Car buyers pay as chip shortage outlook dims
S E E D E D C O N T E N T
Aug. 19, 2021, 9:18 PM UTC By Paul A. Eisenstein
When Susan Dushane began searching for a new car a few months back, she had no idea just how far she'd have to go looking. She and her son, Mike, contacted every Kia dealer within 200 miles of her home in Tampa, Florida, before they found the one they wanted — and paid $6,000 over sticker for her new Telluride SUV.
And that was a relative bargain, Mike Dushane said, "since demand is off the charts and there were almost none to be found."
"Local dealers wanted $10,000 over sticker," he said.
If you're looking to buy a new car, truck or crossover any time soon, be prepared for more than just sticker shock.
Largely because of a shortage of the semiconductors used in today's increasingly high-tech vehicles, automakers have slashed production in recent months, leaving dealers' lots increasingly bare. In turn, they've cut incentives, while retailers are far less likely to bargain and, if anything, are often tacking on premiums for the market's most popular models — when you can find one.
"I couldn't find the car I wanted, and even where they were available, dealers weren't offering discounts," said Craig Daitch, the head of a strategic communications company in Commerce Township, Michigan. In fact, when he did find the Jeep Grand Cherokee he wanted, the dealer was going to tack on "an adjustment fee" of $3,000.
Instead, Daitch decided to buy used — even though prices for "previously owned" vehicles are running at record levels, according to industry data, just like those for new models. The U.S. automotive market has been in turmoil ever since the Covid-19 pandemic struck. As much of the country went into lockdown in March 2020, the North American automotive manufacturing network ground to a halt, and it wouldn't reopen for two months.
The impact was expected to be minor. Car sales initially tumbled by as much as 40 percent, and demand for all of 2020 was forecast to dip to levels not seen since the depths of the Great Recession. But as the market came roaring back much faster than expected, buyers gobbled up whatever was on dealers' lots.
As the new year began, manufacturers hoped to rebuild inventories by scheduling plenty of overtime. That's when they were hit by unexpected fallout from the Covid crisis. When auto plants shut down, the industry slashed orders for the semiconductors used by the dozens, even hundreds, in today's vehicles. Chip manufacturers, in turn, redirected production to supply soaring demand for consumer electronics. Now automakers have had to go to the back of the line.
Virtually every carmaker, from Ferrari to Ford, has been hit. Hard. Ford has repeatedly slowed or halted production at many of its plants. It has so far lost output of more than 100,000 F-Series pickups, its most profitable product.
"Every 100,000 units of lost F-Series production costs Ford about $4.7 billion of revenue," Morningstar's David Whiston wrote in a report Aug. 13. "Given what we assume is an EBIT margin in the high teens to 20%, we calculate lost EBIT of about $937 million for every 100,000 lost U.S. F-Series wholesale units." (EBIT is earnings before interest and taxes.)
GM slashed production of its full-size pickups, the Chevrolet Silverado and GMC Sierra, in recent weeks. And Nissan has shuttered its big assembly plant in Smyrna, Tennessee. It won't reopen until Aug. 30 at the earliest, Nissan said.
With just one exception, Mercedes-Benz won't bring any of its V-8 models to the U.S. for the time being, and dealers have been told that could stretch well into the coming model year.
While some analysts believe the chip shortage could be resolved by autumn, Mercedes CEO Ola Kallenius isn't nearly as confident, having recently told analysts that "probably in 2022, we're going to talk about this, as well."
"Improving the supply stability, needless to say, is a top priority for us," he said.
Until automakers can line up a steady supply of chips, inventories are likely to remain well below normal.
While there are "some signs of stabilization," said Cox Automotive senior economist Charlie Chesbrough, total inventory as of July 19 was just 1.2 million new vehicles at a time of year when the norm is closer to 3 million.
The average transaction price — what car buyers actually pay after everything is factored in — surged to $42,736 in July, a record and an increase of $402 from June, according to Cox Automotive. Prices have risen by about $3,000 on average from pre-pandemic levels.
Some of that is the result of a shift among buyers to higher-cost and better-equipped trim levels. But analysts like Chesbrough say inventory shortages — and the consequent cut in discounting — catch much of the blame.
It's still possible to find the occasional deal if you're willing to look — and wait. Some customers have found dealers more responsive if they place orders that might take weeks, even months, to fulfill. Others are looking to slower-selling products, such as sedans and coupes, that may be in bigger supply. And that also goes for lesser-known brands like Genesis.
"I benefited from the fact that they had a selection" of the new Genesis GV70 on local dealer lots, said Bill Truett of Orlando, Florida. One dealer wanted $5,000 off sticker price, but after Truett talked with several others, he negotiated the price down and got a "bargain," paying only list price, he said.
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What this article does not indicate is WHY there is a chip shortage. Where are the chips manufactured? What are the ingredients required for a chip, and where do THEY come from?
Give me back the first car I owned, a used 1950 Ford Custom Coach. It didn't need a single "chip" and it drove just fine. At the same time my father's car was a 1952 Hudson Hornet. It didn't need chips either, and it was a fantastic car.
Pre-covid was already showing demand outstripping supply. Gordon Moore predicted ( in the 60s) that transistors incorporated into a chip will double every 24 months. Facilities to manufacture chips are very expensive, with long lead times.
