Supply-demand imbalance bad for buyers, good for investors

A automobile supplier reveals a automobile to prospects at a dealership in Jersey City, New Jersey.

Angus Mordant | Bloomberg | Getty Images

Chase Weldon spent weeks researching new SUVs to get for his household. To his shock, he spent even longer making an attempt to buy one. Dealer tons had been scarce and salespeople, who can typically be overly aggressive, weren’t calling him again.

“I was working with some dealerships across the country,” mentioned 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 again to him mentioned the automobile he was trying for had already been bought, or they refused to barter on worth. “It was definitely a different car-buying experience,” he mentioned.

That “different” expertise could turn out to be the norm if sellers and investors have their means.

Factory shutdowns starting last spring as a result of coronavirus pandemic and occurring now due to a global shortage of semiconductor chips have prompted the variety of new automobiles obtainable within the U.S. to nosedive.

For customers, the scarcity has meant increased costs and spending weeks, if not months, looking out or ready for the automobile they need. But for automakers and sellers, it has translated to wider, if not document, earnings and even promoting automobiles earlier than they arrive at dealerships.

Demand outpacing provide

Bowsher, who head’s Chevrolet’s nationwide supplier council, mentioned he’d take extra pickups, however the present atmosphere for earnings is in contrast to something he is 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 advised CNBC, saying “the whole ballgame” has modified previously yr.

Publicly traded sellers resembling Sonic and AutoNation just lately reported document earnings within the first quarter. Dealers are saving cash by holding much less stock and promoting automobiles quicker at increased common costs.

There’s no query that there’s extra demand than provide and that’s the headline on the brand new automobile facet,” AutoNation CEO Mike Jackson told investors last month. “We’ve adjusted pricing to replicate that, and also you see the development in our front-end development.”

Can it final?

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 received the automobile I needed by way of actually simply educating myself … and taking a deep-dive into the topic,” he said. “It was actually about making a relationship with the salesperson. … I began to realize some traction on at the least having a say to find the automobile that I needed.”

– CNBC’s Michael Bloom contributed to this report.

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