If you’re thinking of buying a new car and looking for a bargain or even a good deal, wait until June next year. Most new cars are in such short supply that some buyers are paying dealers a “delivery fee” of $10,000 on top of the full retail price. Makes sense when the official wait list for many big sellers is six months.
How bad are things with the carmakers?
On Thursday, Stellantis, the world’s sixth-largest metal mover (7 million units a year), maker of brands like Mazer, Jeep, Fiat, Alfa and the Gauloises-smoking architects’ favourite, Citroen, reported that shipments for the third quarter were down 27 per cent primarily because of the loss of 600,000 vehicles, due to unfilled semiconductor orders. These days, cars have up to 3000 chips in them.
While most automakers are saying things are just peachy and it’s not affecting how we put the cars together, Peugeot is replacing digital speedos with analog (remember them); Porker USA has devastated Macan buyers by telling them no more 18-way seat adjustments (any car only needs two positions – sitting up and flat down for the drive in); the US’s second-biggest vehicle, Ram trucks, no longer come with intelligent rear-view mirrors (which is more than can be said for the owners who look in them) and Nissan has cut out navigation systems on a third of its cars.
The big carmakers are putting the available chips in their most expensive, highest-margin vehicles. Most carmakers have stopped production at some of their factories and most have lots of unfinished cars sitting on hectares of land near the plant. And shipping delays have made things even worse if you’re a long away from the nearest factory, like we are in Australia.
In any other business, all this pain would be bad news. Not in car land. Short supply means higher prices, fewer discounts and so higher margins.
And in any other business when you’re in a purple patch you’d leave things the way they are and take the credit for being a genius at the AGM. But this is the car business.
So, in Australia Genesis, Honda and Mercedes are moving or have moved to a fixed- price model like Tesla (which doesn’t sell real cars anyway). Let’s ignore Hyundai’s Genesis (don’t get me wrong, great cars for little money, but they’ll never outsell the i30n) and focus on what it means for you. And that’s very hard.
Most Australian consumer car buyers like to haggle on price to think they’re getting a good deal. Most never do. But, on the other hand, dealer margins are usually thin and most of the discounts that they give away are incentives from the manufacturers. Making a car a demonstrator is a good example.
Anyway, most of the cashflow for the dealer comes from financing, accessories, gap insurance, servicing, extended warranty and parts. The money comes from incremental sales. That’s why salespeople are on commission. It motivates them to push harder. Most independent dealers are entrepreneurs, running small businesses, who are highly competitive and whose real wealth is the real estate the business sits on.
Now the industry is changing. In the US this year nearly 40 per cent of cars will be sold online. The biggies are publicly listed used car sites like Carvana, best known for its multi-story car vending machines. Last year Carvana sold a quarter of a million cars and is growing at a leisurely 96 per cent a year. Like it’s major online competitors, it offers fixed prices.
But now there’s other ways to own cars.
A car subscription includes insurance and maintenance and you can swap models every month. Car sharing services such as Go Get allow members to use cars by the hour whenever they need them (think second car) and you don’t pay registration, insurance, petrol, servicing or cleaning.
Those of the environmental persuasion (and there’s nothing wrong with that) will be saying that if car owners only knew what it costs to own and run their cars they would move to car sharing, public transport, Uber, bicycles or scooters.
And young people these days think cars suck and are prepared to forgo the freedom and opportunities for a bit of how’s your father, mother or other in the 18-way seats for the joys of the aforementioned bus and bicycle travel. Sorry, research shows both those great theories are wrong.
Which leads us back to fixed-price cars. Or as we call it around here, the Apple model. Apple makes the margins so thin that retailers don’t discount. Which helps explain why Apple stores have the highest sales per square metre of any retailer. Mercedes see themselves as the Apple of cars, or mobility as the Pseuds in the industry call it.
I really like Merc, not only because they sponsor Hamo and are committed to V8s but they’re the best car company I deal with. Then again, nearly all car companies never email, talk to or fax me so it’s not a high bar.
So Merc will focus on value (margins) over volume, reorient the pricing and channel mix (ominous if you are a Merc dealer, which is maybe why some of them have the three-pointed star in the Federal Court right now), recognising the value of monogamy (lifetime relationships with customers, not banning divorce for Merc owners, which would mean they would sell only three cars a year) and get a quarter of their sales direct.
Fixed price means dealers change from self-run businesses to being agents getting a fee for each car they move. Now this has been tried before and hasn’t worked. While no one outside the industry understands new car pricing, the price of fixed-price transparency is lack of competition.
Please don’t tell me fleet buyers won’t get a discount and that some dealer won’t find a way to compete on price. I asked the ACCC what they thought of what is, effectively, retail price maintenance and they said they’d keep an eye on it. Beauty.
Anyway, forget new car fantasies and feast your eyes on this wondrous blue 1993 XJ220 with 295 miles on the clock. RM Sotheby’s have it ready in London for you to take home next Saturday for no fixed price, but let me suggest $800k.
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