As for the rest...
The list could go on and on, but the situation is not going away, even if all the above are suddenly cured. A reduction in demand or rapidly increased supply is the answer. The latter isn't likely in the short term (18~24 months). The former is already taking effect, imo.
I bet that was a cool car.
.Note the manual "H" 3-speed gear shift lever mounted on the steering column, and the manual push button A.M. radio. Air conditioning was provided by opening the doors' front quarter windows all the way to scoop the air while driving.
And yes, Sunshine, it is possible for a 16-year old to fall in love with his car. I would rather have it than a brand new car with a touch screen dashboard, automatic everything and more chips than McDonalds can prepare in a day.
I was just sort of wondering if drivers today would be able to drive a car like that, with no power brakes, power steering, push button windows, power antenna, directional signals (having to stick your arm out the window), tape/memory-stick deck, signal-seeking FM radio, automatic gear shift, automatic climate control A/C, remote door locker/unlocker, beeper to tell you how close you are to another car when parking, bucket front seats with cup wells (we had to balance them on the dashboard), power seat adjustment, gps (we used to be able to read and follow maps back then), cruise control, and I don't have a clue what else new cars have that mine didn't.
I do remember trying to control 3,000 lbs of steel with manual drum brakes and the havoc water could play in any situation
pulling that stererng wheel hand over hand in a panic on slushy or icy roads
good times
long walk to recover wheel covers, lol
Whare I came from we had 5 months of winter - mid November to mid April. Driving in slushy or icy roads was second nature.
already had the first "snow " of the year here in the high country , togotee pass , Wyo , first snow to stick around a while was aug 20-21 2021 overnight .
Wow. That's hard to believe - the climate has gone crazy.
No it hasnt , in the 25+ years here i have seen snow up high , in all the months of the year , it is entirely dependent on the weather jet streams and if cooler / cold air , is pulled down from the north .
i take it as a sign that as with everything , things will soon change , its a seasonal marker to me .
Ex wifes 30th birthday ( Aug 15th ) we trekked up and had a snowball fight with her and the kids. it was amemory making moment .
I recently took my car into my dealership for an oil change and they where almost pleading to buy my car back for the chip.
I like my car and will be keeping it.
Yep, I get letters and flyers several times a week from the dealership I bought my car from wanting me to come trade in on something new. I couldn't believe how high some prices have gotten. I was in the other week and they had a RAM1500 4wheel drive truck with lots of extras in it. Almost choked on my coffee when I saw the sticker price of $115k... I didn't bother to read the entire list of extras that the truck had, no way in hell I would even think of that kind of payment.
Year old low mileage cars and trucks are actually selling for more than the original MSRP by 2 to 3 thousand dollars
and if a reasonably F150 makes it to the dealer ship, it could go for 6 to 10 thousand over MSRP
with or without the mileage chips
That must’ve been a trx.
Time to just repair the cars one has.
No way in hell I would pay 10k over sticker price.
Last week in KY a train derailed carrying 6,000 F150s and 1,000 transits.
it remains to be seen how many will be scrapped or salvaged or if some were undamaged and eventually
continue their route to the dealerships.
I am in TX and work with Ford & GM dealerships and everywhere I go there are few new vehicles on the lot.
Should one show up, it is PDI'd washed and prepped. Then the salesmen go down the waiting list to see who wants it at the
new pricing with or without the chips.
This week Ford's Kansas plant ran out of critical chips and stopped the F 150 assembly line indefinitely.
I read after this happened that in situations like this what normally happens is that the train owners will buy the cars and crush them rather than let them go out, be repaired and run the legal risk of something failing and them then being held liable as the car was in a train accident. It didn't say if the chips would be salvaged first so I cannot answer to that. But it does make sense to me that it's cheaper to just buy and scrap all those cars and trucks than run the risk of legal action over one of those cars that later failed and caused fatalities.
Thanks, it was Charger who provided that on my seed a few weeks ago.
I verified that but Ford is having a major melt down over retrieving the chips before anything is declared salvage / scrap even though they would get paid fairly.
It might go to court.
I just asked about this on a railfan site and nobody there knows for sure. If I find out anything I will pass it on.
Sure seems a waste
According to a post on Trainorders site, the vehicles from the train wreck have been moved to a secure Norfolk Southern yard
They are talking about $240 million in F150s
plus another $4.5 million in Transits
I hope they come up with something equitable for everyone...
As part of the recovery plan, making of chips in the USA should get government investment and also the recovery and recycling of old chips.
Research on how to make chips out of more common materials would be a good thing
OR take a step back and go back to making things that do not require said "chips"........
LIke my 1950 Ford.
Dont even have to go that far back , i had until a few years ago a 1972 chevy pick up that i used as a daily beater not a chip on it , was a sad day for me when i finally decided it had seen its better days and needed replaced , even liking being a shade tree mechanic it was getting to the point of being uneconomical .
My 1968 Charger did not come with computer chips; but, the control for the added electric cooling fan has one and I think the electronic distributor has one in it.
Imagine a kid today having to do a field expiediant setting of the distributer points on a distributor now days ?
I would love to see cars go retro. I don't need all the fancy computerized crap, just power steering, electric windows, A/C - heat, and a decent sound system.