The Current State of the Automotive Industry

LeeAnn Shattuck (00:03.182)

Hey everyone and welcome to The Straight Shift. I’m LeeAnn Shattuck, The Car Chick. For those of you who have been listening to this podcast since I started it, gosh, way back in 2017, thank you for hanging in there. And I do owe you a little bit of an explanation of where I have been and why I’ve not been releasing new episodes. In the beginning of 2021, during the pandemic, I got COVID and was extremely, extremely ill and had to stop podcasting.

Around the middle of, I guess, June of 2021, I was starting to kind of get back into the swing of things. And I was a guest on another podcast called “All the Hacks”.  If you have not ever listened to “All the Hacks”, you’ve got to check it out. It’s an amazing podcast. Chris, the host, is a financial wizard, and “All the Hacks” is about how to save money in all areas of your life. It was so much fun to do. It’s a great podcast. So be sure to check him out.

But as a result of doing that, I had a flood of new business and just with all the craziness going on in the pandemic, quite frankly, I was swamped. My car buying business tripled overnight practically. So then I didn’t have time to podcast because I was still dealing with long COVID. And then the next year I decided to build an online car buying course so that I would have something to offer to more people because there was only so many people that I can work with on a one -to -one basis.

I’ll tell you a little bit more about the car buying course at the end of this podcast, but finally I am back. I am rebooting everything. So for those of you existing listeners, thank you so much and welcome back. And for any of you who are maybe listening for the first time, welcome. So let me tell you what you can expect from this Straight Shift reboot, we’ll call it.

I’m going to be releasing episodes every week as opposed to the twice a month that I used to do.  So that’s exciting. It’s also a little frightening that I’m gonna have to commit to doing this. It’s a lot of work, but I think it’s gonna be a lot of fun to do. But the episodes will be a little bit shorter. I’m hoping to keep them to about 20 or 30 minutes so you can listen during your commute or perhaps while you’re working out and just get you exciting information about what’s really going on inside the automotive industry. Because knowledge is power. And if you understand what’s going on behind the curtain, which trust me is always a mess, but if you understand it, it’ll help you to make better decisions for yourself.

And that’s what “The Straight Shift” is all about. I am passionate about educating people about cars, so that you can make good financial decisions for yourselves. So I’m really excited about that. And I’ll have some great guests from the automotive industry. And we’ll just still have a heck of a lot of fun. So in that vein, today, I wanted to talk about the state of the automotive industry.

What the heck has been going on for the last couple of years and where are we today? Do y’all remember the chip shortage? Yeah, that was fun. Inventory levels were next to nothing. You would go to a dealer lot, and it was just completely empty except for a few used cars. Getting new cars was so, so difficult, and the prices were ridiculous. Many dealers were charging a few thousand, some were even charging $15,000 to $20 ,000 over MSRP.  It was just absolutely ridiculous.

Fortunately, here we are in 2024, the chip shortage is essentially over and we’re seeing the inventory levels of new cars really coming back. The shortage, I say it’s over and it is, but there’s still some uncertainty with it, because the global supply chain is still very fragile. And quite frankly, it’s always going to be fragile. The pandemic just helped us to realize that.

Especially since most of the computer chips, or at least the semiconductor materials, come out of China. And we’re still having a little bit of a pissing war with China over the trade agreements. So that always creates uncertainty in the market. So it’s kind of funny, because I majored in quantitative economics in college, and this is not how I ever thought I would be using it. But here we are. It’s amazing how the global economies will affect just us trying to buy a car here in your own little town.

So, fortunately, things are getting better. And the demand for regular consumer electronics, which was also sucking up a lot of the chip supply, that has slowed a little bit as well, although I imagine it will kick back up. But we are still seeing increased demand for the chips that are used in cars, because cars are just getting more more complicated.

I’m going to do an episode in the future on all the new and improved driver safety technology and everything that requires computer chips in cars these days. That is only continuing to increase. And especially as we start rolling out fully autonomous cars like the robo taxis.  Again, that’s gonna take a whole episode in and of itself to go through that. But we’re still seeing more more increases in that demand.  And that’s going to keep the supply chain a little bit fragile and a little bit nervous.

