The Car Market ‘Is Insane’: Dealers Can’t Keep Up With Demand

A shortage of computer chips is keeping automakers from producing enough cars to meet rising demand. Used cars are scarce, too.

Credit…Andrea Chronopoulos

‘The Market Is Insane’: Cars Are Sold Even Before They Hit the Lot

A shortage of computer chips is keeping automakers from producing enough cars to meet rising demand. Used cars are scarce, too.

Credit…Andrea Chronopoulos

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Rick Ricart is expecting nearly 40 Kia Telluride sport-utility vehicles to arrive at his family’s dealership near Columbus, Ohio, over the next three weeks. Most will be on his lot for just a few hours.

“They’re all sold,” Mr. Ricart said. “Customers have either signed the papers or have a deposit on them. The market is insane right now.”

In showrooms across the country, Americans are buying most makes and models almost as fast as they can be made or resold. The frenzy for new and used vehicles is being fed by two related forces: Automakers are struggling to increase production because of a shortage of computer chips caused in large part by the pandemic. And a strong economic recovery, low interest rates, high savings and government stimulus payments have boosted demand.

The combination has left dealers and individuals struggling to get their hands on vehicles. Some dealers are calling and emailing former customers offering to buy back cars they sold a year or two earlier because demand for used vehicles is as strong, if not stronger, than for new cars. Used car prices are up about 45 percent over the past year, according to government data published this week. New car and truck prices are up about 5 percent over the past year.

Those price increases have fed a debate in Washington about whether President Biden’s policies, particularly the $1.9 trillion American Rescue Plan he signed in March, are responsible for the sharp rise in inflation. The government said this week that consumer prices across the economy rose 5.4 percent in the last year through June.

Republican lawmakers have argued that the March legislation is overheating the economy and are citing the rise in prices to oppose additional government spending. But Biden administration officials have pointed out that temporary supply shortages are largely responsible for the surge in prices of cars and other goods.

Government stimulus may have helped some consumers, but it is hard to say how much. There are several large forces at play.

The chip shortage, for example, is affecting automakers all over the world and is not directly related to U.S. policies. Industry officials blame limited production capacity for semiconductors and pandemic-related disruptions in supply and demand for the shortage.

To make the most of limited chip supplies, General Motors has temporarily done away with certain features in some models, like stop-start systems that automatically turn off engines when cars stop for, say, a traffic light. And the French carmaker Peugeot has replaced digital speedometers with analog ones in some cars.

Rental car companies that sold off thousands of cars during the pandemic to survive are now in the market to buy cars and trucks. They want to take advantage of a summer travel boom that has driven up rental rates to several hundred dollars a day in some places.

“The industry has had strikes and material shortages before that have left us short of inventory, but I’ve never seen anything like this,” said Mark Scarpelli, the owner of two Chevrolet dealerships near Chicago. “Never, never, never.”

His dealerships normally have 600 to 700 cars in stock. Now, he has about 50. Once or twice a week, a truck arrives with five or 10 vehicles. The cars disappear quickly because of customer waiting lists, Mr. Scarpelli said.

Industry executives said the last time demand and supply were this out of sync was most likely after the end of World War II, when U.S. auto plants returned to making cars after years of churning out tanks and planes.

Dealers said virtually everything was selling, including luxury vehicles and sports cars that cost more than $100,000 to basic used cars that many parents buy for teenagers.

Even though the unemployment rate is still higher than before the pandemic, many people have money to spend. Government payments have helped lots of people, but many Americans, kept from vacationing or eating out, saved money. Financing cars is also relatively cheap — at least for people with good credit. Some automakers like Toyota, which has been less affected by the chip shortage than others, are advertising zero-interest loans on some cars.

Mr. Ricart’s family businesses include a custom shop that sells high-end, special-edition trucks and sports cars. “We had a $125,000 Shelby pickup, and I said, ‘Who’s going to buy that?'” he recalled. “The next day it was gone. There’s so much free cash in the market. People are paying full price, even for the most expensive vehicles we have.”

Buyers often have to take vehicles that don’t meet their specifications, and move fast when they find one close enough.

Gary Werle, a retiree in Lake Worth, Fla., recently traded in a 2017 Buick Encore for a 2021 version, drawn by its safety features such as blind-spot monitoring and automatic braking. “I’m 80, and I thought it would be good to have those,” he said.

On Memorial Day, his dealer called, and Mr. Werle didn’t hesitate. “I was at a party and left to buy the car,” he said. “I’d heard about the shortages, so I wasn’t sure the car would be there the next day.”

Dealers are selling fewer vehicles, but their profits are up a lot. That’s a huge change from the spring of 2020, when most dealerships shut down for roughly two months and they had to lay off workers to survive.

“The strong demand from consumers paired with a lack of supply from the manufacturers has created a gusher of profits for dealers,” said Alan Haig, president of Haig Partners, an automotive consultant.

Now, dealers typically dictate the price of new or used cars. New cars typically sell for the manufacturer’s suggested retail price or, in some cases, thousands of dollars more for models in very high demand. Haggling over used cars is a distant memory.

“There’s not a lot of negotiating that goes on right now on price,” said Wes Lutz, owner of Extreme Dodge in Jackson, Mich.

Some customers have balked at paying top dollar for new cars and have opted to make do with older vehicles. That has increased demand for parts and service, one of the most profitable businesses for car dealers. Many dealers have extended repair-shop hours. Mr. Ricart said he had some repair technicians putting in 10- or 12-hour days three or four days in a row before taking a few days off.

Of course, the shortage of cars will end, but it isn’t clear when.

As Covid-19 cases and deaths rose last spring, automakers shut down plants across North America from late March until mid-May. Since their plants were down and they expected sales to come back slowly, they ordered fewer semiconductors, the tiny brains that control engines, transmissions, touch screens and many other components of modern cars and trucks.

At the same time, consumers confined to their homes began buying laptops, smartphones and game consoles, which increased demand for chips from companies that make those devices. When automakers restarted their plants, there were fewer chips available.

Many automakers have had to idle plants for a week or two at a time in the first half of 2021. G.M., Ford Motor and others have also resorted to producing vehicles without certain components and holding them at plants until the required parts arrive. At one point, G.M. had about 20,000 nearly complete vehicles awaiting electronic components. It began shipping them in June.

Ford has been hit harder than many other automakers because of a fire at one of its suppliers’ factories in Japan. At the end of June, Ford had about 162,000 vehicles at dealer lots, fewer than half the number it had just three months ago and roughly a quarter of the stocks its dealers typically hold.

This month, Ford is slowing production at several North American plants because of the chip shortage. The company said it planned to focus on completing vehicles.

Mr. Ricart recently took a trip on his Harley-Davidson to Louisville, Ky., and got a look at the trucks and S.U.V.s at a Ford plant that are waiting to be finished. He said he saw “thousands of trucks in fields with temporary fencing around them.”

He said he hoped to get some of those trucks soon because Ricart Ford had only about 30 F-150 pickup trucks in stock. “We’re used to selling a couple hundred a month.”

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