Are we on “AUTO” matic?
Back in the old days when OEMs, Dealers, Customers, and Banks sought to seek guidance in their crystal balls related to the near and long-term future of the lift truck industry, there would be studies and discussions, and meetings arriving at potential various outcomes. But eventually, at some point during these discussions, before notes and white papers were prepared, someone would always ask “Let us see what the auto industry is doing because whatever they do, we (the lift truck industry) will wind up doing much of the same, maybe not at the present time but within 3-5 years or so. Remember those conversations? I do. And I remember how true that statement was as equipment dealers eventually mirrored the auto business.
Let us face it, a lot of what the auto industry did was beneficial when applied to the lift truck industry, even though some of what they offer up did not fit in well because of the difference between the retail and industrial customer base.
In the end, I believe the lift truck industry (and other equipment OEMs and dealers) owe a lot to the auto industry for leading the way in terms of manufacturing efficiency, the just-in-time building process, financing, and leasing programs. Lift truck OEMs and dealers who followed “autos” lead benefited with better profits, cash flow, and company valuations.
But reviewing the current status of the auto industry leads me to believe that if our industry follows their current outlook (not of their making) there are a lot of negative issues you will need to deal with a lot sooner than the historical “normal” 2–5-year catch-up period.
Auto dealers are having trouble selling cars. Not that they do not want to sell them and not because the demand is not there, because it is. The problem is a shortage of inventory because of those microchips we have been hearing about. Auto OEMs have actually been building vehicles and parking them before they are finished because they need chips to complete the build. A lot of “inventory” to finance!
And once auto OEMs closed down manufacturing locations due to the pandemic and canceled their chip contracts the just-in-time process hurt them because they had no inventory to draw from. To make matters worse the chip manufacturers went out and found new business to replace the auto business and are not in a position to supply auto production at the levels needed. In short, when they eventually get chips, they will be upgraded chips at a much higher cost. Imagine that. So, the shortage status remains status quo.
Along with the chip availability and cost, there are other cost increases to consider.
- Steel up 180%
- Aluminum up 60%
- Copper 80%
Most auto components are increasing in price with an assurance that prices will wind up higher than they currently are even after the pandemic impact subsides. In other words, HIGHER STICKER PRICES.
These cost issues will make it tougher to sell cars because of price increases, even though up to this time you could “hide” price increases somewhat because interest rates and the cost of borrowing so low, which made payments more manageable. Maybe that is about to change as well.
I know it is hard to believe but interest rates will increase, and it appears that may be sooner rather than later. Couple that with the price increases of vehicles (because of cost increases) and those manageable payments will become a lot harder to stomach, which could lead to fewer sales. For an industry with tight margins, this is not good news.
So back to our “let’s see what the auto industry is up to” question. I have to think that your OEMs have to be in the same boat. Right? And if that is correct you are also in the same boat. Right?
This is how see it:
- New equipment costs increase
- Higher parts cost
- Higher interest rates applied to floor plans and future rental unit purchases
- Some good news …used equipment values should increase
- Monthly lease payments will increase
- Lease maintenance will increase because of higher parts costs
- Overall financing contracts will contain rate increases
- Taxes will increase in some way, shape, or form
- Customers will have more reasons to “shop”
What did I miss? What should I delete? I would like to know.
In the end, it will be interesting to see how the Auto Industry handles this using a magic solution found in their crystal ball.
What do you think is going to happen?
Last month I was kind of kidding when I mentioned receiving payments in Bitcoin. But one month later maybe I was not kidding.
About the Author:
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail email@example.com to contact Garry