Austin’s Maxwell Ford auto dealership could sell more more cars if only it could get them.
But as it stands, at dealers across Central Texas and the U.S., that’s not happening.
“We typically stock 1,000 new cars and right now we’re down to about 100,” said Steve Cargo, new car director at the dealership. “It’s getting down to very lean, lean inventory. Cars that were supposed to come in this month are pushed back three or four months.”
Strained for months by a global semiconductor shortage and supply chain disruptions, new car inventoriesaren’t expected to begin recovering until September — and likely will remain well below their pre-pandemic levels through 2022, according to a new report from Goldman Sachs.
Prices rose 5.3% over the past year, hitting record levels. According to automotive research firm Edmunds, the average price for a new car is now $41,000.
Sales in Central Texas have bounced back from the coronavirus pandemic plunge, according to Freeman Auto Report, a Dallas-based company that tracks auto sales in Texas counties. But how the pandemic continues to play out coupled with inventory issues will impact sales for the foreseeable future, dealers and analysts say.
COVID pandemic’s affect on Austin-area car dealerships
Coming off a stellar 2019 performance, Central Texas sales in 2020 plunged in April (-11%), May (-39%), June (-30%) and July (-22%), according to Freeman Auto Report data.
For all of 2020, dealers in the Austin metro area sold 118,757 vehicles, a 13% decline from 2019.
Sales began to recover in early 2021, just as the vehicle shortage struck. When dealers have vehicles to sell, Central Texans are buying, according to Freeman’s data.
In June, local sales jumped 91% compared to June 2020, with 14,291 vehicles sold. For 2021, sales are up 24% from the same period the year before — with 66,503 vehicles sold.
Most automakers shut down for months when COVID-19 hit and they are still trying to ramp production back up. Supply chains are clogged up for everything from computer chips to rubber to foam for car seating. And manufacturers are telling dealers the situation is unlikely to improve for months.
“Consumer demand is still extremely strong,” said Cargo, of Maxwell Ford. “What we’re seeing is buyers will either buy what we have remaining on the lot, or if they have time of their side, they will order a vehicle and wait three or four months to get exactly what they want.”
While the virus has pummeled a number of business sectors, the relative stability of the region’s overall economy puts area dealers in a strong position through the end of 2021, said Michael Marks, executive director of the Austin Automobile Dealers Association.
“Dealers around the country look at Central Texas and they can only imagine being in this kind of a market,” Marks said. “Tech isn’t slowing down, and every day you hear someone else is moving here or expanding. There’s more construction going on downtown, and at some point there will be additional demand for office space. That’s good to see.”
Over the past year, Austin saw electric automaker Tesla pick it as the site for a $1 billion assembly facility, while software giant Oracle announced Austin as the new site for its corporate headquarters. Meanwhile, construction continues on Apple’s $1 billion office campus on West Parmer Lane.
Meanwhile, the local unemployment rate for June slipped to 4.4%, according to the Federal Reserve Bank of Dallas. That was down from 4.6% in May and was the fourth consecutive monthly decline.
“We’re seeing pent-up demand, and it’s probably the strongest I’ve seen for new vehicles in 20 years,” Cargo said. “But it’s probably going to be six to eight months to see inventories up to 70% of what they were before the chip shortage, and that hurts.”
Used car prices rose in Austin, nation
For months, anyone who wandered onto a dealer lot to look for a used car could be forgiven for doing a double take — and then wandering right off the lot.
Prices had rocketed more than 40% from their levels just before the viral pandemic struck, to an average of nearly $25,000. The supply of vehicles had shrunk. And any hope of negotiating on price? Not a chance.
But now, a sliver of hope has emerged. The seemingly endless streak of skyrocketing used-vehicle prices appears to be coming to a close.
Not that anyone should expect bargains. Though average wholesale prices that dealers pay are gradually dropping, they’ll likely remain near record levels. So will the retail prices for consumers. Supply remains tight. And while demand has eased a bit, a steady flow of buyers could keep prices unusually high for a couple of years more.
“The market for used cars was probably the craziest I’ve ever seen, or most people in this business have ever seen,” said Brent Rayfield, managing partner at Nyle Maxwell. “Throughout the spring, values on used cars were higher than new cars.”
Rayfield said prices rose so high that some two-year old used vehicles were being appraised at more than the sticker price when they were new.
“You had cars that sold for $50,000 two years ago, and now it’s $55,000,” he said. “So people that bought those cars were trading them out and getting more with a new car.”
The frenzy for used cars has slowed a bit, Rayfield said. But he said it’s toughto predict what August holds.
“Typically we forecast for entire years. Now we’re forecasting month to month, because the way the market is, it’s really hard to gauge where you’re going to be,” he said. “Inventory is coming slowly, but not in waves.”
Relief ahead for car buyers — if they’re not too picky
The slight easing of used-car prices is not likely to herald a slowdown or reversal in overall inflation across the economy. With the notable exception of lumber prices, which initially skyrocketed only to fall back to earth, many goods, components and services — from semiconductors and gasoline to clothing, restaurant meals and household furnishings — have grown increasingly expensive. So have labor costs, as worker shortages in many industries have led employers to raise pay.
Until the pandemic hammered the economy in March 2020 and shrank the supply of both new and used vehicles, average wholesale used vehicle prices paid by dealers rose only a little every year. Average prices briefly fell in April last year, only to soar over 60% to a peak in May this year, according to data kept by Manheim, a group of auction houses where dealers buy vehicles.
Any decline, however slight, would represent welcome relief for buyers. In June, the average retail list price of a used vehicle was just short of $25,000, a record.
Meanwhile, as dealers work with new car buyers, they are encouraging them to be flexible.
“We ask what can they live without,” Rayfield said. “What’s their second color choice? Or maybe we can switch them to a totally different vehicle. If they’re looking for an SUV, maybe a truck would work. We show them everything we have and try to find a way to work with them.”
This report includes material from the Associated Press