Dealers getting top dollar in car shortage
If you’re looking to buy a new car, forget about getting a bargain — at least for now.
With customers reentering the market after last year’s pandemic shutdown and with a persistent shortage of computer chips that go into new vehicles, dealers don’t have enough cars and trucks on their lots to keep pace with demand.
As a result, sellers are asking for — and getting — top dollar. Popular vehicles such as the Toyota RAV4 Prime are sometimes going at prices higher than the manufacturer’s suggested retail price.
“Every single unit sold is selling for a price you have never seen before,” said Ivan Drury, senior manager of insights at Edmunds.com.
“It’s a paradigm shift in car shopping because there’s so few new vehicles for sale, people are willing to pay it. And that’s the amazing part. Back in the day, people would balk. They’d say, I’m not going to pay MSRP. Now, they say, I’m going to pay MSRP or even an extra $3,000, $5,000 $7,000 above … because if you’re not going to pay, the guy right behind you is.”
Just a year ago as stay-athome orders went into effect to try to curb COVID-19 infections, great deals could be had. Carmakers such as General Motors offered 0 percent financing for 84 months to let buyers put off their first payments for up to 120 days.
With cars and trucks sitting on lots across the country, automakers reined in their factory orders for silicon chips that go into the brake sensors, power steering, and navigation and entertainment systems in modern-day vehicles. Semiconductor companies shifted focus to consumer electronics, which saw an uptick in demand for chips used in virtual learning, remote health care and working from home.
But as 2020 progressed, car sales rebounded faster than many had thought and chip manufacturers have struggled to supply carmakers’ orders. Now, a resurgence of COVID-19 cases in Southeast Asia — where workers in countries such as Malaysia assemble computer chips — is putting more strain on supply chains.
Just recently, Toyota announced it is cutting North American vehicle production 40 to 60 percent in August. Ford and GM also announced similar reductions.
Analysts such as Drury now expect inventory for new cars to stay low into 2022, even as customers clamor to buy.
“It’s like a rock has been definitely thrown into the water and you’re getting waves instead of ripples,” Drury said. “It’s more like a boulder being thrown into it. It’s not just going to resolve itself overnight.”
In California, sales have bounced back — up 96 percent in the second quarter when compared with the same three-month period amid the nadir of the 2020 lockdown.
The California New Car
Dealers Association expects 1.8 million in new vehicle sales for the year, not far off from the 2 million mark the state racked up each year between 2015 and 2019.
If not for the inventory squeeze, dealers say the numbers would be even more robust.
“If dealers can get (cars and trucks), customers will buy them,” said Brian Maas, the association’s president. “It’s a supply and demand question.”
The used car market is experiencing a similar dynamic.
The inventory constraints have led to another phenomenon the auto analysts can’t recall seeing — demand for 1- and 2-yearold vehicles reached the point where some sell for as much or more than their original purchase price.
“The rental agencies are so desperate that they too are looking for these (used) vehicles,” Drury said. “For the first time ever, we’re hearing about rental agencies buying used cars to put into their fleets.”