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> What has made the auto industry particularly vulnerable is its reliance on just-in-time delivery, where parts are brought in when needed, rather than being st
by aazaa 5y ago
> What has made the auto industry particularly vulnerable is its reliance on just-in-time delivery, where parts are brought in when needed, rather than being stockpiled.
It's fascinating that the response is to close production rather than increase prices.
Those warning of inflation point to events like this as support. But inflation requires that higher producer costs be accepted by consumers.
And for that price transmission mechanism to work, there needs to be supply actually available at the higher price. It appears that just-in-time economics mean that in the event of a shortage your supply just goes offline. You don't get higher prices, just empty shelves.
- rightbyte 5y agoThe cars are maybe already paid for. Then they can't increase the prices until they cleared the pending orders?
- edoceo 5y agoprice up on new orders.
- rightbyte 5y agoNvidia is not really doing that either. I wonder why so many companies are reluctant to increase prices until they meet demand.
- elliekelly 5y agoI don’t mind patiently waiting for a new Xbox but if Microsoft suddenly doubled the price I’d strongly consider patiently waiting for a PS5 instead. I’m guessing whatever companies expect they could gain (or even retain) from raising the price in the short-term doesn’t exceed what they expect to lose in the long-term.
- willcipriano 5y agoYou have empty shelves, workplaces start going in person again and demand for cars becomes less elastic. Potentially used cars start selling for more than they cost new.
- mleo 5y agoUsed cars went up in value last year. Rental car companies sold their fleet cars into a better market and did not acquire new cars. This left rental car companies short on supply and able to raise rental car prices to compensate as people travel again. A couple of weeks ago, with seemingly no large events occurring, all rental cars in San Antonio were rented. This week, they are available, but at higher prices than I would normally expect.
- kyllo 5y agoI'm even seeing stories about U-Haul trucks all being rented out by tourists because rental cars are unavailable, causing a shortage of rental trucks for movers.
- ericmay 5y agoWhere are you seeing these stories?
- jeromegv 5y agoHawaii https://www.hawaiinewsnow.com/2021/04/22/why-are-visitors-cruising-around-u-hauls-blame-pandemic/ https://www.hawaiinewsnow.com/2021/04/22/why-are-visitors-cr...
- deleted 5y ago[deleted]
- olyjohn 5y agoMan, U-Haul must be pretty happy. Just a few weeks ago, my UPS driver showed up in a U-Haul truck and was using it to deliver packages.
- hyko 5y agoThe empty shelves will cause cost-push inflation, as people try to buy cars from a smaller available pool (e.g. substitute new cars for used). The price mechanism for cars will respond to a shortage of cars. Edit: it’s maybe bad luck that this could coincide with a demand-pull inflation pressure, as people ease back into personal transit.
- foobarian 5y agoCue stock drop people buying up all new cars and selling on Ebay for double...
- olyjohn 5y agoNot only that, but the used car market is going to explode. I knew my yard full of old crappy cars would be worth something some day!
- lotsofpulp 5y agoI’m hoping my 2003 car does not get stolen.
- xxpor 5y agoIt already has. Prices are up enormously.
- SyzygistSix 5y agoJaguars And Range Rovers aren't "I need a car" cars. They are optional luxury goods. The lack of new Range Rovers and Jaguars won't keep anyone from getting to work or the store. So I don't think the effect will be nearly as drastic as it would be if the number of Camrys and Hiluxs had to be curtailed.
- nottorp 5y ago... but guess who's next?
- 5y ago
- chrisco255 5y ago> It appears that just-in-time economics mean that in the event of a shortage your supply just goes offline. You don't get higher prices, just empty shelves. If the demand is there, the price increase will find its way to the market, either in the resale market or in alternatives to Jaguar Land Rover.
- ab_testing 5y agoExactly. Look at what is happening in the user car market for now. Used cars that people bought a few years ago are appreciating because the new ones are slow to hit the dealerships. Also cars are interchangeable, if a consumer is not able to buy a model of a luxury car, they can always buy another one that might be higher priced.
- daniellarusso 5y agoExcept there is tablet epoxied to the dashboard, almost.
- 14 5y agoI have been looking to buy shocks for my motorcycle for months but the cost was very high and I wasn't sure I could spend the money. But every few days would check out the shocks online. Then I started noticing the shocks I wanted started selling out everywhere. You can not buy them on ebay even. I literally found the last place with a set and bought them. I did so because I noticed that after everywhere sold out the manufacturers website has suddenly increased their MSRP by $50. The place I found them at had them at the old price so I pulled the trigger before they went up.
- hammock 5y ago>What has made the auto industry particularly vulnerable is its reliance on just-in-time delivery Invented by Toyota, ironically the reason why Japanese cars took over the industry a few decades ago
- macjohnmcc 5y agoI wonder if they have spare parts to repair existing cars or if they would have taken some of their spares for new vehicles.
- toomuchtodo 5y agoInterestingly enough, Toyota modified their supply chain operating model post-Fukushima. So the solution isn't as coarse as a binary "stockpiles or JIT", but an intelligent assessment of risk and managing that risk granularly. Kaizen at its best. "Toyota may have pioneered the just-in-time manufacturing strategy but when it comes to chips, its decision to stockpile what have become key components in cars goes back a decade to the Fukushima disaster." "After the catastrophe severed Toyota’s supply chains on March 11, 2011, the world’s biggest automaker realised the lead-time for semiconductors was way too long to cope with devastating shocks such as natural disasters. That’s why Toyota came up with a business continuity plan (BCP) that required suppliers to stockpile anywhere from two to six months’ worth of chips for the Japanese carmaker, depending on the time it takes from order to delivery, four sources said." "“Toyota was, as far as we can tell, the only automaker properly equipped to deal with chip shortages,” said a person familiar with Harman International, which specialises in car audio systems, displays and driver assistance technology." https://www.reuters.com/article/us-japan-fukushima-anniversary-toyota-in/how-toyota-thrives-when-the-chips-are-down-idUSKBN2B1005 https://www.reuters.com/article/us-japan-fukushima-anniversa...
