By Peter M. DeLorenzo
Detroit. If you’re a fan of summer around these parts, this has been a particularly memorable one. Blistering hot more often than not, the super-heated days – and nights – have made for an unforgettable summer. And if you think we’re complaining about it, we’re not. At least not yet. All you have to do is remind yourself of what it’s like around here in February, and you’ll find that complaints about the heat are few and far between.
But, on the other hand, complaints in and around the auto biz are multiplying rapidly, especially in August, the traditional “dog days” of summer (or, as we like to refer to them, the Dog Daze). As I wrote in last week’s column about “affordability” (or lack thereof), costs are ramping up dramatically, with Ford announcing today (8/9) that the price of its F-150 Lightning EV pickup is going up 17 percent (between $6,000 and $8,000, depending on the model) due to material costs. Maybe there’s some truth to this, but because the company’s “I’m a genius just ask me” CEO is a super fan boy of Tesla and has observed that Tesla raises prices with impunity damn near monthly because of “costs,” I wouldn’t be surprised if the Lightning’s sticker price is increasing simply because the company is exploiting the laws of supply and demand. And that’s fine too. Last time I checked, auto companies are not being run as nonprofits, so if “there’s gold in them-thar EVs!” then more power to them.
GM is looking for profits anywhere it can find them too. The company’s latest strategy is to bake in a comprehensive OnStar Connected Services package – to the tune of $1500 – into some of its vehicles, and even though it is listed as an option, it really isn’t. With the availability of new vehicles not improving in the least, consumers are being forced to deal with the High-Octane Truth about the law of supply and demand, which is, short supplies = higher prices. And this situation is not going to improve anytime soon. Ford, GM, Stellantis and the rest of the automakers doing business in the U.S. market are going to be adhering to this pricing strategy for the foreseeable future. And the same can be said for used car prices as well. To put it simply: If you want it, you’re going to pay dearly for it.
But there’s plenty more contributing to the summer malaise in and around the industry right now. The chip “thing” continues to vex every part of the industry, from manufacturers and their suppliers to the dealers. It has constrained production, reducing the number of vehicles dealers have to sell, which in turn cuts into manufacturer profits, which is fueling a swirling maelstrom of Not Good.
As I’ve mentioned previously, forward-thinking dealers have quickly mastered how to do business in the “European” model, which is based on exploiting limited availability and pushing advanced ordering, and which results in higher gross profits on each vehicle. Ask any savvy dealer at this juncture if they want to go back to the “old” way of doing business, which means carrying back-breaking floor planning costs while presenting a wide variety of available inventory, and they’re going to say “oh, hell no!” or words to that effect. But make no mistake, selling cars at the retail level is a high-stress game, it’s just different – and more profitable – now.
So, all of this sounds rote by now, correct? The “Dog Daze” don’t sound so bad if you’re outside the auto industry, looking in. Yes, the factors, as I’ve delineated, make it a relentless pain in the ass, but, the law of supply and demand looks to be a good thing for all concerned – well, except if you’re a buyer, that it is –right?
Not so fast. I say “Dog Daze” because this business is heading for an existential crisis. The promise of The EV Future has been overstated, overstuffed, pumped up and molded into a golden chest of bountiful rewards that would rival outtakes from Raiders of the Lost Ark. But it’s not “beautiful!” – at least not yet. Visions of endless profits are infecting the dreams of Wall Street types to the point that rational thought is being left at the station as everyone piles onto the EV Train to The Future. If I hear from one more Wall Street pundit fantasizing about the “newly invigorated” auto industry, while fully buying into the promises of The EV Future, I’m going to puke.
This just in: We’re Not There Yet. In terms of the supply chain issues, the endless search for precious metals, realistic charging speeds and the national charging infrastructure itself, this industry is not even close to being there yet.
Add in the fact that consumers, even with sky-high gas prices, have to be sold on the fundamental efficacy of EVs – let me repeat that, have to be sold on the fundamental efficacy of EVs – and you have a Grand Transition to EVs that’s fraught with peril meted out in fits and starts. Going forward, some days are going to be all Blue Sky and Big Dreams, and others are going to plumb the depths of despair.
I know that there are lot of people in this business who don’t want to hear this, but a giant dose of reality at this juncture is better than a giant bowl of Not Good. And patience. Patience in this business is a commodity that is extremely hard to come by.
Just remember: We’re Not There Yet. We’re not even close, in fact.
And that’s the High-Octane Truth for this week.
WE’RE NOT THERE YET. — from Rants
By Peter M. DeLorenzo