GFA Federal Credit Union

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  • Oct 28, 2021

How COVID and a worldwide chip shortage is affecting new & used car buyers and what GFA is doing to help

As we all know; car buying can be a daunting process, even in the best of times. From the “asterisk advertising”, where prices, trade values, interest rates, monthly payments, and availability are all disclaimed, to the selling process in the dealership; “Let me talk to my manager”, many people compare car shopping to a Dentist visit. Apologies to Dentists.

Like any other industry, there are always ups and downs. We’ve had 9/11, Y2K, the gas crisis, recessions, and other challenges to deal with. And today, we are faced with a new challenge, a double challenge in fact, that’s greatly affecting the auto industry and, subsequently, car buyers across the country.

Of course, the first part of this double challenge resulted from the much bigger and more critical worldwide pandemic. And our hearts go out to all affected.

Last Spring COVID-19 shut down auto production facilities in our country as well as in Europe and Asia. At that point, it wasn’t hard to foresee that closed factories would mean less cars, trucks, and SUV’s being delivered to the dealerships. But, with the existing inventory, many car-buyers quarantining at home, and dealership closures, inventory didn’t seem to be so much of a problem.

Then came news of a “chip shortage”. Again, at first, we thought “oh well, new production facilities will open and add to supply”. But it hasn’t been that simple. In fact, it wasn’t just the microchips that controlled the safety and tech features in the cars. It was the chips that control production and assembly at the auto plants as well as at the suppliers to the plants, like those producing audio systems, backup cameras, touch screens and even seats and seat belts.

Fast-forward to today and take a drive by any dealer’s lot. Where we’d normally see 400 new vehicles and 200 used vehicles, we’re seeing 10-50 new and the same number of used.

You may ask; why the shortage of used cars (which are already built)? Two big reasons…First, the less new cars that are sold to consumers, the less trade-ins are available for resale. Second, the majority of late model used cars we see on dealership lots are former rental cars. Companies like Enterprise, Hertz and Avis buy hundreds of thousands of cars a year and, typically, turn them over to dealers (in 9-12 months, with 10-15,000 miles) to sell as used cars. However, because they can’t purchase the required number of new cars, rental fleets are now averaging 18 months of age and 25-30,000 miles, so fewer rentals are available for sale to dealers.

Of course (like in any other industry), as inventory falls, prices rise. So, we are seeing a spike in the prices of new cars (less discounts and rebates, for sure), which is also driving up the prices of used cars. In fact, used cars we helped members buy 2 years ago are being traded in for close to what they paid. And some late model used cars are actually selling at prices above their original price.

Dealers are reacting to the inventory shortage in several different ways. Of course, they are demanding higher prices (which is understandable, assuming they have less new cars to sell and are paying more to get used cars). But some of the price increases are unconscionable. We’ve seen dealers asking $10-$15,000 over sticker for vehicles. My advice to shoppers faced with something else or wait!

We have also recently seen some dealers taking advantage of the inventory situation by requiring customers to finance in-house. And, if you recall my earlier blog, the party controlling the financing controls the outcome of the deal (encompassing rate, extended warranties, and after-market sales). For perspective, members using our Auto Advisor service and financing through the credit union borrow on average about 80% of the value of the car (i.e. a member buying a $20,000 car borrows on average $16,000). Whereas, our research has shown that members going on their own borrow over 100% of the value of the car $20,000+). That’s why so many borrowers are upside-down in their loans.

In response, our Auto Advisors are working hard to hunt the right vehicles down, prepare our members to be flexible and to act fast, and keep great relations with our dealer contacts. It is a juggling act for sure, but one our Auto Advisors all do anyway! 

Yes, the shortage of new and used vehicles in the marketplace is being felt by all. However, there ARE vehicles being produced and delivered, and trade-ins being taken every single day. And, AS ALWAYS, our Auto Advisors are here to help our members save time and money on the purchase of new and used cars, while taking advantage of competitive credit union rates and products. All in a safe, efficient, and hassle-free manner.

The key is, our Auto Advisors are not car salespeople. They are experts in the car business, who take the time to explain and educate members. When we have the chance to explain our service, program, philosophy, market conditions, etc., our members understand that the service is about more than just locating cars. And it gratifies us to hear members say they will never buy a car again without us!!

For more information about prices, rates, and availability, please reach out to our Auto Advisors or GFA.

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