Drivers who want a new car are frustrated, and it’s not going to get better any time soon, according to industry analysts and auto manufacturers.
Indeed, it very well may get worse, analysts say.
Many car manufacturers are scheduled to release their third quarter sales reports on Friday, and experts are expecting bad news. They forecast sales of new vehicles will be down 13 to 14% in the past three months, with September sales expected to be down as much as 26%, they said.
It’s all because of a semiconductor chip shortage that has caused carmakers to sporadically shut down production because they don’t have the parts needed to roll out new vehicles, some of which use as many as 5,000 chips apiece. The shortage means fewer cars on the lots, with low inventory translating into higher prices for consumers.
The trouble extends further. Used car prices have risen with demand, and people who need to repair their current cars increasingly find their mechanics can’t always get the parts they need. When they do, there are often weeks-long delays.
When the pandemic hit and the world went into recession, most carmakers pulled back on their chip orders because they expected the financial gloom to last a long time, said Michelle Krebs, an executive analyst for Autotrader.
But it didn’t last long.
Just as automakers tried to draw in buyers with attractive incentives such as 0% financing for 60 months, demand for personal vehicles came roaring back, in part because people wanted to avoid mass transit.
Automakers were not ready.
“They went back to their chipmakers and said, ‘We want those orders,’ but they were competing with laptops, phones, video games — chipmakers make more money on those,” Krebs said. “There wasn’t the capacity for auto chips. That caused automakers to cut production which cut inventory and we are in the midst of it now.”
The current climate of low supply and high demand is changing how people shop for cars, according to a recent Kelly Blue Book study.
It found that nearly half of car shoppers are likely to postpone their purchase because of the chip shortage, with most planning to wait at least several months.
For those who do want to buy now, more than a third said they were willing to pay a premium of up to 13%, or about $5,600, over regular prices, the study said.
Consumers are also willing to travel further to find the car they want, with some 80% willing to drive between 50 and 200 miles for their new wheels.
It also found that among shoppers who are not delaying their purchase, 25% said they would consider switching brands, 19% said they would consider changing vehicle categories and 18% said they would consider shifting from purchasing new to used.
But, Krebs said, used cars are in great demand, too.
“Because when you don’t have new cars to sell, people can’t really bring in their trade-ins. Or if they have a lease, many are extending their leases until there is more selection,” she said.
“Also last year when the travel business was decimated by the pandemic, the rental car companies sold off their vehicles, and now there’s demand,” Krebs said. “Rental car companies are buying up used cars. With a high demand and low supply, that means higher prices.”
There are other supply issues, she said.
“The chips are getting the big focus and they are the biggest problem, but windshield wipers and steel and plastic resin, all of those things that go into making parts, we know suppliers are really squeezed by this too,” she said.
And, she said, a lot of the parts needed for vehicles’ electrical components are made in countries like Malaysia and Vietnam.
“Those countries are having terrible outbreaks of COVID and they don’t have available vaccines,” she said. “They have to close plants there frequently because of illnesses and even deaths.”
That’s causing some industry executives to call for more chip production in the United States.
So the big question: How long will this last?
Krebs said it’s hard to know, noting that automakers including Hyundai, Toyota and GM “sometimes don’t know day-to-day or week-to-week how many chips they will get.”
“We’re hearing this will continue through next year, maybe not as bad. It’s going to take a while to normalize,” she said.
Toyota, for example, is now “in the thick of it,” Krebs said. The company announced it is cutting global production for September and October by 40%.
Ford’s chief executive said earlier this week that he expects the shortage to push into 2022.
But if you’re patient and willing to do lots of research — and probably travel — there are cars to be had, Krebs said.
“You’re not going to have a lot of choice. If you had your heart set on an SUV, you may need to get a sedan or hatchback,” she said, noting that brand availability varies by region. “You have to keep working it and keep expectations low.”
Please subscribe now and support the local journalism YOU rely on and trust.
Karin Price Mueller may be reached at [email protected].