Jeff Gordon Chevrolet on College Road is receiving trucks daily with anywhere from 10-30 vehicles on them, according to spokesperson Mark Santilli. (Port City Daily/Shea Carver)

NEW HANOVER COUNTY — “There are on average 1,400 microchips in a car,” Bobby Mills said, “and the build time takes around 12 weeks for each.”

Last year, when the pandemic impacted production on vehicles worldwide, little did Mills know that 15 months later the aftereffects would continue inflicting his four dealerships across the southeastern Carolinas, including Bob’s Auto Center on Market Street. Today’s inventory, he said, is 50% less than it was a year ago.

The main cause: semiconductor microchips — to be more specific, a shortage of them.

The microchip is a $433 billion industry, according to the Semiconductor Industry Association. The U.S. accounts for only 12% of its production, putting the nation at the mercy of foreign manufacturing (President Joe Biden wants to include in his infrastructure proposal $50 billion in incentives to establish a center for research and design of microchips stateside). The chips are necessary components in almost every modern-day amenity — cellphones, gaming consoles, computers, equipment of all kinds.

“Facebook, Apple, Google, they took off during Covid,” Mills explained. “So they are the 800-pound gorilla.”

According to Reuters, Intel Corp CEO Pat Gelsinger told industry makers at a virtual trade show that Covid’s work/study-from-home trend, which put individuals more dependent on electronics, really catapulted the semiconductor industry. In turn, it has strained global supply chains. By the time the automotive industry was interested in ramping up production after initial shutdown, microchip manufacturers were swamped by other orders. 

Many also were adjusting to Covid-19 workforce restrictions, weather-related impacts and even disasters, such as Japanese semiconductor manufacturer Renesas — which accounts for 30 percent of all microchips for the automotive industry, according to Automotive News. The plant experienced a fire in March 2021 that damaged equipment.

The microchip shortage has led to decreased automotive production, causing increased prices on new cars and in turn driving up the need for used vehicles. Nowadays, Noah Woods, general manager of Capital Nissan in Wilmington, said it’s a seller’s market in the preowned vehicle world. Prices are the highest they’ve been for used automobiles perhaps ever: “I’ve been doing this 22 years. That has never happened in my 22 years in the business.”  

Woods said used cars are selling for 15% to 25% higher than last year. The preowned market has helped dealerships build inventory in the face of the new-vehicle dry spell. 

“We sent emails to our customers saying, ‘If you’re in the market, you should know your car’s worth more now than it ever has been in the last three, four or five years,’” Woods said.

Mills turned to the Kelly Blue Book (NADA) to look up the manufacturer suggested retail price (MSRP) on a 2018 Chevy Silverado, four-by-four crew, with 90,000 miles. He said in three months, from April to June 2021, it went up by $7,000.

“Retail was $33,000 in April,” Mills detailed. “[T]hen $37,000 in May and, now, in the month of June, the NADA book on that same vehicle is $40,000.”

“The U.S. car situation falls into the ‘halo effect,’” Jeff Gordon Chevrolet spokesperson Mark Santilli said. The lack of production on new cars, in effect, influences one’s perception in other areas of the industry. “Because there’s limited availability, used cars become that much more valuable,” Santilli explained. 

Though minimal new cars are coming in marketwide, dealerships are buying up inventory aggressively elsewhere. Mills said he’s constantly at auctions and purchasing from the public. Whereas before he parked 500 cars on his lots, today he averages 250. 

Within the last 100 days, he purchased 160 new cars from other dealers. 

“Had we not done that, we would be completely out of new-car inventory,” Mills said.

Woods’ normal stock of 400 cars a month — a 150- to 180-day supply — now sits at 105, a quarter of the norm. He pulls in around 25 or 30 new cars a month. Before, Woods placed allocations twice monthly that could give customers a three-week wait for factory pre-builds or 90-day custom orders. Tthat’s not the business model anymore.

“If you were running short and had a really good month, you could pick up the phone and say, ‘Hey, I need 20 Altimas,’ for example. And if they had 20, I might have them in about a week or two. That’s no longer happening.”

Noah Woods at Capital Nissan on Market Street said his inventory went from 400 cars a month to around 105 a month from the semiconductor microchip shortage. (Port City Daily/Shea Carver)

Getting a handle on product lines

The International Organization of Motor Vehicle Manufacturers reports a 19% decrease in product last year, going from 10,892,884 units made in 2019 to 8,822,399 in 2020. Global sales dropped from over $90 million to almost $78 million. Provisional statistics for 2021 show a deficit of around 2 million units, when comparing data from 2019 to 2021 between January and March.

More concerning to dealers are reports from microchip manufacturers noting it could be a two-year stretch of shortages ahead. It’s forced the automotive industry to get creative in how they handle the repercussions. 

