Auto Dealers Weather Slim Inventories

YOUNGSTOWN, Ohio – On an average day, customers browsing the lot at Mark Thomas Ford Inc. in Cortland could expect to choose between 150 and 200 new vehicles parked and ready to sell. 

That was last year. Today, it’s likely there are fewer than 20.

“One of the reasons is that we’re selling them as soon as they come off the truck,” says manager Tom Levak. “Last month, we sold 30 new vehicles.  A lot of these were ordered at the beginning of the year. And we’re stocking as much inventory as we can.”

It’s an unusual time for auto dealers and the automotive industry in general.  Global shortages of components and the semiconductors that power them have gummed up supply chains, leaving automakers at the mercy of longer production schedules and higher commodity prices.  At the end of this chain are local auto dealers, who are wrestling with strong demand but anemic inventories to satisfy customers.

Some customers wait months before their orders arrive on the lot, Levak says, simply because it’s so difficult to source all of the content for these vehicles.  For example, he says some models built during the spring are just now being released to dealers.

“There were some that were built back in March but they weren’t able to complete them until last week,” he says. “But, they’re still coming in and they’re selling a lot quicker.”

Those vehicles with more content are more susceptible to delays, Levak says. In November of 2020, the dealership ordered a Platinum version of Ford’s F-150 pickup, the high-end version of the automaker’s most popular series.  “It didn’t get here until July,” he says.  

Levak says he’s telling customers to place orders early for the new slate of vehicles that Ford intends to produce over the next year, among them the F-150 Lightning, the new all-electric pickup that is expected to roll off assembly lines in 2022.  “We’re excited about the Lightning, but also the 2022 Ford Maverick,” he says, referring to the plug-in hybrid pickup that has gained significant attention.  “That will be a big hit.” 

Among the most important adjustments for dealers is to engage with customers much earlier and more often than in the past as they monitor the manufacturer’s volatile supply chain and production schedules, says Michelle Primm, managing partner of Cascade Auto Group in Cuyahoga Falls.

“Our staff is living in the pipeline,” Primm says.  “We’re watching daily and sometimes hourly for changes in production, transit, and delivery dates.”

Primm says the inventory squeeze has accelerated what was already a transparent communication system with customers.  “We still call folks once a week to give them a status report,” she says.

At the same time, Primm says it’s important to counsel customers to remain flexible and patient as the industry works through these ongoing supply issues, which are unlikely to let up anytime soon.  

Cascade sells the Audi, Mazda and Subaru brands. Primm says these manufacturers are doing all they can to deliver vehicles to U.S. customers.  “The production schedules change hourly at auto plants based on what parts they can source,” she says. Mazda, for example, has told the dealership that it projects inventory will bottom out around December before rebounding. Audi says it doesn’t expect to see real relief until the second or third quarter of 2022.  

“Subaru is not making any predictions,” she says, although the dealership is receiving orders from the brand’s Indiana factory at a faster clip than overseas shipments.

Meanwhile, some automakers are building models without certain accessories in order to fulfill inventory, Primm says.  

Audi, for example, has started to ship cars with a single key with the understanding that a second key could be delivered to the customer sometime in the spring.  The brand has also shipped vehicles without a phone-charging box, but still allows customers to charge their phones via a USB cable.

“We are also hearing news that Mazda may de-content some units,” she says, while there’s no evidence that Subaru has done so.

Simultaneously, Audi has grappled with rising materials and transportation costs, precipitating a $1,500 hike to its manufacturer suggested retail price, or MSRP, Primm notes.

“Coming out of the pandemic, demand increased and global labor shutdowns are causing supply disruptions,” she says.

This also affects the price of used vehicles, which Primm projects will be in short supply for the foreseeable future. “The spike in car prices to the consumer is here to stay,” she says.

Others are optimistic that the worst is behind them as automakers such as General Motors show evidence of ramping up production as early as the fourth quarter of this year.

