What The Current Chip Shortage Means For Car Dealers
May 20, 2021
Despite the industry's desire to bounce back after a brutal year in 2020, the supply of new cars remains historically low while demand for used cars continues to rise. As dealerships scramble to fill gaps in inventory, the big question is “how can we adapt and thrive in this new environment?”
This post will explore the current shortage and what it means for dealers in the coming months and years.
Prices are on the Rise
Due to the low supply of new cars, prices for used vehicles have skyrocketed. Indeed, the average value of trade-ins reached an all-time high in March 2021, up nearly 21 percent from the same time a year earlier, according to the auto-research service Edmunds. Dealers had to be creative to sell cars early in the pandemic, offering deals we hadn't seen in years. But folks are now willing to forgo time-consuming, laborious negotiations and pay sticker prices to get the vehicle of their choice. For dealers, this means larger, if not record, profits, as well as the convenience of selling most cars before they even hit the lot.
Inventory is Low
One Buick-GMC dealership, for example, recently reported that nearly every single car in its inventory has been purchased, while a Toyota dealership, which usually stocks a few hundred cars, had less than 65 available new vehicles. The Buick-GMC dealer said current buyers are generally willing to wait more than a week and pay full price to get the vehicle they want. Bottom line: this is a sellers' market in which dealers have leverage and buyers do what they must.
Chip Shortage Expected to Last into 2022
Chip manufacturing won't be ramped up anytime soon, as industry officials see the shortage lasting into 2022. Meanwhile, AutoNation Executive Vice President Marc Cannon wonders whether this could become the common operating model in order to maintain high demand and prices. Perhaps dealers will never again offer the incentives and rebates that reduce vehicle prices by 10 percent or more. On the other hand, some industry insiders are concerned that slower production could eventually limit dealer profits even if buyers' are willing to pay top dollar. So, dealers must act now to take advantage of current conditions rather than assume high demand and prices are the new normal.
How to Succeed in the New Climate
Dealers that streamline vehicle acquisition will be best positioned to succeed for the foreseeable future. Indeed, the chip shortage means that it's more important than ever for dealers to have an effective inventory strategy. Private seller leads and acquisitions are becoming more and more commonplace in today’s market.
Private party vehicles are generally higher quality, sell faster, and produce stronger relationships than typical used cars. Unfortunately, the private party market is also more competitive and requires a lot of legwork.Contact VettX today to expand your reach, improve your operations and maximize your used-car inventory to take advantage of these lucrative times.
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