If you’re thinking of buying a sweet new ride this summer using stimulus check savings, you might want to rethink your purchase because new and used car prices are soaring nationwide due to a global microchip shortage.
The devastating chip shortage is affecting automakers and dealerships all over the world including the Twin Cities metro leaving dealers and consumers struggling to get their hands on vehicles.
According to experts and industry leaders, the shortage of computer chips — which modern cars need in order to operate everything from infotainment systems to special safety features and more — is being caused in large part by the pandemic, after auto factories briefly shut down production.
Low interest rates, high savings and government stimulus payments have also boosted demand.
Ford, General Motors and Chevrolet are among the hardest-hit manufacturers, according to data by Automotive News. Ford has shut down production of 325,000 vehicles including nearly 110,000 units of the popular F-Series pickup truck. GM and Stellantis had to abandon 278,000 and 252,000 vehicles, respectively. Following the F-Series, the most impacted models are the Jeep Cherokee, which shut down 98,584 units, Chevrolet Equinox lost 81,833 units, Chevy Malibu lost 56,929 units and the Ford Explorer, which had to forfeit 46,766 units.
“It’s hard to get anything with this chip shortage on all the vehicles, these new vehicles haven’t been coming out,” said Michael Sjulstad, sales manager of Velishek Auto Sales in Prior Lake. “We’re sitting anywhere from 85 to 100 vehicles on our lot when we usually have 130. Everybody is trying to buy inventory right now but the prices are so high it’s hard to get your hands on them.”
Prices through the roofUsed car prices climbed a staggering 30% while new car and truck prices climbed about 5% over the past year through June according to the Consumer Price Index report from the U.S. Department of Labor.
Rocky Dehmlow, owner of Rod Dehmlow Auto Sales & Services in Prior Lake, said the surge in prices is affecting sales due to not having enough product to sell and used car prices being too high. He said most of the used autos he sells are in the $23,000 to $28,000 range. A used car that would normally cost $20,000 is now higher in value by $4,000 to $6,000.
“I’m also just running low on inventory,” Dehmlow said. “We have about 25% of what we normally would have in stock. This is bad for the consumer as well because people are having to pay way too much for a vehicle. It is what it is if you have to get one, but much like the housing industry, it’s a little bit frustrating. You feel like you’re paying premium plus money.”
Joe Heim, store manager of Drive Appeal in Shakopee, has also seen an increase in prices over the course of the pandemic
“The average price for a new car is over $30,000 and $20,000 to $25,000 for a used car. A couple months ago sales smashed the national average record for average price of a used car,” said Heim.
Dehmlow added that the microchip shortage is worsened by a strong demand for chip manufacturers to supply chips for personal electronics — such as phones and laptops — as more people worked from home during the pandemic.
the boxWith this said, local auto dealers are thinking outside the box trying to sell anything they can. Some dealers are calling and emailing former customers offering to buy back cars they sold a year or two earlier because demand for used vehicles is as strong as it is for new cars.
“We’re just trying to buy vehicles that we can. We’ve been buying more vehicles off of customers that call and want to sell their vehicle outright,” said Sjulstad. “We’re just trying to keep the inventory as much as we can and trying to see what we can get.”
Dehmlow is also looking into different ways to add and sell more inventory at his dealership.
“We’re working harder to get vehicles in trade when someone does come in to buy a vehicle,” said Dehmlow. “We’re really trying all different things, trying to handle a little bit more specialty stuff than what we usually do and something a little different that not every dealer has got.”
Despite soaring prices, auto dealers and analysts say it’s still a seller’s market.
“It’s not really affecting us, it’s affecting the customers because they’re paying more money because the values in cars are getting higher. We just go with what the market is,” said Jose Rubio, owner of Quality Motors Sales in Jordan.
Heim, at Drive Appeal in Shakopee, said costumers are more willing to jump the gun and buy whatever inventory is available.
“People are willing to pull the trigger a lot quicker if you have something they want because they might not be there tomorrow,” said Heim. “I would say find what you want if you need a new or used car but make sure you’re not overpaying because we won’t try and pay the ridiculous high prices and then make it up selling the car overpriced. We’re still trying to maintain reasonable prices. It’s just tough.”
Is there a silver lining?Sjulstad, at Velishek Auto Sales in Prior Lake, said a return to normalcy rests on the microchip manufacturers.
“It all depends when they can start making new chips for Chevy, Ford, Toyotas, etc. As soon as they start making some chips I think there will possibly be some more inventory,” said Sjulstad.
Dehmlow said he is hopeful that within the next 60 or 90 days things will start to turn around a little and start looking like it should again.
