The U.S. auto industry is heading into one of its biggest selling weekends of the year with dealership lots stripped bare of inventory and some buyers having to drive great distances to secure a new ride.

For a second year in a row, car shoppers are facing bleak prospects in trying to buy a car this Labor Day weekend. The period has historically been a time of blowout deals and big sales events for car companies and dealerships trying to clear out old vehicle stock to make way for the new model year.

Some dealers are so short on vehicles that they are cutting their advertising budgets for the month and closing Friday and Saturday.

Around this time last year, the U.S. car business was still trying to recover from the pandemic-related factory shutdowns in the spring, disruptions that at the time led to slim pickings on dealership lots over the holiday weekend.

Since then, the availability of vehicles—new and used—has deteriorated, dented by a global computer-chip shortage that slammed the auto industry earlier this year and has hampered U.S. auto production through the spring and summer.

“Customers are walking in and saying, ‘Hey, I really want this vehicle.’ Well, yeah, so do we,” said Scott Smith, president of Smith Automotive Group, which operates dealerships in the Atlanta area. “It’s been tough to meet all of the demand.”

This week, both General Motors Co. and Ford Motor Co. said they are extending production cuts at several North American factories—including highly profitable pickup truck plants—into September because of a lack of semiconductors, used in everything from air bags and engines to media displays.

General Motors plans to phase out nearly all of its gas and diesel vehicles by 2035. Leading that transition is the first fully electric Cadillac. WSJ’s Mike Colias visited a GM testing site for a ride and an exclusive interview with GM’s President Mark L. Reuss. Photo Illustration: Alexander Hotz The Wall Street Journal Interactive Edition

Earlier in the year, executives were hopeful that the chip-related challenges would abate in the second half, but a surge in Covid-19 infections—particularly in Southeast Asia where many semiconductors are produced—is prolonging the manufacturing disruptions.

Vehicle stock levels plunged to a record low in August, after sliding through much of the summer. At the end of the month, there were only roughly one million vehicles on dealer lots or in transit, which translates into less than a month’s supply of available inventory, according to research firm Wards Intelligence. That number is down 58% from the prior-year August, when supplies were also depressed.

Meanwhile, car companies are pulling back on discounts, and dealers are increasing prices, resulting in buyers often having to pay top dollar to drive a new ride off the lot. Some shoppers are shelling out several thousands of dollars above the listing sticker price for certain high-demand models.

Throughout the summer, the average transaction price on a new vehicle has continued to hit new highs.

Photo: Bess Adler/Bloomberg News

Throughout the summer, the average transaction price on a new vehicle has continued to hit new highs and jumped nearly $6,000 in August from the prior-year month to reach a record $41,378 per vehicle, according to research firm J.D. Power.

“We don’t have to rely on heavy discounts to move aged or bloated inventory,” said Mike Koval Jr., head of the Ram pickup-truck brand, a division of global car company Stellantis NV.

The chip shortage has led Ram to reconfigure certain models to be built with fewer chips, a workaround intended to keep assembly lines running, Mr. Koval said. For some models, that means dropping certain features, such as technology that warns drivers if they are drifting out of the lane, dealers say.

The inventory constraints are weighing heavily on U.S. auto sales, which have steadily declined from a blistering pace this spring when buyers, encouraged by low interest rates and a strengthening economy, snatched up vehicles in droves.

In August, the industry’s adjusted annualized selling rate—a measure of the car market’s strength that strips out seasonal factors—hit 13.1 million, according to Wards Intelligence. Besides a few tough months during the pandemic in 2020, August marked the lowest sales pace in a decade, the firm’s data shows.

SHARE YOUR THOUGHTS

Are you in the market for a new car? How has your search been going? Join the conversation below.

Morgan Stanley auto analyst Adam Jonas described the current selling pace as “more reminiscent of a recession than a bull market.”

This Labor Day weekend, dealers say that with few cars to sell, they are treating the three-day holiday much like any other time, forgoing the tent events and clearance deals that are normally a staple in the sales calendar.

“I’m asking myself, ‘Why am I spending so much money?’” said Adam Lee, chairman of Lee Auto Malls, a dealership chain in Maine. This September, Mr. Lee said he cut his advertising budget by 25% because attracting customers to his store is the least of his worries right now.

“The demand is there. It’s just the supply is not,” he added. “There is really no other way to say it, it’s really grim.”

Kelsey Mays, senior editor of car-shopping website Cars.com, said buyers should be prepared to travel to get exactly what they want. According to a recent survey of the website’s shoppers, one out of three are already traveling more than 100 miles to find their preferred make and model.

“If you find the car you want, you should act fast,” he added.

—Mike Colias contributed to this article.

Write to Nora Naughton at Nora.Naughton@wsj.com