Half of Cars Arriving At Dealers Already Sold Due To Demand, Tight Supply

Half of cars being pre-sold - meaning a consumer has paid a deposit and is waiting for delivery - could be double what it was in a normal, pre-Covid year. And profits per car are up 20%. 

The shortages started in March 2020 when most auto factories closed for two months or more. Subsequent shortages of computer chips have made it even harder for the industry to catch up to demand. JL

Neal Boudette reports in the New York Times:

Half of all new major brands arriving on dealer lots in the next 90 days are already sold. The market is even tighter for luxury cars: three out of four of those cars arriving at dealers in the next three months will be “presold” — meaning a customer has paid a deposit and is waiting to buy the car as soon as it arrives. The shortage stems from the early days of the pandemic, in 2020, when auto plants shut down for nearly two months. The problem was compounded by a shortage of computer chips, which has forced manufacturers over the last 12 months to idle plants temporarily for weeks at a time.

The tight supplies of new and used cars that have damped auto sales and pushed prices higher have not eased and are likely to linger well into this year, according to AutoNation, the country’s largest automotive retailer.

Half of all new Chevrolets, Fords, Toyotas and other major brands arriving on dealer lots in the next 90 days are already sold, AutoNation said. The market is even tighter for luxury cars: Nearly three out of four of those cars arriving at dealers in the next three months will be “presold” — meaning a customer has paid a deposit and is waiting to buy the car as soon as it arrives.

“This tight-inventory situation is going to be around certainly through the first half,” said AutoNation’s chief executive, Mike Manley. “I’m hoping we do see some improvement in the second half.”

Selling cars before they arrive from the assembly plant is a substantial change from the traditional industry practice of stocking dealers with hundreds or even thousands of vehicles that can sit for months before they are sold. It also means automakers will have a long road to restocking dealer lots with new vehicles.

The shortage stems from the early days of the pandemic, in 2020, when auto plants shut down for nearly two months. The problem was compounded by a shortage of computer chips, which has forced manufacturers over the last 12 months to idle plants temporarily for weeks at a time.

The tight supply has enabled dealers to sell cars at their full list price, or even more.

Those higher prices helped AutoNation reap record earnings in the final quarter of 2021, the company said Thursday. The company reported a profit of $387 million, more than double the profit from a year earlier. Revenue rose 14 percent, to $6.6 billion.

The profit jumped despite a 20 percent decline in sale of new cars, to 57,601, a reflection of the higher prices. Sales of used cars, prices of which have also risen substantially, increased 21 percent to 74,442.

Mr. Manley said it was difficult to forecast whether AutoNation could sustain such high profit levels this year. The supply of vehicles and the chances of increasing new-vehicle sales depend heavily on whether the computer chip shortage improves, as automakers are hoping. The Federal Reserve has also indicated that it is likely to raise interest rates, which would increase the cost of financing vehicle purchases.

“The profitability that we’ve been able to develop puts us in a good position,” he said. “But one thing I don’t want to predict is what’s going to happen in the full industry, because you have a lot of moving pieces.