Microchip shortage continues to cost dealers millions

Author of the article:

Dave Waddell

Mickey Pierre, a salesman at Gus Revenberg Chevrolet Buick GMC in Windsor, is shown on a virtually empty sales lot on Thursday, September 30, 2021.
Mickey Pierre, a salesman at Gus Revenberg Chevrolet Buick GMC in Windsor, is shown on a virtually empty sales lot on Thursday, September 30, 2021. Photo by Dan Janisse /Windsor Star

Looking out at a sprawling lot that normally holds $27 million worth of vehicles, Revenberg Chevrolet/GMC/Buick general manager Jerry Revenberg has a bemused smile at the empty sight.

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The hundreds of metres of asphalt is now populated by a handful of loaner cars.

“We won’t sell those vehicles because we need them for customers when their cars are getting serviced,” Revenberg said.

“We have 300 vehicles on order to be shipped to us and 52 per cent of those are already sold. The vehicles arrive and they’re picked up, so there’s no inventory here.

“I’ve never seen anything like this in my 43 years in the business.”

We could sell twice as many vehicle if we could get them

In addition to the GM dealerships, the Revenberg auto group also contains Volkswagen, Nissan/Infiniti and Kia dealerships.

Mickey Pierre, a salesman at Gus Revenberg Chevrolet Buick GMC in Windsor, is shown on a virtually empty sales lot on Thursday, September 30, 2021.
Mickey Pierre, a salesman at Gus Revenberg Chevrolet Buick GMC in Windsor, is shown on a virtually empty sales lot on Thursday, September 30, 2021. Photo by Dan Janisse /Windsor Star

Auto analysts are predicting the combination of the COVID-19 pandemic and the global semiconductor microchip shortage is expected to cost the world’s automakers more than $200 billion in lost sales in 2021.

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Revenberg said the microchip shortage first began to impact the dealership in March, 2020.

“I’d say sales are down about 25 per cent from normal,” said Revenberg, who added the dealership has maintained employment levels bar not replacing a couple of people who retired.

“We could sell twice as many vehicle if we could get them.”

Terry Rafih, whose Rafih Auto Group features 26 dealerships and 30 brands in Ontario, Michigan and Ohio, paints a similar sales picture.

He’s been in the auto sales business since 1989 and calls these times unprecedented.

“There’s huge demand and no supply,” Rafih said. “Some dealerships are totally out of new inventory.

“We typically have about $100-million in inventory. We have about 15 to 20 per cent of that.

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“I used to manage inventory and it was always about not having too much. Now, we’re begging for crumbs.”

Local businessman Terry Rafih poses outside his sprawling Tecumseh Road East car dealership complex in this file photo from April 9.
Local businessman Terry Rafih poses outside his sprawling Tecumseh Road East car dealership complex in this file photo from April 9. Photo by Nick Brancaccio /Windsor Star

Rafih said one of his Ontario dealerships that normally averages sales of 120 vehicles per day is doing half that volume of business.

Locally Rafih owns dealerships representing each of the Detroit 3, Toyota/Lexus, Mazda, BMW/Mini, Jaguar/Land Rover, Mercedes Benz and Volvo.

He said Toyota, Honda, Lexus and Mazda have been able to supply better inventories than the Detroit 3 and the luxury brands. The Japanese automakers had stockpiled chips, but even they are beginning to feel the impact of the chip shortage as Toyota cut global production by 40 per cent in September.

The vehicle with the longest waiting time is a well-equipped truck.

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Currently, Rafih said it’s taking between three and five months to received orders for F-150s, RAM and GMC pick-up trucks and SUVs.

“When a carrier is coming down the road to deliver vehicles, you can see people following the truck to the dealership,” said Rafih, who hasn’t laid off any of his 1,600 employees.

“They want to check to see if their vehicle is on the truck. The empty lots tell the story.”

For those leasing, dealers are contacting them a year or more in advance of their lease expiring to place an order for a replacement while the auto companies are offering to extend the leases. It’s resulted in a shortage of trade-ins and used cars on the market.

“It’s a chain effect and it’s a total mess,” Rafih said.

Keeping a sense of humour is almost a prerequisite to keeping your sanity in the car business at the best of times, but Revenberg calls these the strangest of times.

