When Susan Dushane started looking for a new car a few months ago, she had no idea how far to look. With the help of their son Mike, they contacted every Kia dealer within 200 miles of their Tampa, Florida home before they found the one they wanted – and then paid $ 6,000 over the sticker for their new Telluride SUV.
And that was a relative bargain, said Mike Dushane, “since the demand is off the charts and almost none are to be found. Local dealers wanted $ 10,000 for stickers. ”If you are looking to buy a new car, truck, or crossover in the near future, you should be prepared for more than one pile of stickers.
Mainly due to a shortage of semiconductors used in today’s increasingly sophisticated vehicles, automakers have been forced to cut production in recent months, leaving dealerships increasingly empty. In turn, they have cut incentives while retailers are much less likely to bargain and, if at all, often resort to rewards for the most popular models on the market – if you can find one.
“I couldn’t find the car I wanted and even where it was available the dealers didn’t offer discounts,” said Craig Daitch, director of a strategic communications company in Commerce Township, Michigan. In fact, when the dealer found the Jeep Grand Cherokee they wanted, they would charge a “customization fee” of $ 3,000.
Instead, Daitch decided to buy used – although the prices for “old vehicles” are at record levels according to industry data, as well as for new models. The US auto market has been in turmoil since the outbreak of the COVID pandemic. When much of the country was locked in March 2020, the North American auto manufacturing network stalled and would not reopen for two months.
The impact was expected to be minor as auto sales initially plummeted as much as 40 percent and demand for 2020 as a whole should plummet to levels not seen since the depths of the Great Recession. But the market recovered much faster than expected, and buyers devoured whatever was on dealers’ lots.
At the beginning of the new year, manufacturers hoped to build up stocks by working a lot of overtime. At that time, they were hit by the unexpected consequences of the COVID crisis. When the auto factories closed, the industry cut orders for the semiconductors, dozens, even hundreds, of which are used in today’s vehicles. The chip manufacturers, in turn, rearranged production to meet the increasing demand for consumer electronics. Now automakers have to go backwards.
Virtually every automaker, from Ferrari to Ford, has been hit. Heavy. The Detroit automaker has repeatedly slowed or stopped production at many of its plants. It has lost more than 100,000 F-series pickups to date, its most profitable product.
“Every 100,000 F-Series production lost costs Ford approximately $ 4.7 billion in sales,” Morningstar’s David Whiston wrote in an Aug. 13 report. “Given an EBIT margin in the high tens of 20%, we calculate an EBIT loss of approximately $ 937 million per 100,000 US F-Series wholesale units lost.”
GM has cut production of its own full-size pickups, the Chevrolet Silverado and GMC Sierra, in the past few weeks. And Nissan has completely closed its large assembly plant in Smyrna, Tennessee. It will reopen on August 30 at the earliest, it said.
With only one exception, Mercedes-Benz will not be bringing any of its V-8 models to the US for the time being, and dealers have been told that could last well into the upcoming model year.
While some analysts believe that the chip shortage could be resolved by the fall, Mercedes boss Ola Källenius is not nearly as confident and recently told analysts: “We’ll probably talk about this in 2022 as well. The improvement of the supply stability is of course our top priority. “
Until automakers can supply a steady supply of chips, inventory levels are likely to remain well below normal.
Although there are “some signs of stabilization,” said Cox Automotive Senior Economist Charlie Chesbrough, the total inventory as of July 19 was just 1.2 million new vehicles during a time of the year when the traditional norm was closer to 3 million.
The average transaction price – what car buyers actually pay after everything is factored in – rose to $ 42,736 for the month of July, an all-time record, up $ 402 from the previous month, according to Cox Automotive. Prices have increased by about $ 3,000 on average from pre-pandemic levels.
Part of this is due to a shift among buyers to higher and better equipped trim levels. However, analysts like Chesbrough say the shortage of inventory – and the resulting reduction in discounts – is largely to blame.
It’s still possible to find the occasional offer if you’re ready to search – and wait. Some customers have found that merchants are more responsive when they place an order that can take weeks or even months to complete. Others are looking for slower-selling products like sedans and coupes that may be offered on a larger scale. And that goes for lesser-known brands like Genesis too.
“I benefited from the fact that they had a selection of the new Genesis GV70,” said Bill Truett of Orlando, Florida. A local dealer wanted $ 5,000 off the sticker, but after speaking to several, negotiated the price down and got a “bargain” that only paid the list price.
