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Chip Shortage Translates to Higher Auto Prices

The global auto sales industry faces a significant shortage of microchips, driving down inventory for dealerships in the Valley region at a time when inflation has spiked sales prices for the cars on the lot.“There has been some rubber and steel supply chain disruptions that kind of remedied themselves pretty quickly. It’s the chip that is the long-term play,” Bob Smith, executive director of the Greater Los Angeles New Car Dealers Association, said. “It’s taking its time to work, you know, to get the supply chain flow back to where it was. It is not a quick fix.”Smith’s uncle, Tim Smith, owns Bob Smith BMW in Calabasas, No. 20 on the Business Journal’s list of Auto Dealerships.The shortage of microchips has drastically decreased inventory of new cars available to dealers by creating production slowdowns and shutdowns at Ford Motor Co., General Motors Co., American Honda Motor Co. and other manufacturers. Despite the limited supply, demand has remained strong; as a result, available cars have been selling faster, for higher prices and to customers who are forced to be more flexible about their must-haves in a purchase. The consumer price index for July reported new cars as 6.4 percent expensive compared to a year ago, while used vehicles are up 41.7 percent. Valley dealers trying to navigate the shortage, as well as the lingering impacts of the pandemic, have been forced to change business procedures to accommodate the high demand.

“(The microchip shortage’s) impact has been felt worldwide and goes beyond the production of automobiles. Since COVID, we have continued to see very strong consumer demand for automobiles. However, filling that demand has been a challenge due to the microchip shortage resulting in limited inventory. Thus, managing the demand has forced us to do business a bit differently than we’re used to,” read a statement from Galpin Motors, which represents five of the top 20 dealerships on the list.Smaller sales staffGalpin encourages customers to use technology, given COVID-19’s lingering impact.“We really encourage our customers to do as much of the transaction online as they feel comfortable,” the dealership said in its statement. “For some, this may just be information gathering and for others this may include the entire sale transaction. As a result, we have learned that the process to sell a car can be done more efficiently with fewer people. We believe this is long-term and the future of the business.”Galpin, as well as other local dealerships, are operating with leaner teams and developing the increased online-sales capacity needed to handle the shift in consumer preferences, while simultaneously working to upgrade the existing dealership experience. Lithia Motors, which owns Center BMW in Sherman Oaks, announced in June it changed the name of the dealership to BMW of Sherman Oaks, signaling a shift toward more community-focused marketing. While the changes have resulted in increased buy/sell activity, which in turn has produced steady revenue streams, the inventory shortage remains a potential concern for industry leaders.“I have 21 new cars left on the lot. We sell close to 50 a month,” Don Fleming, owner of Acura of Valencia, said. “Now, supposedly we have a few cars coming but we’ll see them trickle in. But at least something. It depends on the chip manufacturers. We’re wholly dependent on our factory to present us with cars. They’re saying they can’t give us cars until they have chips for them, so it’s still up in the air.”In the last year, a number of Valley area dealerships changed hands. Lithia Motors, a publicly traded company in Medford, Ore. bought five Keyes dealerships in Van Nuys, as well as Acura of Sherman Oaks, Lexus of Valencia, Audi Valencia, and Mission Hills Hyundai.Lithia already owned the Downtown Los Angeles Auto Group, purchased in 2017, which consisted of several dealerships: Audi, Mercedes-Benz, Nissan, Porsche, Toyota, and Volkswagen stores located in downtown Los Angeles as well as a Nissan store in nearby Carson. The auto retailer is now the third largest in the nation, with 262 locations nationwide.

Katherine Tangalakis-Lippert
Katherine Tangalakis-Lippert
Katherine Tangalakis-Lippert is a Los Angeles-based reporter covering retail, hospitality and philanthropy for the San Fernando Valley Business Journal. In addition to her current beat, she is particularly interested in criminal justice topics, health and science stories and investigative journalism. She received her AA in Humanities from Moorpark College in 2016, her BA in Communication from Cal Lutheran University in 2019 and followed it up with a MA in Specialized Journalism from USC in the summer of 2020. Through her work, Katherine aspires to help strengthen the fragile trust between members of the media and the public.
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