While you may have noticed more cars on your local dealer’s lot lately, don’t expect new car supply to return to 2019 levels like nothing ever happened. Case in point: Automotive News reports that General Motors is idling its Fort Wayne assembly plant in Indiana, one location where it builds Chevrolet Silverado and GMC Sierra pickup trucks.
So what’s the cause this time? Is the chip shortage still affecting GM? Has another part of the supply chain broken down? No. Speaking to Automotive News, GM spokesperson Dan Flores said that idling the Fort Wayne Plant is an effort to limit supply:
“Our production is up over the past month while demand remains fairly consistent, leading to an increase in inventory,” Flores said. “Therefore, as we stated on our earnings call, we are going to proactively manage inventory levels, including plant downtime.”
Wait, isn’t more inventory a good thing? If you’re a consumer, absolutely, but manufacturers and dealerships have discovered benefits in keeping vehicles thin on the ground. This part’s important, emphasis mine:
Leaner production and inventory should translate to greater earnings for GM and its dealers, and that’s what Ed Kim, President and Chief Analyst of AutoPacific, has seen over the course of the pandemic. “With reduced parts supply, automakers have focused production on more fully-equipped vehicles that generate more revenue and profit per unit to make up for the lack of sales volume,” said Kim. “As a result, average transaction prices have skyrocketed over the last couple of years and frankly, many dealers are happy with their stronger margins.”
With fewer vehicles on the lot, fewer manufacturer incentives are needed to move them, and manufacturers can focus on fully-loaded trim levels that make more money. In addition, dealerships don’t actually pay for the new vehicles in their inventory but instead put them on what’s called floor plan financing.
If you’re not familiar with floor plan financing, it’s essentially the revolving line of credit dealers use to buy the cars they then sell to consumers. A floor plan company can give a dealer a line of credit that can be used to buy cars, and it normally includes a period in which dealers can sell the cars and repay the lender without incurring any interest. It’s a favorable arrangement when cars sell quickly, but some cars stick around on lots long enough to incur interest, which stings extra hard considering where the key rate is currently at.
In theory, holding less inventory will let dealers save on floor plan interest charges, meaning more money is kept in dealership pockets. All in all, limiting production seems to have some real benefits for corporations, to the point where manufacturers will likely keep the practice going. As Cox Automotive analyst Michelle Krebs told Axios last year, “They’re not going to be in a rush to go back to the old way of doing things. And in fact, we don’t think we’ll ever go back.” In addition to padding bottom lines, focusing on high-margin vehicles keeps money rolling in so manufacturers can develop future products. “GM’s move to idle the Fort Wayne plant should help maximize the profitability of the Silverado, which in turn provides much of the capital necessary for GM’s big shift to electrification,” said Kim.
Unfortunately, any environment that gives dealerships and manufacturers an advantage comes at the expense of consumers. It may be harder to find your dream truck on a lot, there may be fewer incentives applied to keep prices down, and the cost and the relative scarcity of new vehicles directly translates to used vehicle pricing.
[Editor’s Note: Managing inventory is a practice as old as the dealership model itself. What I find most interesting, here, isn’t that it’s happening in general, it’s that it’s happening now, after so much supply-related agony. A pendulum has clearly swung in the other direction; despite what we might read here, I’m sure there are growing concerns about reduced demand in the marketplace right now. It’ll be interesting to see whether other automakers swallow the hard pill that is idling a plant. -DT].Â
While we saw automakers idle plants as the pandemic kicked off due to decreased demand, the situation on the consumer side has changed. Instead of a weight of disruption and economic uncertainty, consumers want to buy new cars but have faced huge delays as the automotive industry tried to get production going again.
In addition, this plant going idle doesn’t affect a slow-selling product like the Chevrolet Camaro but instead two trucks that have historically sold by the, um, truckload. That sets a concerning precedent for in-demand vehicles: production that’s kept artificially lower to maintain demand, and thus prices.
Now that the general production situation has improved significantly, fewer vehicles in inventory might be the new normal so long as nobody blinks and starts chasing volume again. In short, expect to see a little bit of a cool-down as more manufacturers get more plants back up to speed, but don’t expect 2019 car prices to return anytime soon.
(Photo credits: GM)
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I think there is more writing on the wall that has not been read out loud. A coming generation or two who have zero interest in cars, can’t afford the payments on almost any vehicle, and have been dealt a very bad hand for their global future. They won’t care what exciting new model is available, even if they bring back interesting colors. Not to mention that a used car in the future will have unsupported tech, cost a fortune to repair compared to older used cars today and you won’t be able to adjust simple things like your headlights because the entire control screen decided to brick itself. All while you keep making payments for your heated seat subscriptions even though your car in in the shop for a month waiting on parts.
Not even future generations my friend. I’m a childless 30yo engineer, married with another engineer and we’re not seeing ourselves being able to buy a new car anytime in the future, period.
Most of my colleagues in the same age bracket buy used too. They’re either saving up for a house like us or have started paying their mortgage and do not have the cash for a new car.
Didn’t Stellantis just say they were planning on introducing incentives back later this year? Ram makes a nice car with a bed, er, truck. Having Ram as #2 in sales has been their goal since forever.
This also won’t be sustainable once EV’s begin rolling in volume in 2024 and 2025. The legacy makers want to prove to their mining partners they are a reliable long term partner. Selling every EV that rolls off the line will help demonstrate that. So some rationality in pricing should occur.
