Aug 28, 2020

Axios Navigate

Joann Muller

Welcome back and happy Friday! Today we look at why cars are so expensive and why the Chrysler Pacifica minivan is so popular in Silicon Valley. If you've got tips or questions, email me at joann@axios.com.

  • ICYMI: Waymo hosted a fantastic panel Wednesday with four standout female leaders in the self-driving field. You can catch it here.

Smart Brevity count: 1,596 words, a 6-minute read.

1 big thing: For cars, it's a seller's market

Illustration: Eniola Odetunde/Axios

Anyone looking to buy a car right now is likely to find fewer choices and higher prices — with very little room to negotiate.

The big picture: The pandemic has thrown off the natural balance between supply and demand for new and used cars, driving up vehicle prices and putting all the bargaining power into the hands of car dealers, who are enjoying fatter-than-normal profits.

What's happening: It's nothing like the Great Recession of 2008-09, which forced General Motors and Chrysler into bankruptcy and left other global automakers on the ropes.

  • Back then, the banking and credit crisis caused sales to collapse suddenly, but manufacturers kept producing cars, albeit at lower levels.
  • This time, the pandemic shut down production for two months, but buyers came back to the market sooner than expected.
  • "This recession is unlike any the auto industry has seen before," says Jonathan Smoke, chief economist at Cox Automotive.

Between the lines: An extraordinary set of circumstances has created the perfect seller's market:

  • In mid-March, every major auto manufacturer stopped production — for the first time since World War II.
  • That led to a shortage of vehicles on dealer lots, in particular pickup trucks and SUVs.
  • Used cars grew scarce too, as fewer people traded in vehicles or returned leases during the pandemic's early lockdowns. With many banks not collecting on bad auto loans, there were fewer repossessions, too.

But consumer demand proved resilient in the months after the initial crisis as dealers made it easier to shop online.

  • Federal stimulus checks, plus the extra $600 weekly unemployment benefits, helped grease the market (though both programs are over now).
  • Big incentives, including longer loans, helped put car payments within reach for many.
  • Shifts in attitudes toward public transportation during the pandemic also drove more people into the car market, many for the first time.

It's basic economics: When demand is high for something that's in short supply, prices go up.

  • The average transaction price on a new car is $38,414, up about $400 since January and $1,200 since last July, per Cox data.
  • The spike is even more pronounced on used-car lots, where list prices are up $900 this year alone, to an average $20,445.
  • At wholesale used-car auctions, dealers are fighting over scarce inventory, bidding up prices — which of course get passed on to consumers.
  • On the flip side, you'll get more for your trade-in right now if you decide to upgrade.

The roller-coaster has dealers feeling flush — for the moment anyway. After a brutal spring, many are now seeing record profits on both new and used cars.

What to watch: The rest of the year remains a big question mark, and the volume of auto sales will likely depend on the virus and the government's response, says Smoke, the Cox economist.

Toyota sales chief Bob Carter, for one, is optimistic. "The industry is returning to health. The main issue right now is supplying the vehicles that customers want to buy — especially trucks and SUVs."

Read the full story.

Bonus: Cars are getting more expensive
Data: Cox Automotive; Chart: Naema Ahmed/Axios

Average transaction prices for vehicles have been rising for some time, partly because consumers are buying bigger models and outfitting them with expensive add-ons like cameras and assisted-driving features.

Why it matters: By stretching out loan terms to as long as 84 months — seven years — buyers are able to afford the monthly payment on those more expensive cars. But when they go to trade in their car for a newer model, they often discover the car is worth less than what they owe.

The bottom line: The only way out is to roll the debt into the loan on the next vehicle, putting borrowers even further under water.

2. Chrysler minivan moonlights as a robotaxi

Voyage's latest robotaxi prototype, a specially outfitted Chrysler Pacifica minivan. Photo: Voyage.

The Chrysler Pacifica — the quintessential family hauler for soccer moms and stay-at-home dads — has a cool side hustle. It's the go-to model for Silicon Valley engineers working on self-driving cars.

Why it matters: Minivan sales have plummeted as America's love affair with SUVs has grown. But Fiat Chrysler Automobiles is quietly carving out a new niche for the Pacifica hybrid with a purpose-built, AV-ready platform.

What's happening: At least four autonomous vehicle companies are upfitting their self-driving technology on the specially designed Pacific hybrid.

  • Voyage, which is developing a robotaxi service for senior citizens, this week unveiled its latest prototype, the G3, based on the Pacifica.
  • Waymo has been using Pacifica minivans to develop and test its self-driving technology for several years and now has more than 600 deployed.
  • Aurora Innovation, another AV startup, is testing commercial routes in Texas with its fleet of self-driving Pacificas.
  • AutoX, backed by Alibaba, plans to roll out a fleet of Pacifica-based robotaxis for China and other countries in Asia.

The Pacifica hybrid is ideal as a robotaxi because it's spacious, with sliding doors for easy access. (I rode in Waymo's driverless taxi in February.)

  • And the high-voltage battery helps power all the computer chips and sensors needed to feed the car's self-driving system.

