Chip Shortages Drive Vehicle Prices Higher
Dealers Benefiting From Low Supply
Automakers including Ford (F) and General Motors (GM) have curbed vehicle production due to a global shortage of semiconductors. While the shortage is hurting car manufacturers, it is benefitting car dealers. The supply-demand imbalance has allowed car dealers to spend less money on marketing while raising the prices of vehicles.
AutoNation (AN), the largest chain of dealerships in the US, reported that its gross profit increased by 61% in the first quarter. Lithia Motors (LAD), a rival dealer, reported that profit per new vehicle increased 33%. Often dealerships must fight for customers with incentives and rebates which can slash vehicle prices by 10% or more. The unique market circumstances are a welcome change for some car sellers.
Low Inventory Causes Concerns
The global semiconductor shortage is expected to last into next year, which means US dealers should experience strong sales in the coming months. Dealers are already sitting on low inventory, with some reporting just 15 days worth of inventory on hand.
While current conditions are benefitting many dealers, some are beginning to see a depletion of their stock and no new shipments coming in. This is leading to concerns that the lack of vehicles will ultimately hurt dealers’ bottom lines, even with higher profit margins.
What These Trends Mean for Consumers
Because the supply of new cars is low and prices are climbing, many consumers are opting for older models. This is causing the price of used cars to spike.
Consumers looking to purchase a car or truck at the moment should be prepared for higher prices at dealerships for both new and used vehicles. With people willing to pay full price and dealers not offering many incentives, purchasing a vehicle is getting pricey in 2021.
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