And there it is. Proof that they’ve embraced the concept of building fewer vehicles to make more money. Which GM president said, “We don’t make cars, we make money?”
I made this predication on a Toyota article and was almost universally roasted. Manufacturers are realizing that if they don’t need to compete on volume, but rather, they can reduce volumes a tad and drastically increase margins. It’s the Harley Davidson strategy of the late ’90s and early ’00s. Produce one fewer bike than there are buyers… which seems to be Harley’s strategy again now.
And just like Harley Davidson, I’ll bet that they soon enact protected territory.
Sucks for us with a factory order pending…
I never buy off the lot. If I’m buying new, it’s going to be exactly the vehicle I want, no compromising to make the dealership happy.
Let’s set the record straight here… I live in Fort Wayne (and know a number of people who work at the assembly plant too)…. They still have an extremely significant number of trucks parked all over the damn city (and even in places away from the city like outside of New Haven) that are nearly finished trucks, but lacking critical electrical components. The chip shortage is not over and the company basically ran out of room to store more nearly-assembled trucks.
I know that I usually do the snarky post thing here, but I figured that some eyes and boots on the ground here would be a useful contribution.
Thank you. I remember the reports of ‘1000s of trucks waiting for chips collecting dust!’ , and idly wondered if that excess had been chipped & sold yet.
Please keep updating
I’m not a fan of current times.
1. Order a car and wait 1, 2, 3 years for them to manufacture it
2. Pay MSRP
3. Pay thousands in dealer upcharge
*I am very interested in a new Prius Prime, but based on previous Prime adventures, I expect they’ll be more vaporware than actually available, not unlike the Hybrid Maverick.
I’m on a waiting list for a new Sienna and it’s just stupid.
Won’t work. The “build as many as you can then advertise the leftovers in Big Sales with slightly smaller per-unit profits. Toyota seems to do that, and I haven’t heard of them teetering on the brink of bankruptcy.
Now, if GM were hinting that the idled truck plant might be converted for sedan/comp[act car production, I’d pay attention. I’d also cheer. But none of the Big Three seem to give a damn that they are forcing the market into the direction most profitable for them, not responding to actual wants and needs. In the end, that’s going to hurt.
That’s all well and good until Stellantis or another OEM (but probably Stellantis) decides to go scorched earth and ramp up its output to steal market share. Then, GM either can watch its trucks sit on dealer lots like paperweights and either play ball and get some incentives rolling (while still making an insane margin).
The automakers are in an uneasy truce right now because consumers have been surprisingly resilient and tolerated high transaction prices. Eventually between interest rates, inflation and overall consumer debt, this strategy will hit a wall. Someone will miss their Wall Street estimates or be worried about their plants running under capacity as consumer demand declines, and the Mexican standoff will end. It may not be this year or next year, but it always happens.
Yeah, that’s my thought. I could see Hyundai/Kia (maybe not Genesis) ramping up and getting to the point where they can pump out the cheap bargain vehicles so they actually have presence on dealership lots too. The next few years will be an interesting time to see volume-versus-margin battles fought out among manufacturers.
+1 came here for this
Leftover Ram 1500 Classics are up to over $10k in rebates up here in Canada – it’s absolutely Stellantis who’s going to flood the market with inventory, and it looks like they’ve ready started.
They’re still bloody expensive! At my local dealer, they have about 6 Ram Classics and they’re all over $ 50k.
My Dad just bought a Ram and the incentives were back up to almost what they were when I bought mine back in 2015. This is already happening.
This works fine for now, but just wait, once one manufacturer blinks, the incentives spigot will open up again. Or at least cracked open to a trickle. It’s just a good old-fashioned standoff. I truly believe it’s not a question of if, but when.
I’m imagining Mary, Jim, and Carlos in a The Good, the Bad and the Ugly type standoff.
Nothing about this business model has been a secret for the last century….every time it’s been tried before, it lasts until the competition has another “Truck Month” and management caves when they see the sales figures. I’d expect no different this time around.
yes sir, them Ram sales numbers might finally scare them a bit.
While you may have noticed more c̶a̶r̶s̶ ̶o̶n̶ ̶y̶o̶u̶r̶ ̶l̶o̶c̶a̶l̶ ̶d̶e̶a̶l̶e̶r̶’̶s̶ ̶l̶o̶t̶ more of just about any product that was scarce over COVID lately, don’t expect n̶e̶w̶ ̶c̶a̶r̶ ̶s̶u̶p̶p̶l̶y̶ prices on fucking anything to return to 2019 levels like nothing ever happened
every industry knows that they can absolutely fuck consumers from here on out. I’ll never a buy a new car for the rest of my life, fuck ’em.
I will not buy new unless or until the price is right. So, that is to say, I too will not be buying any new vehicles in the near to mid-future. I’m perfectly happy with what I have and it’s just not worth it to me, if only for the principle of the matter (pun).
” the capital necessary for GM’s big shift to electrification” so yet again the public is getting the shaft to pay for EV’s? I am sorry to say that the chances of My brand loyalty with GM or Ford is swiftly falling.
Anyone buying GM thinking they are doing it to support American workers is dreaming. Its just supporting them taking over China’s market and screwing us here.
Please stop buying these trucks, they obviously don’t want to sell them to us at a reasonable price.