Yes, but: Retrofitting an off-the-shelf minivan doesn’t give the self-driving technology access to the vehicle's own brain that would allow it to operate without a driver, notes Voyage CEO Oliver Cameron in a blog post.

  • So FCA designed an AV-specific version of the Pacifica, which includes redundant steering and braking systems and fail-safe power systems to run the sensors and software.
  • FCA works with its customers so they don't have to reverse engineer the vehicle when integrating their AV technology, an FCA spokesman said.

The bottom line: Voyage's latest AV prototype is half the cost of the previous generation and will be ready to go fully driverless next year, says Cameron.

What to watch: The Pacifica is currently the only minivan available as a hybrid, but the redesigned Toyota Sienna hybrid, coming later this year, could potentially become an AV platform as well.

  • Toyota officials will only say: "stay tuned."

Go deeper: Robotaxi startup Voyage loads self-driving vans with coronavirus-killing tech (Forbes)

3. A garage that parks the car for you

Photo: Ford

In the not-too-distant future, motorists won't have to worry about finding a parking space. They'll leave their car at a drop-off location and the vehicle will park itself in a garage.

What's happening: Ford is working with a tech supplier, Bosch, to perfect the system as part of a pilot at a retrofitted garage in Detroit owned by Bedrock, a Detroit real estate developer. The companies said it is the first infrastructure-based solution for automated valet parking in the U.S.

Why it matters: Automated valet parking is not only a convenience for motorists; it's an efficient space-saver for building owners, allowing them to squeeze up to 20% more vehicles into their garages.

  • Automated parking is also an important building block for self-driving technology.

How it works: Upon exiting their vehicle, a driver uses their smartphone to tell the car to park itself.

  • In this case, it's the garage's sensors, not the car, that is calling the shots.
  • Lidar sensors (and soon, cameras) in the garage communicate over WiFi with the Ford Escape's embedded modem, which issues commands to the steering and braking systems to maneuver the car as needed.
  • When ready to depart, the driver summons the vehicle again using their smartphone.

What to watch: The pilot runs through the end of September. Ford chief technology officer Ken Washington calls automated parking "a high priority" and says "stay tuned" for news about a commercial launch.

4. Amazon orders more electric delivery vans

Photo: Paul Hennessy/NurPhoto via Getty Images

Amazon continues to push toward electrification of its delivery fleet with a deal announced today to add more than 1,800 battery-powered Mercedes-Benz vans in Europe this year.

The big picture: Amazon is shipping more of its own products, relying less on major carriers, and the Mercedes purchase makes it clear the giant online retailer favors vehicles that will help remove greenhouse gases from its delivery fleet.

  • In 2019, Amazon announced The Climate Pledge to run a carbon neutral business by 2040.
  • Besides logging its largest EV order to date, Mercedes said it will also join the pledge.

Flashback: Last year, Amazon ordered 100,000 electric delivery vehicles from EV startup Rivian.

  • The first 10,000 Rivian vans are expected to start delivering Amazon packages in 2021 and all 100,000 vehicles will be on the road by 2030.
5. Driving the conversation

Airline job cuts could pressure Congress and Trump on stimulus (Niraj Chokshi and Ben Casselman — New York Times)

  • The big picture: A $25 billion aid package that has supported airline industry workers during the pandemic expires at the end of September. The White House signaled this week it's willing to extend that relief to prevent tens of thousands of job losses.

Second ex-United Auto Workers president charged with embezzling union funds (Mike Wayland — CNBC)

  • Why it matters: Dennis Williams is the 15th person charged in the sweeping investigation of corruption within the prominent union, which faces a possible takeover by the federal government.

Luminar to go public via reverse merger (Dan Primack and Joann Muller — Axios)

  • Why it matters: Luminar has sprinted ahead of other laser-based detection systems by focusing on long-range, highway driving. Its lidar tech will debut in Volvo Cars' next generation of vehicles starting in 2022.
6. What I'm driving

Photo: Hyundai

This week I'm driving the Hyundai Venue Denim, the very definition of what the auto industry calls a "cute ute."

The big picture: The stylish compact SUV is aimed at young urban buyers who want an SUV but have no intention of driving off-road. (Good thing because it's not available in four-wheel-drive.)

  • 63% of Venue buyers are women — people like my 24-year-old daughter who said she could see herself owning one.

What's new: The Denim edition I drove is full of personality, with a distinctive blue interior inspired by your favorite jeans.

  • The fabric and leatherette seats have a blue striped pattern and most of the interior surfaces are blue, too, with cream-colored accents.

The Venue Denim also stands out for its exterior styling, including a two-tone, blue-and-white paint job.

Advanced safety technologies like automatic emergency braking and lane-keeping assist are standard on all Venue models, along with a driver attention warning system to detect drowsy or careless driving.

The bottom line: The Hyundai Venue is a cool, well-equipped, small car that's affordable, starting at just $17,250 and topping out at $23,305 for the Denim edition.

Joann Muller

Editor's note: The first item has been corrected to state that the extra $600 in unemployment benefit payments were weekly (not monthly).