According to Woods, Nissan started experiencing the shortage around November 2020. By the beginning of the new year, was when he found out new-car production would be cut. He said one way Nissan decided to combat the chip shortage was by using less technology on new builds, specifically eliminating pre-installed navigation systems from a third of its vehicles. “So at least we’re going to have products available to sell,” he said, “and we can still continue to gain market share.”

He doesn’t think the lack of GPS will affect sales too badly, since most people have smartphones.

“I saw something the other day where GM [has] a handle on some of their product lines — that they can produce without the chip,” Woods said. “So their production is going to be ramping up quicker than some of the others.” 

Santilli confirms Woods is correct. General Motors has unchipped vehicles in holding areas awaiting to be finalized — a seatbelt sensor here, a GPS processor there and they’ll be shipped. Essentially, most modern-day vehicles are tethered to digital engineering in some fashion.

Santilli called GM’s strategy a “build-shy approach.” With GM being the largest automobile manufacturer in the world, it faced production cutbacks at some plants instead of ceasing all production of assembly lines. 

“When you just shut down a plant, you’re laying off all these other suppliers that would provide things like seats and trim,” Santilli said.

In essence, GM tried to prevent a massive ripple-effect of fracturing the supply chain more. It strategized which autos to build and chip first, honing in on its most popular sellers — Silverado, Equinox, and SUVs — rather than lower-volume automobiles like Malibus.

“My new-car sales objective is trucks, overwhelmingly — as a matter of fact,” Santilli said. 

He noted a load of Chevy Colorados are parked at a midwest GM plant that recently came back online. The trucks are waiting to be chipped to be shipped.

“They have acres and acres and acres of them built,” Santilli said, “so about 400 trucks a day are getting retrofitted. They’re installing the chips and then putting them on carriers to go out to the dealerships.” 

Santilli said GM has the goal to have all plants up and running by the end of the month in hopes of stabilizing new-car production a little more. Right now, a good day of inventory would be a couple hundred cars a month on the lot, according to Santilli. Still, he said, Jeff Gordon Chevrolet is experiencing a record sales year for 2021 — one of the best he has seen in his 23 years in the business: “It almost defies logic.” 

The benefit for Jeff Gordon is being part of the Hendrick group of dealerships — seven of which exist in Wilmington. Thus, they share inventory within the network.

Locally, Santilli said Jeff Gordon is receiving transporter trucks daily — some days up to four, other days only two, with 10 to 30 vehicles dropped at a time. “Mostly Silverados, Tahoes and Suburbans,” he explained, “so, obviously, you can fit fewer of those vehicles, but GM also has smaller trucks. So they’re keeping that pipeline going.” 

The supply doesn’t stay on the lot very long, though. If Jeff Gordon receives 15 vehicles in a day, they’re going quickly. Santilli, Woods and Mills compare this rabid consumer interest to the current real-estate market in Wilmington. Demand is so high, houses are being sold quickly and over asking price at every turn.

RELATED: Residential real estate inventory hits record low in a frenzied sellers’ market

“[T]hat house isn’t necessarily getting any better in just one year, right?” Mills reflected. “So that 2018 Chevy Silverado didn’t get $7,000 better in three months. It’s inflation.”

Woods said it’s a new reality facing multiple industries. Lumber, meat, paper, to-go products, condiments all have increased in prices over the last 15 months because of shortages. 

“It’s a domino effect,” Woods said. “It’s crazy — boats, recreational vehicles, appliances, all types of things are seeing six- to nine-month delays because of the microchip shortage.”

More so, the shortage impairs dealerships in other sectors. Service and finance departments take a hit, naturally meaning less revenue but also infringing on customer-service satisfaction.  “A friend of mine had a motor that blew on a Hyundai,” Mills said. “Well, they don’t have an ETA when she’s going to get a new one. She’s had the car there for three months and they don’t know how much longer they’ll have it.”

For Capital Nissan, the shortage stretches into its rental-car department. Woods said last year, the industry began selling fleets of cars during the shutdown, after travel restrictions were put in place. Now, as more people book vacations and get back to work-related travel, rental-car companies are struggling to plump up a variety of automobiles and can’t always guarantee customers’ requests. 

“Long gone are the days of picking up the phones, and [saying,] ‘Hey, I need a Ford Expedition or Nissan Altima for this week.’ You might or might not get one, whereas before they used to have 10 or 15 available, depending on location. And, even if they do have something available, they’re charging more because of the availability.”

Woods said he is operating with 20 cars in his rental fleet right now, and has experienced a 16% decline in inventory. As of June 1, prices increased by 20% for Capital Nissan rentals.

“It’s not because we’re trying to make more money,” Woods clarified. “It’s just supply and demand.”

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