Pandemic-induced Demand Spike, Supply Shortage Sparks East End Car Dealership Crunch

East End drivers shopping for new vehicles are having a harder time navigating the market amid both halting auto manufacturing and rising demand from increased year-round residents who fled the coronavirus pandemic.

Demand is up not only from New York City residents who decamped to the Hamptons and the North Fork to escape COVID-19 last year, but also pre-existing year-round residents such as contractors seeking new trucks to fulfill extra work orders. Supply is down as automakers are cutting production due to a global microchip shortage rippling through the manufacturing sector since factories were halted during the first wave of the coronavirus in March 2020. The converging forces are racing toward a collision course for the region’s car dealerships — one that appears destined to get worse before it gets better and may not be resolved for weeks, at best.

“I was down to five cars at one point,” says Rich Mullen, owner of Mullen Motors in Southold, one of several car dealers across the Twin Forks reported seeing similar trends of typically Subway-dependent city transplants needing a new set of wheels to get around. “It’s almost like it’s summertime year round. You don’t get that lull anymore.”

Revved-up auto sales is part of the skyrocketing demand for everything from food to real estate across the East End economy, which is adjusting to the influx of new residents over the past year. But compounding the issue for the car lots is the dwindling inventory.

“March auto sales are shaping up to meet or exceed pre-COVID levels,” IHS Markit analyst Chris Hopson told Reuters. “The big rebound from the prior month was assisted by stimulus and any pent-up demand from weather impacts in February. However, the stronger sales results are bumping against ongoing production issues, creating what could be a volatile demand environment over the next few months.”

Higher demand and tight supply has allowed automakers to raise prices in the United States, with the average price of a new vehicle reaching $37,314 in the first quarter, up nearly $3,000 from a year earlier and over $4,000 higher than 2019, auto consultancies J.D. Power and LMC Automotive said. Fueling demand beyond Long Island are rental car companies nationwide looking to restock while bracing for a recovery in the travel and tourism industries.

The Alliance for Auto Innovation, a U.S. auto industry group, on April 5 urged the government to help as it warned the global semiconductor shortage could result in 1.28 million fewer vehicles built this year and disrupt production for another six months. The group represents nearly all major automakers with factories in the United States including General Motors Co, Ford Motor Co, Volkswagen AG, Toyota Motor Corp and Hyundai Motor Co.

Some funding should “be used to build new capacity that will support the auto industry and mitigate the risks to the automotive supply chain evidenced by the current chip shortage,” the group’s chief executive, John Bozzella, wrote.

Automakers have been hit particularly hard by the chip scarcity after many cancelled orders when auto plants were idled during the coronavirus pandemic. When they were ready to recommence production, they found that chipmakers were busy fulfilling orders for the consumer electronics industry which has seen demand for premium devices — both for work and leisure — boom as people spent more time at home. General Motors Co. and Ford Motor Co. are among the big carmakers who said they would scale down production, joining other automakers including Volkswagen AG, Subaru Corp., Toyota Motor Corp. and Nissan Motor Co. 

President Joe Biden met with executives from major companies on April 12 to discuss the chip shortage, which spurred Intel Corp to announce it plans to make chips for car plants at its factories in the next six to nine months. During the meeting, Biden said he had bipartisan support for legislation to fund the semiconductor industry. He previously announced plans to invest $50 billion in semiconductor manufacturing and research as part of his drive to rebuild U.S. manufacturing under a $2 trillion infrastructure plan. Biden and his top advisers view the semiconductor shortage as a “top and immediate priority,” the White House said after the meeting.

Sanctions against Chinese tech companies have further exacerbated the crisis. Severe winter weather in Texas has also forced Samsung Electronics Co Ltd, NXP Semiconductors and Infineon to shut down factories temporarily. Infineon and NXP are major automotive chip suppliers, and analysts expect the disruptions to add to the shortfalls in the ailing sector. Automobiles have become increasingly dependent on chips for everything from computer management of engines for better fuel economy to driver-assistance features such as emergency braking.

Originally concentrated in the auto industry, the shortage has now spread to a range of other consumer electronics, including smartphones, refrigerators and microwaves. With every company that uses chips in production panic buying to shore up stocks, the shortage has squeezed capacity and driven up costs of even the cheapest components of nearly all microchips, increasing prices of final products.

On the East End, the car crunch is having a ripple effect among some home improvement contractors who need trucks to meet increased calls for repairs and renovations as more people are spending added time in their houses.

“The trades are so busy,” Tom Otis Jr., vice president of Otis Ford in Quogue, says, noting he’s operating at about 50% normal capacity. “We’re selling a lot of commercial stuff.”

The service departments at local dealerships are similarly feeling the pinch. With more year-rounders on the road, there’s more cars in for repairs, but the inventory shortage includes both vehicles and parts.

“Parts delays have been a serious problem on the service side,” Otis says, adding that this is an issue for all makes, not just Ford. “A truck is just a bunch of parts put together, so not being able to get vehicles is the same as a parts delay for an A/C condenser component.”

If the suppliers were able to get more vehicles to the local lots, sales would surely spike higher. The issue is unlikely to offer a silver lining by easing the perennial traffic jams that snarl East End roads each summer. But some car lot owners are drawing on their sales training and spinning the development as a positive.

Says Mullen, “It’s better than having a million cars that nobody wants!” 

-With Reuters