- Car prices at dealerships across this country are
insane right now.
And everyone is paying artificially inflated rates
for anything and everything in stock.
- [Man] Ranger was actually listed for $200,000.
- What?
And I like so many of you am sick of it.
So who's the blame for this mess?
Is it COVID? Is it corporate negligence?
Is it the people at the dealerships themselves
or something entirely different?
We're gonna find out.
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Let's go with the white one.
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My Mustang is getting old
and I've started looking for something to replace it.
I think another Mustang would be pretty sweet.
One with a manual. Yeah.
One with a big Coyote V8. Yeah.
A 2014 with low miles, shouldn't be too much, right?
They built 33,000 of those things that year alone.
And it's almost a 10 year old car.
- Yeah. (person whistling)
So imagine my surprise
When I find out that people want
over $20,000 for a car with a little less
than a 100,000 miles.
Man, this sucks.
And that got me thinking,
how do we even get to this point in the first place?
Well, it starts with one of these.
Well, not exactly one of, this is a RAM.
This is RAM for a computer.
We didn't have a microchip on hand.
I feel like we've all heard the phrase chip shortage
more times than we ever need to,
but in this digital age, computer chips control
almost everything we deal with day to day.
And that's especially true for cars.
Automakers rely on two different types
of chips for car production.
There's super simple ones that operate things
like power windows and seats.
Then there's fancy ones for your car's more
advanced functions like engine tuning and lane assist.
The simple chips are typically easier to manufacture
and advanced chips take a lot more time.
South Korea, Taiwan and Japan are all leaders
in building advanced semiconductors with China's capability
quickly gaining momentum.
At the beginning of the COVID pandemic,
automakers figured that car demand would fall.
So they canceled their orders for these microchips,
both simple and advanced.
And to be honest, I would probably make the same decision,
but this would be one of the first dominoes to fall.
The semiconductor factories that didn't shut down
either due to productivity
or employee health reasons said,
"Alright Detroit, you can cancel your order
but we're still gonna make microchips
and shifted their focus
to producing chips for consumer electronics
of which demand was skyrocketing.
This is why it's still hard to get products like a PS5.
I'm not mad that I still don't have one.
A few months after,
I've missed the (bleep) Ace Combat 5 Remaster.
A few months after quarantine hit the US,
automakers realized that people did want to buy cars.
A ton of people actually.
And they put their chip orders back in,
but making computer chips is a long and very precise process
and chip makers couldn't shift gears overnight
and still had a preexisting backlog to contend with.
Most automakers operate by Toyota's just in time philosophy,
where companies only keep parts
on hand that they'll use immediately.
So car companies ended up making a bunch
of incomplete cars that wound up sitting in parking lots
waiting to get their precious microchips.
And if you're thinking,
"Nolan, why not just build more semiconductor factories?"
Well, those take years to design
and billions of dollars to construct.
So until semiconductor manufacturing gets back to normal,
the car market's gonna feel the burn.
And it's not just microchips in short supply.
Hard materials like steel, aluminum, copper, and soft goods
like leather, foam and petroleum
are all essential components
for your car that are in extremely high demand.
And COVID's not just a blame here. It's also the weather.
Texas's brutal cold snap last year shut down all five
of the petrochemical plants that produce car foam here
in the US, which hampered car seat production
for new cars for a few months.
And overseas multiple floods have hit Thailand
since 2020, tragically ending lives,
as well as making it really hard
for rubber farmers to produce.
How many things can you think
of that require rubber?
The situation is not good.
But when you combine that with global conflict,
things get even worse.
One component in your car, that's just as important
as a microchip is its wiring harness.
Think of the wiring harness
as your ride's spinal cord, okay,
connecting the sensors of its central nervous system.
Without the harness, your car has no way of communicating
with the various sensors and computers within it,
preventing the car from functioning.
And guess where a ton of wiring harnesses are built?
Ukraine.
When Russia invaded Ukraine, they disrupted one
of the biggest wiring harness producers in the world.
A recent report by Reuters found that 22 car companies rely
on 38 plants across Ukraine to produce wiring harnesses.
This caused Porsche to shut down production of
their Leipzig plant in March and both Volkswagen
and BMW got hit hard too.
Czech manufacturer Skoda was forced to delay the release
of their Enyaq Electric SUV
by eight months after Russia's invasion.
And they decided
that they would just produce their own harnesses
in house rather than wait for the situation to cool off.
It took a lot of time
and was probably not very cost efficient for them.
So clearly pandemics
and conflicts have huge impacts on cars.
But what about on the consumer level?
Through most of the 20th century,
car dealerships were locally owned
small businesses, but times are different now.
Every year, more and more independent dealers are bought
up by large dealership conglomerates,
shrinking the number of car suppliers.
In other words, fewer companies are now responsible
for selling a larger percentage
of the new and used car market.
So now not only is there a limit
on the supply of cars being manufactured,
but a slowly dwindling amount of places to buy them.
And because of this, dealers know they can sell any car,
at any time, at any price.
Last week, we reviewed the Toyota GR Corolla,
a turbo all-wheel drive rally car that you can live with.
It's great. I want one.
For the lowest trim Core Edition
Toyota set the MSRP at $35,900.
