When Susan Dushane began searching for a new car, a few months back, she had no idea just how far she’d have to go looking. With the help of her son, Mike, they contacted every Kia dealer within 200 miles of her Tampa, Florida home before they found the one they wanted – even then paying $6,000 over sticker for her new Telluride SUV.
And that was a relative bargain, said Mike Dushane, “since demand is off the charts and there were almost none to be found. Local dealers wanted $10,000 over sticker.” If you’re looking to buy a new car, truck or crossover anytime soon, be prepared for more than just sticker shock.
Largely due to a shortage of the semiconductors used in today’s increasingly high-tech vehicles, automakers have been forced to slash production in recent months, leaving dealer lots increasingly bare. In turn, they’ve cut incentives while retailers are far less likely to bargain and, if anything, are often tacking on premiums for the market’s most popular models – when you can find one.
“I couldn’t find the car I wanted, and even where they were available, dealers weren’t offering discounts,” said Craig Daitch, the head of a strategic communications company in Commerce Township, Michigan. In fact, when he did find the Jeep Grand Cherokee he wanted, the dealer was going to tack on “an adjustment fee” of $3,000.
Instead, Daitch decided to buy used – though prices for “previously owned vehicles” are running at record levels, according to industry data, just like new models. The U.S. automotive market has been in turmoil ever since the COVID pandemic struck. As much of the country went into lockdown in March 2020, the North American automotive manufacturing network ground to a halt, and it wouldn’t reopen for two months.
The impact was expected to be minor, as car sales initially tumbled as much as 40 percent, and demand for all of 2020 was forecast to dip to levels not seen since the depths of the Great Recession. But the market came roaring back much faster than expected, buyers gobbling up whatever was on dealer lots.
As the new year began, manufacturers hoped to rebuild inventories by scheduling plenty of overtime. That’s when they were hit by unexpected fallout from the COVID crisis. When auto plants had shut down, the industry slashed orders for the semiconductors used by the dozens, even hundreds, in today’s vehicles. Chip manufacturers, in turn, redirected production to supply soaring demand for consumer electronics. Now automakers have had to go to the back of the line.
Virtually every carmaker, from Ferrari to Ford, has been hit. Hard. The Detroit automaker has repeatedly slowed or halted production at many of its plants. It’s so far lost output of more than 100,000 F-Series pickups, its most profitable product.
“Every 100,000 units of lost F-Series production costs Ford about $4.7 billion of revenue,” wrote Morningstar’s David Whiston in an Aug. 13 report. “Given what we assume is an EBIT margin in the high teens to 20%, we calculate lost EBIT of about $937 million for every 100,000 lost U.S. F-Series wholesale units.”
GM slashed production of its own full-size pickups, the Chevrolet Silverado and GMC Sierra, in recent weeks. And Nissan has completely shuttered its big assembly plant in Smyrna, Tennessee. It won’t reopen until August 30th, at the earliest, it said.
With just one exception, Mercedes-Benz won’t bring any of its V-8 models to the U.S. for the time being, and dealers have been told that could stretch well into the coming model-year.
While some analysts believe the chip shortage could be resolved by autumn, Mercedes CEO Ola Källenius isn’t nearly as confident, recently telling analysts, that “probably in 2022, we’re going to talk about this as well. Improving the supply stability, needless to say, is a top priority for us.”
Until automakers can line up a steady supply of chips, inventories likely will remain well below normal.
While there are “some signs of stabilization,” said Cox Automotive Senior Economist Charlie Chesbrough, total inventory as of July 19 stood at just 1.2 million new vehicles at a time of year when the traditional norm was closer to 3 million.
The average transaction price – what car buyers actually pay after everything is factored in – surged to $42,736 for the month of July, an all-time record and an increase of $402 from the month before, according to Cox automotive. Prices have risen about $3,000, on average, from pre-pandemic levels.
Some of that is due to a shift among buyers to higher and better-equipped trim levels. But, analysts like Chesbrough say inventory shortages – and the consequent cut in discounting – catches much of the blame.
It’s still possible to find the occasional deal if you’re willing to look – and wait. Some customers have found dealers more responsive if they place an order that might take weeks, even months to fulfill. Others are looking to slower-selling products, such as sedans and coupes, that may be in bigger supply. And that also goes for lesser-known brands like Genesis.
“I benefitted from the fact that they had a selection” of the new Genesis GV70 on local dealer lots, Orlando, Florida’s Bill Truett said. One local dealer wanted $5,000 off sticker, but after talking with several he negotiated the price down and got a “bargain,” paying only list price.
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August 20, 2021 at 04:18AM
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Car buyers pay as chip shortage outlook dims - NBC News
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