Due to a shortage in stock and increases in demand, many car dealerships, such as Jim Riehl’s Friendly Chrysler Jeep in Warren, pictured, are seeing emptier sales lots.

Due to a shortage in stock and increases in demand, many car dealerships, such as Jim Riehl’s Friendly Chrysler Jeep in Warren, pictured, are seeing emptier sales lots.

Photo provided by Brian Ackerman

Higher demand, lower supply result in increased car prices

By: Brendan Losinski | Metro | Published August 11, 2021

METRO DETROIT — People in the market for a new car may be feeling a crunch as car prices are on the rise and some vehicles are in short supply.

Many auto experts are reporting increased prices for vehicles since few people bought cars in 2020 due to COVID-19, creating more demand now as people are once again in the market for new cars. This is combined with vehicle shortages, as the pandemic also created a shortage of certain computer components necessary for vehicle production, which lowered the available supply of new vehicles.

“It’s definitely a result of supply and demand,” remarked Brian Ackerman, the general manager of Jim Riehl’s Friendly Chrysler Jeep in Warren. “In our inventory, we would stock 60-90 days’ inventory. Now we have six to 15 days of inventory. (Additionally) the manufacturers are not incentivizing vehicles as they normally would, just because there’s no need to clear out overage inventory right now.”

“Yes, we’re seeing that 100%,” said David Mendiola, the used car manager at Hodges Subaru in Ferndale. “Everyone is talking about microchips, and it’s true that they don’t have enough. It’s a pinch in inventory. Last year, everyone was turning in leases since they didn’t have to go into the office and they might not have needed two cars. Now everyone is back at work, and there’s a lot of demand.”

Ackerman said that COVID-19 has created a variety of issues across numerous industries since it changed both how and when companies were producing products and materials, and it has prevented people from buying new products and materials for much of the last year and a half.

“The chip shortage is definitely causing an inventory shortage,” he said. “This means the supply is going down, and with higher-than-normal demand from consumers, this drives prices up. I think it’s the same with the housing market right now. There’s so many people looking for homes or to move, it’s going to cost more to buy or get a new place.”

“You can make some more money selling your car right now, but now everyone is selling them at the sticker price. That’s usually unheard of in Detroit, since so many people have discounts because the auto industry employs so many people around here,” said Mendiola. “On the opposite side, you are spending probably $2,000 to $5,000 more. Even if you are buying a new car, you might be able to come out ahead when selling a car right now.”

This current trend has created a potentially fruitful environment for selling a car. Dealerships said they are seeing a lot of increased business in their used car sales because of the shortage of new cars.

“It’s a great time to sell a car. The value of used cars is very high,” said Ackerman. “If you’re in the market for a new car, my advice is to order it. The turnaround time for order times are pretty much normal. If your lease is coming due, many places are letting them get extensions, so that’s something people in that situation should ask about. … The value of used cars is up right now. The sales aren’t up everywhere, but the prices are up. There’s greater value there. Used car inventory isn’t as low as new car inventory.”

As with any market, the situation can shift rapidly. Mendiola said that those who are ready to sell a car should do so now.

“Used cars are definitely selling. Dealerships are trying to get their hands on any cars they can get to sell them, even if they’re used,” he said. “It’s a very fluid situation. My advice for buyers is, if you see something you like, to jump on something as soon as you can. If you see something online, it might not be there by the time you get to the dealership.”

Ackerman said it’s not as though this has created a crisis; however, these are factors consumers should take into consideration if they are preparing to buy, sell or lease a vehicle.

“We’re not in bidding wars or anything,” he said. “Prices can be almost normal in new cars, but incentives aren’t there a lot of the time. Used car prices are probably up 15%-20%, for the most part.”