Valley car sales impacted by pandemic

Jun. 30—Wabash Valley automotive dealerships — and their customers — continue to feel the impacts of a global semiconductor chip shortage sparked by the COVID-19 pandemic. In 2020, auto makers cut orders on parts and materials. Now, there's a shortage of new vehicles, which in turn has impacted used vehicle inventories.

"The car shortage is continuing, without a doubt," said Joe Mascari, general manager of Sullivan Automotive Group in Sullivan.

"We usually carry around 150 to 175 total new cars and we are in the low 30s right now, 32 to 33 new cars," Mascari said. "On used vehicles, we carry 125 to 150 cars this time of year and we have about 75 cars out there now," he said. "It is absolutely affecting us."

Mascari said the dealership has had to come up with creative ways to get vehicles, especially used ones.

"We have sent out email and direct mail and advertised on the radio and television, so we have been able to buy a few cars, but it is still difficult," to build up a vehicle inventory, he said.

The chip shortage began in the spring of 2020, amid the pandemic when travel drastically dropped. Automotive makers cut orders on materials like semiconductor chips that are used in touchscreen displays and collision-avoidance systems.

Many automotive supply manufacturers in the Wabash Valley shut down or vastly reduced production in late March and into early April.

As COVID vaccines began to roll out and states began to remove lockdown restrictions, demand for vehicles began picking up. However, chip manufacturers had already committed to supplying makers of consumer electronics such as laptops and smartphones, leading to a sudden demand and shortage of the chips in the automotive sector, the Associated Press reports.

Ford Motor Co. said the shortage would halve its production from normal levels in the second quarter of this year. Nearly all automakers have been affected including Nissan, Honda, Tesla and Volkswagen, the Associated Press reports.

General Motors said its factories will still be affected by the chip shortage through June and July. But it's shifting chips to higher-margin, high-demand vehicles such as pickup trucks and full-size SUVs, the Associated Press reports.

"Oh yes, we have a shortage. The factories just can't get them out," said Michael H. Tom, president/owner of Vigo Dodge.

He said his dealership usually has a "decent new inventory and right now that is down over 50% and overall it is probably down 75% less from what I normally carry, especially for trucks."

The dealership normally has 50 new trucks for sale, but is down to 10, Tom said.

"I've got orders in, but the factory can't get them built," because of the chip shortage, Tom said.

Tom has owned the dealership for more than 20 years, but has 50 years experience in the automotive sales industry. He can recall only one other time when his vehicle inventory was impacted as much as it has been during the pandemic.

"The last time I had an inventory problem was the 'Cash for Clunkers' program," Tom said.

In 2009, then President Barrack Obama signed into law the Car Allowance Rebate System (known as "Cash for Clunkers"), a $3 billion federal post-recession economic stimulus program targeted to increase auto sales while putting more fuel-efficient vehicles on the road. The idea was to trade in a less fuel-efficient vehicle for a new, more fuel-efficient vehicle.

Used car values higher, but so are prices

Brian Dorsett is president of Dorsett Automotive, which includes Nissan, Hyundai and Mitsubishi brands. Dorsett had a fourth car brand, but on June 2 he sold his Ford dealership in Marshall, Illinois, to Mike Owen, who calls the new business Owen Ford.

"We have seen a reduction in our shipments of vehicles that are new, but the thankful part is we have been able to stay in a buying mode early on, which allowed us to have a lot more used cars," Dorsett said. "And we have traded for many, many used cars because of that and we traded for a lot of used cars because we had a good supply of new Nissan and Hyundai and Mitsubishi.

"Now we are seeing a little bit of reduction in Nissan and Hyundai, but because we stayed aggressive, purchasing where we can in used [vehicles], we have quite a few used and certified pre-owned cars to sell," Dorsett said.

The dealership usually has 210 new cars; it now has less than 60.

Dorsett said he thinks the buying patterns of the public progressed faster than automotive companies expected.

"What we have seen is a tremendous uptick in the book values of NADA [National Automobile Dealers Association] and Kelly Blue Book ... so used cars now are certainly a very, very hot commodity," Dorsett said.

Additionally, he said banks have been aggressive on used car lending and interest rates on car loans remain low for qualified buyers.

So while the value of used vehicles has risen, so has the sales price.

"It is mainly driven by supply and demand," said Scott Jaeger, president of Jaeger Automotive, which operates Toyota of Terre Haute and Thompsons Honda. And depending on the specific vehicle, dealers are offering $1,000 to $3,000 more for used vehicles than last year, he said.

