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Old 04-13-2020, 08:45 AM   #1
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Bloomberg article on used car supply/prices

https://www.yahoo.com/finance/news/f...110000556.html

"Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market"
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Old 04-13-2020, 11:40 AM   #2
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Quote:
Originally Posted by FC View Post
https://www.yahoo.com/finance/news/f...110000556.html

"Six months from now, there will be huge, if not unprecedented, levels of wholesale supply in the market"
Anyone following my Camaro saga thread can probably guess I've been paying attention to this. Recap/update:

I've been getting daily offers for the turbmaro since January. They've mostly been in the mid $16k range. In mid-March, they rose to just over $17k. On 3/23, the bottom fell out and their offer dropped to $12.9k. I was able to lock a $17k offer that day, but before closing, Carvana stopped buying cars altogether (unless taken as trade).

I've continued getting "offers" every day. For about a week beginning that day, the offers were mid $13s. For the next week, they were mid/upper $14s, and have been low $15s since. They're still not buying, though, so it's kind of moot.

Meanwhile, generally, dealer inventories of new cars have not quite doubled since mid-March, but aren't going to go up from here for a while since no new cars are leaving factories.

There seems to be growing concern among the manufacturers that they're going to run into a major issues when the restart for a variety of reasons like suppliers with their own issues, restarting equipment, etc, but also the fact there's never been a startup/restart on this scale with everyone bringing everything online at the same time. Automotive News is reporting that the manufacturers are trying to talk to the Feds about coordinating their restart to minimize collective issues if each does their own thing. They fear that coordinating without prior government approval would expose them to antitrust issues.

It also sounds like manufacturers are trying to convince dealers that there's going to be a huge pent up demand to buy new cars on the other side. That may or may not be true. I'm sure there is demand, but the pool of people that will be able to buy new cars is going to be smaller for a while. Maybe an initial burst and then a sustained fall off?

If used car prices fall substantially, I'd think that would siphon sales from new cars. In my Camaro saga, the savings of nearly new have not been compelling versus new. About 2-3% savings on purchase price is pretty weak, IMO. I think I'd need to see at least 10% purchase price savings for a used version to make sense. I have no idea how my situation applies to more normal people buying normal cars. Is the new/same model year/one model year used delta on high volume vehicles?

Again, if used car prices drop, that will apply further downward pressure on new car prices. Probably. 2020 model year production is probably over (or very close to it) for a lot of cars. New car inventories sound like they're larger than dealers would like, but they're only going to get smaller from here until a few weeks after production starts up again.

I think that suggests excess inventory that may be sold to the "pent up demand" buyers relatively quickly as things reopen and bring on a new normal inventory state with sales getting a bit harder. If manufacturer output is adjusted for that, dealers may not get to the point where they're stuck with piles of unsold inventory.

If the unsold used cars stack up because people aren't buying and the "pent up demand" buyers trade in additional cars for those new purchases, used car prices may plummet.

It's probably a good thing I don't do economic forecasting for a living.
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Old 04-13-2020, 09:00 PM   #3
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Quote:
Originally Posted by clyde View Post
Anyone following my Camaro saga thread can probably guess I've been paying attention to this. Recap/update:

I've been getting daily offers for the turbmaro since January. They've mostly been in the mid $16k range. In mid-March, they rose to just over $17k. On 3/23, the bottom fell out and their offer dropped to $12.9k. I was able to lock a $17k offer that day, but before closing, Carvana stopped buying cars altogether (unless taken as trade).

I've continued getting "offers" every day. For about a week beginning that day, the offers were mid $13s. For the next week, they were mid/upper $14s, and have been low $15s since. They're still not buying, though, so it's kind of moot.

Meanwhile, generally, dealer inventories of new cars have not quite doubled since mid-March, but aren't going to go up from here for a while since no new cars are leaving factories.

There seems to be growing concern among the manufacturers that they're going to run into a major issues when the restart for a variety of reasons like suppliers with their own issues, restarting equipment, etc, but also the fact there's never been a startup/restart on this scale with everyone bringing everything online at the same time. Automotive News is reporting that the manufacturers are trying to talk to the Feds about coordinating their restart to minimize collective issues if each does their own thing. They fear that coordinating without prior government approval would expose them to antitrust issues.

It also sounds like manufacturers are trying to convince dealers that there's going to be a huge pent up demand to buy new cars on the other side. That may or may not be true. I'm sure there is demand, but the pool of people that will be able to buy new cars is going to be smaller for a while. Maybe an initial burst and then a sustained fall off?

