HARLINGEN, Texas – Jacob Boggus has never seen anything like it. 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 circumstances like today’s wild swings in price and demand for new and used cars. “And he said ‘not since World War II.'”
Consumer price indices released this week showed the largest price increase in one month since June 2008. The culprit behind the rise in inflation was somewhat unexpected: used cars and trucks accounted for a significant portion of the increase. A global shortage of semiconductors has plagued the auto industry for months. New vehicles can be hard to find, driving up used vehicle prices.
Barron’s conducts interviews with entrepreneurs who are in the middle of the scarcity economy. In his office at the Boggus Ford dealership, decorated with yellow post-it notes full of memories, Boggus said the shortage of chips has reduced 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 value of the used cars… and caused the low supply of new ones. So we’ve seen some vehicles go up in price by 20.30% in just a few weeks.”
New cars sell for as much as $5,000 above the sticker price, Boggus said. Used cars go for a whopping 110% of their market value.
“It’s not that we’re trying to gouge, it’s that we know we can’t sell that many new cars, so we have to maintain a gross level that can support the company, support the people, without having to fire anyone… It is actually no different on the used side, because you buy the cars more expensive and you sell them more expensive.The in-between is not much more than it used to be, only the demand is there.”
These new challenges change the Boggus family’s strategies for acquiring inventory. A huge banner for the dealer reads: “SELL US YOUR VEHICLE, NO NEED TO BUY!”
Boggus says they are also buying more on the street, turning to online services like Kelley Blue Book and asking employees to advertise their eagerness to buy used cars. “We’re working from every possible angle so we can fill our used car inventory and offset demand and sales.”
No smart business tactics can help Boggus stock new cars; the shortage of semiconductors is simply out of the dealer’s control. But he doesn’t think these circumstances will last forever. His prediction:
“I think the bubble will burst in terms of the valuation aspect, but I don’t think the bubble will burst in terms of demand. I think people will still buy used cars. I just don’t think they’ll be as overrated as they are now.”
If there’s one thing an intergenerational company knows, it’s how to adapt. Boggus is already planning and looking ahead beyond the shortfall, to ensure the company survives for future generations.
“We don’t want to be caught holding the bag as supply increases and now we have a stock of used cars that will depreciate overnight. We have to be very careful about how much we stock up on used cars and how much we pay for them, otherwise we’ll get stuck with an over-exaggerated value of all these cars and it’s going to be very expensive for us.”
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