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Supply chain conditions are 'starting to get spotty' for automakers: Analyst

iSeeCars.com Executive Analyst Karl Brauer assesses the state of supply chain conditions for auto manufacturers, Tesla's EV delivery figures, and the pricing behind used car prices.

Video Transcript

SEANA SMITH: GM shares moving to the upside today, up just around 3 and 1/2% after the auto giant posted a 24% jump in sales during the third quarter. That's far outpacing competitors. Toyota, Stellantis, and Nissan just three of those all reporting a drop during the most recent quarter. Joining us now to talk about the auto sector at large, we want to bring in Karl Brauer. He's iseecars.com executive analyst.

Karl, it's great to see you. So we had those four large automakers. Tesla also reporting record deliveries, yet a mixed expectations. And that's a big reason why that stock is selling off today. From your vantage point, from your view, I guess, give us just your assessment on where we stand in the supply chain issues because that is the biggest challenge here for automakers as we enter the final quarter of the year. How much improvement have we seen?

KARL BRAUER: We've definitely seen improvement. We're moving in the right direction. We're digging and clawing our way back to having balanced a supply chain process with demand and production so that we're not seeing these big holes and gaps in how many cars they want to produce versus what they can produce. We're not there yet. We're probably going to be another 6 plus months before we get there.

The bigger question is, or the longer term question, is the demand side. It's been interesting because we've been on a supply side issue for years. And now we're about to, I think, maybe solve that. And I think maybe in Tesla's case, you're seeing a preview possibly of coming attractions in that supply gets solved just when demand starts to fall off because of global economic concerns.

DAVE BRIGGS: Well, on that, then, what does the GM number tell you about demand? And what do you expect from Ford-- I think it's tomorrow.

KARL BRAUER: Right, well, what GM tells me is that they certainly got a lot of their backlog supply issues filled because they had a lot of cars sitting around that weren't being sold because they had a few pieces or parts missing. And I think they got all those cars cleared out, put into the dealerships, and we saw their inventory numbers grow, and of course, their sales grow tremendously. We know Ford's been suffering the same thing. We've seen these aerial shots of these parking lots just getting full of F-150s.

And both companies said they would solve the problem by the end of the year, that all those backlogged cars would go out the door and out to the dealers. So I would expect to see some pretty impressive numbers from Ford and General Motors, Ford tomorrow for Q3 and then both of them probably for Q4. But again, long-term, once we've solved the supply issue, how are we going to be on the demand side?

RACHELLE AKUFFO: So then, during this point, you mentioned the ones that are doing well, GM and Ford. Who is in the worst position right now? Who's really getting squeezed the most by these supply chain issues?

KARL BRAUER: Well, you know, I saw the Q3 numbers for Honda, and I think they were down 35%. And I know Nissan was down, and Stellantis was down. So and I find it interesting because you would feel like it's a fairly consistent issue on these supplies, but it seems like it's starting to get spotty or certain automakers are coming back quicker than others, and they're benefiting from the slow reproduction and recovery of the supply chain issue.

But we're certainly not out of the woods yet. And we saw plenty of other automakers down for Q3, and they're all still down, I think, except Genesis. The luxury division of Honda was the only one that I think, year to date, looked like they were up.

SEANA SMITH: Karl, you've mentioned demand a few times. So let's talk a little bit more about it because we have a weakening economy. Consumers are facing higher rates. Any sign yet that demand for cars has started to weaken? And I guess, how do you see that affecting pricing?

KARL BRAUER: So we've been tracking at I See Cars, and we still see the average demand as 10%-- sorry, the average price 10% above MSRP. So if you look at all the pricing out there for cars that are listed, the average car is listed 10% above MSRP. And some of them, like Jeeps and Porsches and all, they're like 20%, 25% above MSRP.

But when you look at it, you see these are luxury cars and, like, fun cars. So these are consumers that have plenty of money and they just want the car, and they're going to get the car right now. We're at 10% overall. And I think we used to be higher. I think we were well above 10% average a couple of months ago. So we're already seeing this kind of average thing-- we're still above MSRP, which sounds good, but it wasn't-- it's not as strong as it was before in terms of pricing for these cars.

And then I think there were signs that, for instance, China's backlog of demand for Tesla had fallen off a little bit. And that's, I think, is why Tesla's stock is hurting. He had a lot of sale-- he had a lot of production this quarter, but he didn't have sales that were close to his production numbers, and he usually does. So once we start getting into an issue where there's a demand thing, that's much harder to navigate. Elon has done a great job in navigating this supply chain issue for the last two years. How does he navigate a demand issue if that starts to crop up?

DAVE BRIGGS: Oh, so much for that Jeep I wanted, Karl. When it comes to the used market, what did we learn from CarMax? When they got hit, sales were down 6 and 1/2%. Their CEO saying the consumer looked to be hit by affordability. What have we learned there? Well,

KARL BRAUER: I think used car buyers are going to be much more price sensitive. OK, used car buyers, they're not going to be the wealthy. They're not going to be the ones buying the Corvettes and the Broncos and the Gladiators because they've got plenty of money. So they're kind of an early indicator here. And if they're falling off because they're not going to invest in a new car now-- they've decided to hold off on a big purchase-- that would suggest all the things we're seeing related to the global economy in general on the horizon.

RACHELLE AKUFFO: So Karl, when we look at things like affordability, what consumers are willing to spend on, is there a sweet spot right now in terms of the kinds of models that consumers want to buy?

KARL BRAUER: They've always wanted flexibility. And that's why SUVs have become so popular over the last 10 plus years, is the idea that one car can serve so many different purposes. So you're still going to always have that SUV flexibility be one of the focuses of consumer demand. And that's why so many car companies have switched generally toward SUVs versus cars.

But it also means that if you're able to buy without getting an SUV, if you can get by with a sedan, you've got a much better chance of getting a nice price. If you're willing to go buy a midsize or small sedan right now, you get a much better price versus an SUV, which everyone wants.

DAVE BRIGGS: A lot of questions lie ahead. Karl Brauer, good to see you. Thanks so much.