Running on empty
Auto industry rebounding, but it’s slim pickings at Chicago-area new car dealerships
The hardest part about buying a new car during the pandemic may be finding a new car. While the automotive industry is showing signs of recovery, months of production stoppage, supply chain interruption and stay-at-home disruption has left many Chicago-area dealers with few new cars and lots of empty spaces.
Adding to the inventory shortage, the new model year — an automotive rite of fall — has yet to hit showrooms in any significant numbers. Many 2021 models may not actually arrive until 2021.
“It’s kind of hard to sell from an empty cupboard when you don’t have any new vehicles,” said John Webb, a principal with family-owned Packey Webb Ford, a 58-year-old Downers Grove dealership.
The auto industry is gaining some momentum after grinding to a halt at the onset of the pandemic. Chicago-area auto plants, which were shut down for much of the spring, are back up to pre-COVID-19 employment and production levels. Dealerships are open for business and consumer demand has been strong.
But COVID-19 has been a change accelerator for the industry.
With new cars in short supply, used car sales hit record numbers this summer. Online sales took off, dealers picked up and dropped off cars for service, and showroom visits touted Plexiglas and masks over free coffee and doughnuts.
“We’ve had to change the way we do business a lot,” said Dan Fields, 48, president of Fields Automotive Group, a nearly 50year-old,
family-owned dealership group based in Glencoe. “For instance, doing a completely contact-free deal where somebody never leaves their house, we bring them the car, they test drive at home.”
Fields, which started with an Evanston Cadillac dealership in 1971, focuses mostly on luxury brands, with BMW, Lexus, Land Rover and Jaguar among its
North Suburban portfolio, along with a Chrysler Jeep dealership in Glenview.
The dealerships remained open in the spring, but “sales were awful” in April and May before rebounding this summer, Fields said.
Edmunds, a car shopping website, projects new vehicle sales to decline 11% in the 3rd quarter from the same quarter last year. That’s a marked improvement from the 2nd quarter, when year-over-year sales were down more than 34%.
New car sales are down about 20% for the year, but with inventories low, the prices are rising. The projected average transaction price in the 3rd quarter is $39,303, up more than $2,000 per vehicle over last year, Edmunds said.
The ongoing pandemic, civil
“It’s kind of hard to sell from an empty cupboard when you don’t have any new vehicles.” —John Webb, a principal with family-owned Packey Webb Ford, a 58-year-old Downers Grove dealership
unrest, a divisive presidential election and a precarious economy make for an uncertain road ahead. What is clear is that new car sales can’t happen without new cars.
“The majority of dealers do have inventory problems right now,” said Pete Sander, president of the Illinois Automobile Dealers Association, which represents 708 new car dealers in the state.
The production pipeline was choked off when auto plants across the country temporarily shut down in mid-March, as COVID-19 began to spread. Two months later, automakers restarted production, but consumer demand continues to outpace supply.
Ford’s Chicago Assembly plant, which reopened in May, has gone from zero to 5,500 employees working three shifts — roughly the same as pre-COVID-19 levels. The plant, which makes the Ford Explorer, Lincoln Aviator and Police Interceptor SUVs, is set to switch over to the 2021 models this month, Ford spokeswoman Kelli Felker said.
Fiat Chrysler Automobiles restarted its Belvidere Assembly Plant near Rockford with one shift on June 1 and added a second shift three weeks later, bringing back the 3,800 workers it laid off in March, FCA spokeswoman Jodi Tinson said.
Last year, the Belvidere plant eliminated a third shift and about 1,400 jobs amid dwindling demand for its only vehicle, the Jeep Cherokee. The plant began building the new 2021 model at the end of August, Tinson said.
Getting the plants up to speed during the pandemic has been a challenge. Despite increased safety protocols, both plants have had employees test positive for COVID-19 since resuming production.
Beyond preventative measures such as mandatory masks, social distancing and temperature scans, both plants utilize testing, contact tracing and quarantining — with pay — to prevent the spread of COVID-19 on the production line.
