If you’re looking to buy a new or used car right now, expect higher prices. If you go to a dealership, don't expect to see lots that are full of cars with different style and color options. You also may have to be prepared to wait some time for your car to even arrive, as many buyers are doing currently.
That’s the result of a global semi-conductor chip shortage caused by the pandemic. It's affecting the number of cars being built and the number of cars at dealerships all over the country and here in Ohio.
But there is a bright side to this supply chain issue: The trade-in value on your used car has likely never been higher.
In the showroom of the Axelrod Buick GMC dealership in Parma, a shiny new GMC Yukon sits proudly with a big red bow on the windshield. It’s one of only two vehicles in the showroom — and it’s spoken for, according to Barry Axelrod who took Ideastream Public Media for a tour of his car lot.
“Normally, this entire lot is filled with Buicks,” Axelrod said. “These are all my employee cars. This lot is completely empty. At night, if you were to come here, you would see this lot completely empty.”
Then he walked to his used car lot. Normally, he has so many vehicles, they’re parked head-on, side by side, one after another. Now, he has his used cars spaced out and sitting horizontal to the street.
“To make it look like we have more cars than we do, because if this were empty, people would think we were closed and just continue driving by,” said Axelrod.
Normally, he would have 250 new vehicles on his lot — about a 3 month supply. Now, he has 20.
“What's happening is we are getting some cars in, but we're selling them as quickly as they come in,” said Axelrod. “A lot of people, they're buying cars. They're buying them before they come in. In the past, somebody could be particular about what they want, the color... You have to have more flexibility,” said Axelrod.
Overall, there’s been a significant dip in the number of cars Axelrod sells compared to before the pandemic started. So, he’s had to cut costs, in part by reducing his sales staff and spending less on advertising. He’s “skinnied back” his business, he said.
This is an industry-wide issue. And, simply put, if you have fewer cars and your demand is high, prices take a hike, according to Lou Vitantonio with the Greater Cleveland Automobile Dealers Association.
“Your prices start to go up. And that's what's happening with the automobiles, either on new vehicles, but also the used-car market is going up as well,” said Vitantonio. “If there's no ability to buy a brand new car, because of a limited supply, then your used car option is your second best option. And now the used car market in pricing is up considerably as well.”
That’s the upside to this supply and demand issue.
“Your trade-in value, the value of the car you're driving and you're going to trade to get a new one, is going to be that much higher than it was before,” said Vitantonio.
That was Lakewood resident Brad Tunstall’s experience. He recently helped his mom trade in one leased car for another at the same Mazda dealership he’s been working with for 15 years. The deal happened really fast after talking with a dealer on the phone, according to Tunstall.
“He (the dealer) actually told me on the phone that day, ‘I can get you out of that lease. Your car's got equity in it. We’ll give you a pretty substantial offer, which would be your down payment on your next car,’” said Tunstall. “He told me, ‘If you can come in tomorrow, I've got a car coming off the truck. It's a Mazda CX-5, a brand new one.’ He said he would get me into that car, which is the next trim level up from what we currently had.”
Tunstall ended up helping his mom get a nicer Mazda at a lower monthly rate with no down payment. Tunstall himself has been shopping for a new or used Toyota 4Runner on the sales website Carvana, and it’s not going well.
“The ones that I checked out seemed about, probably around $10,000 more than I was expecting. But there's nothing on that site. I mean, there's an inventory there, but it's just the prices are outrageous right now,” said Tunstall.
So, how long will this supply issue go on? When will they get enough semiconductor chips made to build enough vehicles to adequately meet demand?
“We're expecting this to go well into probably all of 2022,” said Axelrod. “General Motors has basically said to us, ‘You know, the way your lot looks today is the way it'll probably look a year from now.’”
The dealership has been in Axelrod’s family for several generations, and he can remember some dark periods, like in the early 80s when no one was buying cars because interest rates were hovering around 20%.
He said he’ll deal with this supply issue, and he'll do what he can to get the right vehicle into his customers’ hands.
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