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The chip crisis is helping automakers and dealers do something they've wanted to do for decades: quit offering incentives and deals
October 8, 2021
Dominick Reuter

  • With fewer new vehicles to sell, car companies are getting more money for the ones they make.
  • One consultant told Bloomberg that US automakers are receiving up to $10,000 more on trucks and SUVs.
  • Ford's CEO previously said the pricing power is "breathtaking" and is changing production strategy.
Ford CEO Jim Farley said in June this new pricing power was "breathtaking" and indicated that the company wouldn't be returning to the days of guessing over how many cars it should produce and then marking them down until they sell. GM CEO Mary Barra has also said that customer orders will play a larger role in her company's production strategy.

Kevin Tynan, an autos analyst for Bloomberg, told Insider earlier this year that the industry has been trying to get off of the incentives and discounting model for decades.
"They don't totally hate this," he said, referring to the shortages. "Moving forward you're probably going to get an industry more like what we're seeing now, where supply is a little bit more managed and incentives are not as aggressive as they've been."

In order for inventory to remain low and prices high after the the chip-supply problems are resolved, the automakers will be bound up in a version of one of economists' favorite games, "The Prisoners Dilemma," forced to cooperate, Wakefield says.
 

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Since GM (and two other manufacturers in the USA) have contracts with the UAW (and Unifor in Canada) which pays the unionized workers about 75% of their base pay NOT to work during shutdowns caused by the shortage of parts - I wonder how much money being taking in with increased prices is going to employees for not working?

I also wonder what will happen to supply and prices when the shortage of computer parts subsides, and GM begins to fully finish and sell the massive amount of vehicles built and stored, waiting on parts?
 

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Labor prices are not major drivers to the price of a vehicle. I think the average cost is something around $2500 for UAW labor. The rest is material, engineering, and profit.

A vehicle is worth what people are willing to pay. It's a delicate balance between volume and profit. I'm sure the OEMs know what makes more cents.
 

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Discussion Starter · #5 ·
Since GM (and two other manufacturers in the USA) have contracts with the UAW (and Unifor in Canada) which pays the unionized workers about 75% of their base pay NOT to work during shutdowns caused by the shortage of parts - I wonder how much money being taking in with increased prices is going to employees for not working?

I also wonder what will happen to supply and prices when the shortage of computer parts subsides, and GM begins to fully finish and sell the massive amount of vehicles built and stored, waiting on parts?
Good point about all of the trucks sitting in lots!
 

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Since GM (and two other manufacturers in the USA) have contracts with the UAW (and Unifor in Canada) which pays the unionized workers about 75% of their base pay NOT to work during shutdowns caused by the shortage of parts - I wonder how much money being taking in with increased prices is going to employees for not working?

I also wonder what will happen to supply and prices when the shortage of computer parts subsides, and GM begins to fully finish and sell the massive amount of vehicles built and stored, waiting on parts?

Good point about all of the trucks sitting in lots!
GM idled most of their plants few weeks ago, they were using components to finish off those partial-build unit, instead of building new ones. So yes there will be an influx of pre-built product, there will also be ~2 weeks of no product being made, and many of the shut-downs were longer.

@TruckMan bought one of these trucks, got it a little over a month ago, and it had a door tag of February 2021, IIRC.
 

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@TruckMan bought one of these trucks, got it a little over a month ago, and it had a door tag of February 2021, IIRC.
My GMC was built the 1st week of April, came into the dealer on 4/29.
GM prioritizes ordered trucks, perhaps TruckMan's was out of regular inventory?
 

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Ford’s previous stockpile of 45,000 incomplete F Series is now down to about 5,000 trucks that should hopefully be completed and transported by early November. Also, the back log of Broncos waiting for those new upgraded roof panels is starting to move with crews getting them installed.

Regardless of what people might think, most manufacturers have now seen how buyers react to continuing restricted supply and none of the large incentives used to clear slow moving inventory. I recon most of them will keep prices as high as possible to make their EV pricing look better/closer to the ICE versions they’re replacing. They’re showing us how the switch to BEVs will be encourage.
 

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My GMC was built the 1st week of April, came into the dealer on 4/29.
GM prioritizes ordered trucks, perhaps TruckMan's was out of regular inventory?
Absolutely, but my point was, his was sitting in a parking lot somewhere (along with thousands of other trucks) 99.5% built, for 6+ months, we knew this, GM (and others as JPD80 illustrates below) that the most recent production stoppage wasn't because the OEM's didn't have parts, it was to allocate those parts in the partial-build units. This had to be done, because we are now entering into the 2022 model-year, it would be moronic, to build and ship 2022's when you've got (unfinished) 2021 collecting dust in any and every empty lot you can find.

Ford’s previous stockpile of 45,000 incomplete F Series is now down to about 5,000 trucks that should hopefully be completed and transported by early November. Also, the back log of Broncos waiting for those new upgraded roof panels is starting to move with crews getting them installed.

Regardless of what people might think, most manufacturers have now seen how buyers react to continuing restricted supply and none of the large incentives used to clear slow moving inventory. I recon most of them will keep prices as high as possible to make their EV pricing look better/closer to the ICE versions they’re replacing. They’re showing us how the switch to BEVs will be encourage.
Excellent news!

Regarding inventory and incentives, it is what they want to do, but I'm reluctant to believe it will happen, (in normal times) many cars are sold on an "impulse" and with the long production and lead-times, if you don't have inventory and the guy down the street does, many times he's going to get the sale, often regardless of brand.

Now applying this to my "work life" we like everyone else have had supply-chain issues and increased demand, its not so much that more parts are being sold, as it is everyone is having trouble filling order, and fulfilling the orders we get, to offset this we are trying to build excess finished goods as well as have more on-hand with regard to raw materials and components.

