Troy Julian calls them “vanilla cars.” Nissan Altimas, Hyundai Sonatas, Kia Optimas, Chevy Impalas — the sort of middle-of-the-road vehicles independent used-car dealers often pass up at wholesale auctions.
“We’d kind of laugh, like, ‘We don’t really want that car,’” said the general manager of Julian’s Auto Showcase in New Port Richey. “We’d stock one or two, but I don’t need a lot full of vanilla cars.”
That was a couple of years ago. These days, dealers like Julian can’t stock vanilla cars — or any other used vehicles — fast enough.
“Some of them that are a year or two old, maybe even three years old, they’re (selling for) more than a new car,” he said. “The book values that everybody’s been using for years, you might as well leave them at home if you want to buy a car. I can’t believe how much money they’re doing.”
If you’ve tried to buy a car lately, you know what Julian’s talking about. Prices have hit record highs as inventory dwindles across the nation. At fault is the commercial quagmire bedeviling retailers and manufacturers everywhere: A broken global supply chain. Which means fewer new cars at dealerships, higher demand for used cars and fewer used cars on the market.
When the pandemic struck, manufacturers in many industries slowed production as demand for products plummeted. Spending picked up in short order, but overseas factories and logistics companies couldn’t snap back to pre-pandemic pace — especially in regions struggling with COVID-19 outbreaks and labor scarcity. That led to supply shortages, backlogged orders and stocked cargo ships stuck offshore.
“It’s unprecedented,” said Jennifer Bisceglie, founder and CEO of the global supply chain and risk management company Interos. “It’s not one thing that’s going to fix it, and money can’t buy our way out of it.”
For automakers, the problem is a shortage of semiconductors, microchips and other fancy components used in modern vehicles. All of this adds up to the higher sticker price on just about any set of wheels.
“You can pretty much get anything you want; you just have to be willing to pay for it,” said Kyle Lee, the owner of Lee Auto Group in Fort Myers, Naples and Tampa. “Unfortunately, that’s getting passed off to the consumer.”
Fewer cars, higher prices
Thanks to the shortage, the price gap between used and new vehicles is smaller than ever.
Pricing guide Edmunds recently projected that the average price of a used car would surge to $27,306 during the year’s final quarter, up $1,500 from summer and early fall. The average monthly used-car payment will hit $500 for the first time ever. Used cars, according to Edmunds, are now just 18 percent cheaper, on average, than new ones.
Used-car dealership chain CarMax said a 30 percent drop in inventory has pushed retail prices up $6,000 year over year, and wholesale prices up $3,000. Those numbers “may push some used-car customers just out of the market,” president and CEO Bill Nash said on a recent call with investors.
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“As long as I’ve been doing this, those are the biggest jumps I can remember ever seeing,” Nash said.
In Tampa Bay, used-car prices rose 22.9 percent from September last year to this year, just below the national average of 24.4 percent, according to the Consumer Price Index tracked by the U.S. Bureau of Labor Statistics. (The cost of new cars was up 15.1 percent locally during that span, well above the national average of 8.7 percent.)
“It’s really unheard of for the price of a used car to go up, but that’s exactly what we’re seeing in some of these models,” said Matt Degen, an editor with pricing guide Kelley Blue Book. “I’ve been doing this for over a decade, and I’ve never seen anything like it.”
Lee said a truck that would have wholesaled for $20,000 in January might cost $30,000 today — and that’s before additional price hikes on parts, refrigerants and other supplies.
Yet drivers are still shelling out, because for many, used cars are the only viable option. Pasco County tax collector Mike Fasano said used vehicle title transfers handled by his office — mostly from private sales and small dealerships — rose from 74,461 in 2019 to 88,258 through Oct. 31 of this year, which he attributes to the economic forces of the pandemic.
“With the mom-and-pops, we have seen an enormous increase in title work,” Fasano said.
