- A lot has changed in the last year and a half.
Every industry has been disrupted,
including the car industry.
Rental car companies are selling off their fleets.
New cars are becoming more scarce
with dealerships getting away with huge markups.
But it's not just new cars.
Used car prices have skyrocketed, but how?
Today, we're gonna take a look at
what is causing this shortage
and how the pandemic affected the supply chain,
what the future looks like for new and used cars.
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Now let's log in to some Wheelhouse.
As though we needed another reason
to hate the Coronavirus, it did a huge number
on some very finely tuned supply chains,
but that's only one factor
in the topsy-turvy car market we see today.
Shortages in new cars and parts can unfortunately
be traced back to one of our favorite trucks,
the subject of our new Hi-Low season, the Toyota Tacoma.
- [Narrator] America's favorite off-roader.
- All right, so maybe not the taco specifically,
but rather Toyota as a whole.
A driving factor in the industry-wide shortage
is ironically efficiency.
The onset of a global pandemic meant disrupting
the delicate balance of supply and demand
that had previously only hung by a thread.
Allow me to explain.
A few months ago, we talked about the secret
to Toyota's reliability and how due to extreme efficiency,
Toyota set a global example
with their Just-in-Time manufacturing practices.
If you didn't see that video, here's the short version.
The Just-in-Time method is basically exactly
what it sounds like.
The raw materials needed to build any finished product
are ordered in close coordination with how many
and when those materials are needed in the assembly process
to avoid incurring inventory costs or wasted supplies.
It's the opposite of the Just-in-Case system,
which keeps materials on hand for,
um, you know, just in case.
(car revving)
The Just-in-Time philosophy can be traced back
to Toyota manufacturing plants,
where it was a common practice
to have multiple assembly lines working at once.
The assembly lines are made up of various stations
where employees and machines combined raw parts
to complete a stage of the final build.
The manufacturing facility orders just enough supplies
from raw material suppliers to align
with production schedules no more, no less
to reduce inventory costs.
These orders are placed as close to when the materials
will be needed and go out to the factory floor
to be assembled as possible, again,
to reduce inventory space and cost.
Placing those orders so close to the wire requires
some pretty accurate calculations and forecasts,
but unlike your local meteorologist missing the rain chances
by a percent or two, counseling your cookout,
the unforeseen crises the car manufacturers can account for
had devastating effects on the entire supply chain
in global industries.
(cars crashing)
In order for the JIT manufacturing philosophy to work,
every cog in the supply chain has to be working smoothly
and as planned, which clearly did not happen in 2020.
When normal factory operations face shutdowns
due to quarantine and other capacity restrictions
at the same time that demand
on shipping logistics skyrocketed,
the Just-in-Time method just stopped working.
While people were ordering new Shake Weights
for their at-home workouts, port workers and truck drivers
were sidelined, creating huge delays in material
and goods distributions all over,
affecting all levels of production and delivery.
But let's face it, as much as we love to blame everything
on 2020 and COVID in general,
this Just-in-Time methodology depends
on a razor-thin time margin to save
on inventory costs and work successfully.
So something was bound to come along
and give it a good shove off course at some point.
It just so happened that the initial shove came
from COVID shutting factories and ports down.
Then there are things like freak snowstorms
that closed petrochemical plants in the Gulf of Mexico,
halting key products like resins for bumpers,
steering wheels, even seat foam.
Some monumental setbacks can be completely random.
Remember that big old boat stuck
in the Suez Canal, the Ever Given?
After yeeting itself into the canal walls,
not only with the shipping containers full of stuff
that were on the stuck ship not going anywhere,
but the billions of dollars worth of materials
being carried around by other ships trying
to get through the canal were not going anywhere either.
As the primary link between Europe and Asia,
blocking the Suez Canal at all froze off
entire supply chains, but Ever Given blocking it
for almost a week meant global chaos and delays.
It was the meme that cost the world literally billions
of dollars in inventory delays.
When these kind of unexpected issues happen,
any company relying on a lean manufacturing process
has to pivot and pivot fast.
Even Toyota, who started the whole lean trend,
whose name is in the Toyota Production System methodology
is backpedaling a bit on their own practices
by stockpiling a few months worth of materials.
They've even been announcing production line shutdowns
a few weeks ahead of time.
All this really sucks in a lot of really big ways
that affect global economics and pricing trends
and distribution schedules, but how does it affect you?
Why should you care about this at all?
Do you have a phone in your pocket
and or in your hand at all times?
Well, guess what makes a smartphone?
When some raw materials and some manufacturing companies
really like each other, they get together
to produce computer chips, some even small
and cute enough to fit in that smartphone of yours.
Do you know what else requires computer chips these days?
Cars.
(upbeat music)
Let's explain it in tacos.
Let's say your Tacoma gets totaled.
You decide you wanna buy another one.
So you decided on a brand new car.
In 2019, you could have gone to a Toyota lot
and gotten any Tacoma in any color you wanted
with any features you wanted
and happily driven off in your new ride.
But that was back when the system worked.