If used car prices fall substantially, I'd think that would siphon sales from new cars. In my Camaro saga, the savings of nearly new have not been compelling versus new. About 2-3% savings on purchase price is pretty weak, IMO. I think I'd need to see at least 10% purchase price savings for a used version to make sense. I have no idea how my situation applies to more normal people buying normal cars. Is the new/same model year/one model year used delta on high volume vehicles?

Again, if used car prices drop, that will apply further downward pressure on new car prices. Probably. 2020 model year production is probably over (or very close to it) for a lot of cars. New car inventories sound like they're larger than dealers would like, but they're only going to get smaller from here until a few weeks after production starts up again.

I think that suggests excess inventory that may be sold to the "pent up demand" buyers relatively quickly as things reopen and bring on a new normal inventory state with sales getting a bit harder. If manufacturer output is adjusted for that, dealers may not get to the point where they're stuck with piles of unsold inventory.

If the unsold used cars stack up because people aren't buying and the "pent up demand" buyers trade in additional cars for those new purchases, used car prices may plummet.

It's probably a good thing I don't do economic forecasting for a living.

It doesn’t seem intuitive that the first thing people do is buy a new car in this market —

Most people will try to consolidate their debt and re-fi first.

And there are so many unemployed people and so many small business owners barely afloat. It feels like glut new and glut used would be the outcome.
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Old 04-13-2020, 09:20 PM   #4
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Quote:
Originally Posted by lemming View Post
It doesn’t seem intuitive that the first thing people do is buy a new car in this market —

Most people will try to consolidate their debt and re-fi first.

And there are so many unemployed people and so many small business owners barely afloat. It feels like glut new and glut used would be the outcome.
Agreed.
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Old 04-13-2020, 09:47 PM   #5
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Clyde’s right that there will be weird short term effects. Medium term, the OEMs are going to face the same fixed costs that they do now, and lower demand overall. There are going to be some monster incentives on the other side, for probably all of 2021.

I suspect we’ll see another cash for clunkers type incentive, particularly if the Dems win again in Nov—it will be part of a “green” stimulus that might not quite be a Green New Deal but will focus heavily on investment in green tech.

Does that mean it will favor hybrids and electric cars only? Maybe? Or just higher fuel economy vehicles. If the Detroit Three can pull it off, they’ll want to structure it in a way that somehow includes new trucks.
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Old 04-14-2020, 12:43 AM   #6
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Quote:
Originally Posted by lemming View Post
It doesn’t seem intuitive that the first thing people do is buy a new car in this market —

Most people will try to consolidate their debt and re-fi first.

And there are so many unemployed people and so many small business owners barely afloat. It feels like glut new and glut used would be the outcome.
Quote:
Originally Posted by JST View Post
Clyde’s right that there will be weird short term effects. Medium term, the OEMs are going to face the same fixed costs that they do now, and lower demand overall. There are going to be some monster incentives on the other side, for probably all of 2021.
There are a lot of things that are going to make this automotive sales slump and recovery different from previous ones.

Excessive dealer inventory will not be the flamethrower at dealer feet like it's been in the past. February sales were strong leaving dealers with an average 68 days of inventory. Ideal inventory levels are 60 days for cars and 70 for trucks. Dealers start feeling pressure at about 90 days worth and start working hard to clear it with around 100 days worth.

Car sales dropped in March, but the drops were uneven across the country. In April, they're down a lot, but not zero. Almost every dealer that can keep selling is trying...and they're still selling some.

Manufacturers have not been manufacturing or shipping cars since mid-March. When they start manufacturing cars again, it will probably take 2-4 weeks after reopening plants before they're shipping cars in any volume. Add another 2-3 weeks before North American made cars start hitting dealer lots and another 2-3 weeks on top of that until foreign made cars join them. So, from the time the economy is "re-opened," it's probably 42-72 days until dealer inventories can begin to start being refilled.

On top of that, supplier issues are going to be a huge deal and could keep some cars from shipping in quantity for a much longer period of time. Even without supplier issues, I'd expect manufacturers to aim to make smaller numbers of cars to avoid having to eat incentives later, suck on government subsidies longer, and see more cooperation from unions on production decreases for a while as the manufacturers will be able to keep union employees employed.

This will all probably help inventory levels to stay in check compared to every previous auto sales slump.

