Drive past any car dealership in Wisconsin — or anywhere in the country really — and you’ll notice the lots seem emptier than usual.
That’s because they are.
The world is in the midst of a global vehicle shortage, and Wisconsin is no exception.
Auto dealers don’t have the same inventory as in the past due to a slowdown in manufacturing due to a global shortage of microchips used in vehicles.
But people still want to buy cars, and this has led to the vehicles that are available, both new and used, flying off the lots as soon as dealers get them in, while customers are getting top dollar for their used car trade ins.
The automotive industry will eventually recover and return to normal, said Angela Hansen-Winker, the lead faculty member of Northeast Wisconsin Technical College’s supply chain management program. However, she thinks the vehicle shortage is going to last until early next year.
Until then, the car buying process will likely look a lot different than it has in the past.
What do microchips have to do with cars?
The average new car or truck contains between one and three dozen microchips, but vehicles can have up to 3,000, depending on the make, Hansen-Winker said. Those chips control power steering, breaks, cameras, navigation screens and other features.
When the coronavirus pandemic hit, manufacturers started canceling chip orders, anticipating a drop in demand for vehicles, Hansen-Winker said. At the same time, demand was increasing for electronics such as laptops and tablets as many workplaces and schools went virtual due to the pandemic.
Nationally, car sales took a major hit in March and April of 2020, but then began to rebound to pre-pandemic levels, according to data from the U.S. Bureau of Economic Analysis.
By the time auto manufacturers realized demand for vehicles hadn’t decreased as much as they anticipated, it was too late, Hansen-Winker said. The auto makers had already fallen too far behind to catch up, and there’s about a six month lag between chip orders and delivery, she said.
Initially, dealers had enough inventory to keep up with consumer demand, but there was no way to fully replenish their stock as it fell, said Tim M. Bergstrom, president and CEO of Bergstrom Automotive.
To make matters worse, three large overseas factories manufacture the vast majority of these types of chips and a fire damaged one plant in Japan in March, further constricting supply Hansen-Winker said.
“What it does is it basically causes a ripple effect within the supply chain, (called) a bullwhip effect, meaning that when small changes take place within a supply chain, it’s going to have a large impact,” Hansen-Winker said.
Vehicle manufacturers are still building cars, but many of them end up sitting in lots until the microchips that they need can be installed, Hansen-Winker said.
“And that is how we got to having a shortage of automobiles that are new,” she said.
How are dealerships handling it?
Car sales were definitely down in Wisconsin in 2020.
From 2015 to 2019, the state Department of Motor Vehicles issued about 2 million vehicle titles a year, according to the Wisconsin Department of Transportation. In 2020, that number dropped to 1.7 million. Through July, 1,016,629 titles had been issued this year, according to DOT’s office of public affairs.
With fewer cars and trucks to sell, dealers in Wisconsin have had to make adjustments.
Broadway Automotive generally stocks between 350 and 400 new cars at its two Green Bay-area dealerships, the company’s commercial sales manager Aaron Winker said.
But recently, they’ve been averaging about 30, and have gotten as low as around 15.
“It’s crazy,” Winker said. “We’re selling them as fast as they come in.”
But just because all the vehicles aren’t lined up in the lots doesn’t mean dealers aren’t able to provide buyers with the vehicles they want, within limits, Bergstrom said.
Every day, vehicles are delivered to Bergstrom Automotive’s lots, but most of them are presold. That’s unusual for the car business, Bergstrom said.
“We’re now selling cars that are not here yet, that we’re taking orders for,” Bergstrom said. “People are saying, ‘Yes, I want that car,’ and then when it comes in, if they don’t want it, there are five other people that want it.”
As long as there’s still demand for vehicles, dealerships will figure out a way to meet it, even if they have to work harder to find a certain vehicle for a customer.
“Dealers continually reinvent themselves,” said Bill Sepic, president of the Wisconsin Automobile and Truck Dealers Association. “They are very nimble business people. I would suggest they’re some of the best business people that are around and they’ve had to recreate themselves right now to service their customers and try to gain new customers by being at the top of their level in the service industry.”
What buyers should expect
Because dealers don’t have the same volume of inventory as in the past, buyers shouldn’t walk into a dealership and expect to be able to test drive half a dozen cars, or even see the car they want.
Bergstrom said he doesn’t see that as a huge issue.
“Truly, driving a car for a 10 minute car ride, I’m not sure how much you really learn about the car versus not sitting in the car at all,” Bergstrom said. “And in today’s world, so many people have friends that already have the car that they’re looking at, or they can read the consumer reports. The world is just so transparent on what every car is.”
The price of new cars has been holding steady, up less than 5% since last year, while the price of used cars is at record highs, according to Edmunds, an online resource for automotive inventory and information. But, that shouldn’t discourage people from looking to buy a car, Sepic said. Customers can still get a good deal, especially if they have a trade in.
“The price is probably not going to be what makes you jump up and down with excitement,” Sepic said. “But you have to look at the whole picture as you’re shopping for an automobile and that includes the price of your trade, which helps offset the price that you’re going to pay.”
Customers should expect to come into the car buying experience with an open mind and be flexible with what they’re looking for. For instance, they might not be able to get the car in the exact color they wanted or with some extra features.
“If you’re here and you need a car, you’re going to have to take what you can get because we just don’t have options like we’re used to,” Winker said.
Thinking of selling or trading in your car? Now is a good time.
Used car sales are booming.
From June 2020 to June 2021, used car prices increased by 45%, according to the Bureau of Labor Statistics. The average price of a used car is around $25,000, according to Edmunds.
In fact, the price of used vehicles rose so sharply in June, 10.5%, that it accounted for a third of the nationwide surge in seasonally adjusted inflation.
So, it’s a really great time to sell or trade in your used car.
Dealerships are buying used vehicles from customers every day and “paying top dollar,” Winker said.
“If you have a trade in, you’ll get the most money I’ve ever seen paid for trades,” Winker said, adding what you’ll get for your trade will likely offset any increase in new vehicle costs.
Bergstrom Automotive used to buy one or two cars from consumers that weren’t part of a trade in. But now, the dealership regularly buys 15 to 25 vehicles a day, Bergstrom said.
Used cars are up in value right now because there are fewer new cars available. Some people might be willing to pay more for a dependable used car because they can’t or aren’t willing to wait to get a new car, Bergstrom said.
“As long as people are willing to work with us, we still have plenty of cars to sell them,” Bergstrom said.