Often used cars and empty spaces filled what was usually the entire line of new cars in Utah County. (Mike Stapley)
Estimated reading time: 6-7 minutes
Salt Lake City – Car dealers have experienced shrinking demand as people work and drive fewer cars during the COVID-19 pandemic. As a result, car manufacturers reduced production. With the demand for new and used cars soaring, suppliers and manufacturers have been surprised.
Combined with general supply chain shortages across all industries, vehicles are becoming scarce.
Most of the blame for the new shortage of cars is the meager supply of semiconductor chips. And while President Joe Biden has invested hundreds of billions of taxpayer dollars to pump industry into the United States, most of the raw materials and most of the chips themselves come from abroad.
Chips are used in countless technology products, including modern cars, televisions and computers, which saw increased demand while demand for cars was declining at the start of the pandemic.
Modern cars are as electronic as they are mechanical, with an internal computer running most of everything, and these chips controlling the simplest of functions. A typical car manufactured today can require dozens of chips, a luxury or high-performance car can use up to 150 chips, and a modern luxury or high-performance electric car can use up to 3,000 chips.
One of the most anticipated new car launches in some time – the return of the Ford Bronco – has been hampered by a lack of chips. Ford built and decommissioned thousands of Broncos to get the chips, at which time Ford had to return those vehicles to the factory for final assembly and then deliver them to dealers. Pictures were taken last year Thousands of highly desirable cars appear sitting idle. Recently, Ford and other automakers have been negotiating to have dealers install chips after delivery, as soon as they are available, in order to free up space in factories and freight packages.
Ford and Tesla, among others, have shipped cars with some non-essential functions — such as automatic on/off, adaptive cruise control or rain-sensing wipers — that don’t yet work. Consumers will then return to the merchant when chips are available, or take upfront discounts on undelivered features.
Another obstacle is that the increased demand for used cars has also led to higher prices, and dealers are not negotiating on the few new cars available. Some new cars are even experiencing an increase in dealer prices that, according to industry leaders, exceed sticker prices, in some cities.
While auto dealers have just started seeing new cars in their collections for the first time in months, it will be some time before things get back to normal.
I personally experienced new car shopping earlier this summer and have a few tips for potential buyers.
Expand your search. Online selling sites, such as Auto Trader And the CarGurusAllow shoppers to find cars near and far while exploring used and new car stocks. Auto dealers are better equipped than ever to conduct business online or via email and phone.
While it is now unlikely that dealers will be willing to barter cars with other dealers, or even have deals to offer, being ready to travel for a car means a higher chance of finding what you want. Some markets have cheaper used cars available as well, because they have larger stocks than others.
I ended up selling my previous car locally and buying a new one in two states.
Wait until you buy, if possible. No used car on the market today is worth what you have to pay for it. There are no deals to be made on new cars, period. The supply shortage will eventually end and when it does, dealers will not only be overwhelmed with new cars, but they will have a surplus of used cars they have assembled to sell when there are no new ones.
Timely buyers will find great deals across the board, as dealers need to clear used inventory to make room for new cars and may bargain hard for new cars as used car prices drop.
The big Utah County Ford dealer I spoke to this week usually has about 700 new cars and 40 to 50 used cars on their land. However, they currently have 150 used cars and about 40 new ones, which provides some perspective for the current market. The new one is almost the same as the truck model.
Be flexible. The differences in market prices can be significant and the new car you want may not be there.
That new car you found in several states might be far away at a dealer who doesn’t care about your exchange, since they have too many used cars on hand. Try other dealers in this market you will be traveling to or sell your car locally and use some of your current used car windfalls to book a ride to pick up your new car.
In my case, I found new cars that piqued my interest in several states, none in my country of course, and my previous car offers varied by more than $10,000. I sold my car to a local dealer for much more than it was worth, and a portion of the proceeds funded a fun flight and road trip for my wife and I 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 room for a new one. Traditionally, selling the car privately has meant a greater return than trading the car with the dealer. With desperate dealers now out there selling cars, they are said to be paying the price.
Private buyers may not understand the current market and may not pay what the dealers are offering. Merchants make it easy to get reviews online or via email. You sold mine to a dealer via email – with some pictures and my VIN.
Find out the option packages for the new car you’re looking for, they make online shopping as easy as wheels in the picture or price clues instantly whether you’re a competitor. Knowing what is included in each price point can help point you to a vehicle you may have overlooked while shopping in person.
Learn about your options at the end of the lease. The leased car can be sold or traded, like any other car, before the lease term expires. Anyone with a lease that expires in the next few months should immediately compare the purchase amount with the current market value of the vehicle.
Each lease, whether through the manufacturer or the lender, contains a predetermined purchase amount for the vehicle at the end of the lease. Usually, lenders do a very good job of ensuring that the value will match future market conditions and depreciation. The current situation renders all these expectations meaningless.
In my case, the value of my rental car exceeded purchase, going up to $2,000 – $12,000 in equity, depending on where I sold it. I put the capital – which would have evaporated if I handed over my car when the lease expired after four months – on the new car I bought. It is possible, even in this crazy market, to get away with.
The current situation is definitely not a buyer’s market for cars.
However, not everyone will be in a situation where they can wait for a new or used car. With a little homework, and perhaps a desire to travel, it’s still possible to get a bargain for a car purchase this upcoming holiday car buying season.
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