Low supply leads customers to buy new cars without seeing them

Gone are the days when a person could walk into a car dealership and leave with the vehicle of their choice on the same day.

With the scarcity of new cars, dealerships across Nova Scotia are seeing buyers put down a deposit on vehicles they haven’t even seen, then wait months for them to be delivered by the manufacturer.

Bruce Hyundai dealership in New Minas, Nova Scotia currently has about 20 new cars in its fleet. Last year at this time there were about 200.

This is not an isolated case.

“There’s a much higher demand, a much lower supply, so I think customers are starting to panic. It’s almost like the housing market,” Bruce Hyundai chief executive Brittany Deveau said.

Industry experts say a global shortage of microchips used in vehicles, as well as the war in Ukraine that cut off supplies of neon gas used to make semiconductors, have hit the technology industry hard. car manufacturing.

Having been in the business for 15 years, Deveau said she had never seen a market like this.

Steele Subaru on Kempt Road in Halifax shows off new cars spaced out in lot (Robert Short/CBC)

She said customers can expect to wait eight to 18 weeks for gas-powered vehicles and between 24 and 36 months for electric vehicles, which have grown in popularity during the pandemic. The dealership’s main electric vehicles, the Hyundai IONIQ 5 and the Hyundai Kona Electric, are already sold out for 2023.

“We’ve had customers who may have never seen, you know, a Kona Electric and they put down a $1,000 deposit and buy one on sight,” Deveau said.

Used cars at high prices

Halifax resident Jehezkiel Eugene was looking for a Mazda CX-30, which he had trouble finding. He said he found an ad on the AutoTrader site selling a mid-size model of the car with about 20,000 miles, but it was for more than $5,000 more than the manufacturer’s suggested retail price.

“It’s, like, a seller’s market, isn’t it? They can pretty much raise whatever kind of price they want and people will probably still buy it,” Eugene said. “There are fewer cars in dealerships everywhere I go through town.”

Reddit users across Canada discuss their experiences buying cars and then returning them for a higher price, something Eugene envisioned with the 2018 Mazda3 Sport he purchased in August 2020.

“I went to a dealership and just asked for a quote for how much my car was worth. And guess what? I was able to get more for my car than I got it for,” he said. declared, adding that he had finally decided not to sell it.

Deveau said his dealership is also downplaying its consumption of used cars as inventory due to rising used car prices in Canada and the United States.

“It is difficult for us to buy from an auction or an outside source because the prices they are asking are higher than the value of new vehicles,” she said. “So it’s difficult for us to pay such a high wholesale price and then try to retail it on our land without asking an obscene price for a vehicle.”

City Mazda’s lot on Robie Street in Halifax has lots of empty spaces. (Robert Short/CBC)

Dealerships across Canada saw their sales plummet when the pandemic hit. In the summer of 2021, alongside the lifting of travel bans, car sales picked up.

In the past, customers would walk in, buy a vehicle and pick up their car, but now sales staff are spending a lot more time ordering vehicles, Deveau said.

Supply chain issues

John Sutherland, executive vice president of the Nova Scotia Automobile Dealers’ Association, said he believed it was not demand that had increased, but rather supply chain issues creating complications for customers to looking for a new car. The global shortage of microchips during the pandemic has disrupted the supply of cars.

Data analyzing 2021 trends by AutoTrader revealed that buyers started broadening their search for vehicles last year. About 31% of them were willing to travel more than 400 kilometers to find the vehicle of their choice. Twenty-seven percent of buyers surveyed even expressed a desire to buy second-hand rather than new.

“We don’t have the level of inventory on lots that we usually would have in normal times. Unfortunately, these are not normal times,” Sutherland said.

“I think a lot of people before the pandemic were used to walking into a parking lot and there would almost be an overabundance of inventory. We certainly don’t see that now.”

The Steele Chrysler front lot shows many empty spaces. (Robert Short/CBC)

Amanda Dean, vice president of Atlantic Canada for the Insurance Bureau of Canada, said that with the rate of inflation reaching 30-year highs, the cost of repairing or replacing vehicles after an accident is rising.

“A shortage of parts leads to longer cycle times to repair vehicles. This, in turn, leads to longer vehicle rentals that consumers can use while their vehicles are being repaired, and the price of those rentals has increased significantly. lately,” Dean said, adding that market prices dictate the cost of rental cars.

Dean said car rental fleets were 30-40% below pre-COVID levels and many car rental operators had to sell off unused inventory when travel bans were put in place.

At this point, she said it was impossible to say when prices would return to normal.

“We have the average price from the Canadian Black Book, in which the average price of a used car in Canada has increased by 34% between 2021 and 2022. So this is a clear sign of the low supply in right now,” Dean says.

“It’s a perfect storm right now, and we don’t know when it will end and those pressures within the broader market will ease.”