The question it will all turn on are how many buyers are out there. More than 10% of people fully employed a month ago are now unemployed. A bunch more of those still employed are making less money than a month ago. A whole lot more than that aren't seeing any change in income, but are more worried and less inclined to spend money on new cars. Sure.

But how many people aren't feeling or too worried about a personal economic impact to the point they would be putting off a new car purchase? 30%? 40%? 50%? Maybe add some potential buyers that will only be looking because they think they're going to score a deal?

Assuming the economy is mostly re-opened in June, there is going to be three to four months worth of delayed lease turn-ins that all happen in 30 days. 75-90% of those vehicles are going to have to be replaced with new leases, or new/used purchases. Add, what? a third of the normal non-lease turn-in new vehicle traffic that's not going to be left on the sidelines that's been waiting and wants to get something done in those same first 30 days?

I think there's a very good chance that demand will eat up most of the available supply in the first 30-45 days. If that's at all right, dealer inventories will probably be the lowest levels we've seen in our lifetimes. If everyone is not being rehired and seeing salaries restored, I can see demand starting to wane just as inventories start getting replenished. Even if sales drop at that point to 50% of last year's levels, it's still going to take quite a while before inventories exceed 90 days supply.

Meanwhile, used cars will be doing what in terms of sales and prices compared to today? And those effects on new car sales?

All of the above also assumes a single light switch type reopening with no further full or partial closures...and we all know the chances of that happening are very close to 0. Start gaming out scenarios where some of the automotive manufacturer/supplier areas are at less than 100% and California and other high volume sales areas are open and you stretch out the time until excessive inventory causes problems. OTOH, if the manufacturer heavy areas are open and car buying areas less so, inventories probably go up a lot faster.

Bottom line, I think there will be a compressed period of demand that will mimic a normal 30 day period in terms of overall numbers, but after that's satisfied, demand will probably wane to levels we might normally associate with employment numbers. Meanwhile unlike previous sales slow downs, I don't think manufacturers would be able to load up dealers with inventory they can't sell before early 2021 even if they wanted to...and I don't think they're going to want to if they can avoid it.

It's all guessing, of course. Plus, my own situation (no negative C19 related financial concerns, currently seeking a specific medium priced, low-ish, production, low-ish demand vehicle, and excessive anxieties about that car hunt) may color my outlook. I wouldn't trust it. I'm curious about seeing how close to "right" my guesses turn out to be, especially if no other broader earth shifting variables come into play (and I'd guess there's a 50/50 chance of that).

Quote:
I suspect we’ll see another cash for clunkers type incentive, particularly if the Dems win again in Nov—it will be part of a “green” stimulus that might not quite be a Green New Deal but will focus heavily on investment in green tech.

Does that mean it will favor hybrids and electric cars only? Maybe? Or just higher fuel economy vehicles. If the Detroit Three can pull it off, they’ll want to structure it in a way that somehow includes new trucks.
A couple recent Automotive News pieces referencing the second coming of Cash for Clunkers

https://www.autonews.com/retail/ford...nkers-stimulus

https://www.autonews.com/dealers/cas...ers-automakers
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Old 04-14-2020, 08:27 AM   #7
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I hope that the BMW plant here has more than one source for clutches and brake parts, because the Borg Warner plant got trashed here in Sunday nights tornado. This link includes a 20 minute helicopter fly by. This tornado was an EF3, 1/2 mile wide at times and almost 8 miles in length that hit in Seneca SC and moved to Clemson SC.

The plant is trashed. Only one dead due to the BMW shutdown. If not for the COVID related BMW shutdown there would have been 275-300 people in the plant for third shift.

Haven't heard an update this morning, but last night there were still 2 people "missing"

https://www.wyff4.com/article/contra...y2GWgMAB3VWD1Y
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Old 04-14-2020, 08:42 AM   #8
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I hope that the BMW plant here has more than one source for clutches and brake parts, because the Borg Warner plant got trashed here in Sunday nights tornado. This link includes a 20 minute helicopter fly by. This tornado was an EF3, 1/2 mile wide at times and almost 8 miles in length that hit in Seneca SC and moved to Clemson SC.

The plant is trashed. Only one dead due to the BMW shutdown. If not for the COVID related BMW shutdown there would have been 275-300 people in the plant for third shift.

