HARLINGEN, Texas—Jacob Boggus has never seen anything like this. The general manager of a Ford dealership in the Rio Grande Valley has been in the auto business for a decade, but the dealership has been in his family since 1933. So Boggus asked his grandfather if he’d ever experienced conditions like today’s wild swings in price and demand for new and used cars. “And he said ‘not since World War II.’”
Consumer Price Index figures released this week showed the largest one-month jump in prices since June 2008. The culprit behind the surge in inflation was somewhat unexpected: Used cars and trucks were responsible for a significant portion of the increase. A global semiconductor shortage has bedeviled the auto industry for months. New vehicles can be hard to find, driving up prices for used ones.
Barron’s is having conversations with business operators caught in the middle of the shortage economy. In his office at the Boggus Ford dealership, decorated by yellow post-it notes filled with reminders, Boggus said the chip shortage has cut supply. But there are plenty of buyers.
“With all the government stimulus and pent up demand from last year, it’s kind of a crazy storm of low supply and extra-high demand. The chip shortage has certainly increased the values of the used cars… and created the low supply of new. So we’ve seen some vehicles increase in price upward of 20, 30% in a matter of a few weeks.”
New cars are selling for as much as $5,000 above sticker price, Boggus said. Used cars are going for as much as 110% of their market value.
“It’s not that we’re trying to gouge, it’s that we know we can’t sell as many new cars so we’re having to maintain a gross level that can support the business, support the people, without having to lay anybody off… On the used car side it’s really not any different because you’re buying the cars more expensive and you’re selling them more expensive. The in-between isn’t that much more than it used to be, it’s just that the demand is there.”
These new challenges are changing the Boggus family’s strategies for acquiring inventory. A massive banner in front of the dealership reads, “SELL US YOUR VEHICLE, NO NEED TO BUY!”
Boggus says they’re also buying off the street more, turning to online services like Kelley Blue Book, and asking employees to advertise their eagerness to buy used cars. “We’re working every angle we can so we can fill our used car inventory and make up for the demand and sales.”
No amount of smart business tactics can help Boggus stock up on new cars; the semiconductor shortage is simply out of the dealership’s control. But he doesn’t think these conditions will last forever. His forecast:
“I do think the bubble is going to burst in terms of the valuation aspect, but I don’t think the bubble is going to burst in terms of the demand. I think people are still going to be buying used cars. I just don’t think they’re going to be as overvalued as they are today.”
If there’s one thing an intergenerational business knows, it’s how to adapt. Boggus is already planning and looking ahead past the shortage, to ensure that the business survives for future generations to come.
“We don’t want to be caught holding the bag when the supply increases and now we have a used car inventory that’s going to depreciate overnight. We need to be very careful in how much we’re stocking in used and how much we’re paying for it, because otherwise we’re going to be stuck with an overly exaggerated value on all these cars and it’s going to be very expensive for us.”
Know a business leader or an industry we should talk to about the shortage economy? Drop us a line at email@example.com.