Supply chain issues change how we buy and sell cars

Early on during the pandemic, automakers closed manufacturing plants, citing — along with concern for workers’ health — a drop in consumer demand.

Why make new cars if no one was traveling anywhere?

They canceled orders for components, too, including for the all-important semiconductors.

That dearth of those semiconductors — they control everything from collision-avoidance sensors to infotainment systems — has stalled auto production again this year, with plants shutting down for weeks, and in some cases, months at a time, for want of the crucial chips.

As consumers started spending again this year, buyers returned to stores and to car lots. And there they saw the results of those long-shuttered car facilities and the shortage of semiconductors, along with the ongoing supply-chain snarls that also include not enough drivers to deliver the vehicles to the dealerships.

Market data firm Statista estimated global sale of automobiles is anticipated to fall to just under 70 million units sold in 2021 — a drastic drop from 80 million in 2017.

But for some Corridor dealerships, that shortage created an opportunity for a new business model.

Dave Wright, owner of Dave Wright Auto, carrier of Nissan and Subaru and which has been owned by local family management for more than 30 years, said the shift from buying new cars and trucks to buying used vehicles came as a result of the shortage.

In turn, used vehicles saw a large spike in prices and the demand went up.

No more test drives

The semiconductor shortage has shaken up the traditional car-shopping process.

Haggling is a thing of the past, buyers are “preordering” vehicles or taking what they can get off the lot, and dealers are scrambling to find cars — new or used — to sell, in what has become a less frequent but increasingly lucrative transaction.

Last month, new vehicles sold at an average of $513 over sticker price, according to car shopping website Edmunds.

During October 2019 — before the pandemic — new cars sold at a discount of $2,673 below the retail price.

Pat McGrath Chevyland General Manager Gavin McGrath in Cedar Rapids noted the shortage has “allowed us to do business in a much different way. We pivoted quickly to picking up and delivering vehicles.”

He added that, “You won’t see the inventory you saw two years ago. So customers don't actually come in and test drive like they used to there, it's more building it online via the manufacturer’s website.

“Then connecting with us and ordering exactly what they want as much as we can, or looking and seeing what we have come in.”

He said customers have been more flexible to this new change.

Depending on the model and manufacturer, the delays with ordering can take anywhere from three to six months, McGrath said.

And if you're buying a “hot product" such as a luxury car similar to a Chevrolet Corvette or a Cadillac Escalade, it could take anywhere from eight to 10 months to get in, he said.

“The market was demanding products we just didn’t have,” said Nate Kuehl, general manager of Randy Kuehl Honda in Cedar Rapids.

This ongoing demand from consumers had Kuehl and his team asking one question: When you “don’t have the product, how do you still stay in the market and be competitive?”

The answer? Learn where the market is heading and make adjustments accordingly, he said.

The trade-in process was part of that adjustment.

“The consumer is paying more for a new vehicle, but the value of their vehicle trade in is higher,” Kuehl said. “There is some level of relativity on offsetting the price you might pay for the new vehicles, so they’re still getting a reasonable deal.”

That elusive chip

Congress is weighing a measure to allocate $52 billion to boost semiconductor manufacturing in the United States, the birthplace of an industry that since has migrated primarily to Taiwan.

It can’t come soon enough for the auto industry, which is projected to produce 7.7 million fewer vehicles and lose $210 billion in revenues globally this year due to the semiconductor shortage, according to consulting firm AlixPartners.

New vehicle sales in the United States declined precipitously in 2020 as production ground to a halt at the start of the COVID-19 pandemic, dropping from about 17 million vehicles the previous year to 14.6 million — the lowest total since 2012, according to Edmunds.

Edmunds is projecting about 15 million new vehicles will be sold in 2021, a number that was revised downward as the semiconductor shortage persisted throughout the year.

“Consumers still want cars,” said Ivan Drury, senior manager of insights at Edmunds. “They just can’t buy them because of the semiconductor shortage.”

Earlier in the year, industry analysts expected the semiconductor shortage would ease by the fourth quarter, but it now looks like it will last well into next year, Drury said.

In fact, Munich-based consultancy Roland Berger said in a report this past week that automakers should prepare for the global semiconductor shortage to extend even beyond next year and that they should redesign cars so they need fewer of such high-tech components, Bloomberg News noted.

In addition, Roland Berger advised, manufacturers should put more effort into monitoring the chip industry to keep up with looming production challenges, according to Bloomberg News.

Looking ahead

Kuehl pointed out sales typically slow down toward the end of the year. But looking into 2022, he doesn’t anticipate any changes in production for the next two months.

However, the dealers agreed they don’t see the online ordering process at auto dealerships the pandemic presented going away any time soon.

Many dealerships are optimistic for 2022, after semiconductor production catches up. It just won’t happen right away.

“You might see production levels move a little faster than the second quarter,” Kuehl said.

“By the time the vehicles start arriving on the lot at the dealership, I think we'll start to see that in the second quarter.”

Chicago Tribune contributed to this report.