Haven't heard an update this morning, but last night there were still 2 people "missing"

https://www.wyff4.com/article/contra...y2GWgMAB3VWD1Y
That's crazy! That will take serious work to repair/rebuild.
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Old 04-14-2020, 08:49 AM   #9
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OMG.
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Old 04-14-2020, 10:58 PM   #10
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Quote:
Originally Posted by clyde View Post
There are a lot of things that are going to make this automotive sales slump and recovery different from previous ones.

Excessive dealer inventory will not be the flamethrower at dealer feet like it's been in the past. February sales were strong leaving dealers with an average 68 days of inventory. Ideal inventory levels are 60 days for cars and 70 for trucks. Dealers start feeling pressure at about 90 days worth and start working hard to clear it with around 100 days worth.

Car sales dropped in March, but the drops were uneven across the country. In April, they're down a lot, but not zero. Almost every dealer that can keep selling is trying...and they're still selling some.

Manufacturers have not been manufacturing or shipping cars since mid-March. When they start manufacturing cars again, it will probably take 2-4 weeks after reopening plants before they're shipping cars in any volume. Add another 2-3 weeks before North American made cars start hitting dealer lots and another 2-3 weeks on top of that until foreign made cars join them. So, from the time the economy is "re-opened," it's probably 42-72 days until dealer inventories can begin to start being refilled.

On top of that, supplier issues are going to be a huge deal and could keep some cars from shipping in quantity for a much longer period of time. Even without supplier issues, I'd expect manufacturers to aim to make smaller numbers of cars to avoid having to eat incentives later, suck on government subsidies longer, and see more cooperation from unions on production decreases for a while as the manufacturers will be able to keep union employees employed.

This will all probably help inventory levels to stay in check compared to every previous auto sales slump.

The question it will all turn on are how many buyers are out there. More than 10% of people fully employed a month ago are now unemployed. A bunch more of those still employed are making less money than a month ago. A whole lot more than that aren't seeing any change in income, but are more worried and less inclined to spend money on new cars. Sure.

But how many people aren't feeling or too worried about a personal economic impact to the point they would be putting off a new car purchase? 30%? 40%? 50%? Maybe add some potential buyers that will only be looking because they think they're going to score a deal?

Assuming the economy is mostly re-opened in June, there is going to be three to four months worth of delayed lease turn-ins that all happen in 30 days. 75-90% of those vehicles are going to have to be replaced with new leases, or new/used purchases. Add, what? a third of the normal non-lease turn-in new vehicle traffic that's not going to be left on the sidelines that's been waiting and wants to get something done in those same first 30 days?

I think there's a very good chance that demand will eat up most of the available supply in the first 30-45 days. If that's at all right, dealer inventories will probably be the lowest levels we've seen in our lifetimes. If everyone is not being rehired and seeing salaries restored, I can see demand starting to wane just as inventories start getting replenished. Even if sales drop at that point to 50% of last year's levels, it's still going to take quite a while before inventories exceed 90 days supply.

Meanwhile, used cars will be doing what in terms of sales and prices compared to today? And those effects on new car sales?

All of the above also assumes a single light switch type reopening with no further full or partial closures...and we all know the chances of that happening are very close to 0. Start gaming out scenarios where some of the automotive manufacturer/supplier areas are at less than 100% and California and other high volume sales areas are open and you stretch out the time until excessive inventory causes problems. OTOH, if the manufacturer heavy areas are open and car buying areas less so, inventories probably go up a lot faster.

Bottom line, I think there will be a compressed period of demand that will mimic a normal 30 day period in terms of overall numbers, but after that's satisfied, demand will probably wane to levels we might normally associate with employment numbers. Meanwhile unlike previous sales slow downs, I don't think manufacturers would be able to load up dealers with inventory they can't sell before early 2021 even if they wanted to...and I don't think they're going to want to if they can avoid it.

It's all guessing, of course. Plus, my own situation (no negative C19 related financial concerns, currently seeking a specific medium priced, low-ish, production, low-ish demand vehicle, and excessive anxieties about that car hunt) may color my outlook. I wouldn't trust it. I'm curious about seeing how close to "right" my guesses turn out to be, especially if no other broader earth shifting variables come into play (and I'd guess there's a 50/50 chance of that).



A couple recent Automotive News pieces referencing the second coming of Cash for Clunkers

https://www.autonews.com/retail/ford...nkers-stimulus

https://www.autonews.com/dealers/cas...ers-automakers

I read through this. The logic is fun to read.

I am now going to be supremely interested to see if this pans out the way you hypothesize.
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