Supply-demand imbalance bad for buyers, good for investors

A car dealer shows a vehicle to customers at a dealership in Jersey City, New Jersey.

Angus Mordant | Bloomberg | Getty Images

Chase Weldon spent weeks researching new SUVs to get for his family. To his surprise, he spent even longer attempting to purchase one. Dealer lots were scarce and salespeople, who can sometimes be overly aggressive, weren’t calling him back.

“I was working with some dealerships across the country,” said the 44-year-old Colorado resident. “I reached out to probably 30 dealerships. … Of those 30, half got back to me.”

Many salespeople who did get back to him said the vehicle he was looking for had already been sold, or they refused to negotiate on price. “It was definitely a different car-buying experience,” he said.

That “different” experience may become the norm if dealers and investors have their way.

Factory shutdowns starting last spring due to the coronavirus pandemic and occurring now due to a global shortage of semiconductor chips have caused the number of new vehicles available in the U.S. to nosedive.

For consumers, the shortage has meant higher prices and spending weeks, if not months, searching or waiting for the vehicle they want. But for automakers and dealers, it has translated to wider, if not record, profits and even selling vehicles before they arrive at dealerships.

Demand outpacing supply

Bowsher, who head’s Chevrolet’s national dealer council, said he’d take more pickups, but the current environment for profits is unlike anything he’s ever seen.

“Everybody’s going to make a lot more money because of it from here on out. I just don’t see it going back to pre-Covid levels,” Sonic Automotive President Jeff Dyke told CNBC, saying “the whole ballgame” has changed in the past year.

Publicly traded dealers such as Sonic and AutoNation recently reported record profits in the first quarter. Dealers are saving money by holding less inventory and selling vehicles faster at higher average prices.

There’s no question that there is more demand than supply and that is the headline on the new vehicle side,” AutoNation CEO Mike Jackson told investors last month. “We’ve adjusted pricing to reflect that, and you see the improvement in our front-end growth.”

Can it last?

One upside for customers such as Weldon, who had a vehicle to trade in, is that dealers are offering higher prices for trade-in vehicles.

Used car prices have increased as some consumers move from shopping for new vehicles to used due to the lack of inventory and higher prices. It’s actually what Weldon ended up doing after establishing a relationship with a salesperson at a nearby dealership for a used 2018 Toyota Sequoia SUV.

“I got the car I wanted through really just educating myself … and taking a deep-dive into the subject,” he said. “It was really about making a relationship with the salesman. … I started to gain some traction on at least having a say in finding the car that I wanted.”

– CNBC’s Michael Bloom contributed to this report.

Katherine E. Ackerman

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