As an example, Toyota of Terre Haute has been sending out mailings to purchase high-demand used vehicles such as a 2013 Tacoma, 2017 Avalon, 2014 RAV4 and 2012 Camry. The dealership offered $20,690 to the owner of a 2017 Avalon. The vehicle, with just over 37,600 miles on it, was eligible for a low-mileage trade program.

"We want to buy your car whether you buy another vehicle from us or not," the mailing states.

Makiah Clements of Paris, Ill., had been searching for a used vehicle for two weeks. She found a Chevrolet Cruz online that she liked.

"We found out that that car was sold [the day before she arrived]," Clements said when she visited Toyota of Terre Haute. "We saw this car when we pulled up to the dealer and I really liked it. So I got a 2020 Toyota Corolla and like this one more than the car we were coming to look at."

At Sullivan, Mascari said the demand for used vehicles is so high "that a vehicle someone bought from us a couple years ago, they are literally getting the same money [on a trade-in] they paid for that vehicle after two years of driving. That has happened a few times," he said.

In addition to semiconductor chips, Jaeger said the supply chain for automotive parts has been hit in other areas.

"One material shortage was caused by the winter weather in Texas, which impacted some petrochemical plants down there which manufactured the stuff that makes the foam that goes in the car seats. So there was a foam shortage in the industry for a while too," Jaeger said.

"There are lot of things that impact the supply chain ... lots of pieces and parts that go into a car," he said. "Toyota was lucky as the chips did not affect them as much and Honda weathered the chip thing, too."

Jaeger said he is unsure what has sparked such a demand for vehicles other than, "I am guessing like everyone else, that the travel industry is up and car industry is up as people come back from the pandemic and from being locked up for so long.

"Between both of our stores [Honda and Toyota], we are down about half," on the supply of new vehicles, Jaeger said. "At one point we were down to 16 new cars at Toyota and normally we will have 130 to 140.

"At Honda, we have been a little more fortunate in that we had a pretty good [vehicle] supply going into this, but we are down at Honda right now too, probably about 35 new cars," Jaeger said. "They come off the truck every day and we had about 15 cars arrive on a truck, but 13 of them were already sold.

"People are basically buying cars that are inbound to us," he said. "We can see what is coming in over the next month or two and people will put their name in and say they want that car when it comes in.

"I think the choices right now might be a little more limited for a consumer. We are getting inquires from people a long ways away," Jaeger said, such as St. Louis or in Kentucky, "that are looking for a particular car. Generally as a dealer we can find what people want in terms of trading" with other dealers.

Mascari said he thinks "the consumer has become educated about the industry in the past 30 days. They are realizing that if they want a truck, they might have to take a red one instead of a blue one or might have to take an extended cab instead of a crew cab, because that is the only thing available right now.

"Consumers are also finding that if they wait, someone else will come in and buy that vehicle, and they have to wait even longer," he said.

Even when a vehicle is ordered, "there are heavy constraints. So General Motors only allows you to build a vehicle within spec of options which they feel they can produce. So if you want an extremely equipped vehicle like a Yukon Denali [SUV] or a LTZ or premiere model Chevrolet vehicle, those are harder to get because they require more computer chips," Mascari said.

Makers of semiconductors are responding.

Taiwan Semiconductor Manufacturing Company, the world's biggest contract chipmaker — controlling 84% of the chip market — plans to spend $30 billion on new capacity in 2021, according global media company Forbes. Samsung Electronics and Intel have allocated capacity additions to the tune of $28 billion and $20 billion, respectively.

The U.S.'s share of global semiconductor production dropped from 37% in 1990 to 12% in 2021, according to the Semiconductor Industry Association.

In response, the U.S. Senate on June 8 passed the U.S. Innovation and Competition Act, or USICA, that would pump $52 billion dollars into semiconductor manufacturing, design and research provisions in the CHIPS for America Act. That legislation now awaits action in the U.S. House of Representatives.

Despite that, Vigo Dodge's Tom said he expects the shortage to continue through this year.

"Right now there is not an end in sight. Hopefully by the first of the year things will clear up, but this will continue to the end of the year," Tom said.

Mascari agrees.

"Unfortunately, I think it will be this way for the rest of the year and not let up until the first quarter of next year," Mascari said. Auto makers "are going to have to switch over to the new model year," from 2021 to 2022. "They can't finish building the 2021 vehicles because they don't have [semiconductor] chips and can't start building the 2022 models, so this will be a slow process."

Jaeger said manufacturers are starting to see less COVID-19 related issues in supply chains and the volume of vehicles produced is picking up, but he thinks "the amount of backlog of inventory auto manufacturers have is going to take at least months to get caught up, assuming the consumer demand continues."

Reporter Howard Greninger can be reached 812-231-4204 or howard.greninger@tribstar.com. Follow on Twitter@TribStarHoward.