SHOPSMART AUTOS – CUSTOMER INFORMATION – JULY 23, 2021 (PT. 5)
Customers pre-ordering
Matick Chevrolet Vice President Paul Zimmermann said his sales, especially of pickups, are down because of the chip shortage. In April he sold 45 pickups when he’d typically sell 70. Matick has only 446 total vehicles on its lot when it would normally have close to 1,000. In fact, when a hauler pulls up to Matick Chevrolet in Redford, nearly half the vehicles on it are already sold. “It’s not dire, but the chip shortage is impacting our inventory levels,” Zimmermann said. “We’re trying to be as pro-active as possible in reaching out to customers. We don’t want a customer who, in the July time frame, has a lease due and they say, ‘What do you mean there’s no trucks?’ So we are reaching out and saying ‘Here’s the situation.’” There are a “tremendous amount” of customers who are pre-ordering vehicles with money down, Zimmermann said. Still, Matick typically sells 500 to 600 new and used cars a month. In April, it did 420. “It’s not bad, it could be worse,” Zimmermann said. “I am really confident in what General Motors has decided to do. The build-shy strategy will pay dividends in the fourth quarter.” Katie Bowman Coleman, owner of Bowman Chevrolet in Clarkston, said she has 60 vehicles that are in build-shy status and will be delivered to her in the third quarter. Her staff is calling lease customers six months ahead of a lease coming due to start a pre-order for another vehicle. “The third quarter should give us some relief,” Coleman said. “Build-shy is keeping the line going right now, which is great, but at some point the slinky will come back down the stairs and you have to do something with those vehicles.”
Different dealer strategy
Barra has said the chip shortage could cost GM up to $2 billion in lost earnings this year, but she expected chip supplies to return to normal in the second half of the year and that GM would try to make up as much lost production as possible. On Wednesday, Barra said GM is “highly confident” it will hit the high end of its guidance of earnings before interest and taxes of $10 billion to $11 billion. But on Monday, Intel Corp. CEO Pat Gelsinger predicted the chip problem will plague the auto industry “for a few more years,” Bloomberg reported. GM’s Barnas said the automaker continues to keep dealers informed of the situation and is “working to provide them with as many in-demand products as possible.” Still, the chip shortage means dealers might have to get used to operating on lower inventories in the future, Barra said Wednesday. “We will never go back to that inventory we had pre-pandemic because we’ve learned how to get the right vehicle to the right dealer and customer at the right time without having to have deep inventory on their lot,” Barra said, adding she’s had dealers email her pictures of their empty lots. “We’ve learned a lot. Our dealers have been very agile and we have tools that GM developed that has helped dealers have visibility as to what vehicles are coming to their lot and when,” Barra said. “We will run at a lower level of inventory, not a lot lower because a consumer does like to come to a dealership and be able to drive off a lot in a new car, but we can be more efficient.”
‘A sellers’ market’
In the meantime, the laws of supply and demand work in dealers’ favor. “It’s a sellers’ market with very little room for negotiation,” Coleman said. “Most of our vehicles are still not close to sticker, but that’s because of the employee pricing that happens in metro Detroit.” Wall Street views the situation similarly. The industry has an average supply of a record low 33 days, wrote Adam Jonas, an analyst for Morgan Stanley, in a research note on May 4. Ford and GM lead the industry in terms of vehicles taken out of the production schedule, according to AutoForecast Solutions. It said Ford is projected to have 362,663 fewer vehicles produced this year and GM to have 326,651 fewer vehicles built. But consumer demand for new cars is robust, so “amid a semi chip shortage, the question now turns to whether we potentially run out of cars?” Jonas wrote in the research note. Still, the timing of the chip shortage, along with increased demand for new cars, is “the most favorable supply/demand situation at the manufacturer and dealer level in living memory,” Jonas wrote. Auto credit is thriving by almost all accounts, too, meaning many automakers are enjoying record high pricing, strong residual values and financial services profitability. “It’s hard to imagine a better environment with which to pass through the impact of supply shock and price inflation to consumers who are effectively lining up to take delivery of their new car off the car carrier,” Jonas wrote. “The story of 2021 is: It’s a seller’s market in autos. We can make up for most of the shortages/inflation this year. What we can’t make up this year, we can rather easily make up for next year.”
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