Too few new cars means bigger profits for dealers.
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Car buyers on the hunt for a new set of wheels enter a very different world compared to this time a year ago. In April 2020, automakers and dealers would do anything to sell a car, including the option of generous 0% financing options we hadn’t seen in years. Today, prepare for no such incentives, and certainly no helpful cash-back offers. Why? Thank the semiconductor chip shortage, which dealers are really enjoying.
Reuters reported on the state of the industry on Monday and profiled a couple of dealerships caught in the middle of eager car buyers and too little inventory. It’s a simple story of supply and demand: Automakers can’t build enough new vehicles, due to chip shortages, and car buyers want them. In turn, many buyers have no problem paying sticker price and foregoing the wheeling and dealing that can knock a couple grand off the MSRP. Dealers get to keep even more cash in their pockets and buyers get their new car. Record profits ensue.
Read more: From PS5 to Ford F-150: How a global chip shortage is ‘impacting everything’
One Buick-GMC dealership said nearly every single car in its inventory is spoken for, with buyers going as far as reserving vehicles that haven’t even rolled off the assembly line. Another Toyota dealership, which typically stocks a few hundred cars, had 62 new vehicles ready to sell.
The ripple effect has reached the used car market, too. While the coronavirus may have first lopped a chunk of change off your car’s value last year, this year, dealers are itching to sell whatever they can. Franchises told Reuters if a 2021 model year isn’t in stock, buyers are increasingly looking at preowned models to get a nearly new car. Again, with demand up, used car prices trend upward, too.
It’s not all good, though. If inventory continues to dwindle for months, dealers could face an issue with overall profits if lower volumes of sales begins to offset the gains from selling at sticker price. We don’t have a crystal ball, but right now, it’s a good time to be dealing cars.