Confirmation bias, and auto sales

Investment Analysis Clubs Macro Economic Trends and Risks
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Conversation with an old dealership guy, about how car companies leveraged the “shortage” narrative, to gouge their customers. Now there is no longer a shortage, but the companies want to keep escalating prices and profit margins, as if there was a “shortage”. Customer’s aren’t having it.

The old guy starts making that point around the 9:45 mark.

From there, the conversation turns to how the gouge prices people were paying has now, three years later, lead to those people being thousands of dollars underwater on their cars, because the extra gouge money they paid, became instant depreciation.

Of course, if the threatened tariffs are executed, that will create another “shortage”, which automakers will, of course, exploit, the same way they did in 2021, to gouge the living daylights out of their customers, again.

Steve

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Local Honda, Toyota, Nissan deal is very dishonest. We knew some of his family who would not talk to the owner of the dealership because from childhood on the guy was a liar.

I know his finance guy. Even he won’t say there is a shortage. LOL. He quietly nods it is over. I did learn if the finance guy says he can get me a deal to run away. Just because he is honest one moment does not mean he is honest.

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For multinational auto companies they will make money on made in USA brands and lose on imported brands. What will be the net result to profits?

If they raise prices on imports to cover tariffs and hold prices on domestics they should gain market share, increase domestic production to capacity and raise profits over all.

If they raise prices on domestics too it looks like a wash. Some higher profits but no change in share. Inflation for all that might slow sales.

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Depends on how the tariffs are structured. The washing machine tariff had a step in the rate. One rate for the first, I forget, 1.5M washers, or something like that, then a higher rate on additional imported washers. When I was at Lowe’s pricing new washers, it was around mid year. Not only had the price of a Maytag jumped a couple hundred dollars, there were no Samsung washers to be had.

Remember St Reagan’s “voluntary import restraints” that limited the number of cars that could be imported from Japan?

There are two vectors pointing to very expensive cars for USians, and higher profits for the big three.

-tariffs on imported cars give domestics headroom to raise their prices, the increases being 100% profit.

-most of the smaller, lower priced, cars are imported from either USMCA partners or Korea and Japan. Use tariff structure to limit the numbers of cars imported, and customers will have no choice but pay up for the bigger, more expensive, models, that tend to be built in the US.

So the domestics take even more loot off their customers, from both price escalation, and customers being forced into bigger, more expensive, models.

Steve

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The net is a wonderful thing. This is how the washing machine tariff worked:

The first 1.2 million imported large residential washing machines in the first year will have a 20% tariff imposed on them, while there will be a 50% tariff on machines above that number.

Imagine a similar structure for cars from Canada and Mexico: 25% for the first million or so, then 50% for imports above 1 million. Last year, the US imported 2.55M cars from Mexico. As suggested a few days ago, when the big three start crying about their EV investments being stranded by the withdrawal of EV incentives, the “arty” deal will be suggested: tariffs structured so the domestic builders will make far more money than they lose on EV writeoffs.

Steve

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Found an interesting data table. Divides US car sales volume by class of cars, with the percentage of each class that is composed of imports.

Screenshot 2024-12-01 at 15-34-08 ecwp_2024-02-c.pdf
Screenshot 2024-12-01 at 15-34-08 ecwp_2024-02-c.pdf878×386 43.7 KB

Notice the relatively high percentage of small cars and small CUVs that are imported. Eliminate the imports with, either a hard cap, like that imposed in the early 80s, or a step in the tariff rate, like we saw with the recent washing machine tariff.and car companies are back to the halcyon days of 21-22, when they can leverage a “shortage” narrative to gouge customers, on top of the price already being increased, due to the tariff.

Joe walks in to a Chevy dealer, thinking about a $21,000 Chevy Trax. wupps, can’t get a Korean built Trax, because the quota for Korean cars has been filled for the year. Same for the Korean built Trailblazer. How about an Equinox? Nope. Not available, because the quota for Mexican cars has been filled for the year. Same with the Mexican built Blazer.

So Joe, who was looking for a $21,000 car walks into a Chevy showroom, and the cheapest thing is a Traverse, which was $37,600, but the price was bumped to $47,000, thanks to the cover provided by the tariff, plus another $10,000 “market adjustment” added by the dealer. Joe balks at trying to make the payments on a $60,000 car, and the dealer says “if you don’t want it, get out of the way. Others will buy this car, because there is a shortage”.

But Joe will be OK with that, because Sean Hannity says “we are really stuffing it to the foreigners! Really showing them whose boss! USA #1!! USA #1!!! USA #1!!!”

This nightmare brought to you by “already saw this movie”

Steve

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