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2022-06-25 04:20:16 By : Mr. Addison Xu

Instead of row upon row of new cars and trucks, tumbleweeds are rolling across auto dealership lots, due to high consumer demand and auto industry supply-chain problems, primarily a shortage of semiconductor computer chips, plus other production and delivery problems related to the Covid-19 pandemic.

What can consumers do about the new-vehicle shortage, besides order a new vehicle and wait in line, or get out of the market until there are enough computer chips to go around — whenever that turns out to be? Here’s some commonsensical, expert advice:

Whatever approach you take to cut down on the wait, there may not be a lot you can do, to avoid paying top dollar, other than try and avoid paying over sticker price for new vehicles.

Many dealerships are charging “market adjustment,” a euphemism for an amount above sticker price, also known as price gouging. Consumers are free to pay their money and take their choice, but that’s unheard-of in normal times, except for some rare sports cars or exotic brands.

Shutt says his dealership doesn’t charge above sticker price, also called manufacturer’s suggested retail price. But he says the dealership is asking and getting MSRP, without much need to negotiate, and that’s unusual.

“Customers are understanding,” the unusual situation, he said. “Most of the dealers in Oregon — probably in the nation — are in same boat.” Capitol Subaru of Salem normally sells 150 new cars and trucks per month. Shutt said he had just two new vehicles in stock, and a backlog of around 100 sold orders that haven’t arrived.

Supply and demand being what it is, record-low inventory has created record-high transaction prices on average. Average transaction price is a measure of how much consumers actually pay, taking incentives into account.

In October, the average new-vehicle transaction price hit a record $43,999 — the fifth month in a row above $40,000, according to J.D. Power and LMC Automotive.

The U.S. dealership inventory of unsold new cars and trucks has been at or below 1 million units since August, according to Cox Automotive. That’s less than one month’s worth of sales. Pre-pandemic, a 60-day supply of cars and trucks was considered an industry benchmark.

Total inventory was 915,000 as of Sept. 20, Cox said. A year earlier, it was 1.5 million higher. Pre-pandemic, in September 2019, it was 2.5 million higher.

“It’s a very different landscape from just two months ago. It’s a dire situation,” in terms of inventory, said Tom Libby, associate director, Loyalty Solutions and Industry Analysis, Automotive, for IHS Markit.

The nation’s biggest new-vehicle dealership chains all reported drastically low new-vehicle inventories, in third-quarter earnings reports.

Asbury Automotive Group, Duluth, Ga., said it had a 12-day supply of new vehicles at the end of the quarter, “well below our target range of 70-75 days. Our new vehicle inventory levels have been negatively impacted by production disruptions at the manufacturers caused primarily by the semiconductor chip shortage.”

AutoNation Inc., Fort Lauderdale, Fla., said it had just a 10-day supply of new vehicles as of Sept. 30, vs. 43 days a year earlier.

Once a car comes in, the time to sell varies by brand, among other factors. Dealers for Kia, Toyota, Tesla, Subaru, Polestar and Honda, all popular with buyers, sell cars in less than 25 days, on average. Lotus, Infiniti, Maserati, Alfa Romeo, Karma and Fiat all take more than 80 days to sell an available car.

“We have consumers that are basically choosing to do one of three things,” said AutoNation CEO Mike Jackson, in a conference call Oct. 21.

“They say, ‘Yes, that vehicle is close enough to what I want, and I understand the pricing situation,’ and they purchase the vehicle. Or, they buy something near-to-new, or they pick something that’s in the pipeline. Or, they tell us they want to see us next year,” he said. Jackson retired as CEO on Nov. 1.

No one seems to know just when the computer-chip shortage will be solved, although automakers, analysts and dealers don’t expect it to be fixed before the second half of 2022.

Roger Penske, chair and CEO of Penske Automotive Group, Bloomfield Hills, Mich., said he’s not holding his breath. “I don’t think the supply chain is going to get fixed,” he said, in a conference call Oct. 27. In the meantime, he noted that automakers are steering the computer chips they do have, to their most profitable vehicles.

But assuming supply-chain issues are solved eventually, there’s also a lot of talk around the auto industry that leaner inventory is the “new normal,” because automakers and dealers see how profitable it is, to have more demand and less supply — just not as lean as it is today.

Inventory is “not going to come back pre-pandemic levels,” said Jeff Dyke, president of Sonic Automotive, Charlotte, N.C., in a conference call on Oct. 28. “I think we all know that, and want that, because we’re ensuring the high margins on the new car side.”

Sonic reported 2,400 new car and trucks at its franchised dealerships at the end of the third quarter, just a 10-day supply, and down more than 80% vs. around 13,000 a year earlier.  “But it’s going to come back. It’s not going to stay at an 8- to 10-day supply,” Dyke said.

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