As chip shortage drags on, cars scarce, prices up

DETROIT — For the next few months, Charlie Gilchrist figures his 11 car dealerships in the Dallas-Fort Worth area will sell just about every new vehicle they can get from the factories — and at increased prices.

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.

Given the robust customer 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 $40,000, up nearly 10% in two years — customer demand exceeds supply.

“It’s pretty evident when you pull onto our lots that there’s not much selection,” said Gilchrist, whose lots carry brands ranging from General Motors and Ford to Nissan and Volkswagen. “Our [sales] volume is falling because of the sheer lack of inventory. It will still fall during the next two or three months.”

The across-the-board surge in auto prices contributed to last month’s jump in U.S. consumer prices, the government reported Wednesday.

A record 10% increase in used-vehicle prices, in fact, accounted for roughly onethird of April’s overall rise in consumer prices — the sharpest monthly increase in more than a decade.

Ford expects to produce only half its normal number of vehicles from now through June. General Motors and others have resorted to halting production of some cars and smaller SUVs and diverting computer chips to higherprofit pickup trucks and large SUVs. Leading automakers are warning of diminished earnings.

The vehicle scarcity and the soaring prices can be traced to the outbreak 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-thanexpected economic rebound boosted demand for vehicles, and auto plants tried to restore full-scale production. Yet chipmakers 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.

At the same time, 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.

Jeremy Smith said he is seeing the price increases on both ends as he buys and sells pickups for his utility trailer sales business near Buffalo, N.Y. In March, he bought a used diesel 2020 Chevrolet Silverado crew cab with 21,000 miles on it for $61,000. Comparable trucks are now listed on websites, he said, for $68,000 to $70,000.

At the same time, he’s asking $13,995 for a 2011 Silverado crew cab with 178,000 miles on it, a far higher price than he would have thought even a few months ago.

An index that measures wholesale U.S. used-vehicle prices from auction house Manheim rose 53% in April from a year ago, hitting a record high. Auto dealers buy used vehicles at auctions; the average price there hit nearly $18,000.