CINDY ELLEN RUSSELL / CRUSSELL@STARADVERTISER.COM
BMW of Honolulu General Manager Tim Palms hopes supply levels will normalize so “people can have fair deals and fair prices on cars and get the car that they want.” Palms stood Thursday by an X3, a popular BMW model, at the dealership’s showroom on Kapiolani Boulevard.
CRAIG T. KOJIMA/CKOJIMA@STARADVERTISER.COM
”Dealers see the pent-up demand at our dealerships every day as our supply does not meet the demand.”
Heather Cutter
President, Cutter Management Co.
Hawaii auto dealers and consumers have been forced to change gears amid a global microchip shortage that has transformed the vehicle shopping experience. Read more
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Hawaii auto dealers and consumers have been forced to change gears amid a global microchip shortage that has transformed the vehicle shopping experience.
With auto sales plunging in the islands due to shrinking inventory, consumers now are waiting longer to get their vehicles and oftentimes have to navigate the internet to make vehicle selections rather than take a car or SUV on the dealership lot for a test drive.
Jeffrey Foltz, editor of Hawaii Auto Outlook, estimates that 17,400 new vehicle purchases have been postponed since the onset of the pandemic in early 2020 and the ensuing vehicle supply shortages.
A dearth of semiconductor chips is largely to blame for the depleted inventory because vehicles can have anywhere from a couple dozen semiconductor chips to 3,000.
“The chips control so many features including, but not limited to, computer management of engines for better fuel economy, air conditioning, power windows, infotainment systems and important safety features such as anti-lock brakes and stability control,” said Heather Cutter, president of the Hawaii Automobile Dealers Association and president of Cutter Management Co.
But local dealers are not deterred and say they’re working closely with consumers to get them what they want.
BMW of Honolulu General Manager Tim Palms said the art of the deal is now different.
“For us specifically, our BMW dealership, we’ve definitely had to adapt to a much more quick-turning inventory with less on-ground supply,” Palms said. “So that’s meant walking customers through virtual tools, or it’s meant just making sure to communicate with customers about incoming vehicles or ordering vehicles. I think that’s been the biggest adaptation for us at the BMW dealership.”
Palms said as of Wednesday that the BMW dealership had just seven cars on its lot available for sale and 20 cars ordered by customers that were awaiting delivery or arriving shortly on Matson.
“Most of the vehicles that are coming in now are spoken for as soon as they get here,” Palms said. “And what you might see in the showroom represents maybe at any given time five, six, seven, eight cars, but we’ll still sell 70, 80, 90 or 100 cars throughout that month. … The cars are still coming and they’re still moving, but you don’t see acres and acres of them. … Compared to 2019 when I’d have 200 cars at any given time, the availability to look and touch and test-drive eight different models is definitely way more limited, but the volume of cars that are incoming and being sold is about the same. … It’s just that every day it changes what options are available on the cars.”
Cutter said the company’s nine dealerships in the state have an average 30- to-45-day supply of vehicles, but many of the new vehicles are already sold prior to arrival. In the past, she said, Cutter’s new car inventory was approximately a 90-day supply depending on the brand. Cutter sells Ford, Chevrolet, Mitsubishi, Buick, GMC, Mazda, Fiat, Chrysler, Dodge, Jeep and Ram, with more than one brand at some of its dealerships.
“Dealers see the pent-up demand at our dealerships every day as our supply does not meet the demand,” Cutter said. “It is difficult to quantify pent-up demand, but according to the Haig Group, who tracks trends in auto retail, the level of pent-up demand is so high it may take three or more years before automotive supply and demand re- balances. In Hawaii … we may see pent-up demand from limited supply diminish as high interest rates eat away at vehicle buyers’ willingness or ability to purchase a vehicle.”
Inventory shortage
Peter Dames, executive vice president of Servco Pacific Inc., said Servco has continued to see demand for vehicles, both new and used, based on customer traffic into its dealerships.
“We have also seen an increase in back orders being placed, as customers are willing to wait for the vehicle that they want,” he said. “If you need a vehicle in the near future, we recommend planning ahead and putting in your order now.”
Automotive research firm iSeeCars.com has found that the average new car buyer holds onto their car for roughly eight years.
“We may start to see people hold onto their cars longer, but it is too soon to tell,” Cutter said.
Dames said that globally, the industry is forecast to lose a total of over 4 million vehicles from 2022 production due to the microchip shortage.
“We are feeling those impacts directly in Hawaii, making it difficult to bring in vehicle inventory in large volumes,” he said.
As a result of the microchip shortage, used-car values have risen, Cutter said.
“Less availability of new cars has prompted more people to consider a used car,” she said. “The upside to this situation is the microchip shortage has made your current car more valuable.”
