The lot at the new Hello Mazda of San Diego dealership in Kearny Mesa is a microcosm of all the unpredictable things that have upended the car market.
“If somebody would have said to me 10 years ago, ‘Hey, this is what’s going to happen,’ I would have been like, you’re crazy, there is no way,” said general manager Idaliz Maldonado. “But here we are, all these things happening at the same time or right after another.”
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Last week, only a half-dozen new Mazdas sat in the parking lot, along with 25 used vehicles. Under normal circumstances, Maldonado said a dealership of comparable size would stock about 80 to 100 new models and another 100 used. But these are not normal times in the auto industry.
At the outset of the pandemic, car dealers had an excess of vehicles on site. But now they don’t have enough because of a global microchip shortage that has lingered for 13 mounts and counting. And the lack of inventory has led to an unheard-of surge in used car prices.
On top of that, inflation has surged and gasoline prices have hit record levels.
“All these things that have happened in the last two to three years have been unexpected and completely shocking,” Maldonado said.
And in California, overlay all those ripple effects with ambitious targets set by state policymakers to put millions of zero-emission vehicles on the road and it can be hard to keep up with the changes.
“It’s an upside-down world right now that we’re not used to seeing in the last 20, 30 years,” said Brian Maas, president of the California New Car Dealers Association.
The COVID-19 shakeup
When the coronavirus outbreak prompted Gov. Gavin Newsom to invoke stay-at-home orders in March 2020, few sectors of the economy were harder hit than the auto industry. Roads emptied and California’s infamous rush-hour traffic practically vanished when millions stopped commuting to work or school.
With consumers nervous about catching the virus and uncertain about their finances, vehicle sales cratered and local dealers furloughed employees. Some openly worried about running out of money in one to three months if things didn’t improve. Statewide, the New Car Dealers Association reported a drop in sales of nearly 50 percent for the second quarter of 2020.
But within a few months, demand snapped back as many workers adapted and the economy — though battered in some areas — regained its footing. Auto sales revived as a result of pent-up demand, but only to a point.
The problem? A shortage of semiconductor microchips that go into cars and trucks. The silicon chips essential for laptops, game consoles and TVs also go into the brake sensors, power steering, navigation and entertainment systems in modern-day vehicles.
Hunkering down in the early days of the pandemic, automakers canceled or delayed orders for microchips. Meanwhile, semiconductor manufacturers overseas shifted focus to consumer electronics, which saw an uptick in demand for chips used in devices for virtual learning, remote health care and working from home.
As auto sales rebounded, microchip manufacturers in the spring of 2021 were unable to keep up with demand, and fewer cars and trucks rolled off assembly lines, even though dealers had plenty of eager customers on their hands.
It was thought the shortage would get fixed in a few months but the major share of chip manufacturing is based in Southeast Asia, where COVID flare-ups have slowed production. Clogged shipping lines, also associated with the pandemic, have made things worse.
That has resulted in near-empty showrooms across the country. Registrations in the U.S. are down 15.7 percent so far this year. In California, sales are off 13.8 percent through the first quarter.
“We still get inventory,” said Joe Seppa, vice president of operations at the Hello Auto Group, which owns six dealerships in Southern California. “We just don’t have an excess of inventory, like in the past where there were vehicles that just sat on the lot for sale.”
Instead, many customers have taken to pre-ordering vehicles and then picking them up once they get delivered to the dealership, especially if they’re looking to buy the most popular selling cars and trucks.
What? A used car costs more than a brand new car?
With supplies of new cars at a trickle, used cars and trucks of recent vintage and low miles suddenly look more attractive to buyers. That’s led to a strange phenomenon — older vehicles actually selling for more than the manufacturer suggested retail price, or MSRP, of a new car of the exact same model.
In San Diego, used car prices in April increased 19.8 percent, or $5,182 compared to a year ago, according to a study by iSeeCars, a company that helps buyers search for vehicles.
The same analysis found that a lightly used Toyota Corolla fetched $2,292 more than a new Corolla, or 9.7 percent more. A Jeep Wrangler Unlimited in San Diego in April went for $3,221 more, or 6.4 percent higher than a new model.