The good news is the automakers have gotten a lot better at managing their supply chain. Their processes have gotten better. So hopefully barring another global disaster, we won’t see the shortages that we did of two years ago. Thank goodness. But it’s interesting to note that the computer chips that are used in things like cell phones, they’re not always the same as the ones that are used in cars.

The automotive computer chips require a higher standard, so you can’t just take the same chips that they’re putting on our cell phones and use them in the cars.  It does take some more special chips. And there’s no way to make up for the loss of production that we had in 2021 and 2022 and even going into ’23. We’re not gonna recover from that. The automotive industry is just kind of taking a different trajectory.

Like most of us, there’s going to be a new normal. Where the sales projections were for the industry, that has actually been set back a good decade. So where they were projecting sales to be at a certain level by 2022, not gonna happen. It’s gonna be at least 2030 before we see those levels, simply because we lost so much ground during those two critical years during the pandemic.

But here we are, we’re back out on the other side and the good news for consumers is, dealers actually have cars on their lots to sell. It’s so exciting. And that means that the wheelin’ and dealin’ is also back. It’s been great because I have finally started getting ridiculously good deals again, seeing those below invoice deals. We’re starting to see incentives come back. But more importantly, you can just find a car. Now, I do say that with a caveat because that is not true for every vehicle.

It really varies by brand and even down to the specific make and model, sometimes down to a very specific trim level within a model. But overall, dealers are seeing a couple hundred cars on their lots, new cars on their lots, ready to sell. And we haven’t seen that in a good four years.

Two industry terms that think you guys need to know, it’ll help you understand when we talk about the inventory levels of new cars. The word inventory actually means the unit count of vehicles, not just on the dealer lots, but what has been allocated to them. So it’s on the production line at the factory. It’s just come off. It’s in their parking lot. It is in transit, whether it’s on a boat floating across the pond or it’s on a train going across the country to the dealer lot. So it’s everything that I usually refer to as the dealer’s pipeline. That is inventory. It’s a car, it’s built, it’s allocated to that dealer. May not have hit the lot yet, but it’s out there, it’s available.

Another term that’s important to know inside the industry is what’s called market day supply, or MDS. That is the number of days that it would take for the dealer to sell everything in their inventory.

If they were having a fire sale, not getting any new cars, or going out of business, how long will it take them to just sell everything that’s on their lot? And that’s an estimate based on what they did the previous month. That’s important for the way the dealers set their pricing, the way the manufacturers set their pricing and what incentives they release for the next month. It’s all about balancing that supply and demand, and it is a tricky balance.

Sometimes it works in our favor as consumers and sometimes it works more in the favor of the dealers. But the good news is right now that balance of power is shifting again. So there are deals to be had out there for the right models. Like all day long, I can buy like Ford escapes, can buy Chevy’s.  I can buy pretty much most of the American brands with the exceptions of sometimes I have to wait for the luxury models of the higher end SUVs.  Especially if we want in a specific color, but it’s not too bad. Generally the inventory for the American manufacturers is pretty darn good.

And for Hyundai and Kia, that’s also pretty darn good. I can even get Telluride and Palisades, inventory levels for those, because they’ve been so popular since they came out right before the pandemic.  It’s actually easier to get them now than it has been since they came out. So that’s exciting because they are such popular brands.

Now, some of the ones that are still really, really hard to get are some of the Toyotas. Toyota has had an interesting challenge because their main computer chip supplier, it’s a company called Renesas, and they’re in Japan, and they control about 40 % of the semiconductor market in Japan. Japan and China don’t like to do trade with each other, so,Toyota gets most of their computer chips from Japanese manufacturers. But Renasas had this, and I may be pronouncing it wrong, I apologize if I am, but they had a massive fire and an earthquake. So they had a lot of damage to their plant and that has hurt Toyota’s production more than really any other brand in the world. And then you also have the ridiculous demand for Toyotas because they are reliable, problems with the Tundras notwithstanding, but they make the best hybrids and those are still hugely popular. So trying to get a Camry hybrid or God forbid a Prius. If you want a Prius, just forget it. You’re going to be waiting a long time, even the Sienna minivans, because they’re all hybrids. Very difficult to get. I can buy regular gas model Corollas and Camrys all day long. Can get the RAVs. That’s not a problem, but the hybrids… 

