In normal times, that would be cause for joy. Not so much now. A global shortage of computer chips has forced automakers to slash production. The result has been far fewer vehicles on dealer lots, just as the waning pandemic has fueled a pent-up consumer demand for cars, trucks and SUVs.
With shrunken supply and robust demand, dealers like Gilchrist could sell many more cars and trucks, if only they had more. Even at elevated prices — the average new-vehicle sales price tops
“It's pretty evident when you pull onto our lots that there's not much selection,” said Gilchrist, whose lots carry brands ranging from
The across-the-board surge in auto prices contributed mightily to last month's jump in
The vehicle scarcity and the soaring prices can be traced to the eruption of the coronavirus 14 months ago. As the virus spread, auto factories shut down for a couple of months. With millions more people working from home, demand for laptops and monitors led semiconductor makers to shift from autos to personal electronics. Soon, though, a faster-than-expected economic rebound boosted demand for vehicles, and auto plants tried to restore full-scale production. Yet chip makers couldn't respond swiftly enough.
With production slowed, dealer inventories shrank. Now, as the chip shortage has persisted, the shortage of new vehicles has worsened, and analysts foresee no return to normal before next year.
Yet so far, automakers have been earning big profits even with a depleted inventory, largely because many buyers have been willing to pay more to get what they want. With government stimulus checks and tax refunds in hand, Americans bought about 1.5 million new vehicles in April. That's an adjusted annual sales rate of 18.5 million — the highest such rate since 2005.
“It's like toilet paper was a year ago,” said
Even so, the supply of vehicles is dwindling. Last month, the nation's total new-vehicle inventory plummeted 42% from a year ago to 1.9 million. That's enough to supply only 33 days of sales at the current pace — 88 days fewer than a year ago, according to Cox. At the same time, discounts fell 5% from March to April and 25% from a year ago to an average of
At the same time, he's asking
“You sell high, you buy high,” said Smith, who frequently buys trucks for his business. To get one now, he says, people have to move quickly to put in bids with dealers or owners.
“If you're not on it," he said, "those things are gone.”
Given the lack of supply, nearly everyone expects new vehicle sales to fall soon. That would mean fewer trade-ins, which would further tighten a low supply of used vehicles. For consumers who can wait, analysts say, it might be wise to delay buying any vehicle until next year or even beyond.
An index that measures wholesale
Dealers mark up wholesale prices when they sell to consumers. The average list price of a used car last month was just over
Dealers are now scrambling for used cars, hoping to sell them to keep cash flowing through the summer as new vehicle supplies dry up.
“Every car dealer in the world is jamming the auctions right now trying to fill their shelves because of the lack of new-car inventory,” he said.
Bazzy said he's hopeful that his business will manage OK with used sales, as well as revenue from parts and service. But he wants all the used cars they acquire now to be sold by August, when he expects the inventory of vehicles to start a return to normal.
Cox's Krebs said it's hard to predict how long the chip shortage and tight supplies will last. Morgan Stanley analyst
The pandemic and chip shortage have made rental cars scarcer, too, driving up prices dramatically and causing long waits as people start traveling again. Rental companies have had trouble getting new cars because auto companies have diverted vehicles away from fleet buyers to more profitable sales to consumers. Higher demand has sent some rental companies to the used car market to find vehicles.
Whenever the car shortage ends,
“I do think we are on the verge of possibly a different kind of paradigm for how vehicles are distributed,” Krebs said.
Still, competition could thwart those plans once factories return to normal production.
Bazzy normally stocks 400-500 pickup trucks at his three
“If the guy across the street from me has 300 (trucks) and my guy has to wait four weeks," Bazzy said, “I'm going to lose him.”
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