Imagine a "Lean Just in Time" production inventory, and little inventory at the dealerships?
- You need to have one or the other, either a lot of parts ready to build, with the capacity to build it, or a buffer of inventory at the Dealerships, or at least somewhere as "finished goods".
 

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Since GM (and two other manufacturers in the USA) have contracts with the UAW (and Unifor in Canada) which pays the unionized workers about 75% of their base pay NOT to work during shutdowns caused by the shortage of parts - I wonder how much money being taking in with increased prices is going to employees for not working?

I also wonder what will happen to supply and prices when the shortage of computer parts subsides, and GM begins to fully finish and sell the massive amount of vehicles built and stored, waiting on parts?
I don't think the price increases are from GM. They're from the dealers. Therefore, there's no additional monies going to GM. It's all dealer profit. They're trying to make up for their lack of inventory by making each and every dollar they can off what they do have to offer.
 

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Absolutely, but my point was, his was sitting in a parking lot somewhere (along with thousands of other trucks) 99.5% built, for 6+ months, we knew this, GM (and others as JPD80 illustrates below) that the most recent production stoppage wasn't because the OEM's didn't have parts, it was to allocate those parts in the partial-build units. This had to be done, because we are now entering into the 2022 model-year, it would be moronic, to build and ship 2022's when you've got (unfinished) 2021 collecting dust in any and every empty lot you can find.



Excellent news!

Regarding inventory and incentives, it is what they want to do, but I'm reluctant to believe it will happen, (in normal times) many cars are sold on an "impulse" and with the long production and lead-times, if you don't have inventory and the guy down the street does, many times he's going to get the sale, often regardless of brand.

Now applying this to my "work life" we like everyone else have had supply-chain issues and increased demand, its not so much that more parts are being sold, as it is everyone is having trouble filling order, and fulfilling the orders we get, to offset this we are trying to build excess finished goods as well as have more on-hand with regard to raw materials and components.

Imagine a "Lean Just in Time" production inventory, and little inventory at the dealerships?
- You need to have one or the other, either a lot of parts ready to build, with the capacity to build it, or a buffer of inventory at the Dealerships, or at least somewhere as "finished goods".
Just adding to the inventory discussion, pre 2020 inventory levels for F Series were often 200k-250k with about half of that at dealership. During the big aluminium YM changeovers, inventory dropped by about 90k-100k but a fair portion of that was at dealerships too, hurting sales for exactly the reasons you stated above.

Now having set that, I suspect Ford’s objective in future is to keep down inventory sitting in holding yards while keeping up supply to dealers. I agree with your point regarding dealer stock for walk ins vs losing sales to competition but I wonder if all auto companies will engage in a type of “game theory” where everyone hangs tough on pricing and inventory levels so that the whole group benefits ( rising tide lifts all boats?)

Anyways, to hear Jim Farley’s excitement about current pricing got me thinking about, MSRP and built in negotiating margins not being exercised, also Ford not needing to support sales with cash incentives and no final payments for End of MY clearance that’s not needed, plus some dealers are charging over MSRP. - poster on BON went looking at Maverick, advised to order a vehicle as salesman said that everything on the lot was $5k over sticker. These are wild times to be buying a vehicle but I suspect that everyone will pay more even after the shortages end, is that too conspiratorial?
 

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My GMC was built the 1st week of April, came into the dealer on 4/29.
GM prioritizes ordered trucks, perhaps TruckMan's was out of regular inventory?
Yes, it was a dealership order, not my order.
 

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I don't think the price increases are from GM. They're from the dealers. Therefore, there's no additional monies going to GM. It's all dealer profit. They're trying to make up for their lack of inventory by making each and every dollar they can off what they do have to offer.
"Increases" no, but....................

MSRP $50,000 - $8,500 (incentives & rebates) = $41,500 (net)
MSRP $50,000 - $1,500 (incentives & rebates) = $48,500 (net)

So no GM isn't increasing the price, they are just reducing the incentives, which has the same effect.

(and MSRP's continue to go up)
 

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I don't think the price increases are from GM. They're from the dealers. Therefore, there's no additional monies going to GM. It's all dealer profit. They're trying to make up for their lack of inventory by making each and every dollar they can off what they do have to offer.


You make a very good point - but some of the auto manufacturers have raised the vehicle base prices, and de-contented some new models.
 

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"Increases" no, but....................

MSRP $50,000 - $8,500 (incentives & rebates) = $41,500 (net)
MSRP $50,000 - $1,500 (incentives & rebates) = $48,500 (net)

So no GM isn't increasing the price, they are just reducing the incentives, which has the same effect.

(and MSRP's continue to go up)
This is exactly what has happened. The problem as you mentioned MSRPs have gone up typically albeit not huge amounts. The 2022 Yukon 4WD in SLT trim that we have ordered is up only 500 bucks from 2021. (But they did have a hefty mid year price increase as well)

I will say this the 2022 has the digital instrument cluster and standard Google Infotainment with nav so I see that as a ‘deal’ considering the equipment upgrades. Fingers crossed my lifters don’t give out on me when it finally does arrive... Ordered from a small town dealer who didn’t want to gouge me over MSRP and had a very nice trade offer. Hoping that issue is long sense fixed regarding V8 lifters. I would love to have it by Christmas but that is far from a sure thing. A bit over 1 month in and at 1100.
 
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I would think some of the growth in terms and MSRP are related to the current unit availability.
Absolutely; Economics 101, Supply/Demand Curve:
Slope Rectangle Plot Font Parallel
 

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