When you drive past the property where the Palace of Auburn Hills used to stand you now see row after row of new cars. I think it’s safe to say that these are part of the new car inventory that’s been waiting for computer chips to be installed so the vehicles can be shipped to dealers. Unfortunately, the situation appears to be getting worse because our local automakers recently announced cutbacks in manufacturing.
In basic economic classes, one is taught about supply and demand and its impact on the price of goods and services. What’s happening right now in the auto industry is a great example of economics as it is taught in the classroom.
In years past, we would be hearing car companies advertising Labor Day sales and year-end clearances at this time of year. The scarcity of such ads pushing low prices punctuates the fact that these are not normal times.
If you’re looking for a new vehicle, the ads don’t focus so much on price. Rather, the pitch is on providing the nameplate and model you want, with the features and color scheme you need. If you’re fortunate enough to find what you’re seeking, you’re not likely to get any discount. Limited supply translates into top dollar.
This economic reality doesn’t just apply to new cars; it’s also pushed up the price of used cars. Substantially. Many so-called experts used to advise against buying a new car because the price depreciates the minute you drive away. But not as relevant in this environment. Many are finding that their used cars have actually appreciated in value.
When you lease a car, there’s an option to purchase at lease end. The price is right there in the paperwork. For years, many who regularly leased never really considered buying. They would just lease again. I recently spoke to someone in this situation.
He was on track to exceed his mileage limit. That meant he would have had to pay a penalty for every mile over the limit when he turned in the vehicle. Or he could buy it.
After reviewing the lease details, he exercised his option to buy. Then he immediately turned around and sold it for a modest profit. He was able to do so because the high demand for used vehicles has sent used car prices skyward.
Anther ripple effect of the new car shortage is that people are better maintaining their vehicles. Repair shops and tire stores are busy with customers who in years past may have headed to a new car showroom looking to trade in.
Savvy consumers are adapting to the current environment of high demand and low inventory of vehicles. If you plan on keeping your vehicle, you want to get rid of that rattle and make sure you have good tread on your tires before winter arrives.
I sincerely hope the computer chip shortage will resolve itself sooner than later. For our economy to run at top speed we need our auto industry to thrive. However, until the chip shortage sorts itself out, don’t go through the auto purchase/lease process on mental autopilot. If you look carefully at the numbers and think it through, you just might discover that you can save or even turn a profit.
Do you know someone who would like to meet with a financial advisor?
Ken Morris 248.952.1744
E-mail your questions to email@example.com
Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.