Looking for a new car? You’re going to have to wait. According to AutoNation Chevrolet Coral Gables, it can take up to 16 weeks to get your new car. I hope you didn’t want a new car for Christmas because 16 weeks from today will be January 11, 2022. We hope your lease isn’t ending in the next 16 weeks.
Our normal morning commute takes us past what many still lovingly refer to as Anthony Abraham Chevrolet. (Yes. We know that’s the old name from decades ago before it changed to Maroone and ultimately AutoNation.) Anyhow, when you drive by the lot, all they have are used cars. No new cars.
We spoke with a woman at AutoNation Chevrolet who wished to stay anonymous. She explained that the current chip shortage is having a devastating impact on our economy and nobody’s talking about it. You have an incredibly frustrating situation where people who are ready, willing, and able to pass a FICO score can’t purchase a new car.
For customers who are coming to their lease end, many are opting to take the lease end purchase option and keep their existing car. Those are car buyers that are not swapping their quality used car for a new car. That also means the normally fruitful supply quality off lease vehicles are not as readily available as before. So that’s helping the existing problem of used car shortages. This is a major problem. Think of all the auto sales people that can’t provide for their families due to this inventory shortage.
Today, we drove by Braman Honda, one of Miami’s top Honda dealerships. Where you would normally see tons of Honda Accords and CR-Vs and Civics you just saw used Hondas. And the backlot that normally has the used cars was virtually empty. See it for yourself below:
We called the Braman Honda dealership and spoke to one of the salesmen about a new Honda HR-V LX. They didn’t have any in stock. However, he did say they were getting one the next day. Then another the day after that. But he expressed that most buyers are placing a deposit and taking care of most of the paperwork before the car arrives. In other words, place your order now. The good news from Braman is that it seems you won’t have to wait as long.
1 – CHIP SHORTAGE
When the COVID pandemic hit and the stock market crashed, manufacturers cut production and cut many of their supply orders. While that was happening, there was a tremendous increase in electronics and computers as everyone started to work from home. So the chip manufacturers kept on making chips but used the manufacturing capacity they had reserved for the auto industry and happily supplied it to the electronics and computer manufacturers.
2 – RECOVERY
The economy quickly rebounded and surprised many. Certain businesses like Amazon and other E-Commerce retailers flourished. People spent money on their homes. And the government handed out lots of cash. This economic improvement, cash infusion, plus the ability to learn to live with COVID, lead people to go out and buy a new car.
3 – DEMAND OUTPACING SUPPLY
As the economy picked up, dealers and manufacturers were happy to see the return of robust car buying. The big manufacturers stepped up their manufacturing capacity and started producing more new vehicles. They also asked their suppliers to pick up the pace to keep up with demand. However, the chip suppliers (many of which are in the geo-politically sensitive Taiwan) couldn’t just increase capacity. The chip manufacturers had switched from car chips to chips for electronics and computers. And the demand for those chips hadn’t slowed down. So we’re caught in this situation where the manufacturers produce thousands of vehicles that sit in massive parking lots waiting for chips to be installed.
4 – CHIP ALLOCATION
The manufacturers are still receiving chips, but not as many as they need. So let’s say a car needs 50 microchips. The manufacturer may disable the chip for adaptive cruise control or blind side monitoring in order to be able to build and sell more cars. The promise is that the buyer can come back and have those chips installed at a later date when the inventory crunch is over.
5 – HOW DOES THIS IMPACT USED CAR SALES?
Well, as we alluded to earlier, you have thousands of people who typically come in at lease end and turn in their used car for a new car. Those buyers don’t have a new car to get as there is no inventory. So, many are opting to buy their pre-negotiating buyout for their leased vehicle. Furthermore, that pre-negotiated price is oftentimes a lot less than what that vehicle is currently valued at in the market.
Furthermore, with no new vehicles to buy, someone who has a 10 year old car and wanted to trade it in for a new car simply doesn’t have that option. So may opt to purchase a slightly used car with 10 – 20,000 miles on it. All of this is creating a major supply crunch.
