May 30, 2021
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About this Deal
The Glassman Subaru dealership in Southfield, Michigan, sent an urgent appeal to Outback owners this month:
“Due to current market conditions, your vehicle is worth a lot more than you think! We are looking to purchase any and all price range vehicles. However, we need Subaru Outbacks to replenish our inventory. We are willing to make an aggressive offer for this vehicle."
Welcome to car market in 2021, a time when demand is high but supply is seriously crimped because of a global shortage of semiconductor chips that are used in everything from cars to consumer electronics like the popular Sony PlayStation 5, leaving dealers scrambling to find vehicles where they can.
The lack of chips has put a squeeze on automakers, prompting them in many cases to prioritize their most profitable models by cutting production on others, changing some of the components they place in their cars, delivering fewer vehicles to dealerships and offering lease pullback deals.
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Car shortages at dealerships
All that has left dealers short on inventory, ready to buy and warning consumers to plan ahead.
A representative for a large dealership group in metro Detroit, who offered to talk about the situation but only without his name being used, said his group in some cases is taking on 12 to 18 months of lease payments if customers want out.
The group is shifting resources to vehicle acquisition so it can have vehicles to sell because what's available is so limited. A customer might want a Ford Bronco Sport in red, for example, but will end up getting it in blue or silver.
The dealership representative described the situation as a double-edged sword.
"From a profitability standpoint, things have never been better. (Customers) are definitely paying MSRP or more," he said, referencing the manufacturer's suggested retail price. "(But) costs are through the roof...The only positive light is if you want to sell, there's no better time to sell."
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Buyers need to plan ahead
Inventory at dealerships is tighter than during the 2019 GM strike or the COVID-19 shutdowns last year, said Katie Bowman Coleman of Bowman Chevrolet near Clarkston. She said she's advising drivers to get in touch at least six months from when they need a new car.
"That’s the timeline now to place an order, to get in the queue to get exactly what you want," Bowman Coleman said. "There’s still vehicles coming in all the time, but most of them are spoken for when they get here.”
Experts say being flexible can mean the difference between getting a vehicle now or having to wait. It can help, too, if car buyers are willing to consider more than one model.
“People are kind of discovering new models they didn’t necessarily think they were coming in to buy,” Coleman said.
The dealership uses a vehicle tracking system from GM that helps monitor what’s available and where a specific vehicle is. That way if someone can’t wait for a specific vehicle, she can see what else is available.
“We really just are trying to, customer by customer, assess their needs, go over options and be right there by their side as we’re trying to figure it out,” Coleman said, noting that those options can include extending a lease, giving someone a loaner or directing them to other models.
The dealership's vehicle buying team is "more active now probably than ever," she said.
"We certainly go after everything we can. It’s not easy. It’s tough out there. Everyone's holding on to what they have," Coleman said.
She noted that the dealership sold about 300 new and 120 used vehicles last month. It's usually higher, but that's still a good month, she said.
Coleman said she’s heard from dealer friends of examples of people paying more than the MSRP for a car.
Do car customers have any leverage?
Consumers do have some protection against uncertainty in this tight market.
GM, for instance, offers a way to lock in a current incentive if a specific vehicle a consumer is buying isn't ready yet. The deal does not prevent a buyer from claiming a better incentive if that's available when the vehicle arrives. GM spokesman Dave Caldwell said the offer is handled through an incentive acknowledgment form.
Nicole Urban of Oakland County in Michigan recently visited the Bowman Chevrolet dealership planning to buy a used vehicle to replace her 2011 Mazda. But Urban, who works in the healthcare industry, opted for a lease instead.
After test driving a Trailblazer and a Blazer, she decided to lease a black 2021 Blazer because she preferred the larger size and it was a cheaper monthly payment. This was Urban’s first time shopping at a dealership; she bought the Mazda from her parents, and although Urban said she loved the car, she wanted a new vehicle with the latest safety features.
“What I liked most was that the salespeople were honest about the market and how the parts shortages were affecting what models were readily available,” she said.
At Matick Automotive Group in Michigan, Paul Zimmermann, vice president and owner, said availability for some models appears to depend on how many extra features they have.
Heated seats, high-end pickups are scarce
Cars with heated seats, heated steering wheels and navigation tend to be affected because more options mean a greater need for chips.
Zimmermann's Chevrolet and Toyota dealerships in Michigan aren’t seeing as many high-end pickups, for instance, and inventory is “severely constrained” at the moment.
“I would say we probably have 35% of what we would typically have available to us on the Chevy end and maybe 50-60% available on the Toyota side,” Zimmermann said.
He noted that GM and Toyota appear to be taking somewhat different approaches. GM has been trying to protect its hottest models, and Toyota has slowed its deliveries but not greatly reduced any specific models.
With prices up on new cars, used cars have followed suit.
Zimmermann called it economics 101. When demand and prices increase for new cars, the same happens for the used market.
“All boats rise up, so to speak,” he said.
A deal to be had
While no one likes to pay more for their vehicles, higher prices mean customers get more for their trade-ins.
“It’s not a negative, I think, for the consumer because they’re getting more for the asset they’re selling, trading in. In some respects, they’re getting more than they otherwise probably would have in the past or I’d say normal times. Yet they might pay more for the new, so in some respects, it’s a little bit of a wash,” Zimmermann said, noting the situation is affecting leases, too.
Zimmermann said many customers typically get out of their leases early, but the current climate has shifted that even more. Customers are making a change earlier than normal or at least considering it more because of concerns about what the inventory will look like, and the dealerships are also interested in getting cars back so they can add to their stock.