“When employees are symptomatic or there is close contact, we have established policies that allow employees to stay home while they recover or confirm their wellness,” Tinson said.
Neither disclosed the number of cases, but Ford’s Chicago Assembly Plant was shut down “a couple of times” in May for cleaning, Felker said. Despite close quarters along the assembly line, she said the safety protocols have contained the spread of the virus — at least within the confines of the plant.
“No close contacts in the workplace that have been following our protocols have developed symptoms or tested positive,” Felker said. “It’s not being spread in the plant. What employees do on their own outside, we can’t control.”
Michelle Krebs, an analyst for Cox Automotive, said the pandemic remains an impediment to full production.
The auto industry is on track to sell 13.9 million new vehicles this year, down from 17 million in 2019, roughly an 18% decline, Krebs said. Lower inventory will likely depress sales into next year, she said.
“Demand is outpacing production and production just hasn’t caught up from those months of shutdowns,” Krebs said.
Krebs said another issue is the delay in producing 2021 models at the newly reopened plants. Only 3% of dealer inventory is model year 2021, versus 25% at this time last year, she said.
“The new model year is getting off to a very slow start,” Krebs said.
Fields said his dealerships “definitely missed some sales” because of low inventory in September.
“Our Lexus store would have sold a lot more, if we had more SUVs,” Fields said. “Same with our Land Rover stores. We totally ran out of
Range Rover Sports, which is our hottest product.”
New car inventory at his Glenview Chrysler Jeep dealership is at about 60% of last year at this time, Fields said.
September sales were flat year over year, a marked improvement from the dismal spring sales, when the primary focus at Fields was how to safely operate a car dealership in the midst of a pandemic.
Things also looked a lot worse at Packey Webb Ford when Gov. J.B. Pritzker issued a stay-at-home order in March. Like many Illinois car dealerships, Packey Webb stayed open as an essential business, mostly because of its service facility. Sales were by appointment only, with limited hours and few buyers.
“March and April were really scary,” Webb said.
Packey Webb laid off “a couple of hourly mechanics,” but after receiving a federal Paycheck Protection Program loan, the dealership hired the workers back.
Webb declined to disclose the amount of the forgivable PPP loan, but the Small Business Administration reported online that Packey Webb received between $1 and $2 million through Wheaton Bank & Trust on April 6 to fund 92 jobs.
As the state began opening up, buyers ventured back to the showroom and the remaining new car inventory was essentially depleted by mid-June, Webb said. That’s when used car sales for Packey Webb — and dealers across the country — caught fire.
“When the new inventory started getting low, the used car market just went through the roof,” Webb said.
“People were just paying up because they were needing cars, especially late model cars, because there were no new ones around.”
Nationally, used car sales reached a projected 3.8 million vehicles in September, up 11% from a year ago, according to TrueCar. Prices are at record levels, with the average list price for a 2017 model year at $24,287 in August, up nearly $1,500 since June, according to Edmunds.
Another pandemic-driven shift has been the acceleration of online car buying, with Phoenix-based Carvana, a pioneer in the space, reporting record sales in the 3rd quarter.
Traditional dealerships have also beefed up their online sales.
A study released Tuesday by Cars.com, the Chicagobased car shopping website, found 57% of recent buyers said they conducted the bulk of the vehicle transaction online with their local dealership. In Chicago, nearly two-thirds of buyers made their purchase mostly online.
Webb said online sales are still a long way from supplanting showroom sales at his dealership, but the pandemic “definitely sped up the online experience and online possibilities.”
Job one, however, is to get new Fords on the lot. New car inventory remains tight at Packey Webb, with mostly 2020 models still trickling in. Webb said he normally has 200 to 300 new vehicles in stock. His current inventory stands at about 110 new vehicles.
Webb has even cut back on his normally ubiquitous “The Whole Town’s Talking About the Webb Boys” radio commercials, despite steep discounts offered by Chicago stations.
“My problem is I don’t have the inventory that I normally have,” Webb said. “I don’t have the capacity to mass market my volume of cars because I don’t have them.”