A pair of recent YouTube videos provides interesting perspectives on the challenges for makers, dealers and consumers in the automotive sector. The videos address price trends for used EVs and transparency for repair costs. The points they make about the costs for purchasing and repairing vehicles make it easier to understand why predicting trends in demand going forward will be difficult.
The Retail Sector
The first video posted by the YouTube channel savagegeese was a brief, ten-minute summary of the current 2024 market for used electric vehicles.
https://www.youtube.com/watch?v=lLuiU7XYuUg
Recent news about battery technology and manufacturing capacity has led not only to predictions of rapid declines in battery PRICES (roughly 11% yearly through 2030) but significant INCREASES in battery RANGE (roughly 33% to 100% in the next 2-5 years) as well. When you have the two key parameters driving the economics of an EV both moving in the "good" direction at those rates, traditional rules of thumb developed over decades of price behavior on traditional vehicles no longer apply. New car buyers can't just expect the normal new-car buyer depreciation tax of losing a couple of thousand dollars in value just by taking title. As Mark ("savagegeese") points out, many new EV models that sold for $60,000 to $90,000 dollars are dropping $10,000 to $20,000 in value in a year on cars with only 2000 to 5000 miles.
The key insight in the savagegeese video is that buyers need to be reminded that these tremendous drops in prices are not solely some new dynamic specific to EVs that (as some sarcastically state) makes them as stable an investment as a cell phone. Yes, much of their technology can be updated or superseded like a next generation iPhone or Galaxy S59. However, much of this dynamic is due to market distortions rather than technology distortions. First, supply chain meltdowns between 2000 and 2022 led to unusually large imbalances between supply and demand, spiking prices. Second, initial travel lockdowns triggered most rental car companies to instantly sell off their fleets rather than paying interest on them as they sat idle. But once travel opened up, demand for fleet vehicles spiked while supply chain woes had not been solved. In particular, Hertz chose that time to gamble that buying heavily into electric vehicles would help it jump-start its adoption of EVs and provide a marketing edge with customers.
Uhhhhh, no. As Miss Rafferty recounted in the Alien Abduction skits on SNL, "Cookie crumbled a little different for me here..."
Many rental customers were not thrilled with the idea of going through the new EV driver learning curve in an unfamiliar vehicle while having to travel on business. Hertz itself began encountering issues with repair / collision work taking cars out of circulation far longer than expected / desired. If you think about it, that makes PERFECT sense. Drivers have never been known for taking it easy on rental cars. The incident rate of minor fender benders, door dents, curb scrapes and unexpected -- ahem -- "off-roading" has to be significantly higher for rentals than owned cars, generating a higher rate of repair work. In early January 2024, Hertz announced it would sell off ALL of its electric vehicles, dumping THOUSANDS of Tesla model 3s on the used market, driving down used prices even more.
The core point from the savagegeese video -- though it wasn't quite stated in exactly these words -- is that attempting to analyze the EV automotive market (and the larger traditional automotive market) can be confusing if the analyst keeps trying to find old patterns in current data without remembering the once-in-a-lifetime distortion that took place for three years worldwide. It's not the case that new cars are suddenly depreciating at rates never seen before solely for new, technology-driven reasons. Used car prices are dropping like stones because other economic factors lined up for three years to trigger a significant number of buyers into vastly overpaying for new vehicles of all types in the first place. If your car "depreciates" by $20,000 from an $70,000 price tag in under a year with only 3000 miles of use, it was never worth $70,000 in the first place. You simply overpaid. Period. Until the average consumer breaks their addiction to new-car smell, they will continue to throw money away on "new car depreciation" that most cannot afford.
Another point NOT mentioned in the savagegeese video that consumers should contemplate is the impact (or lack thereof...) of plummeting used car prices on personal property taxes. It's doubtful that most county governments index their personal property tax evaluations for vehicles based on a database feed updated monthly from Kelly Blue Book. It's more likely most tax assessor offices have a formula that reflects the traditional decline in resale value of cars experienced over decades that writes down the value in a relatively straight line between year 0 and year 12. This overvalues the car in the first couple of years, probably becomes roughly accurate for years 3-12 then overvalues cars older than 12 years which continue generating some minimum tax bill even thought the car might be near worthless on the used market.
In a market where new cars could be plummeting in value by twenty to thirty percent in the the first two years, owners will likely be paying far higher personal property taxes on those vehicles than justified by the actual market value. The only way to avoid that is to avoid buying new and let someone else take that first depreciation hit. There's no practical way to argue assessments on vehicles with your local county assessor.
