Mostly used cars and empty spaces fill what was typically a full lot of new cars in Utah County. (Mike Stapley)
Estimated reading time: 6-7 minutes
SALT LAKE CITY — Auto dealers experienced shrinking demand as people worked and drove less during the COVID-19 pandemic. As a result, auto manufacturers cut production. As demand for new and used cars increased dramatically, suppliers and manufacturers were caught off guard.
Combined with general supply chain shortages throughout all industries, vehicles have become scarce.
Mostly to blame for the new car shortage is a slim supply of semiconductor chips. And while President Joe Biden has invested hundreds of billions of taxpayer dollars to pump the industry in the United States, most of the raw materials, and most of the chips themselves, come from overseas.
Chips are used in countless technology products, including modern cars and the TVs and computers that saw increased demand while demand for cars was falling at the beginning of the pandemic.
Modern cars are as much electronic as mechanical, as an internal computer runs most everything, and those chips control even the simplest of functions. A typical car built today can require dozens of chips, a luxury or performance car as many as 150 and a modern luxury or performance electric vehicle can use as many as 3,000 chips.
One of the most anticipated new car launches in quite some time — the return of the Ford Bronco — has been hampered by chip shortages. Ford had built and parked thousands of Broncos until chips could be obtained, at such time Ford would have to ship those vehicles back to the factory for final assembly and then deliver to dealers. Photos taken last year show the thousands of highly-sought-after cars sitting idle. Of late, Ford and other car makers are negotiating to have dealers install the chips after delivery, once they’re available, in order to free up space at factories and shipping lots.
Ford and Tesla, among others, have also been shipping cars with some nonessential functions — such as auto start/stop, adaptive cruise control or rain sensing wipers — not yet functioning. Consumers would then return to the dealer when the chips are available, or take discounts up front for the features not delivered.
Another obstacle is that increased demand for used cars also has prices soaring, and dealers aren’t negotiating on the few new cars available. Some new cars are even seeing dealer markups, according to industry leaders, beyond sticker price, in some cities.
While car dealers are just now beginning to see new cars on their lots for the first time in months, it will be a while before things are back to normal.
I personally experienced the new car shopping experience earlier this summer and I have some tips for potential buyers.
Expand your search. Online sales sites, such as Autotrader and CarGurus, allow shoppers to find cars near and far while exploring both used and new car inventories. Car dealers are better equipped than ever these days to do business online or via email and the phone.
While it’s unlikely now that dealers will be willing to trade cars with other dealers, or even have trades to offer, being willing to travel to get a car means a greater chance of finding what you want. Some markets have cheaper used cars available, as well, because they have greater inventories amassed than others.
I ended up selling my previous car locally and buying a new one two states away.
Wait to buy, if possible. No used car currently on the market is worth what you’ll have to pay for it. There are no deals to be had on new cars, period. Supply shortages will eventually end and when that happens, not only will dealers be flooded with new cars, but they will have surpluses of the used cars they’ve been accumulating to sell in the absence of new cars.
Buyers who time it right will find great deals across the board, as dealers need to clear out used inventory to make way for new cars and may be negotiating heavily on new cars as used car prices fall.
A large Utah County Ford dealer I spoke to this week typically has about 700 new cars and 40 to 50 used cars on their lot. Currently, however, they have 150 used cars and about 40 new ones, which provides some perspective on the current market. The new ones are almost all the same truck model.
Be flexible. Market price variances can be dramatic and the new car you want simply may not exist.
That new car you’ve found several states away may be at a dealer that has no interest in your trade-in, as they have too many used cars on hand. Try other dealers in that market you’ll be traveling to or sell your car locally and use some of the current used car windfall to book a flight to pick up your new car.
In my case, I found new cars that interested me in several states, none in my own, of course, and the offers for my previous car varied by more than $10,000. I sold my car to a local dealer for far more than it would have been worth, and part of the proceeds funded a flight and a fun road trip home for my wife and me in my new car.
Do your homework. It will take more effort than expected to buy a car now, and, a little time invested can mean thousands of dollars when selling a used car to make way for a new one. Traditionally, selling a car privately meant a greater return than trading a car at the dealer. With dealers now desperate for cars to sell, they are reportedly paying up.
Private buyers may not understand the current market and may not pay what dealers are offering. Dealers are making it easy to get appraisals online or via email. I sold mine to a dealer via email — with a few photos and my VIN number.
Learn the options packages of the new car you seek, it makes shopping online easier as the wheels in a photo or the price clues you right away whether it is a contender. Knowing what’s included at each price point may help steer you to a car you may have overlooked while shopping in person.
Know your options at lease end. A leased car can be sold or traded, same as any other car, prior to the lease ending. Anyone with a lease ending in the next few months should immediately compare their buyout amount to the car’s current market value.
Every lease, whether through a manufacturer or lender, contains a predetermined purchase amount for the vehicle at the end of the lease. Normally, lenders do a very good job of ensuring that value will match future market conditions and depreciation. The current situation renders all of those predictions meaningless.
In my case, the value of my leased car exceeded the buyout, to the tune of $2,000-$12,000 in equity, depending on where I sold it. I put the equity — that would have evaporated if I turned my car in at lease end four months later — down on the new car I purchased. It is possible, even in this crazy market, to come out far ahead.
The current situation is definitely not a buyer’s market where vehicles are concerned.
Not everyone, though, will be in a situation where they can wait for a new or used car. With a little homework, and perhaps a willingness to travel, it is still possible to get a deal on a car this upcoming car-buying holiday season.
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