How car shortages are affecting local dealers and consumers
It has been over a year since the coronavirus pandemic hit the United States in March 2020, affecting industries across the country when the economy took a downturn. The car industry was affected at that time and continues to impact consumers today.
Some members in the industry predict that the car market won’t rebound to its pre-pandemic normalcy for at least another 6-12 months, although they say it is difficult to forecast. However for the time being, customers should expect waiting longer for their desired vehicle, elevated prices on used and new cars, along with good trade-in deals for used vehicles and low interest rates.
The consensus among dealership owners to car salesmen is that they have never experienced anything like this right now.
“It cuts across every brand, make and model. ... It does not discriminate,” said Scott Lambert, president of the Minnesota Auto Dealers Association.
Steve Whitaker, president of Whitaker Buick GMC in Forest Lake, said his dealership would typically have 100 new and 100 used vehicles on display on their lot prior to the pandemic. His current inventory is 16 new and 50 used vehicles. His dealership tries to accommodate customers’ vehicle needs by searching other dealerships’ inventory and making “dealer trades” with them. However, the process takes more time now.
A main reason for new vehicle shortages is the worldwide undersupply of microchips. Whitaker said the reason for the shortage stems from automotive plant closures, a fire in a large Japanese-owned microchip factory on March 19, 2021, and automakers cutting staff sizes to survive the economic downturn.
A vehicle needs an average of 12 microchips to be street-safe. Therefore manufacturers can only produce and sell a limited number of vehicles until they receive more microchips, according to Lambert, which is causing the car shortage right now.
“What I have been telling customers who are frustrated is that you just gotta be patient. The dealers can generally find what you’re looking for,” he said.
However, steady demand and low inventory is leading to dealerships paying higher prices for used cars, resulting in elevated used car prices.
Koppy Motors of Forest Lake currently has about 130 used vehicles in inventory, according to salesman Brad Robinette. He said the owner, Dan Koppy, spent a lot of money over the past year to provide customers with the first impression of seeing a full car lot at their Lake Boulevard location.
“He [Koppy] said that he’s bought vehicles for well above what he had ever thought they’d sell for years ago,” Robinette said.
Customers seeking a used vehicle may see elevated prices congruent to what the dealerships are paying for them. However, consumers could get a higher return by selling a used car right now.
“The good news is, if somebody’s looking for a used car, the price of their trade-in is also up. And so it is a net neutral for a consumer as long as they’re trading something in,” Whitaker said.
Whitaker said some dealerships are trying to upsell used cars to make a profit, but he wants his business to maintain transparency with the customer. Therefore, they are not participating in as many used car auctions at the moment to ensure their customers get a good deal.
Another industry-wide deal for the customer has been low interest rates for the past year.
“Interest rates have stayed pretty steady. They’re very low, they’ve been low since we came out of that recession. It’s the longest period that I can ever remember of interest rates being very low,” Whitaker said.
As a result, Robinette said there was an influx of customers paying with cash and putting heavier down payments on cars recently. Low interest rates on vehicles have been enticing for customers because their payments are lower, especially if more money is put down initially.
Even though prices are elevated for used cars and there are longer wait times for new cars, the current events could be shaping the future of the car industry.
Whitaker believes the pandemic will change how dealerships function in the future. He thinks manufacturers could set new policies to limit dealership inventories. The limitation he foresees will be cheaper for dealerships and manufacturers to maintain up-to-date programming and mechanics in vehicles at dealerships, which could mean the wait time for customers to get their car is a new change in the future.
However, Lambert foresees the current car market will stay the same for some time.
“It’s up in the air; I would guess we’re going to see this through next spring,” he said.