The folks at CarGurus.com have a handy dandy “Used Car Price Trend” tool. We charted the prices from January 2020 through today. You can see the Index Price on Used Cars has gone up from roughly $21,000 in January 2020 to $28,000 today. That’s an increase of 34%.
6 – LAW OF SUPPLY AND DEMAND
You have a huge demand of people who have the money, have the credit score, and are ready to buy a car. But there’s no supply of new cars. There’s a dwindling supply of used cars. What happens when there’s BIG demand and limited supply? Prices go up.
CHECK YOUR DEALERSHIP!
Folks, we know there’s a national chip shortage. Manufacturer’s are backed up. However, every dealer allocates cars differently. Some dealers may have the car you’re looking for right now.
NOTE: Do not rely on dealer websites right now. Our anecdotal checking has revealed cars that appear to be in-stock, but when we call to confirm that specific stock number, they tell us it’s been sold.
Pick up the phone and actually call the dealerships. Let them know what vehicle you’re looking for. If they have it physically at the dealership, they’ll be more than happy to show it to you. But hurry. It may be sold by the time you get there.
What’s more, dealers know what inventory is coming their way and have an estimate of when it’ll arrive. This past summer, we purchased a Ford Expedition in this matter. We worked with Bobbie Delahunty of Mullinax Ford of West Palm Beach. (Yeah, we had to go up 2 counties.). We gave a deposit on a vehicle based on the specs of their dealer order. We pre-negotiated the deal. Once it arrived, we simply drove up, signed the final paperwork and left extremely happy with our new ride.
Folks, be patient. I hear of customers that scream and yell at the poor sales people and receptionists at the dealerships. It’s not their fault. This is a global shortage. Trust me. Every dealership in Miami wants to get you the car you want. They are working as hard as they can to get you what you want. Every sales person wants to sell you a car. It’s hurting them, too, as they can’t make their commissions.
If you absolutely, positively need a new car, shop around and place your order. You might get lucky and find one in stock, but use the telephone. Again, don’t trust the website. Tell the salesperson you speak with that you don’t want to drive to their location unless they are certain the exact vehicle you’re looking for is available.
When will the chip shortage end?
The short answer is nobody knows. Some believe that this will gradually improve in 2022. However, in a recent CNBC article, Ford of Europe’s Gunnar Herrmann stated that the “chip shortage could continue through to 2024.” In the same article, Porsche CEO, Oliver Blume, stated that “some customers are waiting half a year or more.”
How is this impacting the economy?
According to the Center for Automotive Research, the automotive industry accounts for 3 to 3.5% of the total American Gross Domestic Product. So how is the chip shortage impacting this incredibly powerful engine within our overall economy? Well, Ford reported a 33% decline in sales during the month of August. Honda saw an August decline of 16%. Toyota faired better with only a 2% sales decline.
General Motors recently shut down some of their truck plants thanks to the chip shortage. Can you imagine what it must be like to build a complete car and you’re just waiting to install some microchips?
Your used car is probably worth more than you think it is. So while you may have to pay full MSRP on a new car and put a deposit and possibly wait a few weeks, your trade in has also gone up in value. Make sure you get the maximum value for your trade in by shopping around and searching for the current market price of your current vehicle.
This too shall pass
The chip shortage is a temporary phenomenon. Whether it lasts a few months or a couple more years, it will pass. It’s also exposed a huge reliance on foreign chip manufacturers. This has put pressure to bring in more chip manufacturing stateside. This will ultimately lead to long term benefits for the American Economy.
We love your feedback and would like to know what you have experienced. Have you been able to get a car without a problem? Have you had to place an order to get a car? Or did you by a high priced used car?
Let us know in the comments or via social media. And please, share this article with anyone who’s interested in buying or leasing a car.
Excellent article and a shocking truth. I am a used car dealer whom has survived many obstacles in the business but this is one that is going to test everyone involved. The general public sees certain aspects but one that a few are seeing is that the older, simplistic ,reliable vehicles are in the long run worth more than gold when it comes to our reliance of technology. I would be happy to share my experiences( over 30 years in the South Florida auto industry) with anyone who has interest.