Buyers plied with stimulus money they weren’t spending on vacations or concert tickets were, in many cases, putting larger down payments on vehicles, Julian said. And they had more options. When the travel industry nosedived, rental car companies like Avis and Hertz sold off swaths of their fleets, flooding the market with hundreds of thousands of used cars.
In the last two or three months, though, air travel has picked up. Rental companies are desperate to rebuild their fleets, going shoulder-to-shoulder with dealerships at auctions, in some cases paying well above suggested retail prices. No one can get their hands on enough cars.
“It’s a fistfight,” Julian said. “There’s not enough to feed everybody.”
Normally, Julian would keep about 125 cars on his lot this time of the year, selling around 60 a month. Today, he stocks and sells about half that, all pulled from that pricier auction supply. Customers are “shell-shocked” by the prices, he said, but higher auction costs leave him little room for negotiation.
“Once I sell this red Mustang with tan leather with 60,000 miles, where am I going to go get another one? And when? And how much am I going to pay for it?” he said.
One bit of good news for drivers: There’s never been a better time to sell or trade in a car. Dealers are desperate to take it off your hands, and will pay “through the roof” for the privilege, Degen said, in some cases offering the full-book value.
“We’ve changed all our advertising,” Lee said. “All of the advertising has changed to, ‘We want to buy your car. We’re going to pay you top dollar. Before your lease expires, or before you trade it in, come and see us.’”
The road to recovery
The auto industry’s struggles reflect a real-time shifting of the supply-chain paradigm across all industries, said Rob Hooker, an associate professor at the Monica Wooden Center for Supply Chain Management and Sustainability at the University of South Florida.
“If you think of every node within the great network of just a single supply chain for a single product, all these companies are dealing with different issues — labor shortages, people being ill and not coming back to work, all kinds of stuff,” Hooker said. “When we’re going to overcome that, when companies are going to be able to rediversify their production, all of that’s going to take some time.”
The used-car crunch isn’t just about dealers fighting dealers over a handful of Sonatas. Manufacturers and dealerships are competing for labor and logistics with companies in many other industries. Auto companies are competing with tech companies for a limited supply of chips, conductors and raw materials.
“What is really holding us all hostage right now is the fact that technology has hyperconnected the world,” said Bisceglie from Interos. “The chips that go into cars are also used in the GPS in (shipping) trucks, from a logistics standpoint. They’re also used in kids’ toys for Christmas and health products.”
Even if the supply chain smooths out, the car shortage might be felt for years. Degen points to the Great Recession a decade ago, when diminished demand led to fewer new cars hitting the market.
“That’s still catching up to us,” he said. “That’s hard for folks who need a car, but they don’t have a whole lot of money to spend. They usually buy those cars that are higher mileage and older. But the supply there is low, too.”
If there’s a positive here, Bisceglie said, it’s that the crisis has forced everyone from families to Fortune 500 companies to think more deeply about how the supply chain works. Corporations will seek out alternative sourcing and delivery methods for the materials they can’t live without, and streamline logistics in preparation for the next supply-chain crisis. And consumers making major purchases — like cars — will decide with their wallets who’s doing the best job keeping the products they need in stock.
But that’s down the road. In the short term, Julian and Lee believe a lot of small dealerships won’t survive. Experts like Bisceglie and Hooker believe it could take one or two years for commerce to once again flow freely. And even then, car shopping won’t look quite like it did before COVID-19.
“We’ve got a long way to go,” Hooker said. “My general hunch on it is things will stabilize, but with these increased labor costs, these increased costs of transportation, all these challenges that we’ve been facing throughout the pandemic, it’s pretty unlikely that prices are going to go back down.”
Degen said there’s only one real way for consumers to know when this car crunch is over.
“Right now, most car shoppers are having to make some sort of compromise on the car that they want, because it’s not available — and we’re not just talking a red car versus a yellow car,” he said. “We’ll know that things are semi-back to normal when you can get the exact car you want at a price that doesn’t seem crazy.”