And part of it is where I’m based, because I’m based outside of Charlotte and in the Southeast, we don’t have quite as much demand for the hybrids and other electrified vehicles that you do in say, Washington DC or the New York Tri -State Market or California. So Toyota shifts the production of those vehicles, the inventory of those vehicles to the dealers in those areas. So we kind of get left out here in the Charlotte area and in the South, but…

LeeAnn Shattuck (11:40.576)

They are still struggling with their supply chain and the demand for those hybrids is still so high that those vehicles are still very, very difficult to get. And to top it off, Toyota has a stop sale. What does that mean? It means stop selling. They have said dealers, cannot sell these cars even if they’re sitting on your lot. They have halted production of the brand new Grand Highlanders and its cousin, the Lexus TX, because of an issue with the airbag deployment. That’s been going on for a couple of months now, and I’m not sure when it’s going to be lifted and neither do the dealers. Toyota has not said mum about it yet. We’re hoping that that’s going to get fixed because that’s been the most exciting thing they’ve come out with this year is the larger Highlander and boom, all of sudden you can’t buy them.

So a lot of issues plaguing Toyota right now. You know, I still have a lot of faith in the brand, but It just makes the market a little bit more complicated. Other than that, mostly the other ones that are hard to get are the Subarus. But Subaru has always had a very tight management of their production pipeline and that supply chain. And they’re doing a lot now with shifting production of different models to different areas of the world. So the new redesigned 2025 Forester, they’re going to shift production to the US.  They’re moving the Legacy sedan, which they’re not going to sell in the U .S. anymore, back to Japan. And anytime they do that, there’s so much retooling that has to happen of the production floor that it just kind of creates a mess. But it’s not unusual with Subaru. And ultimately, I think it’s going to be a good thing for American buyers because we’re going to get the popular models actually produced in the U.S., which is great for the US economy.

And it also means shorter lead times to get the cars because they do not have to float all the way over the ocean from Japan to get to your dealer lot. And quite frankly, the Subarus are becoming more more popular. They’ve really broken out as a brand for the last several years. They make great cars. so higher demand, a little bit lower supply, they’re a little bit harder to get. That is just the laws of supply and demand again. I never thought I would be using my economics degree quite in this way.

But with the increase in inventory of new cars, that of course helps to soften the prices of used cars on the market. So if you’re buying a used car, you may not have to pay quite as high a price as you think you might. On the flip side, you’re not gonna get as much for your trade. Remember during the pandemic, people were selling their used cars for more than they paid for them new because it was just so crazy.

But what we’re also seeing is that the certified pre -owned vehicles, what I like to call gently used cars, they’re usually the ones that are two to three years old and they came off lease. So they’ve got low miles, they’ve been well cared for. This is the primo inventory. Well, guess where we were two to three years ago? In the middle of the chip shortage and they weren’t producing cars. So I am seeing some tightness in the gently used inventory – the certified pre -owned inventory for certain models, especially the big honking SUVs like your Yukons, your Suburbans, your Tahos. They just weren’t making as many of those during the pandemic. And so now it’s really hard to find them gently used. So if you’re shopping for one of those, be careful because so many of the ones that are on the market, a lot of them are missing features because they did cut out the bells and whistles with the chip shortage, but they were also rental cars. many of them out of Canada. You do not want to buy a car that was a rental in Canada. It will definitely be pre-rusted.

So that’s just a weird place we are in the market for gently used cars, certified pre-owned cars. So just be aware of that if you’re shopping for one of those vehicles.

LeeAnn Shattuck (15:36.014)

Okay, let’s talk about interest rates. Interest rates still pretty much suck. Sorry, there’s just no other way to say it. They still suck. They’re probably kind right now they’re mid fives up to mid sixes for new cars, even with people with excellent, you 800 plus credit. But they are sucking a little less. So we’re going to look at the silver lining in this. You know, the Fed between 2022 and 2023, the Fed raised interest rates 11 times in a desperate effort to curb the pandemic -induced inflation. It’s monetary policy. It’s just how it works. It just sucks for us as the consumer. But the last hike was a year ago, so like the end of July of 2023. And they’ve kind of held steady since then.