“We‘ve had a number that have probably been a year out, that we have bought them out of that vehicle early to take advantage of putting that vehicle on our used car lot and then conversely the customer has relieved themselves of any concern for what the future looks like to potentially deal with a shortage in eight, nine, 10 months if that’s when they were going to get out of it,” Zimmermann said.
Why are used car prices high?
There might be no better time to sell a vehicle, but the cost to buy is up, too.
The average listing for used cars “surpassed the $22,000 mark for the first time ever in April, closing the month at a new high of $22,568,” and average transaction prices on new vehicles are up as well, to $40,768, an $864 increase from April 2020, according to Cox Automotive.
“It’s really basic economics,” said Michelle Krebs, executive analyst at Cox Automotive.
The chip shortage is hitting inventories at a time of high demand, but production never fully rebounded after the pandemic started. The annual fluctuations in the vehicle market are still at play as well, but new pressures have entered the picture this year, she said.
“Used car sales and used car prices always go up when the tax refunds are coming in. This time you have the double whammy of tax refunds and the stimulus,” Krebs said, referencing the direct payments to Americans that were part of the federal government’s efforts to boost the economy.
The chip shortage, Krebs said, got its start when automakers and suppliers responded to the initial phase of the pandemic by canceling orders for chips because they assumed demand would crash.
“But demand was stunningly strong,” she said.
What happened to the computer chip market?
Although many people suffered financial losses related to the pandemic, the impact was not felt evenly across the economy. Some people even had more money on hand, which they could spend on vehicles, in part, because they weren't spending as much on things like entertainment. Personal vehicles also became the go-to choice for those with money and concerns about social distancing on other forms of transportation.
When those in the auto industry tried to reinstate their chip orders, makers of video games and other electronics were already in line, Krebs said.
“It’s just almost like the perfect storm,” said Martin French, the U.S. managing director for Berylls Strategy Advisors, a global automotive consulting firm.
Consumer electronics, with people stuck at home and working more than ever on screens, quickly filled the void in chip orders. But the chip supply was also hit by unexpected difficulties, such as a fire at a plant in Japan this spring, Martin said. Now, the optimism of a reopening economy in the United States and the United Kingdom, for instance, added even more pressure.
“There’s so much pent-up demand for products, to spend money, to get a new car, to get a new phone, to get new product in the household. It’s all coming together, and the industries are going to be fighting each other quite frankly for these products because you just can’t build a manufacturing plant or extend them big enough for these parts that are in such short supply,” French said.
The chip shortage, however, is one part of a series of unexpected challenges.
“We just can’t (get) our hands on that tiny, tiny little chip that goes in and makes so many of the components work, and then if we can, then there’s a storm in Dallas or a fire in Japan or there’s another war breaking out or a trade war going on. You just can’t make this up,” French said.
Bruce Wendt, 69, of Romeo, Michigan, started shopping for a new pickup earlier this month before pausing.
Wendt, who retired from the Air Force in 2008, has 72,000 miles on his 2015 Ford F-150 despite taking it on an annual round trip to Arizona six times. It’s a 4,200-mile trek and he’d like to upgrade to a V-8 engine, plus he is intrigued with the 2021 GMC Sierra’s new multi-pro tailgate. His nephew works for General Motors, so Wendt could get a family discount.
He went to three local dealerships and quickly learned that the vehicle he wanted was being made without the fuel management module, which boosts fuel economy, due to the chip shortage.
“They had a truck I liked, and I was ready to pull the trigger on it, but it just didn’t feel right,” Wendt said of his shopping experience. “It felt like I didn’t have all the facts.”
For one thing, the dealers couldn’t tell him whether GM could install the fuel management module on the pickup after he bought it if it came into supply. The answer is no, according to GM.
And GM is taking only $50 off the price of the pickup if it lacks the fuel management module, Wendt said. It’s hardly a savings because “you chew that up in gas in no time,” he said.
“I started thinking about ... a couple of things I wanted that I can’t get because of the chip shortage,” Wendt said. “You can’t get the lane alert, that’s something they don’t have. I can live without that, but the V-8, if it doesn’t have that Dynamic Fuel Management and it gets like 16 MPG, it’s not that good.”
Despite a dealer offering Wendt $23,500 for his F-150 trade-in, which he considered generous, Wendt said he’ll keep it for now.
GM isn’t the only company that has changed the features in its vehicles in response to the chip crisis.
Stellantis, the company formed from the merger of Fiat Chrysler Automobiles and Peugeot-maker PSA Group, has made its own adjustments. The Wall Street Journal, quoting a dealer, reported that the company shipped some trucks “without an electronic blind-spot detection system.” There have been other reports about changes to the Ram 1500, as well, but the company has refused to shed light on the issue to the Free Press, providing a general comment that “Stellantis employees across the enterprise are finding creative solutions every day to minimize the impact to our vehicles.”
The unnamed dealer representative who spoke to the Free Press said his Ram dealership can’t order one particular option package, but the Ram 1500s that have been arriving at the dealership have not been missing any parts.
Ford spokesman Said Deep said the automaker is "not currently building and shipping products without certain equipment and features, but we’re looking at it closely."
Sam Fiorani, vice president of Global Vehicle Forecasting for AutoForecast Solutions, explained that these kinds of changes are based on a clear rationale.
“With the Active Fuel Management system removed from the Chevrolet Silverado and GMC Sierra pickups, GM can continue to build some of its trucks. Nissan has removed navigation from some of its products and Stellantis is swapping digital instrument clusters for analog clusters in the Peugeot 308 compacts.
"There are certainly more examples like this,” he said.
Staff writers Phoebe Wall Howard and Christina Hall contributed to this report. Contact Eric D. Lawrence: firstname.lastname@example.org. Follow him on Twitter: @_ericdlawrence. Become a subscriber.