“There simply are not enough new cars for the people looking for them to satisfy demand,” said Karl Brauer, iSeeCars’ executive analyst. “If you go to a dealer and say, ‘I want a new Toyota Corolla,’ and the dealer says, ‘I might have one in three months or six months.’ And you say, ‘Well, I see one is sitting right there.’ Yeah, that one’s a 2020 or a 2021 with 8,000 or 10,000 miles on it.
“Well, how much do you want for it? And (the dealers) give a price that’s more than the new car because they can see the hunger in the buyer’s eyes. And the buyer says, OK, I’ll give you that much money for it and be done with it.”
Some dealers have been told the vehicle allocation levels could return to normal by September, but Brauer is not that optimistic.
Should the global economy remain relatively stable, “it’s going to be a slow kind of dig-out for the supply and demand curves to balance,” Brauer said, “and probably six months minimum, 12 to 24 months very possibly.”
Pain at the pump
A relatively stable global economy is hardly a given these days, with the war in Ukraine continuing and inflation in the U.S. proving not to be so transitory. The average price for a gallon of regular-grade gasoline in the San Diego area hit $6.26 on Monday, setting a new record.
While it is hard to tell how much high gas prices are leading car buyers to consider switching from a gasoline-powered vehicle to an electric vehicle or hybrid, the rate of adoption is on the rise in California.
In the first three months of this year, the market share for the sale of new zero- or low-emission vehicles increased to 28.3 percent, up from 23.4 percent in the first quarter of 2021, according to the California New Car Dealers Association.
The top two best-selling vehicles in California in the first quarter were electric vehicles — the Tesla Model Y, which racked up 21,812 registrations, and the Tesla Model 3 with 21,506. The Toyota RAV4 finished third.
“We had three MX30s, which are our electric vehicles, in May and we sold them all,” Maldonado of Hello Mazda said. “They were here and gone.”
Electric vehicles have many of the same supply chain and chip shortage issues as traditional cars and trucks but the increasing sales numbers may bode well for California policymakers.
Former Gov. Jerry Brown set a goal to have 5 million zero-emission vehicles on California’s roads by 2030. As of February, the state counted almost 1.14 million.
Two years ago, Gov. Newsom made headlines when he announced that by 2035 no new cars and trucks with internal combustion engines will be sold in California. (Existing gasoline-powered vehicles and sales of used vehicles with internal combustion engines will still be allowed.)
It’s supply vs. demand
Despite the headwinds, overall demand in the state is holding up. Pre-pandemic, 2019 new registrations in California topped 2 million for the fifth straight year. After sales slumped 21.5 percent in 2020 to 1.64 million, the numbers rebounded to 1.86 million in 2022 and are on pace to reach 1.88 million this year.
“It’s a supply problem, not a demand problem,” said Maas of the California New Car Dealers Association. “That’s why every dealer is selling every car they can get, and consumers are having to wait if they want a particular vehicle.”
At the start of this year, Edmunds.com reported that 82.2 percent of buyers of new cars and trucks paid above MSRP on their purchases.
Given the tight supplies, higher prices and rising inflation, Brauer’s advice for prospective buyers is not that surprising — wait, if you can.
“What’s really big is being flexible on location,” he said. “You can find out what a car costs, perhaps 300 or 500 miles away or even on the other side of the country. If you start doing searches for the car you really like and there’s a $4,000 or $5,000 price difference, if you buy a plane ticket and it takes you a day or two to drive back but you save thousands of dollars, if you break that down to an hourly pay rate, you’ll realize that was a really good payoff.”
Top 10 sellers in California
January-March 2022, new vehicles
1. Tesla Model Y 21,812
2. Tesla Model 3 21,506
3. Toyota RAV4 15,990
4. Toyota Camry 12,257
5. Honda Civic 11,057
6. Ford F-Series 10,279
7. Toyota Tacoma 9,616
8. Chevy Silverado 9,378
9. Toyota Corolla 9,318
10. Ram Pickup 9,137
Source: California New Car Dealers Association/Experian