Low supply results in customers buying new cars sight unseen

Lost are the days when a person could walk into a car dealership and drive away with the vehicle of their choice on the same day.

With the scarcity of new cars, dealerships across Nova Scotia are seeing buyers put a deposit on vehicles they haven't even seen, only to wait months for it to be delivered from the manufacturer. 

The Bruce Hyundai dealership in New Minas, N.S., currently has about 20 new cars in its lot. Last year at this time, it had about 200.

This isn't an isolated case. 

"There's a much higher demand, a much lower supply, so I think customers are starting to panic. It's almost like the housing market," said Bruce Hyundai's general manager Brittany Deveau.

Industry experts say a worldwide shortage of microchips used in vehicles, along with the war in Ukraine that has disrupted the supply of neon gas used to make semi-conductors, has hit the auto manufacturing industry hard.

Being in the business for 15 years, Deveau said she's never seen a market like this. 

She said customers can expect to wait eight to 18 weeks for gas vehicles and between 24 to 36 months for electric vehicles, whose popularity has increased during the pandemic. The dealership's main electric vehicles, the Hyundai IONIQ 5 and the Hyundai Kona Electric, already sold out for 2023. 

"We've had customers that have never seen maybe, you know, a Kona Electric and they're putting down a $1,000 deposit and buying one sight unseen," said Deveau.

Used cars with a hefty price tag

Halifax resident Jehezkiel Eugene has been looking for a Mazda CX-30, which has been difficult for him to come across. He said he found a listing on the site AutoTrader selling a mid-size model of the car with about 20,000 kilometres on it, but it was for over $5,000 more than the manufacturer's suggested retail price.

"This is, like, a seller's market, right? They can pretty much increase the kind of prices that they want and people will likely still buy it," said Eugene. "There's fewer cars in dealership lots anywhere I go across town." 

Reddit users across Canada are discussing their experiences buying cars and then flipping them at a higher price, something Eugene considered with the 2018 Mazda3 Sport he purchased in August 2020. 

"I went to a dealership and just asked for a quote for how much my car was worth. And guess what? I was able to get more for my car than what I got it for," he said, adding he decided in the end not to sell it. 

Deveau said her dealership is also minimizing its intake of used cars as inventory because of the jacked-up prices on used cars in Canada and the U.S.

"It's hard for us to purchase from an auction or from an outside source because the prices that they're asking are more than the vehicles are worth brand new," she said. "So it's hard for us to pay such a top dollar wholesale and then try and retail it on our lot without asking an obscene price for a vehicle."

Dealerships across Canada saw a dip in sales when the pandemic hit. In the summer of 2021, at the same time travel bans were lifted, car sales picked up. 

In the past, customers would come in, buy a vehicle and pick up their car, but now sales staff are spending a lot more time ordering vehicles, Deveau said.

Supply chain issues

John Sutherland, the executive vice-president of Nova Scotia Automobile Dealers' Association, said he believes it's not demand that has risen, rather it is supply chain issues creating complications for customers seeking a new car. The worldwide shortage of microchips during the pandemic has disrupted the supply of cars.

Data analyzing 2021 trends by AutoTrader revealed that shoppers began widening their vehicle search last year. Approximately 31 per cent of them were willing to travel over 400 kilometres to find the vehicle of their choice. Twenty-seven per cent of the shoppers surveyed even expressed their readiness to buy used over new.

"We don't have the level of inventory on lots that we would customarily have in normal times. Sadly, these are not normal times," said Sutherland.

"I think many people before the pandemic were accustomed to go into a car lot and there would be almost an overabundance of inventory. We're certainly not seeing that now."

Amanda Dean, the Atlantic Canada vice-president for the Insurance Bureau of Canada, said with the inflation rate rising to 30-year highs the cost of repairing or replacing vehicles after an accident is increasing.

"A shortage of parts is leading to longer cycle times to repair vehicles. In turn, this is leading to longer vehicle rentals for consumers to use while their vehicles are being repaired, and the price of these rentals have increased considerably over the last little while," said Dean, adding that market prices are dictating the cost of rental cars.

Dean said car rental fleets have been 30 to 40 per cent below pre-COVID levels and many car rental operators had to sell idle inventory when travel bans were put in place.

At this point she said there is no telling when prices will return to normal.

"We have the Canadian Black Book average pricing, in which the average price of a used car in Canada has increased by 34 per cent between 2021 and 2022. So that's a clear sign of just how low supply is at this point in time," said Dean.

"It's a perfect storm at the moment, and we're not sure when it will end and these pressures within the broader market will be alleviated."