“We’re under pressure that I’ve never seen in my lifetime in the car business,” says Greg Greenwood, president of Greenwood Chevrolet in Austintown. He estimates that business is off by 60% at his dealership, which he attributes to the global shortage of microprocessors. One of the major chip suppliers to GM, however, is now running at full capacity, enabling the automaker to manufacture what it projects could be 100,000 more vehicles in the fourth quarter versus the third quarter, he says.

Greenwood projects the dealership could have at least doubled its sales this year were it not for the supply crisis.  “We just don’t have the surplus inventory we would normally have for people to shop off the shelf,” he says.

According to analysts at Kelley Blue Book, the average transaction price for new vehicles jumped by $2,527 in June 2021, a 6.4% increase compared to a year earlier.  Average transaction prices for new vehicles in June 2021 rose by $928, or 2.2%, during that month alone. 

Inventory squeezes and higher prices for new models have driven some shoppers to consider used vehicles, sending wholesale prices in this segment soaring.

According to the Manheim Used Vehicle Value Index, which tracks the price dealers pay at auction, wholesale prices rose 5.3% month-over-month in September and are 27.1% higher than a year ago. Total used vehicle sales were down 13% in September 2021 compared to 2020.

The automobile sector isn’t the only industry affected by the microchip shortage, says Phil Amsrud, senior principal analyst at IHS Markit. Other consumer products that are governed by semiconductors are vying for these components, creating even more pressure on automakers.

These issues took root long before the pandemic hit in 2020, Amsrud says. Companies that produce substrates – components that connect semiconductors to circuit boards – for example, are vital to chip manufacturers but have long been underfunded because of lower profit margins. Instead, much attention was initially focused on the lack of computer chips.

Before the pandemic, business was strong for both the front-end products such as semiconductors and back-end components such as substrates, lead frames or compounds that are used in chips.  

“When they were full, there wasn’t much of a Plan B,” Amsrud says.

The massive snowstorm in Texas in February placed undue pressure on the micro-processing industry, while COVID-19 rampaged through countries such as Malaysia, where products like substrates are manufactured.  

“Covid was a stress test of the system. It turns out the system was more fragile than we thought,” he says.

This has affected chip supplies. Ironically, even microchip producers find it difficult to secure new equipment because of delays, since this equipment is also governed by microprocessors in short supply.  

The auto industry has often faced allocation problems, Amsrud says, but these issues have resolved themselves over a relatively short period of time.  

While he expects to see modest improvement through next year, the restoration of normal delivery schedules will likely take much longer. “The return to normal – that is 99% on-time delivery – is further off than next year,” he says.

“There’s a lot of talk right now about having to rethink the supply chain,” he says, which ultimately could mean more microchips manufactured in the United States.

“TSMC and Intel are building new facilities in Arizona, while Samsung is expanding in Texas and Global Foundries is adding capacity in New York,” he says.  

“I’m optimistic that when the dust settles, there are a lot of lessons learned from this,” he says. “Not just tolerating this until the next crisis.”

Mahoning Valley Auto Sales Dip in September

Mahoning Valley residents purchased 4,682 new and used vehicles in September, which is 72 fewer than in August, according to the Greater Cleveland Automobile Dealers Association.

Where new vehicle sales fell year-over-year, however, used vehicle sales jumped by triple digits.

New-car sales to buyers in Mahoning, Trumbull and Columbiana counties totaled 2,094 – a 31.2% drop from a year ago – while used-car sales were 2,497, a 346-car increase from September 2020.

Among local dealerships, Taylor Kia of Boardman led in new-car sales with 130 sold last month, followed by Kufleitner Chrysler Dodge Jeep Ram Trucks of Boardman with 106, Sweeney Buick GMC with 101, Fairway Ford with 88 and Fred Martin Ford with 87.

For used-car sales, Fred Martin Ford was the No. 1 store in the three-county area with 129 sold. Also hitting triple digits were Greenwood Chevrolet with 118 and Fairway Ford with 106.

Across the auto dealer association’s 22-county footprint, combined new- and used-car sales were down 11.7% to 7,744. 

Pictured: Cascade Auto Group in Cuyahoga Falls sells Audi, Mazda and Subaru brands. Owners are Mike, Pat and Michelle Primm.