- cm2187 5y agoChips become obsolete very quickly, and car makers create new models every year or two. You are not going to keep a year worth of inventory. Not convinced maintaining more stocks would have bought them much more time.
- 5y ago
- slver 5y ago> It's fascinating that the response is to close production rather than increase prices. Those aren't mutually exclusive... But you can't keep production running when you have no chips. Throwing money at the complete lack of chips doesn't help.
- wmf 5y agoIt sort of does help; chip prices have risen because customers are out-bidding each other. If you're willing to pay 10x 2019 prices you can probably get whatever chips you need. Many companies are deciding that's not worthwhile.
- nemothekid 5y ago>If you're willing to pay 10x 2019 prices you can probably get whatever chips you need. Many companies are deciding that's not worthwhile. The problem as I understand it is a company like TSMC sells capacity for the some time period - like a year. The automakers thought people wouldn't buy cars, so they relinquished their slots. Turns out car demand exploded, so they went back to TSMC and said "hey we need those slots" and TSMC said "sorry your slot already got sold to nvidia". Chrsyler could offer to pay TSMC 10x more, but that that ultimately wouldn't do much, the slot is gone and they would have to buy the capacity from nvidia. nvidia is in no position to sell because they are also facing extreme demand. How would it look to nvidia if, while gamers across the world can't get their hands on 3080s, they sold their fab capacity to Chrysler for $$$$?. So money isn't solely the issue here.
- turbinerneiter 5y agoI think your simplifications could change the logic here. Chrysler does not directly buy from TSMC, they buy from i.e. TI, Renesas, Microchip, NXP, ... Many of those companies do still have fabs, and even if not, they are not competing with Nvidia. They are producing on the old, old fabs, at 40, even 80nm. We would need better numbers on where these microcontrollers are fabbed to be able to tell how this interferes with i.e. Nvidia and Apple on TSMC 5nm.
- insert_coin 5y agoInflation means some things become economically impossible to produce, that is why the rest of the stuff becomes more expensive. Prices always lag behind because they are the result of all the economic processes that take place, not the cause, and this is just the beginning of the process.
- stevehawk 5y agoWe're not allowed to raise prices in respond to supply/demand for consumer products anymore. The public cries "price gouging" and you get canceled.
- beowulfey 5y agoHa! So instead the company just cancels the product anyway.
- deleted 5y ago[deleted]
- HPsquared 5y agoHigher prices in the secondary market.
- mrh0057 5y agoThe model your are using is to simple. Since there is a shortage of new vehicles it pushes up the price of used ones. Then any supply of new vehicles that hasn’t been sold yet goes up. People will keep cars longer since the price of new vehicles has gone up. The drives higher repair rate of vehicles and parts prices will start to rise. Since there is a chip shortages you may not even been able to get certain parts new so it drives up the price of used parts containing the chips. As people put off buying new cars when cars start becoming more widely available the prices stay higher until the shortage worked out and then prices of used and new car drops. Manufacturers are likely to overshoot the number of new vehicles since the models they are using assume the increased demand. This means once it is worked out a significant drop in prices and you can get vehicles really cheap. See 2008 cash for clunkers where it caused a spike in used cars price temporarily. It also had the effect that leases where cheaper since manufacturers believe they would be able to sale them used at a higher price which was only temporary causing them to lose money. You do get increased prices for new stock that don’t have existing contracts. If you screw up your estimate of what you need and your suppliers don’t have the capacity to make your parts, now you have a shortage. Now you have to shutdown because you can’t get parts but a manufacturer who did a better job of estimating will be able to charge a higher price. In this case it would be Toyota which didn’t cut their chip orders when the crisis hit. Of course they are also likely to have some shortage of certain vehicles since there will be a shift in demand for their vechiles. So if you own work trucks the value of them will skyrocket right now since most of them in the US are made by the big 3 which don’t have the chips to manufacture them.
- ticviking 5y ago> You don't get higher prices, just empty shelves. Trying to buy on the used market right now. I promise you we are seeing higher prices because people who had 30k to buy new, are now spending more for the higher quality 1-3 year old used stock.
- legulere 5y agoChip supply is inelastic. Paying more still doesn’t increase production capacities.
- treeman79 5y agoShort to medium term very true. Long term if people (think) prices will remain high, more factories will be built.
- daniellarusso 5y agoWell, used car prices continue to increase. Some one or two year old used vehicles sell for above their MSRP new prices now.
- vineyardmike 5y agoExcept it takes weeks/months to prep a fab to start making these chips. If the car companies start getting their orders then switch back to JIT manufacturing, then the fabs won’t want to waste these months idle thrashing the manufacturing lines across products. Raising prices only helps if you can get more supply at a higher price, and you can’t when it takes months to start.
- deleted 5y ago[deleted]
- Closi 5y ago> It's fascinating that the response is to close production rather than increase prices. This assumes there is no substitute good - which there is. Other cars.
- brewdad 5y agoJaguar. Accept no substitute.
- jtdev 5y agoYou'll likely see higher prices in the used market... which will almost certainly bubble up to the new market.
- friedman23 5y ago>It's fascinating that the response is to close production rather than increase prices. They are closing production on their cheapest cars
- Taniwha 5y agoIt's worse than that - the auto companies reduced their orders because they predicted covid meant that their sales volume would drop - turns out they were wrong, and now they are bitching and moaning because they can't get the stuff they didn't order