BROOKINGS – Take a drive past Einspahr Auto Plaza or the Brookings Auto Mall, and you can tell something’s up at the dealerships.
Brookings residents are accustomed to seeing a lot full of spotless trucks, sport-utility vehicles and sedans. Today, you might see only a handful.
“We have 17 new cars on the lot,” Aaron Stauffacher, fleet manager of the Brookings Auto Mall, said in early June. “We would usually have anywhere from 120 to 140.”
“I’ve been doing this 31 years, and it’s definitely unlike any other time,” Matt Einspahr, general manager of Einspahr Auto Plaza, said.
Brookings dealerships aren’t the only ones seeing a change – the entire auto industry is experiencing a new car shortage.
“It has been an interesting time with dealer inventories at an all-time low,” Einspahr said. “Or at least that my dad or I have seen in the last 50 years.”
“In a ‘normal year’ you’ll get a situation where there might be one particular model in very hot demand, but to have it be manufacturer-wide, model-wide, is unheard of,” Stauffacher said.
COVID to blame
The shortage, like most issues that have arisen in the past 12 months, can be traced back to COVID-19.
When COVID hit, a number of industries, including the auto industry, slowed production to a crawl – or halted altogether. Some factories even closed up shop.
The supply chain, that usually turns out new cars constantly, had been severely disrupted. This led to a minor inventory shortage for most companies, like Ford or Chevrolet. However, it was able to somewhat rebound in late 2020.
While the supply chain was being disrupted, the worldwide population was being asked to stay home. What then occurred was an influx of people rushing to buy computers, TVs, video games and other electronics, to stay entertained while stuck at home.
Each of these electronics are run by tiny computer chips, called semiconductors, that are crucial for these machines to run. Semiconductors are also needed to run GPS, the central console, and other functions in vehicles.
Combine these elements and you have a worldwide chip shortage that has severely affected the ability of car factories to churn out new cars.
“The computer chip thing has caught everybody off guard,” Einspahr said.
Across the country, major news outlets have labeled this “the worst auto industry crisis in years.” In South Dakota, there is definitely a major new car shortage, but it’s a far cry from a crisis.
“The crazy thing is our new car months have been very good,” Stauffacher said.
“While the lot looks bare, we have had a very good first five months of the year,” Einspahr said. “We’ve actually been very busy, but you wouldn’t know that by looking at the lot.”
Business, for the auto industry, has been good in South Dakota. The same cannot be said for the rest of the country.
“I have some dealer friends in California and New York where things haven’t been quite as rosy,” Einspahr said. “Our industry has been quite strong if you were in an area of the country that was allowed to be open.”
“I’ve seen some Tik Toks (of dealerships around the country) where the whole rest of his entire lot, which was a large lot, was completely empty,” Chris Beringer, sales manager of the Auto Mall, said.
Inventory low, demand up
It may seem surprising that despite a nationwide car shortage there is such a high demand for new cars, but that is exactly the case.
Despite both Einspahr and the Auto Mall having extremely limited stock, both are experiencing similar things – a high demand for cars.
“Certainly we wish we had a lot more inventory in stock because there is a very big demand right now,” Einspahr said. “We actually have a fair amount of vehicles coming from the factory still, and a truckload will get dropped off and then in a day or two, they are almost all sold.”
“It doesn’t seem to make sense,” Beringer said. “People are buying (cars) before they get here. People will drive by and see that there’s not 15 new vehicles on the lot, but we are still getting 15 new vehicles, they are all just presold. We don’t have any excess.”
According to Einspahr, inventory is as low as it been in 50 years – if not the lowest ever. This means dealerships have had to get creative in how they cater to a market that is hungry for new cars.
“We converted a lot of people to retail to order exactly what they want, because what would happen is they ask us to find one from another dealership and we do a search and we would find a new car that is semi-close to what they wanted but it would have two or three thousand dollars more in equipment than what they really needed,” Einspahr said. “So it’s like, why don’t we just order you exactly what you want and save you that money? You just got to wait. It’s not business as normal, but business has been good.”
The dealerships in town have resorted to ordering straight from the factory, providing people with the options they want in the car, as well as some discounts for ordering direct. The biggest casualty is that people can’t drive it off the lot or take it for a test drive, a ritual in new car buying.
“You can come in and tell us you want the new Chevy Blazer, and we can say, ‘Well, we don’t have one here, but we have one that just got built. Here’s how its configured. Are you interested? Great, give us a deposit to hold it, and when it gets here, it’s yours,” Stauffacher said.
The companies themselves, like Ford, GMC and Chevy, have been transparent with these supply issues and have given incentives for dealerships to order direct. They have also begun to focus primarily on filling orders that have been ordered directly, a major bonus to the new car buyer today.
A number of industries were hit really hard by COVID, and Americans’ pocketbooks suffered. However, a number of industries have been booming, giving a lot of people some disposable income that they are looking to spend – or at least that is what is being theorized for the new car demand.
Other factors driving demands are good incentives from banks and other lenders.
“It’s cheap to borrow money right now, with banks having very aggressive rates right now,” Stauffacher said. “The upside is you can buy more and have the payments stay within your budget versus when the rates are much higher maybe you need to sacrifice the leather seats you wanted. We see people buying a lot nicer cars as far as equipment levels because money is cheap to borrow.”
Stimulus checks, along with other government subsidies, have also driven new car sales, says Einspahr.
“People who have gotten stimulus checks who are in an industry that is doing really well, they have some extra money on their hands, so they have been coming in and using that money as down payments on new vehicles,” Einspahr said.
The auto industry isn’t the only industry seeing high demands and low inventory. Most outdoor recreation activities, including boats, ATVs, and golf carts, are all experiencing similar scenarios to the auto industry.
“People want to be outside,” Einspahr said. “Our industry isn’t alone in this shortage.”
The new car shortage that has hit the nation has also had an effect on used cars.
“Used car prices are very elevated right now,” Stauffacher said.
According to Stauffacher, a majority of the Auto Mall’s business comes from used cars, contributing to the record sales the dealership has seen.
“The goal is, every time you sell a car (new or used) you generate a trade-in, so you can sell that car,” Stauffacher explained. “I will say that we have seen customers not having trade-ins more than we ever have.”
Used cars have been somewhat harder to get ahold of, as well. As Beringer and Stauffacher explained, the places where dealerships often get used cars from have been less fruitful.
“Leasing used to be very popular, and you would go to an auction and buy these leased cars,” Stauffacher said. “There’s less and less of those out there.”
The lack of tourism due to COVID also had a trickle-down effect on the auto industry.
“There wasn’t a lot of rental cars coming back in for dealers to buy,” Stauffacher said.
Einspahr Auto Plaza is experiencing a similar situation.
“The market on preowned vehicles has been very strong,” Einspahr said.
Einspahr expects the used car market to return to normal levels as soon as new car inventory stock returns to normal, pre-COVID levels.
“It’s a supply-and-demand issue right now,” Einspahr said. “There’s just a very strong demand right now.”
Return to normal
Einspahr says that he expects each of the coming months to get gradually better when it comes to inventory.
“At the end of the year, you will see dealership stocks return to normal,” Einspahr said. “At least that’s what my hope is.”
“I’m ready for a little more normalcy,” Einspahr added.
Contact Addison DeHaven at [email protected]