Buyers aplenty, but dealers are running on empty

Vince's GM Center is not going out of business. But the dealership's lot in eastern Colorado is so abnormally sparse that some customers have assumed that it is.

With assembly lines at many North American factories halted because they can't get enough microchips, and demand for new vehicles booming again, Vince Schreivogel is one of many dealers across the country disconcertingly watching their inventory wither away.

"At first, [customers] couldn't believe we couldn't get stuff, but then it came into reality where they went online and nobody else has it either," said Schreivogel, who had fewer than 20 new vehicles in stock last week.

It's an awful time for dealers to be running short. The U.S. economy is making a comeback, and consumers are flush with tax refunds and another round of stimulus checks. Americans who have stayed away from dealerships for a year are getting vaccinated.

The spring selling season is heating up — so much so that one forecaster says the industry could have its strongest sales rate in nearly four years this month. That is, unless too many shoppers give up because they can't find what they want.

"There's a real shortage as we speak," said Charlie Gilchrist, president of Gilchrist Automotive in Texas. "Really and truly, by the end of the month, if the demand keeps up, most dealers that I've talked to down here will be almost out of inventory."

At the end of March, U.S. light-vehicle inventory had shrunk to 2.4 million vehicles, the fewest in more than a decade, according to LMC Automotive. LMC expects the chip shortage to slash North American production by nearly 550,000 vehicles in the first half of 2021. Automakers won't be able to make up even one-third of that loss before 2022, LMC said.

But consumers are eager to buy. The April seasonally adjusted, annualized selling rate could hit 18 million, which won't be sustainable in the coming months, said Jeff Schuster, LMC's president of global forecasting.

"After this month, we're going to start to see some serious shortages that are going to impact sales," Schuster said. "I suspect this is going to linger a lot longer than I think anyone is anticipating."

Ford Motor Co. last week extended downtime at plants building the F-150, Explorer, Edge and Mustang, and Stellantis said it would slow output at the Jeep Grand Cherokee plant in Detroit through the end of May. General Motors planned to keep three North American plants dark through at least this week.

Claude Burns, president of Burns Chevrolet-Cadillac in Rock Hill, S.C., displayed a handful of fleet vehicles outside his showroom doors, away from their usual spot in his extra lot across the street, so it will look like the dealership has more than a few retail vehicles to sell.

"Most of the time we've got them where when you open the door, you've got to be careful not to hit the car beside it," he said. "That's certainly not a problem today."

Some sales may have been pulled ahead this month, driven by customer panic when they pass nearly empty dealership lots, Schuster said.

Dealers' enhanced focus on digital retailing — and their reluctance to trade with other stores in the current environment — has prompted some customers to travel long distances to buy the vehicle they want.

Schreivogel's store in Burlington, Colo., has sold vehicles to customers from Washington, Texas, Oklahoma and New Mexico.

"Nobody has anything," he said. "The dealers aren't going to give up their inventory, so they just come buy what we have."

Burns' store, just across the state line from Charlotte, N.C., achieved record sales in March. April volume will be decent, he said, though the shortage creates a disadvantage. The upside, however, is that dealers' per-vehicle profits are surging. Sticker-price transactions are becoming more common.

Customers "recognize if they want something, they'd better get it while it's hot," Burns said. "If you've got it, they'll pay for it."

Still, he'd rather sell at higher volumes to increase the store's parts and service business long term.

Crossovers, SUVs and pickups are in the shortest supply, said Alan Spitzer, CEO of Spitzer Management, which oversees about 20 dealerships in Ohio, Pennsylvania and Florida. Inventory issues vary by brand: Chevrolet and Toyota are tight, Spitzer said, but Acura has better availability.

Spitzer's Chevy stores are carrying about a quarter of their typical inventory, he estimated. The dealerships usually have 1,000 to 1,200 new vehicles, but Spitzer estimated they had 200 to 300 on the ground last week.

Although delivery trucks are still showing up periodically, the dealerships have not been able to replenish their stocks because vehicles are leaving as quickly as they arrive.

"We're selling them as soon as they hit the ground or, in many cases, they're pre-sold," Spitzer said.

The microchip issue is the most pressing concern, he said, though the supply chain constraints extend to the ongoing pandemic and the UAW's strike against GM in 2019. "It's not going to fix itself tomorrow," he said. "It looks like we're in this for a while."

The big, publicly owned dealership groups haven't been spared from inventory shortages, but some are confident in coping with the chip issue long term.

Lithia Motors Inc. had a 41-day supply at the end of the quarter, excluding vehicles in transit. "While select OEMs are experiencing reduced level of inventory, we currently have sufficient inventory to balance the current supply and demand trends expected over the coming months," COO Chris Holzshu said.

Lithia ranked No. 3 on Automotive News' latest list of the top 150 dealership groups in the U.S. based on 2020 new-vehicle sales. But its acquisition of Michigan's Suburban Collection this month makes it the second-largest group going forward.

AutoNation Inc., the largest public group, had only a 29-day supply of new vehicles at the end of March, compared with 98 days' worth a year earlier. But CEO Mike Jackson told analysts and investors in a call last week that vehicle shipments from automakers will double in the second quarter from the same period a year earlier, when factories were shuttered for eight weeks at the start of the coronavirus pandemic.

AutoNation in the first quarter adjusted pricing to hold its margins amid the tighter supply and is also preselling vehicles at a level Jackson said he's never seen before; the company's website now features vehicles labeled as "in transit to store."

"I sort of think the way it is now is the way it's going to be the rest of the year, from everything I hear from the manufacturers," Jackson said. "They really do not have a clear sightline to higher levels of production."

For Burns, the consolation is that the entire industry is affected, so one brand or dealership is unlikely to have a significant advantage over another.

"The only salve in the wound is that this is across all manufacturers. It's not just Ford. It's not just GM," Burns said. "Everybody ... is fighting the same battle."

Lindsay VanHulle, Melissa Burden and Jackie Charniga contributed to this report.