In the tight US car market, dealer lots sell out and junk yards make money.

Eight out of the 10 Chevrolet Silverados had been sold even before they arrived at Katie Coleman’s car dealership this month. The other two disappeared a few hours later.

That is how fast vehicles sell as the chip shortage continues to grip the auto industry. Coleman’s typical 90-day inventory has dwindled to less than two. Her dealership, Bowman Chevrolet outside Detroit, has even sold a fleet of “loaner” vehicles that had previously been lent to customers whose cars were being repaired.

“We wish we could drive bikes,” Coleman joked, “so we could sell [our own] cars.”

The semiconductor shortage that has disrupted global car manufacturing industry is touching every player in the chain of businesses supplying, building, selling and disposing of cars and trucks in the US, a country of 276m registered vehicles. Even junk yards struggle to replenish inventory.

The pinch originates from a slowdown of semiconductor orders by automakers last year, as vehicle demand momentarily sank at the onset of the pandemic. Supplies tightened further when a fire destroyed a Renesas Electronics chipmaking factory in Japan. Over the summer, production in Vietnam and Malaysia was hit by government-imposed restrictions meant to control the Delta coronavirus variant.

When consumers returned to dealer lots more quickly than had been expected, automakers found themselves waiting in line for limited chips behind other foundry customers, from manufacturers of electronic devices to appliances. Car manufacturers including Ford and General Motors have been forced to idle factories and shifts.

Automakers traditionally avoided buying chips directly from semiconductor producers, but that seems poised to change. GM chief executive Mary Barra said on Wednesday that in future the company may form “strategic partnerships” or joint ventures with suppliers, or simply sign longer-term contracts, to secure a steady stream of chips. “We’re re-evaluating, and having direct relationships with tier-2, -3 and -4 suppliers,” she said.

Bowman Chevrolet usually sells about 5,000 new vehicles and 1,200 used each year, managers at the Michigan-based dealership said. This year the volume on both has been more than halved.

Salespeople were encouraging advance orders of vehicles. Yet some customers remained unaware of the shortage roiling the industry, Coleman said. Several with cars under lease have arrived at the dealership on its expiry date, expecting to pick out a new vehicle. For now, banks are extending leases.

Coleman said she continued to honour GM employee and supplier discounts and, unlike some competitors, she refuses to sell above the manufacturer’s recommended price. But there are no other discounts to customers these days.

“There are some lessons to be learned out of tighter inventory,” Coleman said. “But not this tight. This is like Thanksgiving-dinner-when-you-unbutton-your-pants tight.” Empty spots were scattered around Bowman Chevrolet’s lot on a recent visit.

Scarcity at dealerships has fed into markets where wrecked, damaged and worn-out vehicles are sold. Consumer prices for used vehicles were up 32 per cent on year in July, government statistics show, while new-vehicle prices rose more than 7 per cent from a year earlier.

“We’re seeing dramatically increased demand,” said John Kett, chief executive at IAA, an Illinois-based publicly traded company that auctions off vehicles for sellers including insurers, dealerships and rental fleets. “It all flows downhill.” 

Buyers at IAA’s auctions generally are looking for either parts or exports. The company receives higher fees when it sells a car for more money, and Kett said this year “revenue per unit is way up”.

“We do expect the level of demand to moderate, but it’s really tied to the new car supply,” he said. “As that begins to filter through the used car market, we believe it’s going to moderate our market at some point. But when that is is hard to predict.”

The value of US used-car exports has jumped by a third in 2021 to the highest level in years, averaging about $650m a month, according to the US International Trade Commission.

Higher used-car prices have squeezed profits for Kyle Weisner, whose family has owned the Victory Auto Wreckers junk yard and towing business in suburban Chicago for more than 50 years. Last year, his company could count on buying 400 cars and trucks a week from the public. Now, as people hold on to their vehicles longer, it is about half that volume, and Victory employees are travelling farther to collect the vehicles.

The business was not licensed out of state, Weisner said, but if the vehicle’s owner “can push it over the state line from Wisconsin to Illinois, we’ll get it”. 

Victory is paying more for old vehicles as it competes with other salvage companies for limited supplies. Yet it is sitting on more inventory as scrap recyclers have been slow to accept more vehicles. Even as the price of steel has climbed, the shredder’s price per short ton of cars had dropped from $280 in June to $230 this month, Weisner said.

He suspects they are reluctant to buy vehicles because US automakers — among of the country’s biggest steel users — are making fewer cars because they cannot source chips. “We’re buying cars today at today’s price to sell possibly two, three months down the road where the market has steadily been falling,” he said.

To add insult to injury, Victory Auto Wreckers has had two tow trucks on back order since May. July came and went without delivery, and the sales representative has stopped taking Weisner’s calls.

“I guess we’ll be like everybody else and just keep fixing” the old trucks, Weisner said. “We don’t have a choice.”

hello, I am Flora Khan and i work journalist in allnewshouse website i work in other sites like forbes and washington post with 5 years in experience.

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