The Repair Sector
The second eye-opening video appeared on the FantomWorks channel a year ago and addressed the reality of published versus actual labor rates and how many repair shops operate.
https://www.youtube.com/watch?v=11aTPFFTIQc
The owner who created the video doesn't run a traditional repair shop but instead focuses on restoration work. In theory, his target customer base would already be more accustomed to higher cost estimates since a) the vehicles involved are older with more difficult parts logistics to solve, b) the work itself is always more burdensome on a rusted out vehicle with rusty, salvaged parts, and c) the work is almost by definition "elective work" rather than "I need this fixed on my 17-year old beater so I can get to work."
Not the case.
The owner made this video because he had a continual stream of potential restoration customers coming to him asking for a quote and setting the stage by mentioning labor rates and overall cost estimates from competitors that were completely untied to reality. Labor rates of $58/hour. Total restoration costs of $40,000 to $60,000. The core point of his video was that such quotes reflect businesses that are relying on a bait and switch to get the classic vehicle underway and taken apart with that first $40,000 then coming back to the customer with work already underway and divulging the next $30,000 or $50,000 in costs when the customer is unlikely to end the work with the car in pieces and take it somewhere else or stop entirely.
What was interesting about the video is the owner chatted up other shop owners in his community to subliminally determine how they were communicating costs to customers to set such misleading expectations. His findings indicate that even moderately informed customers face challenges shopping for repair work. All of the numbers used by shops appear to reference well-understood concepts but are adjusted in ways not explained to customers.
EXAMPLE: Labor Rates - He found customers coming in with quotes for $58/hour labor rates. He said he can barely find someone with a pulse for that amount, much less someone skilled at restoration work. He then realized shops were actually charging an additional "material rate" of about $48 dollars to cover the hourly consumption of shop rags, solvents, cleaning supplies, disposal costs, etc. that any mechanic would need to do their work. To be fair, separating these two amounts DOES make senses since they reflect different cost factors. However, only quoting the "labor rate" when talking to customers makes it appear as though shop rates are far more inexpensive than they really are. For some customers, that may be enough of a lure to rope them into a much higher bill AFTER the work is started.
EXAMPLE: Labor Hour Estimates -- Most consumers are probably aware that repair shops do not literally create an estimate of physical work hours specific to each car that rolls in based on its unique owner history, condition and symptoms. Instead, an attempt to diagnose the issue is made to identify the components that might have to be touched, then a central reference manual ("the book") is consulted to match each procedure to a uniform estimate. Conceptually, the labor hour figures in this bible are accurate on average but some cars will take LESS time and others will take MORE time. Some consumers may also realize that mechanics are only paid for that "book" number of hours, regardless of how many actual hours it takes the mechanic to do the work. The shop doesn't take the risk of a difficult car, the MECHANIC takes the risk. But in charging the customer, many shops ROUND UP those individual "hours" estimates for each job. A job rated at 30 minutes gets rounded up to 60. A job rated at 45 minutes gets rounded up to 60. A job consisting of 5 different tasks (30 + 45 + 60 + 90 + 90 = 315 minutes) or 5 hours 15 minutes of physical labor becomes (60 + 60 + 60 + 120 + 120 = 420) minutes or 7 hours of billable labor, for both labor and materials time. Unless the consumer brings their laptop to the sit-down with the order writer in the repair shop to plug these numbers into a spreadsheet and reverse engineer the final total cost, they are likely to be lured in by an artificially low "labor rate" and "reasonable" interval estimates for individual tasks only to still overpay when the hidden cost factors are inflated and applied to the estimate.
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Another point raised elsewhere that's worth considering DOES involve the nature of the technologies being added to vehicles. Costs for repair and collision work IS going up for newer cars in large part because more expensive components are being included as part of more complicated, luxury interiors. Controllers for ambient lighting, controllers for massaging seats, controllers for voice recognition and simulated engine noises, controllers for collision avoidance systems, etc. However, that "average" statistic doesn't necessarily reflect what people might first conclude.
One reason why average collision repair bills are going up is precisely BECAUSE these new collision avoidance systems actually WORK, eliminating many accidents entirely, especially those at low speed. However, a car driving 70mph that decides to switch lanes is still likely going to collide with another car triggering a horrible accident and THAT accident is likely to require virtually all of the expensive components to be replaced and recalibrated into the larger system. Essentially, the "average" is going up but the number of accidents involved with relatively small costs is going down at the same time.
In short, this evolving automotive market will likely continue posing challenges for people attempting to predict demand and sales and for consumers attempting to pick the optimal vehicle for their needs for some time. Makers, dealers and financial analysts will likely require a few more years to reach a new equilibrium based on altered interpretations of existing industry performance statistics. Consumers will require significant re-education to catch up with all the ways makers, dealers and repair shops may be exploiting confusion to extract more revenue from them. Until consumers catch up, they are likely to find themselves consistently overpaying for offerings that are less cutting edge and more simply an e-Edsel or e-Delorean.
WTH