Finally, they are talking about they are going to be reducing it because the inflation rate has finally slowed down enough that it’s reached their target levels where they feel comfortable with it, and they feel, okay, maybe we can start to cut rates now. So I think we’re gonna see them drop a little bit more as we get towards the end of the year. And that’s good because that’ll make it easier for the manufacturers to offer special APRs, their incentive, because the rate that the Fed sets is the rate that the banks can borrow from them and borrow from each other. It’s a short -term rate and that’s what car loans are tied to. So the manufacturers will have easier access to money to then turn around and offer it to you at some of their special APR rates.

We have been seeing a return of the special APRs this year, which is great. They are rarely the 0%. You’ll occasionally see a 0 % for like 36 months, but it’s usually more like maybe 2 .99 or 3 .99 or even 4 .99 on a more popular model. But hey, every little point counts and we’ll take it where we can get it. But I think we’re gonna start seeing more of that as we had towards the end of the year in the holiday car shopping. let’s keep our fingers crossed.

Same thing sort of with leasing. Leasing is starting to see a comeback. It was absolutely miserable during the pandemic. Everyone’s used to leasing being this great thing where you can get a much lower monthly payments on this car that you normally couldn’t afford. And that just took a nosedive during the pandemic.

LeeAnn Shattuck (17:58.894)

With leasing, there are two things to understand that really affect leasing and how good of a lease something is. Your residual and your money factor. The money factor is leasing’s equivalent of an interest rate. And during the pandemic, they were atrocious. They were the equivalent of about 9 % in many cases. So leasing, just took completely off the board for my clients. We’re starting to see it come back a little bit. It’s still not awesome. The rates, the money factors equate very similarly to where regular interest rates are. So you might save a little money per month, but it’s still not the tremendous deal that it used to be. With the exception of electric vehicles and some plug -in hybrids. There’s been some crazy deals with that due to tax incentives, where if you lease an EV or a plug -in hybrid, you can get some stupid, stupid good deals.

It would take an entire episode to explain the complexities of what’s going on there. And it actually is hurting the car manufacturers and will probably hurt EVs in the long run. But now if you want an EV, that is definitely something to check out because you could save an obscene amount of money. That’s great.

But unfortunately, leasing is also a little more risky now because they have changed the rules about what you can do at the end of the lease. Before the pandemic, you could just trade in your leased vehicle to any dealer. You didn’t have to take it back to the dealership you leased it from, certainly. You still don’t have to do that in most cases, but you didn’t even have to turn it into the same franchise. If you leased a BMW, you didn’t have to take it back to the BMW dealer. You could have sold it to the Audi dealer and got an Audi and just traded it in like you would in any other car that you had a loan on or that you owned outright.

But now most of the manufacturers have put restrictions on that, that forces you to not just turn it back into the dealer you leased it from, you don’t usually have to do that, but you do have to sell it back to one of their franchise dealers. They change that to protect that off -lease inventory that they could then turn around and certify because they got royally screwed during the pandemic when companies like Carvana were offering that stupid money for your gently used car since there were no new ones. And because they were doing that and people were, hey, I’m not going anywhere. I don’t need my car. They were selling. I’m calling it the “Carvana effect”. And so the leasing companies had to protect their own dealers. So they changed the rules of leasing. And even today, in many cases, you cannot just sell your leased car, trade it into a different dealer.

It makes it a little harder to get out of your lease and into something else if you’re not sticking with the same brand. There’s still ways to do it, but you no longer have the same power and you’re not necessarily going to get as good of a price and be able to take advantage of any equity that you have. But I teach how to do that in my car buying course, which again, I’ll tell you a little bit more about in a second. But overall leasing is meh unless you’re looking at an electric vehicle.

Well, speaking of electric vehicles… One of the things that has changed is we’re seeing a slowdown in the sales of electric vehicles. I mean, they they shot up during the pandemic because before that gas prices were going through the roof and EVs were being touted as, know, we’re going to save the planet. And people, especially in places like California, New York, places where the gas prices are just obscene, everybody was flocking to the EVs and people were waiting for years to get them.

