechanic agreed to put a new engine in it and gave it to us for $3,500.

DOMONOSKE: So there you have it, folks. You can still buy a car for less than five grand if you don't need it to run right away. This market is frustrating for anyone looking for a vehicle, but it's a real crisis for some shoppers on a budget.

MATT JONES: This is troubling.

DOMONOSKE: Matt Jones is with TrueCar.

JONES: The people who are looking for need-based transportation as opposed to want-based transportation, the folks who are looking for the traditional 10,000 or $12,000 car that has, you know, 95,000 miles, those folks are having a very difficult time in this market right now.

DOMONOSKE: Blame snarled supply chains for this situation. A lack of parts, especially semiconductors, has limited how many vehicles automakers can produce. And in response, companies are focusing on making their bigger, fancier vehicles. This has been a gradual trend for years, but the pandemic accelerated it. Brian Moody, an editor with Autotrader, sums up how carmakers are thinking about this.

BRIAN MOODY: You know what? If we have a lack of resources, let's focus on the most profitable things first. And that's a way that we can sell less but still keep our profits up.

DOMONOSKE: The most profitable things are the priciest ones, so that's what companies make. When those vehicles hit dealer lots, forces of supply and demand push prices even higher. Then people priced out of the new car market turn to used cars and drive those prices up. And while this has been hard on shoppers, it's worked out for companies. It turns out selling fewer cars for more money each is very profitable indeed.

(SOUNDBITE OF MONTAGE)

ZACH KIRKHORN: Our highest yet.

UNIDENTIFIED PERSON: It's record performance.

JOHN LAWLER: That's our strongest performance since 2016.

DOMONOSKE: Those are Tesla, GM and Ford executives on their 2021 earnings. And it's not just automakers. Arnaldo Bomnin is the CEO of a dealership group in Miami. His big Chevy dealerships used to have 1,700 cars on the lot. At some points in the past year, that went down to 30. They sold as fast as he could get them.

ARNALDO BOMNIN: Which is good for dealers, right? It's not good for the consumers, unfortunately. But at the end, for dealers, it's good.

DOMONOSKE: Last year, his company brought in more than a billion dollars in revenue for the first time. You might see an obvious incentive here for companies to stick with emptier lots and higher prices. But Bomnin says he thinks this isn't sustainable. And when the chips come back, he hopes volumes come back, too.

BOMNIN: If I have to choose, I prefer to have 1,700 cars in the lot.

DOMONOSKE: Matt Jones with TrueCar says he's confident cheap cars will return to the market eventually. This is a good-news, bad-news situation, though, because it could be a problem for anyone who bought at today's high prices. That's because if prices fall, it'll be easy to wind up underwater on a loan. Jones recommends, if you have to buy a vehicle now, get one that could last you a long time because you may be tied to it for a while.

Camila Domonoske, NPR News. Transcript provided by NPR, Copyright NPR.

Tags
Camila Flamiano Domonoske covers cars, energy and the future of mobility for NPR's Business Desk.
Hey! Did you enjoy this story? We can’t do it without you. We are member-supported, so your donation is critical to KOSU's news reporting and music programming. Help support the reporters, DJs and staff of the station you love.

Here's how:

Related Content