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Car dealers are facing shortages, and consumers are paying the price

Robert George, sales representative, Shahid Qureshi, sales manager, and Walter Aguilar, sales and leasing professional, at Prime Toyota-Route 2 in Lancaster. The lot is usually full of cars, but a shortage of microprocessor chips has delayed vehicle deliveries.
Robert George, sales representative, Shahid Qureshi, sales manager, and Walter Aguilar, sales and leasing professional, at Prime Toyota-Route 2 in Lancaster. The lot is usually full of cars, but a shortage of microprocessor chips has delayed vehicle deliveries.David L. Ryan/Globe Staff

Steve Duplessie knew just what he wanted in a new car: a Lincoln Navigator with all the trimmings. The hard part was finding one, due to a global shortage of microprocessor chips that has slashed auto production worldwide.

“They didn’t have any inventory of my config anywhere near me,” said Duplessie, general manager of Enterprise Strategy Group, a tech industry research firm in Milford. He considered ordering his car directly from the factory, but “it would have taken months, and I would have paid list [price].”

In the end, Duplessie got lucky. John Martin, sales manager at Gervais Lincoln in Lowell, found his dream car at a retailer in Pennsylvania and had it trucked in. Duplessie even got a slight discount. The process took two weeks, quite fast, since on car lots around the country limited inventories are forcing many buyers to wait longer, pay more, or settle for whatever they can get.

“It is a nightmare,” said Martin, whose own dealership is sold out of Navigators. More are on the way, but they won’t include popular options that rely on advanced electronics. For instance, some Lincolns offer a system that uses a computer and sensors to instantly adjust the suspension for a smoother ride. It’s a $4,000 option, but Lincoln has stopped offering it because its supplier can’t get enough chips.

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“That’s something I probably won’t see again for the 2021 model year,” Martin said.

Gervais also has a Ford dealership, which normally has up to 75 F-150 pickup trucks on the lot. These days, it’s down to about 30. Martin said Ford has hundreds of F-150s parked outside its factories that it can’t ship to dealers because it’s waiting for vital electronic components that haven’t arrived yet from suppliers.

It’s not just cars. The shortage is affecting hundreds of “smart” consumer products that have embedded computers. Martin himself was shocked to find he’d have to wait eight weeks for a new refrigerator. And broadband providers are finding it difficult to get Internet routers to install in customers’ homes.

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A showroom at Prime Toyota-Route 2 would have at least two more vehicles on display, but a shortage of microprocessor chips has delayed vehicle deliveries.
A showroom at Prime Toyota-Route 2 would have at least two more vehicles on display, but a shortage of microprocessor chips has delayed vehicle deliveries.David L. Ryan/Globe Staff

Cars rely on specialized processors called microcontroller units, or MCUs. These are generally made by factories that manufacture all sorts of chips to order for various customers. The biggest such company, Taiwan Semiconductor Manufacturing Co., makes about 70 percent of the world’s automotive MCUs. But the units for cars are only about 3 percent of the company’s output; it sells far more to makers of cellphones and personal computers.

“When COVID hit us about a year ago, the automotive guys canceled a lot of their orders,” said Phil Amsrud, a semiconductor analyst for IHS Markit. Meanwhile, demand for phones and laptops soared, and Taiwan Semiconductor and other chip makers ramped up production for those markets, creating a supply shortage when carmakers realized last summer that sales during the pandemic would be much better than they’d feared. They began ordering more electronic components from their suppliers.

“They were a bit surprised to find that that capacity was no longer available for them,” said Amsrud, as chip makers had their hands full making components for phones, laptops, and other devices.

Then in mid-March came a devastating fire at a chip plant owned by Renesas, a Japanese company that makes about 30 percent of the MCUs found in cars. Suddenly, a bad problem got worse.

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Major carmakers worldwide announced production cutbacks. Earlier this month, General Motors said it would temporarily shut down eight assembly plants due to chip shortages. Ford said the shortage forced production cuts at plants in Michigan, Illinois, Missouri, Ohio, and Kentucky. Even Toyota, which reportedly had built up a stockpile of electronic components, has taken a hit. A Toyota spokesperson said the chip shortage affected production of many models, including the Camry, Corolla, and Avalon cars, as well as Tundra and Tacoma trucks. But as of last week, production was back to normal.

Car retailers throughout New England confirm that the chip shortage is having an impact. Todd Skelton, chief executive of Prime Automotive Group, said his company’s two large Toyota stores each normally have 300 cars in inventory. These days, it’s down to 60. His Ford stores have only three or four F-150 pickups.

And forget about discounts and rebates for hot models. “The price on the sticker is the price of the car,” Skelton said.

Ironically, this means that while dealers have fewer cars to sell, they’re making much heftier profits on each one. “Instead of making a hundred bucks on that car,” Skelton said, “we’re making fifteen-hundred bucks for that car.”

David Rosenberg, the former owner of Prime, who now runs dealerships in Maine and Vermont, said the shortage also translates into soaring used car prices. That’s good news for shoppers with cars to trade.

“You’re paying more for the new car, but you’re getting more for your trade,” Rosenberg said.

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But it also means fewer bargains on the used car lot, with vehicles going well above typical prices. Cox Automotive’s index of wholesale used car prices reached its highest level ever in March.

“The dealer is bringing in more revenue per vehicle,” said Robert O’Koniewski, general counsel of the Massachusetts State Automobile Dealers Association, “but the consumer kind of takes it in the shorts.”

Chip makers have vowed to expand capacity. Taiwan Semiconductor is building a $12 billion plant in Arizona, while the US chip giant Intel recently said it will spend $20 billion on two new facilities, also in Arizona. But the plants won’t be online for at least two years and perhaps longer. For now, every industry in need of processor chips will be plagued with shortages.

Rosenberg said consumers who absolutely must buy a new car will have no choice but to pay more, settle for less, or possibly both. But for those who can make do with their current vehicles, “you should put off your decision to buy,” he said, “and wait until there are more vehicles on the lot.”


Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.