Americans have a hard time accepting shortages of any kind. After all, “the land of plenty” is not supposed to have shortages. Many immigrants will tell you that they came to America to escape long lines for goods and empty shelves. The lingering Covid-19 pandemic has brought with it labor shortages and supply chain disruptions that has led to unprecedented shortages. Not being able to get a hold of lumber, glass and even food are bitter pills to swallow for most Americans. But automobiles, that which defines Americans more than any other possession, is the most difficult to accept.
The common scenes of showrooms and lots that are full of cars are rapidly disappearing. Buying a new car is no longer a routine exercise. Dealerships are simply short of cars and as fate would have it some of the most desirable models are the scarcest. The ripple effect is almost historic. Used cars have suddenly become extremely expensive with a price tag that has seldom been seen in this country. The dearth of cars has made leasing less than an automatic activity. Even if a car is located, meaning that some dealer appears to have the make and model that a customer desires, the lease will be much more expensive than a similar model only a year or two ago.
In an ironic twist, leasing companies, which make their money on monthly fees plus interest, are counselling customers to either keep or even buy their old car. New car sales used to be a sign of a robust economy for America. That and housing starts were the best measures of how the economy is doing. But last September new vehicle sales tumbled about 26%. For the third quarter, 3.4 million automobiles were sold, down 13% from the same period a year ago. Some of the most popular cars seemed to take the biggest hit. Honda’s U.S. sales fell almost 25% in a month and were down 11% for the quarter. Toyota’s sales were off 22% for September but up just over 1% in the third quarter. Hyundai reported sales off 2% in a month but up 4% for the third quarter. Volkswagen third-quarter sales were down 8%.
The main culprit for the lack of production, or why more cars are not being produced is Covid. An industry that largely depends on manpower could not produce automobiles due to labor shortages. Plants had to close for days and even weeks because trained personnel simply did not show up.
In addition to the many employees who did not show up for work, there were other critical shortages which virtually ground production to a halt. The automobile industry faced chip shortages and other parts which made it impossible to turn out modern-day automobiles that depend on these chips. When automakers shut down factories last year—both to keep workers safe and to confront a steep drop in demand for new cars—they canceled orders for semiconductors. The result is less cars on dealer lots and the ballooning prices.
In November new vehicle prices were up 25% over a year ago. Used vehicle prices jumped more than 34%. Many car dealers openly courted customers with used cars to cash in at higher values. The dealers felt that given the shortage they would still be making money on selling the used cars. But owners of the cars who are unable to get a new car or are shocked by the current sticker prices are holding on to their vehicles.
Not only are fewer vehicles being produced, but those that are coming off the line may not include chip-dependent features consumers’ desire. Plus, the wait for just the right vehicle could be as long as three-to-six months.
The chip shortage is a good reason for some to either hold off on getting a new vehicle or holding on to their old car. One expert put it this way: “The lease car you’re turning in may have features like wireless charger or heated seats you may have gotten on your 2019 that are not available on your 2022 car because of the chip shortage. Not only will you wait a long time there’s a real risk you’ll get a car less well-equipped than the one you leased three years ago. On top of that you’ll be paying record high prices— usually sticker or sticker-plus.”
Avram’s car lease expired in November but is being told that it may take up to a year to get a new Acura, which is what he wants, at more than 35% higher than he paid for his old car. He is seriously considering buying the car he leased. “I would never have thought of buying a car I leased. I always wanted a new updated car but what I am being offered and the time I will have to wait has made me rethink my position on leasing v. buying.” There is a raging debate amongst automobile executives as to how long the situation of automobile shortages will last.
Is anything being done to ameliorate the situation? the U.S. Senate took a bipartisan step forward to fight the inventory crisis by passing a bill that invests in domestic microchip production, among other things. The automakers are prioritizing components needed for high-demand vehicles and adjusting availability of some features and options. President Biden got involved early in the chip shortage, recognizing the geopolitical nature of the crisis but more action is needed to resolve the situation, according to the experts. There is some optimism amongst the experts that the situation will improve in 2022, largely because more semiconductors are expected to be produced.
Hershel and his wife could not believe the prices for renting a car when they landed in Florida. The car rental companies say that they are having the same issues with locating cars that consumers have. Hershel did some quick math and decided to Uber everywhere instead of renting a car. The average cost per day for a rental car is about 66 percent higher than it was last year and 75 percent higher than 2019 prices, ABC News reported, citing estimates from the travel booking website Kayak.
Is it time to bring back the horse and buggy?