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He pulls up a picture of hundreds of pickup trucks sitting in a field near Fort Wayne, Indiana.

“Here’s where our inventory is,” Revenberg jokes.

“That truck was made March 6 for one of our customers, but we’re not sure when we’ll get. It’s unfinished because it’s missing some the chips it needs.”

Recently the dealership got notice that a Traverse SUV that was ordered in spring for September delivery now won’t arrive until after the New Year.

If you’re in the market for GM’s popular redesigned Corvette, you better be prepared to slap your deposit down and wait for three years.

“We only get so many Corvettes each year and we have pre-orders for triple the number of our allotment,” said the dealership’s sales manager Mickey Pierre.

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In mid-September GM had 125,000 chip-less vehicles but informed dealers that 90,000 of those now have the required chips and have been shipped.

The scarcity of product has Ontarians shopping around the province in desperate searches for vehicles.

Customers are prepared to pay and they have little choice but to do so with automakers rationing their prized chips in the vehicles with the highest profit margins (pickup trucks and large SUVs).

“We had a lady from Huntsville call because GM’s website listed us as having a ($95,000) Yukon in our inventory,” Revenberg said.

“She gave us her credit card number for a deposit over the phone and asked when she could pick it up. She’d been calling dealerships across the province looking for a seven-seat vehicle.

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“That’s been one of the changes we’ve seen in all this. People from big cities, like Toronto, searching for vehicles in smaller communities.”

Pierre said there has been a shift in customer expectations since the chip shortage began to take a grip. Eighteen months ago customers would have refused to accept ordering a vehicle sight unseen.

“People understand what’s happening and are more flexible now,” Pierre said. “They’re willing to not get everything they want.”

Both Rafih and Revenberg don’t expect any substantial inventory levels to return until 2023 and both feel their business model will be permanently changed.

“I think the change will be that manufacturers have figured out it’s better to be one vehicle short than have one too many,” Rafih said.

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“We’ll never go back to the days of manufacturers having 60 to 90-days of volume. I think in the future, it’ll be a 45-day supply, maybe 40.”

Revenberg said consumers have grown used to shopping online and vehicle shopping has become just another Amazon-like experience.

“I think a lot of the excitement has gone out of the car-buying experience because of this,” Revenberg said.

“People used to visit two or three lots and take cars out for test drives. Now they do a test drive when the come to pick up their vehicle to make sure they like it because they’ve never seen it because there’s nothing on the lots.”

Revenberg added that 80 per cent of sales traditionally have been from cars that were in stock, but he expects that number to shift closer to 50-50 once inventory levels increase.

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Pierre said he can foresee a time where lots full of cars to peruse is a thing of the past.

“There’s a dealer in Waterloo (Hyundai/Genesis) experimenting with just having one vehicle of each model for test drives,” Pierre said. “Customers pick their vehicle and customize their order.”

The shortage of vehicles has also changed the financial aspects of the business.

So far manufacturers have kept prices for new vehicles pretty much in line with what normally would be expected, but the value of trade-ins has skyrocketed and there are no incentives being offered and little bargaining to be had.

Rafih estimates used car prices are up about 25 per cent, but the profit value in each new car sales transaction has increased without discounts and incentives.

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“It’s like the Apple Store, you pay what your asked,” Rafih said.

“That’s going to be the new model. Tesla and Genesis don’t negotiate prices already.

“If you see empty lots, why discount? No manufacturer is going to do that. Those days are gone.”

No aspect of the dealership has gone untouched by the microchip shortage.

With no inventory to sell, Revenberg said their advertising budget is one-third of normal levels and dealership hours have been reduced.

Service departments are also facing shortages with so many components of the modern vehicle linked to electronics.

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With people working from home and not driving as much, the revenue from regular maintenance has also dropped.

“It’s taking longer to get parts,” said Revenberg pointing out the reason the dealership has kept $2.7 million worth of vehicles as a loaner fleet.

“Usually, a part would come in overnight, but electronic parts are over a week. We have clusters (electronic components) where the wait is much longer.

“One customer waiting for a speedometer/odometer cluster that controls all the gauges has been in a loaner for five or six weeks because we can’t get it.”

dwaddell@postmedia.com

Twitter.com/winstarwaddell

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