“We’re telling people about this every time they come in when they’re asking why we don’t have any cars in stock,” said Dehmlow. “I’m telling people, if you don’t absolutely have to buy a car then wait it out a little bit, you’ll get a better deal.”
Rubio said some customers have no choice but to buy a car even though they know they are expensive at the moment.
“I’m just trying to keep my prices the best I can so people can buy, that’s all we can do right now,” said Rubio.
Although Dehmlow said he thinks things will turn around within the next few months, some analysts and local dealers say it could stretch until 2022, but it will eventually resolve — it’s just a matter of when.
“I heard it can be up to a year before the microchip shortage is resolved,” said Heim. “However, the new car manufacturers have been still building the cars and setting them aside waiting for the microchips. So, I feel when they catch up they’re going to have to implant a lot of new vehicles to make room for 2022 models. I guess the outlook would be that it will kind of crush the high used car values that’ll drop pretty rapidly because people will be able to buy a brand new car for not a whole lot more than what they can get a used one for.”
As far as solutions go in the meantime, Heim said there really are none at the moment, all they can do is hope for the best for both auto dealers and consumers.
“Our hands are tied and it’s a competitive business. So, everybody is looking to do the same thing by getting cars as cheap as they can,” he said. “It’s just a matter of sourcing and being smart about what you pick and choose and not overpaying. That’s all we can do at the moment. The solution really isn’t in our control at all.”
As the COVID-19 Delta variant has ripped through southern U.S. states and caused a national surge of cases, Minnesota and the southwest Twin Cities metro area have been no exception. While nowhere near the peaks of 2020, health officials in Scott and Carver counties are keeping close tabs on case numbers and the future.
When Gov. Tim Walz lifted the state’s mask mandate on July 1, COVID-19 cases were on a steep downward trend, thanks to the three vaccines that have been widely available to the public since spring 2021. However, as Covid cases have surged upward again since early July, Scott County Public Health Director Lisa Brodsky sees a worrying trend.
“I believe that we’re going to see a continued rise in cases. I have no reason to believe that it’s going to be different than it was previously, though it may be worse because we know the Delta variant is much more contagious and carries a higher viral load,” Brodsky said.
Unlike in the early months of the pandemic, Brodsky estimated that around one in four new Scott County COVID-19 cases have been in people age 19 or younger since July.
“It’s a very interesting pattern compared to last time. We have hardly any seniors,” Brodsky said. “I attribute that to the fact that we have 99% of our seniors vaccinated.”
Over in Carver County, public health officials have seen fairly steady COVID-19 case numbers. With 72 new cases as of Aug. 6, the county is on track to surpass its July case count of 131, but that’s still miles below its 2021 peak of 1,387 cases in March, according to the Carver County COVID tracker.
Carver County Public Health Director Richard Scott attributes the lower case count to the area’s high vaccination rate.
“Nearly 62,000 of our residents have received at least one vaccine dose; more than 73% of eligible residents 12 years and older have received at least one vaccine dose,” Scott wrote in an email. “We do know that we have areas of the County with lower vaccination rates, and we’re working with our partners to bring the vaccine to those areas to make it more accessible for residents living in those areas and who want to receive it.”
According to the Centers for Disease Control, the Delta variant is more contagious than the original strain of the SARS COVID-19 virus that began to spread globally in early 2020. Other variants have emerged, but Delta is noticeably more infectious: From June to July of 2021, it jumped from causing 57% of infections in Minnesota to over 75%, said Scott Smith, a Minnesota Department of Health public information officer, in an email. Nationally, the variant caused around 83% of COVID cases in the U.S. on July 31 — a massive leap from the beginning of June, when it made up just 8.6% of national cases.
“This variant is much more contagious and is spreading rapidly in the United States, particularly among people who are not yet vaccinated,” Smith wrote. “Wherever there are low vaccination rates, people remain more susceptible to the Delta variant as well as all strains of the SARS CoV2 virus.”
The good news is, the Pfizer and Moderna vaccines are still “powerfully effective” at preventing COVID-19 infections, Scott added. They also reduce the severity of rare breakthrough cases, or cases in people who are more than two weeks out from their final shot. Breakthroughs make up just 0.01% of infections in Minnesota, with 99.9% of new cases appearing in unvaccinated people, Smith said.
Brodsky and Scott recommended that all eligible residents get vaccinated as a first line of defense and follow CDC guidelines to protect themselves and their neighbors: Wear masks in public indoor places, wash your hands, and stay home if you’re sick.
“I think we declared victory too soon,” Brodsky said. “It’s not over, we’re not out of the woods, and the more people get vaccinated, the sooner we can declare victory.”