NewsNational

New car inventory still impacted by chip shortage

New Car Inventory Shortage
Posted at 2:42 PM, Mar 02, 2022
and last updated 2022-03-02 14:42:38-05

CHICAGO, IL — Ford temporarily stopped manufacturing its top-selling F-150 pickup trucks this week due to the ongoing semiconductor chip shortage. Last month, across the automotive industry, dealership inventory was down by 70%, compared to 2019.

The semiconductor chip shortage closed out 2021 with many car dealerships contending with seriously depleted inventories. And it’s not over yet.

“This lack of chips to support critical parts in a vehicle with most parts being some sort of automation or electronics in a car really impacted and we see continuing impacted for the remainder of 2022,” said Joseph McCabe, president and CEO of AutoForecast Solutions, a company that forecasts the production of every single vehicle built worldwide eight years out.

He says amidst historic inventory lows, year-end deals were scarce and prices high, which is something that is unlikely to change.

“If you want something, you are going to pay no less than sticker. No one's going to be dealing right now. Most dealerships are using that to their advantage,” said McCabe.

J.D. Power and associates reported in December 89% of new vehicles were selling near or at sticker price compared with 12% in December of 2019.

McCabe says despite the low inventory even with fewer vehicles sold, the price per vehicle has gone up and so too has manufacturer profitability.

“If you're making more per car and the scarcity is driving the consumer anyway, with a significant amount of pent-up demand still in the works, that is really driving people and driving them to pay full sticker,” said McCabe.

It’s one reason why inventory levels may not increase anytime soon.

“What we've seen is kind of a continued kind of leveling off at this point of new vehicle inventory. It hasn’t it gotten any worse, but it hasn't really gotten much better,” said Kevin Roberts, an analyst with the car-shopping and data analytics site cargurus.com. He says if you’re in the market for a new vehicle – flexibility will be key.

“There are going to be vehicles on lot for you to look at and you may have to look into a situation where you may want to build to order that vehicle rather than just kind of taking that vehicle and driving it home that day,” said Roberts.

Experts say if automakers get access to more chips, they’ll start building a wider selection of cars and trims instead of prioritizing the most profitable ones. That could mean some reduction in new average listing prices throughout the year.

But McCabe says low inventory and sticker pricing could become the new normal.

“It could be 2023 if you really want to see a turn,” he said. “There's just no incentive for the vehicle manufacturers right now to lower their prices and no incentive to throw money on the hood.”

At the same time with the federal reserve looking to raise interest rates, putting upward pressure on auto loans and monthly payments, consumers will have to figure out how to balance the cost-benefit of waiting to buy.

“Is this a good time to try to get that vehicle now while interest rates are still near historic lows, or wait to potentially see prices start to drop, but interest rates could be higher?” said Roberts

It’s a potential Catch-22 with no perfect answer.