I enjoy listening to accomplished folks, from all disciplines, on their views of the world and how it will affect our beloved automotive business.
There is no question prices are going up dramatically right now, with used cars and car-rental prices leading the way, but also on such staples as lumber, corn, chickens and paper products.
It would be nice to think this is all just a temporary supply issue problem, and not the harbinger of runaway inflation. But when diverse authorities are sounding warning bells, perhaps we should “gird up our loins” to the potential reality of significant inflation coming down the road.
First, I note the words of Jeremy Siegel, the award-winning finance professor at the University of Pennsylvania’s Wharton School, who recently said on CNBC’s “Squawk Box” that “over the next two, three years we could easily have 20% inflation with the increase in the money supply.” Siegel notes that in just about a year the money supply (with federal subsidies and funding) has gone up 30%, and “that money is not going to disappear.”
As we were all taught, inflation occurs when “too many dollars chase too few goods,” which is clearly happening now, but to what end?
Ironically, the same day I listed to Siegel I also heard Bob Hollenshead’s live podcast, “Whatever Goes Up, Will Come Down,” warning how, for car dealers, riding the wave of short supply and high demand with increased sales and profits feels great now, but inevitably the wave “crashes, leaving many trying to come up for air.”
Bob has been the largest private used-car wholesaler in the U.S. for decades, is the creator of many successful used-car software pricing platforms and is the founder of the AccuTrade dealer wholesale pricing platform and the owner of Galves Market Data, so it’s hard to find a more experienced authority when it comes to used car trends.
Bob reminded all that while the current demand and supply imbalance has driven used-car wholesale and retail prices to incredibly high levels, and commensurate residual value increases for leases, real values over the long term tend to equalize. And when demand dries up, those folks that fought to overpay for vehicles today are taken out of the market for a long time – negative equity that cannot be absorbed in future new purchases for years to come.
Now, I think whenever two experts as diverse as Jeremy Siegel and Bob Hollenshead warn of practically the same thing at the same time, it’s worth listening to, if not preparing for in some way.
I am not quite old enough to have been in the car business myself back in 1981, when the effects of inflation caused the prime interest rate to hit almost 17%, but I have heard enough stories of how that had a ravaging effect on dealers, both at the retail and wholesale level. Folks could not afford to buy vehicles at the same time wholesale floorplan carrying costs went through the roof.
Such things could not happen again, or could they?
John F. Possumato (pictured above, left) is an attorney and founder and CEO of DriveItAway, which creates platforms and applications enabling automotive retailers to offer new app-enabled mobility options, including remote rental and rent-to-purchase.