Now, you got to face a long wait, high prices,
and even fewer options if you want that new car.
Why?
Well, because that new Tacoma is chock full of technology,
whether or not you want the premium or technology package
with dual-zone climate control, heated front seats,
blind spot monitor with the rear cross-traffic alert,
auto headlamps, and more,
all of those components depend on technology.
And if that technology isn't available,
the trucks don't get made.
Seriously, try finding a new Tacoma right now. Pricey.
A lot of the demand right now is for semiconductors
or computer chips, even for the company
that basically invented the assembly line
and the concept of vertical integration in the auto industry
has been surprised by the shortage shockwave.
Production of the best-selling F-150 pickup
was almost at a standstill until Ford received the delivery
of computer chips in the first week of July.
This brake check in production through F-Series sales
into a tailspin for June, sinking almost 30% lower
than sales in June 2020, even as we were in the midst
of the pandemic.
Overall sales for Ford dropped almost 27%.
The same crunch can be felt in the gaming PC world too
because the raw materials for all chips
are in high demand right now.
I still can't believe that there scalpers
for these RTX 3080s.
I'm not gonna spend $2,000 on a graphics card. I'm just not.
Shortages and sales decline like that
plus the looming specter of COVID flaring up here and there
in the inevitable need for even more chips in the future
for EVs are stirring up some serious conversations
in the auto industry.
In May of 2020, at Toyota's financial results briefing,
Akio Toyoda reflected on the efforts the company
had made over the previous few years saying,
- [Translator] Over the past few years,
we came to feverously engaged in both a fight
to bring back what makes us Toyota
and completely redesigning Toyota for the future.
- It sounds like a bit of a contradiction.
Akio was apparently referencing the original reason
behind employing the Toyota production method,
which was to make people's work easier
and embracing kaizen or continuous improvement,
which we talked about in our Toyota reliability episode
I mentioned earlier.
Surely saving money was an afterthought for the company
whose market capitalization rose by 20 trillion yen
in the past 12 years.
But Akio went on to compare vehicle manufacturing
to sushi orders, noting that the ideal for Toyota
would be to manufacture vehicles just after an order
comes in for customers by having prepared parts on hand
to quickly assemble and then deliver to customers.
But that's, quote, not realistically possible.
If that isn't possible, then the way auto manufacturers
have been doing things will need to change.
Even the very dedicated Akio knows that.
In a more recent press conference, he explained, quote,
"I believe that there's a world of difference
between simply letting things run the course
for the next 20 to 30 years and how it might look
in the next 20 to 30 years, if we continue to take action
with passion and with the will to make the future better."
I like some of that.
When we reached out to some larger manufacturers
on how they plan on handling future shortages
and what they've had to do to keep sales going
during this one, we got pretty much the same answer
from everybody.
According to Nissan quote,
"Nissan has adjusted production schedules
within our North American manufacturing operations
due to semiconductor-related parts supply.
We continue to work closely with our supplier partners
to assess the impact of supply chain issues
and minimize disruption for vehicle deliveries
to our dealers and customers."
So what have they actually been doing to get by then?
Some are pulling production lines completely.
Meaning the overall supply will be even smaller
to meet very high demand.
This is a bad equation for buyers.
Some are delaying production
or just storing incomplete vehicles
until the needed components are available.
One stockpile of Ford super duty trucks is parked
at the Kentucky Speedway, completely built in any number
of configuration and colors, awaiting their computer chips.
The hoarding has gotten so epic
that some of these truck stockpiles
can actually be seen from space.
From space!
Other manufacturers are cutting features
and non-essential AKA fun and fancy components
such as navigation systems, active fuel management systems,
and auto stop-start features.
Ultimately, those are indeed extras,
and if it means the cars get to dealers faster
without being stockpiled to the point
that they're visible from space, I'm all about it.
If the cars can get to the dealers, then they can be bought.
And the circle that is the economy can continue.
So will we have any relief at any point?
Yes, probably, but it's gonna take a little while.
If Ford's delivery of computer chips is any kind
of good juju for the industry, there may be some hope,
but there will also continue to be shutdowns
and delays resonating long past the initial COVID
and chaos shockwaves sent earlier.
Maybe there's some comfort knowing that we're all not able
to buy new cars right now or for used and classic car owners
in knowing that new car buyers aren't getting
all the extras and have to wait, or for new car buyers
that maybe someone saw your truck from space.
- Are you hungry for more Hi-Low merch?
Well, have I got a shirt for you. Yota's Tacos.
They're the dirtiest tacos around.
Get it in black, get it in white, or get them both
'cause they're only 29.99 at donutmedia.com.
♪ Give it the beans at Yota's Tacos ♪
If you don't get the joke already, go back to school.
But Toyota Tacoma, Yota's Tacos,
they're the trucks you drive on Hi-Low.
I really liked this design.
More to come, donutmedia.com.
- Thank you very much for watching Wheelhouse.
Kind of a downer episode,
but that's just how things are right now.
We'll get through it. It's all right.
I think I'll be kinda holding off on buying a new car
for a little while 'cause damn son, they are expensive.
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