A car dealer shows a vehicle to customers at a car dealership in Jersey City, New Jersey.
Angus Mordant | Bloomberg | Getty Images
Chase Weldon spent weeks exploring new SUVs to get a family. To his surprise, he spent even longer trying to buy. Dealer lots were scarce, and sellers, who can sometimes be too aggressive, did not call him.
“I worked with some dealers across the country,”
Many vendors who returned to him said the vehicle he was looking for had already been sold or refused to negotiate the price. “It was definitely a different experience when buying cars,” he said.
This “different” experience can become the norm if dealers and investors have their own way.
The shutdown of factories, which began last spring due to the coronavirus pandemic and is now due to a global shortage of semiconductor chips, has caused the number of new vehicles available in the United States to collapse.
For consumers, scarcity means higher prices and spending weeks, if not months, searching for or waiting for the vehicle they want. But for carmakers and dealers, this has led to wider, if not record, profits and even vehicle sales before they arrive at dealerships.
Demand outstrips supply
“The pace of sales is faster than recharging, and we think it will step up,” said Michelle Krebs, executive analyst at Cox Automotive. “We expect these deliveries to be limited in 2021.”
The shortage, as well as stronger-than-expected consumer demand during the coronavirus pandemic, kept sales strong despite lower stocks.
The days of delivery of new vehicles to dealerships in the United States are 47 and are on their way to the low 30, according to Cox Automotive. Some pickups and SUVs are far lower, including single-digit ones, according to the company. This compares to historic delivery days of at least 60 and higher for highly configurable vehicles such as pickups.
Georgia-based dealer Mike Boucher said vehicles in his four General Motors stores are only about 20 percent of what is usually due to shortages.
“We sell it up the pipeline,” he said. “When a truck arrives, 75% of the truck is already sold.”
Boucher, who heads Chevrolet’s national dealership board, said he would take more pickups, but the current profit environment is different from anything he has ever seen.
“Everyone will make a lot more money because of it from now on. I just don’t see it going back to pre-Covid levels,” Sonic Automotive President Jeff Dyke told CNBC, saying “the whole ball game” has changed over the past year. .
Publicly traded dealers such as Sonic and AutoNation recently reported record first-quarter earnings. Dealers save money by holding fewer stocks and selling cars faster at higher average prices.
There is no doubt that there is more demand than supply, and this is the title of the new car, “AutoNation CEO Mike Jackson said last month.” We have adjusted the pricing to reflect this, and you see the improvement in our front end growth. “
Can it continue?
Carmakers have been trying for years to deplete stocks to increase profits, but it’s harder than it sounds.
Brands discount and encourage vehicles to compete for customers. They also need to balance supply and demand with dealers, many of whom are asking for popular truck and SUV models as well as their workers.
Recent contracts between carmakers in Detroit and United Auto Workers provide more flexibility in production, but cutting tens of thousands of workers at the plant can be costly. There is also the issue of retaining workers and maintaining installations, which can take weeks to restart after a shutdown.
Ford Motor CEO Jim Farley promised investors on Wednesday that the company would manage lighter stocks of cars in the future after reporting record pre-tax operating profit and easily beating Wall Street expectations.
“I want to make it extremely clear to everyone. We will run our business with a lower supply of days than we had in the recent past because it is good for our company and good for customers,” he said.
One advantage for customers like Weldon, who had a vehicle to trade with, is that dealers offer higher prices for cars that are traded.
The prices of used cars have increased as some consumers switch from buying new vehicles to used ones due to lack of inventory and higher prices. In fact, this is what Weldon did after contacting a dealer at a nearby 2018 Toyota Sequoia used SUV dealer.
“I took the car I wanted, really educating myself and delving into the subject,” he said. “It was actually about making a connection with the seller. … I started to get some idea at least of my word when I found the car I wanted.”
– CNBC Michael Bloom contributed to this report.