People interested in getting a new car right now are in uncharted waters.
Thanks to the combination of the COVID pandemic and the semiconductor chip shortage, vehicle production is being interrupted around the world while at the same time consumer demand is growing because after a year of quarantine, people want to spend money on cars.
As a result, according to research unveiled by Kelley Blue Book on May 12, consumers can expect to see limited choices and high prices when they hit showroom floors.
“The global shortage of microchips is one of the top stories right now in the automobile business, and if you are a consumer looking for a new vehicle, you don’t have to search hard to see the reports,” said Vanessa Ton, senior industry intelligence manager at Kelley Blue Book, a Cox Automotive company. “Shoppers are expecting high prices and limited choices, and that’s exactly what they are finding.”
Kelley’s research shows this is not news to potential new-vehicle customers. About 87% of consumers are aware of this and as a result, 76% are expecting to see higher prices and less choice when they go to dealerships.
Consumers adjusting expectations
This has the ironic effect of actually making the consumer car-buying experience actually more satisfying for consumers, said Cox spokesman Mark Schirmer.
“This is actually good news for both dealers and customers,” Schirmer. “When dealers say ‘we want to help you, but we don’t have that particular model in the color and trim level you want,’ consumers understand the reasons why that is.”
Because of lowered expectations due to COVID-related problems, it’s actually not difficult for dealers to satisfy consumers.
“Consumers are happy when expectations are met,” Schirmer said. “So lowered expectations actually result in a better buying experience.”
Schirmer said Kelley’s research on this topic is really a “snapshot” of the marketplace as it currently exists. But things are moving fast, and consumers should be aware of these changing circumstances.
“Dealer inventory is getting lower,” Schirmer said. “I drove by my local Ford dealership in southeast Michigan the other day, and I could see they were getting low. This April set sales records for the month of April.”
That was good news for dealers in April. But it will make things more difficult for them in May and beyond because the inventory isn’t getting replaced as quickly as under normal conditions.
Conditions continue to change
“We don’t believe the inventory situation is going away any time soon,” Schirmer said. “I drove by the area where Ford F-150s are made in Michigan and I saw acres of almost completed trucks sitting, waiting for the needed computer chips.
“Even when the chips arrive, it will take Ford time to get the chips in the trucks and it will take even more time to ship the trucks to dealers. The logistics alone of moving thousands and thousands of vehicles to dealerships will take time. The pipeline won’t get filled overnight even when the parts problem is taken care of.”
So what’s a prospective new car buyer to do?
Be flexible in the car buying process, said Matt Smith, deputy editor at CarGurus.com.
Today’s smart car shopper usually does a lot of research online before ever stepping foot in a dealership, Smith said. They research what vehicles are available in what trim levels and in what colors. They often use online services provided by outfits like CarGurus.com and AutoTrader.com.
These services ask users things like how far should the search parameters be. Should they look at all dealers within a 10- or 25-mile radius? By extending the search distance from, say, 25 to 50 miles, consumers will widen their search and have a better chance of finding what they want.
Simply put, looking at more dealers means more opportunities. Normally, if someone lives in a fairly large metropolitan area, they don’t have to look at dealers 50 miles away to find what they want. But these aren’t ordinary times.
Smith also suggested that consumers be more flexible in what they are willing to buy. If someone is willing to look at, say, a 2021 Jeep Compass in any color, instead of just white, that consumer has a better chance of finding a vehicle that will satisfy them.
And be flexible in trim levels, Smith said. Getting 90% of what you want is better than getting nothing because the vehicle you want isn’t out there. Also consider buying last year’s model.
“The newly redesigned 2022 Hyundai Tucson has just hit dealerships,” Smith said. “It looks to be a very popular vehicle.”
That means that Hyundai dealers are looking to move their 2021 Tucsons. If customers are willing to take last year’s model under the old design, they have a better chance of getting a great deal. And consumers shouldn’t forget that they still have leverage when it comes to trading in their old cars, Smith said.
Good trade-ins give buyers leverage
The short supply of new cars has put people who wouldn’t normally buy a used car in the used car market.
That means demand for used cars is also high. If the consumer’s current car is in good shape, that consumer has leverage in negotiating the trade-in value of that vehicles.
“Negotiating trade-in values can mean the different between getting a good deal and getting a great deal when buying a new car,” Smith said.
He agrees with Schirmer that the new car shortage won’t go away anytime soon.
“How long will this situation last?” Smith said. “Hard to say. But it won’t go away overnight. I will say pickups are still in high demand. Coupe and sedan demand isn’t as high as for SUVs and pickups. So people might want to consider looking there for a new car.”Despite this shortage, consumers can still search for the best deals if they shop smart, Smith said. Being flexible in choice of trim, model year and color and extending how far you’ll go physically actually get a car can really be helpful in getting a good deal in these difficult times.