Cutter attributes the inventory shortage to the coronavirus pandemic, the resulting supply chain disruptions and even the war in Ukraine.
“Both new- and used-car inventories are lower than before the pandemic, but this has provided customers the opportunity to get more value for their trade-in and, in some instances, encouraged customers to come to a dealer to test-drive and then order a car,” she said.
Palms, the BMW general manager, said the Ukraine war has affected the automaker.
“The biggest impact we’ve had this year has been the wiring harnesses that were assembled in the Ukraine,” he said. “So when the Ukraine war started, there was a mad scramble for these wiring harnesses, and I think BMW North America lost 2% or 3% of their annual production because of that.”
Auto show canceled
Dames said the chip- shortage issue continues to gradually improve and that Servco hopes the end of this year and into 2023 will begin to reflect supply chain recovery.
He also said Servco is encouraged by the passage of the CHIPs and Science Act, which will increase semiconductor manufacturing in the United States.
Servco has a network of 14 retail dealerships across the state, including five independent dealerships. It has exclusive distributorships of Toyota, Lexus and Subaru in Hawaii.
HADA Executive Director Dave Rolf said new car dealers recently had to curtail some participation in local Drive Electric Week activities because vehicles were not available for the planned Ride ‘n’ Drive events. He also said the First Hawaiian International Auto Show, which was last held in 2019 and then postponed in 2020 and 2021 due to COVID-19, was canceled this year due to the lack of available vehicles to display. The event, which is usually held in March at the Hawai‘i Convention Center, already has been put on hiatus for 2023, but Rolf said HADA is exploring the possibility of holding the show in September.
Palms said that for the automotive industry in Hawaii, new car shopping is a much different experience from how it used to be.
“People can’t touch and feel and drive the car first,” he said. “A lot of times they have to make a decision on what they want and then reserve it and wait for it. And it’s definitely put a bit of a strain on some buyers financially as there’s a little bit less availability of some of the more affordable options that used to be there. Hopefully, the supply levels kind of normalize and the manufacturers can produce cars at a rate that meets the demand of the consumers, and people can have fair deals and fair prices on cars and get the car that they want.”
Hawaii Auto Outlook reported recently that the number of new-vehicle registrations in the state fell 9.4% through the first six months of this year from the year-ago period. That includes a drop of 25.5% in the second quarter. For the year, Hawaii Auto Outlook is forecasting registrations to reach just 55,500, a drop of 4.1% from 2021.
Cutter said dealers do not control the manufacturing of the chips or the vehicles, so it is difficult to really know how long inventories will be low because of the chip shortage. But she said new vehicle production forecasts indicate the automotive chip shortage will continue well into 2023.
“The more chips in a vehicle, the larger the effect,” Cutter said. “Some auto manufacturers are shipping cars without the chips, as long as it is not a safety concern, with the promise to add the chips when they become available. For example, Ford will build Explorers without the computer chips that enable rear-seat climate control, but dealers will install the chips once they become available.”
Cutter said the challenge is even greater for electric vehicles.
“Microchip shortage and supply chain issues are just some of the challenges for widespread EV adoption,” she said. “Right now EVs will also face challenges including costly battery materials, lack of public charging infrastructure, effects on the grid and affordability. Nonetheless, auto manufacturers are committed to developing electric vehicles, and Hawaii’s auto dealers are all in for the growth of EVs.”
The price tag climbs
Foltz, the Hawaii Auto Outlook editor, said new vehicle affordability has taken a turn for the worse.
“Tight inventories have pushed vehicle prices upward, rising fuel prices have cut into disposable income and higher interest rates are boosting monthly payments,” he said. “Higher wages have helped, but monthly vehicle loan and lease costs as a percent of disposable income have moved higher during the past several months.”
Consumer research firm J.D. Power estimates that the average price of a new vehicle in September will reach $45,622 — a record for September, a 6.3% increase from a year ago and the fourth highest of any month on record. J.D. Power attributes the increase to a lack of inventory, coupled with strong demand, that has allowed manufacturers to maintain a low level of discounting.
Thomas King, president of the data and analytics division of J.D. Power, said the average monthly finance payment in September is on pace to be $711, up 8.5% from $56 in September 2021. The average interest rate for new-vehicle loans is expected to increase 169 basis points from a year ago to 5.71%.
Palms said he’s hopeful that the inventory shortage will ease sooner rather than later.
“I think the way that (consumers) buy them, it may look this way for quite a while of not being able to touch and feel tons and tons of vehicle inventory,” he said. “But hopefully, the timelines across the board for all the manufacturers (and) the time to get a car … gets a little quicker.”
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