Well, we’re kind of into it now. We’ve had EVs for a little while. We’ve been living with them and we’re finding out that it’s not quite as glamorous as we thought it was going to be in many cases. So we’re seeing it slow a little bit. Overall, there are still great EV sales, but it’s just not the frenzy that you saw a couple of years ago. So again, that means, hey, if you want an electric vehicle, there are some good deals to be had out there on those EVs.

However, do not just run out and buy one or lease one until you listen to next week’s episode. We’re gonna talk more in depth about what’s really going on with the EV sales, why the market is just kind of crazy, and why Americans are not enamored with them anymore. The shine is kind of wearing off, the honeymoon period is over. Why is that?

LeeAnn Shattuck (22:42.006)

We’re going to do it with a special guest. I am going to be bringing on one of my very own clients who waited for two years to get one of these cool new EVs. And guess what? Now we’re getting rid of it. He’s going back to a gas powered vehicle after waiting two years to get this amazing new toy that he was so excited about. So we’re going to talk him about why, what, what happened there? Why the change? And what was it really like owning one of these pure electric vehicles, and especially in a place like Charlotte where we haven’t had the greatest infrastructure for them, unlike places like California. So I think it’s gonna be a really fun episode. I’m personally really looking forward to hearing more details about why he is making this switch and why we’re gonna be going back to a gas vehicle for him.

So thank you so much for joining me. I am so glad to be back doing this, to be able to share with you what’s going on in the industry.  Share with you my passion for it and help you save money. Cause that’s the most important thing. We’ve got to save money all the time, anytime we can.

In summary, we’re not in a true buyer’s market yet, but the power has shifted back towards us. So shop around, shop aggressively. You’re gonna be able to get yourself a good deal on a lot of makes and models, not a Prius, but on a lot of other makes and models.

And if your local dealer doesn’t have the exact one you want, see if they can do a trade. The other great thing about the inventory levels is that the dealers are trading with each other again. So if you want a blue one and your dealer doesn’t have a blue one, but they can trade with one of their trading partners and they can get you a blue one, usually for the same price that you negotiated on whichever one they have on their lot. So again, more power to you. And for me, it’s a relief because I am not having to look all over the dang country just to find car for a client. We’re actually buying cars in the same city that the person lives. It’s just such a novel idea. I haven’t been able to do that for a couple of years.

So again, thanks for listening. If you have not already done so, please subscribe to the show and share it with your community. I really want to be able to grow this podcast to be able to empower more consumers in the automotive industry. And I will be releasing episodes every week now.

LeeAnn Shattuck (25:04.77)

And for those of you who might be watching on YouTube, guess what? We have video now. So if you’re like me and you’re not an auditory learner, you need video in order to keep your brain focused. You can watch on my YouTube channel, carchick-tv.com. Otherwise you can continue to listen to the audio on your favorite podcasting platform, as well as my website. And if you have questions or maybe you want to suggest a topic for a future episode, please reach out to me. You can connect with me on Facebook or Instagram. I am not on the platform formerly known as Twitter, nor will I be, but you can catch me on Facebook or Instagram. You can always fill out the contact form on my website. That is the car C-H -I -C -K dot com. That website’s gonna be getting a full redesign very soon.

And what you’ve been waiting for, let me tell you just a little bit about my online course. I wanted to be able to provide something. I was literally having to turn potential clients away at the end of 2021 because I was so, so busy and I just, still wanted to empower people. So I built an online course and it is called the “No BS Guide to Buying a Car”, No BS whatsoever. It’s your inside track for getting the best deal. I wanted to share all of my knowledge, my tools, the strategies that I use every day when I’m shopping for my clients.

I give that to you so that you can find the car that you want at the best possible price without all of the bullshittery. And that is a term that one of my clients coined. It’s just so perfect for describing the car buying process when you don’t know all of my secrets. So there’s a free preview video available and you can find the “No BS Car Buying Course” on my website, again, the carchick.com, or you can go to it directly at carbuyingcourse.com (c -a -r -b -u -y -i -n -g -c -o -u -r -s -e dot com), and I will put links to both in the description so that you can get there.

Again, thank you all so much for listening and tune in next week for what it’s really like to live with an electric car. Until then, drive safely, folks.