And I think that's honestly pretty reasonable
for what you get,
but the wind was taken right outta my sails
as soon as I realized what was gonna happen.
Unscrupulous dealerships are gonna get these cars,
then mark them up by double
and likely have no problem getting what they want.
I've tried telling myself that this won't happen
but I think I'm just being naive.
The car companies aren't necessarily to blame here.
Many automakers realize that huge markups are not good
for their brand image, but when you buy a car,
you aren't buying it from the manufacturer.
You're buying it
from the dealer who already bought it from the manufacturer.
And some companies are trying to prevent markups.
Hyundai recently sent an order to dealers
discouraging them from gouging their customers.
They're worried that
once the market eventually equalizes,
customers that paid a high price might think
they got ripped off and go
to a different manufacturer when they buy another car.
However, Hyundai didn't really lay out a plan
for what they would do to dealers who kept on gouging,
so I guess we'll see what happens with that.
The Ford Motor Company also has a problem
with big markups.
Ford CEO Jim Farley said on an earnings call quote
"We have very good knowledge
of who they are and their future allocation
of product will be directly impacted."
In other words, do big markups, get less cars.
And that's important because Ford is experiencing some
of the most rampant markups around the country.
The Bronco, Maverick, Mustang MACH-E
and F-150 Lightning EV Pickup
are all highly sought after cars,
but they're insanely overpriced
at most dealers, because they're in high demand.
- [Man] Oh.
- It's nice to hear the manufacturers stick
up for the customers, but you gotta wonder if
it's legit or just posturing for the public.
Most of us don't work for these dealerships.
So we don't know if the OEMs are following
through with discipline.
And if you feel like the dealers are being treated unfairly,
don't, they're doing just fine.
A report from Hage Partners found
that the average gross profit on a new vehicle is $6,224.
A 180% increase from 2019, a 180% increase.
And publicly owned new car dealerships
made an average profit
of 7.1 million between March, 2021 and March, 2022.
That's almost two and a half times as much
as they did in 2019.
So clearly corporate greed is a huge factor
to the situation we're in now.
But strap in,
because this next part is where things get really shady.
What I'm about to tell you is the real reason
I can't find a 2014 Mustang GT
with manual transmission, premium leather seats,
Shaker Sound System, and Coyote V8
with less than a 100,000 miles for under $20,000.
Since new cars are so expensive right now, a large portion
of used cars on the market are not trade-ins,
but rather repossessed vehicles.
Over the last couple of years,
lots of people bought cars at the King Ford
and lots of banks gave out loans without verifying incomes.
I have to give a big shout out to Andre Jikh and Lucky Lopez
who made a very insightful video on how all this works
if you really want to get into the financial side of things.
People buying things they couldn't afford
with money given from banks that didn't verify anything.
Why does that sound so familiar?
(dramatic foreboding music)
Nah, it's probably nothing.
So you've got all these cars that have been repoed,
but they don't just go back to the dealership.
They go to wholesale auction houses where
dealerships go to bid on the inventory.
Huge lots reminiscent of the energy harvesting fields
in "The Matrix" are filled
with repossessed cars waiting to hit the auction block.
This is where dealers find a lot of their used cars.
Now the auction houses are very careful
about how many cars they keep on hand,
because if they sell too many at once,
the increased supply could cause prices to actually go down.
This means less profit for them
and they can't let that happen.
In his video, Andre points out
it's just like the diamond industry.
A monolith company with a large supply
on hand artificially influencing the market
to control their own income.
That's kind of shady.
That sounds to me like the makings of a monopoly.
Of course, Cox Automotive probably isn't the
only company playing this game, but owning an asset
like Kelly Blue Book, which is hugely influential,
definitely helps put some weight on the scale
in their favor.
Is the supply of used cars really that low
if they have to control how many cars go out in the market?
Doesn't really sound like it to me.
So the auction house tells the dealer how
much they're gonna pay for the car.
Then Kelly Blue Book tells the bank how
much money they can loan for that car,
and then Autotrader tells the customer how
much they're gonna pay for it.
And here's the kicker.
All three of those companies are owned by the same people.
At the beginning of this video,
I asked if anyone is to blame for this mess.
Clearly there's some manmade school duggery going on here.
People in corporations are taking advantage of the markets
and folks like you and me get caught in the middle,
but the economy is also an extremely complicated beast
that's also subject to the whims of nature itself.
That's something we have to remind ourselves
every now and then.
My best advice,
if you want to buy a new car is to hold off if you can,
be patient, because even if the system isn't that great,
prices will almost definitely go down eventually.
If you want a cheap, cool, good used car,
check out this video right here.
If you want this hat, visit our store,
I'll leave a link down in description.
Big thank you to Andre and Lucky Lopez.
Check out their channel,
I'll leave a link down in the description as well.
If you want more Nolan content, follow me
on all social media @NolanJSykes.
Be kind, I'll see you next time.
And speaking of Ford,
I just wanna address my t-shirt right now.
Mark Martin, the NASCAR driver drove
for Ford and apparently opened his own Ford dealership
which I had no knowledge of until right
before we started recording, this was not intentional.
However, if Mark Martin Ford is gouging their customers,
I will rip this shirt off my back and cry.
(man laughs)
I swear to God, I did not plan that.