Reno-Carson car dealers face mounting challenges amid global chip shortage, record-high prices

Kevin Lemus, fleet associate at Champion Chevrolet, shows a vehicle to a customer on Tuesday, May 25, at the dealership’s lot at 800 Kietzke Lane in Reno.

Kevin Lemus, fleet associate at Champion Chevrolet, shows a vehicle to a customer on Tuesday, May 25, at the dealership’s lot at 800 Kietzke Lane in Reno. Photo: Kaleb M. Roedel / NNBW

By Kaleb Roedel

Tuesday, June 1, 2021

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At least once a week, Dolan Auto Group CEO Ryan Dolan hops in his car and drives around each of the company’s six Reno-area lots to see how stocked they are with vehicles.

Pre-pandemic, when purchased cars were rolling out and new cars were filling in their spots like clockwork, those were weekly joy rides for Dolan.

Not so much now. A global shortage of computer chips has forced automakers to slash production, resulting in far fewer vehicles on dealer lots in Northern Nevada and beyond.

“It’s kind of scary to me because you’re just used to seeing a certain amount of cars,” Dolan said in a phone interview with the NNBW. “But you can drive down any lot — not just Dolan (Auto) — and you can tell that there’s just not as many cars on the lots.”

As of late May, the family-owned auto group had about 1,500 fewer vehicles on the ground among its six dealer lots, said Dolan, adding: “We’re down probably half of what we normally have.”

CUTTING PRODUCTION

The seeds of the auto industry’s chip shortage were planted last spring, when automakers and suppliers cut their production schedules as COVID clouded the outlook for car sales.

When demand picked up, so did the need for chips. Meanwhile, chip producers have been scrambling to keep pace with strong demand from makers of just about every electronic device — from laptops to gaming systems — limiting the supply of automotive chips.

“When the pandemic hit, the all-knowing powers that be thought there was going to be a retreat from buying cars, and they refocused those chips into technology, like computers and phones and everything else because everybody was stuck at home,” Dolan said. “By the time you catch up to that and reassess those going to the auto business, nobody saw the demand coming that we came out of in early June of last year. And then it’s kind of held serve through the rest of the year.”

As a result, automakers have been forced to cut production of more than 1.2 million vehicles in North America because they can’t get enough semiconductor chips that are used for everything from safety systems to brakes and engines, according to research firm AutoForecast Solutions.

All told, car dealers in the U.S. had fewer than 2 million vehicles on their lots or on their way to stores at the end of April, according to research firm Wards Intelligence. That’s roughly half the average number and the lowest level in more than three decades.

‘A DIFFERENT MARKET’

For some car dealers in Northern Nevada, the amount of bare asphalt on their lot is even more dramatic. Reno-based Champion Chevrolet’s stock of new vehicles is down almost 90%, said owner Jack Stanko.

Champion Chevrolet’s new car lot at 800 Kietzke Lane in Reno is mostly empty because the dealer’s on-ground inventory is down about 90% due to the chip shortage, said owner Jack Stanko. Photo: Kaleb M. Roedel / NNBW

 

“As of yesterday,” Stanko said in late May, “I think we had 31 new Chevys in stock actually on the ground. And we normally stock close to 300.

“It’s challenging,” he continued. “You almost are like a catalog store today because you don’t have any inventory. You’re basically selling them as an order or you’re selling them as they come off the truck … it’s a strange time.”

The timing couldn’t be worse. The new-car deficit comes as the waning pandemic has fueled pent-up consumer demand.

With government stimulus checks and tax refunds in hand, consumers have been buying in droves. Americans bought nearly 1.5 million new vehicles in April 2021 alone, up 107% from a year ago and up 7.8% from April 2019, according to research firm J.D. Power.

Despite seeing its offerings crimped by the chip shortage, Champion Chevrolet’s sales in 2021 were up 47% through April, Stanko said. He added that the Reno-based dealer has also seen an influx of shoppers placing orders from outside the region.

“We’re selling to people from Arizona, California … we recently had a guy from Florida,” Stanko said. “They’re buying from all over the country to find the type of truck or car they want. It’s a different market than we’ve ever seen.”

CHANGE IN EXPECTATIONS

Given the robust demand, dealers like Dolan Auto Group and Champion Chevrolet could sell many more cars and trucks, if only they had more. Even at elevated prices — the average new-vehicle sales price was $37,572 in April, up nearly 7% from a year earlier, according to J.D. Power — demand exceeds supply.

As a result, many buyers are waiting anywhere from “two weeks to six months” for new cars they ordered, Dolan said.

Some customers are frustrated by the lengthy lead times. Most walking into dealers, however, realize they might not be driving their new purchase off the lot, he said.

“I think people are educated and knowledgeable on what’s happening in the world, and they’re understanding it’s a worldwide supply chain problem,” Dolan said. “And I think they see it everywhere they go.”

Added Stanko: “There’ll be a few that will try to find what they want elsewhere, but the majority of people still say, ‘I’ll wait until it comes in.’”

What’s more, dealers are seeing fewer picky customers. Many shoppers aren’t hunting for a specific dream car — they just want a new one that’s available.

“Because of the shortage of vehicles, customers tend to be more flexible on color and equipment these days,” said John Napoloen, dealer principal at Carson City Hyundai. “If it’s close to what they’re looking for, most are pretty happy to make a quick decision on purchasing. And people are willing to pay higher prices if they can find what they want.”

PRE-OWNED IMPACT

The shortage is also driving up the prices of used cars. The average price for a pre-owned vehicle hit a record of $25,463 in April, about $2,800 higher than the same month last year, according to J.D. Power, marking the first time ever the average used-car price exceeded $25,000.

“I’m just surprised how expensive used cars are,” Napoleon said. “It’s causing a huge increase in value in what used cars are worth. There are many used cars now that are one and two years old that are worth more than what people paid for them. That’s very rare.”

And dealers are going the extra mile to bolster their used-car inventories as new vehicle supplies dry up. Champion Chevrolet is not only asking customers to trade in their cars, they’re asking buyers — and browsers — if they know anyone who might want to sell their car to the dealer.

“We offer them a little incentive,” Stanko said. “If they can find somebody that’s got a car for sale, we pay them a commission for bringing the car in if we buy it.”

Carson City Hyundai, meanwhile, has seen an increase in people calling to ask if the dealer is interested in buying their car, Napoleon said.

“With a lot of people working from home, families have been downgrading and don’t have as many vehicles,” Napoleon said. “And we’re just as happy to buy vehicles. It’s an easy environment, and it’s safe. If they have the title, they walk out with a check in 20 minutes.”

THE ROAD AHEAD

As of late May, the ongoing chip shortage is expected to cost the global automotive industry $110 billion in revenue in 2021, according to consulting firm AlixPartners. The firm is projecting the largest impact to production to hit in the second quarter before improving during the latter half of the year and into 2022.

Even then, dealers like Dolan Auto are not expecting to see a dramatic shift in their on-ground car supply for quite some time.

“I’d be stupid to say it’s not going to linger — it’s just how long is it going to linger?” Ryan Dolan said. “I think it’s going to affect us to some point for the next couple of years.”

Until then, Dolan hopes they can keep car-hunters happy, even if they have to order a vehicle without a test drive and wait a few weeks or months to get it.

“We try to be positive and give the customers the best experience we can with what we have to work with,” Dolan said.

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