Computer chip shortages, inventory woes, supply chain issues and rising gas prices have created a challenge for consumers and auto industry business alike
By Shane Snider | Photography by John Michael Simpson
America’s love affair with cars all but ended when COVID-19 began its global assault in late 2019. In 2020, the auto industry suffered more than $100 billion in lost sales as the public slammed the brakes on its daily commute activities in favor of remote work. By 2022, people started to realize there would be no quick jump-start – supply chain disruptions effectively strangled delivery of the computer chips that serve as the brains of our modern vehicles.
Locally, a quick trip to the nearest car lot is an instructive experience. You’ll have to pay top dollar (or more) for a new car, and a lack of inventory means you’ll be waiting months for your new ride. Used car lots are just as treacherous to navigate. You’ll get top dollar for that trade-in, but you’ll pay more for your next vehicle regardless.
For local dealers like Johnson Automotive, the pandemic upended a business model that had worked just fine for decades. “We’ve had to shift from that mentality of, ‘What will it take to earn your business today?’ to ‘How do we slow down and think from a longer term perspective?’” said Erick Kirks, marketing director at Johnson Automotive. “We’ve had to shift our sales skills from being closers to becoming relationship builders.”
It’s not as if the auto industry has never been through a seismic shift. The Great Depression wiped out legions of car manufacturers, and by the 1950s, the car producers had consolidated into the “Big Three”: Detroit’s General Motors, Ford and Chrysler. After the high gas prices of the ’70s, smaller imports from Asia and Europe started crashing the U.S. auto scene. It may seem like a distant memory, but General Motors and Chrysler filed for bankruptcy in 2009 and had to be bailed out by the federal government. The history of the automobile industry is a rollercoaster ride with steep drops and sudden climbs. “We’ve had everything from a war, earthquakes, tsunamis … one thing after another creating problems for our industry,” Kirks said.
ON-DEMAND GOES VIRAL
For Durham businesses, the impacts of the pandemic have brought an unusual mix of highs and lows. Durham-based Spiffy is a provider of on-demand car wash, detailing and oil change services. Chief Marketing Officer Grayson Leverenz said the company saw a huge shift in its business – on-demand services boomed in the beginning of the pandemic as locked down consumers looked for ways to bring services to their doorstep. And that appetite for convenience has carried through even as pandemic concerns begin to ease up.
“We’re seeing inflation at a 40-year high and record gas prices, and that impacts our customers,” she said. “People are having a hard time getting their hands on new cars because not as many are being built because of supply chain problems. People are hanging on to their cars longer and buying used cars. If people are driving their cars longer, that ends up being good for a business like Spiffy.”
Spiffy used the momentum to expand its footprint, launching its business in 10 new markets across the country and hiring many new technicians – bringing its total count to more than 450 coast-to-coast. Leverenz said the company had to get creative when expanding its fleet to meet increased demands. “Our CEO, [Scot Wingo], was on a personal mission to secure new vans, because you can’t grow the business without vans,” she said. “He really became an expert in sourcing and buying used vans [in the current climate]. But it was actually one of those fun startup stories where we have the flexibility to identify a problem, and our CEO takes it on himself and becomes an expert in buying used vans.”
In even the simplest of vehicles, the semiconductor, a computer chip that powers many functions, is in short supply. The tiny processors have become the most critical piece in the automotive manufacturing process, and supply chain snarls have left vehicles idling on the production line and off showroom floors.
“COVID-19 has rocked the entire automotive industry as well as others,” said Poonam Nandani, marketing and communications director at Hendrick Southpoint Auto Mall. “The supply chain and the logistical components regarding trans-Atlantic voyages and transport companies have made it very difficult to manage the flow of business. … The microchip shortage has really put a damper on some options being unavailable for clients to order.”
However, she noted, luxury makers like BMW seemed to have handled the supply shortage better than other brands. “BMW has found a way to ration supplies, acquire new vendors and still ramp up production to fulfill the growing demand for their product,” Nandani said. “But regarding day-to-day impacts, we do not have new car inventory readily available. We have been operating with fewer than five available new cars at any given time for almost six months now.”
Most of the world’s semiconductor manufacturing is based in Taiwan and other parts of Asia. Chipmakers like Intel have responded by funneling billions of dollars into future manufacturing sites in the U.S. The problem is that those plants won’t be up and running until at least 2025. And it’s not just chips. Many manufactured raw materials and shipments have been delayed by backlogs and shipping obstacles along with pandemic lockdowns. And talks of “nearshoring” to pull the supply chain closer to the U.S. are in the infant stages – not likely to impact the market for years.
“Those are all great ideas,” Johnson Automotive’s Kirks said. “But it’s a little too late for all that. We’re years off from seeing any of those fixes come to fruition. It will help … eventually.” Hendrick’s Nandani agreed. “We are not 100% confident that [new chip factories] will come fast enough,” she said.
But Kirks said it’s not all bad news for dealers … or their customers. The changing dynamics are shifting the way everyone approaches the idea of buying and selling. “This has been really disruptive to the industry, but it has given us a look in the mirror,” he said. “How the U.S. car industry works – where you have these giant lots full of cars – versus a more European model where you don’t require inventory on the lot, or there’s a hybrid. Now you have higher profit margins. You’re not being sold a car anymore. You are choosing a car and having to wait for it to arrive. It’s a more customized process.”
THE FUTURE IS NOW
Just several short years ago, we seemed a long way off from all-electric vehicles being a viable option. But shortages that brought long lines at the pump and skyrocketing gas prices have changed minds about the prospect of buying an electric vehicle. “We can’t even keep EVs on the lot,” Kirks said. “The entire industry is shifting toward EVs. It’s becoming a lot more normal to see EVs out on the road.”
EVs are proving so popular that North Carolina is even attracting companies to manufacture here. Vietnam-based VinFast announced in March that it would spend at least $2 billion on a plant in Chatham County. The company will produce its VF 8 and VF 9 electric crossover SUVs there, as well as batteries.
But those cars won’t be rolling off the lines anytime soon. And Intel CEO Pat Gelsinger told reporters in April that the semiconductor shortage will likely last into 2024. That means car buying will likely be impacted for the foreseeable future.
Whether you’re shopping for an EV or a gas-powered ride, Kirks said the key for buying a new or used car in this climate is patience and planning. “Have some flexibility,” he said. “Don’t expect salespeople to try to bump you into a car on the same day anymore. I tell my own family and friends ‘Don’t expect a lot of discounts out there – not for another year or more.’”
Nandani offered similar advice: “If you are interested in a used car, do your research. Make sure to find the cars that are equipped nicely to protect the value against lower-equipped vehicles, and make sure to put a good amount of money down … if you put a larger amount of money down, you will have immediate equity and less likelihood of being a victim of a market correction.”