Craig Daitch had his eye on a new Jeep Grand Cherokee but when he went looking to buy, “couldn’t find a car” in the first four showrooms he visited. When he finally found one with the SUV in stock, the dealer not only wouldn’t bargain, but demanded a $3,000 “adjustment fee.” Daitch turned him down.

The suburban Detroit owner of a strategic communications firm is by no means the only American motorist whose search for a new vehicle has proven unexpectedly challenging due to a major shortage of inventory on dealer lots. Social media is full of stories about buyers being asked for — and often paying — a premium running four or even five figures for the vehicles they want. And that’s if they can even find the right model.
“When the trucks come in there are usually buyers waiting for five out of six cars,” said Bob Carter, head of U.S. sales for Toyota and Lexus.
The cupboard is bare
On some models, Carter added during a recent media call, the two Japanese brands have less than 10 days of inventory on dealer lots, the industry norm around a 60- to 65-day supply of unsold vehicles. While Toyota may be at the extreme, it is far from the only manufacturer whose dealer lots are practically bare.
As of July 19 the total inventory of new vehicles in the U.S. stood at just 1.2 million, according to Cox Automotive Senior Economist Charlie Chesbrough. The traditional summer norm is closer to 3 million.

There are several reasons why inventories have fallen so low — but the COVID pandemic takes primary blame.
Critical mistake compounded the impact of pandemic shutdowns
In March 2020, as the virus began its deadly spread across the U.S., the North American automotive manufacturing network ground to a halt, most factories shutting down for at least two months. Even when they reopened, production stammered along, at first, as new protocols meant to protect workers, were implemented.
Had initial forecasts proved out, that might not have been a problem. Sales tumbled by roughly 40% in March and April 2020. But the complete collapse of the market many analysts forecast never came to bear and, by late autumn, U.S. new vehicle sales were largely back to pre-pandemic levels. So, manufacturers started adding overtime, hoping to build back stocks.

Then they were hit with the proverbial double-whammy. The industry had slashed orders for the semiconductors used by the dozens, even hundreds, in today’s vehicles because they were not expecting to produce vehicles at their normal rate. Chip manufacturers, in turn, redirected production to supply soaring demand for consumer electronics. And, now, automakers are at the back of the line.
In recent months, virtually every auto manufacturer has had to slow production, many temporarily shuttering plants. The huge Nissan assembly operation in Smyrna, Tennessee won’t reopen until Aug. 30 — and only then if the automaker can find the chips it needs. In some cases, automakers are partially assembling vehicles then storing them until they have the missing parts for infotainment systems, digital safety devices and electronic engine controllers.
End of incentives?
“A recurring theme was finding out that vehicles dealers said they had online weren’t available,” said David Ross, who works for a Michigan marketing firm, and who had hoped to buy a new SUV. “There was a complete lack of inventory,” he said, adding even worse was dealers weren’t even considering discounts. Ross says he wound up paying about 15% more than he expected when he finally found a vehicle.

For buyers, that’s the one-two punch. The average transaction price — what car buyers actually pay after factoring in things like incentives — surged to $42,736 for the month of July, an all-time record and an increase of $402 from the month before, according to Cox Automotive. Prices have risen about $3,000, on average, from pre-pandemic levels.
“While transaction prices marked new highs in July, new-vehicle incentives continue to fall,” said Cox Automotive Analyst Kayla Reynolds. “Last month, incentives amounted to just 5.9% of ATP, the lowest amount in more than a decade. Excellent new-vehicle deals are certainly hard to find.”
Susan Dushane and son, Mike, learned that when they started looking for a new Kia Telluride a few months ago. He contacted every dealer within 200 miles of his mother’s home in Orlando and found many “wanted $10,000 over sticker.” They finally found one retailer who settled for a $6,000 premium above MSRP.
Crisis could stretch into 2022
While there are “some signs of stabilization” in terms of new car inventory, said Cox Automotive Economist Chesbrough, there are few indications motorists will find it much easier — or cheaper — to purchase a vehicle anytime soon.

The critical question is when the industry will find shortages of semiconductors easing up. Some analysts believe that could happen by autumn. Others are far less optimistic. That includes planners at Mercedes-Benz. The automaker recently notified U.S. dealers that, with one exception, they won’t get V-8-powered models for at least the early part of the coming model year. And that could extend indefinitely because of a shortage of digital control technology.
During a recent call with analysts, CEO Ola Källenius warned that the chip shortage won’t be resolved any time soon. “Probably in 2022,” he said, “we’re going to talk about this as well. Improving the supply stability, needless to say, is a top priority for us.”
Ironically, there has been an upside to the crisis, at least from a dealer perspective. By slashing discounts and, in many cases, tacking on premiums, retailers reported strong first-half earnings. Some, including giant AutoNation, delivered record profitability.
But as inventories have continued falling, and U.S. sales have started to drop, dealers could also be hurt in the months ahead.
Plunging profits, despite higher prices

Carmakers generally have been able to work around the problem. Some delivered surprisingly strong profits for the most recent quarter, but they also are looking at diminished numbers going forward.
Ford has so far lost more than 340,000 vehicles worth of production in 2022, a third of that made up by its single most profitable product line, the F-Series pickup.
“Every 100,000 units of lost F-Series production costs Ford about $4.7 billion of revenue,” wrote Morningstar’s David Whiston in an Aug. 13 report. “Given what we assume is an EBIT margin in the high teens to 20%, we calculate lost EBIT of about $937 million for every 100,000 lost U.S. F-Series wholesale units.”
The semiconductor shortage has spared few. Even used car buyers are finding it tough to shop in today’s market. Prices have soared to record levels for virtually all models, even those with over 100,000 miles on the odometer. Web publisher Tim Esterdahl expects to sell the F-150 Power Stroke Hybrid he bought last year and has already gotten offers above what he paid for the truck.
“It’s just crazy out there,” said Daitch. “I still need something,” he adds, but, for now, “I’m just going to hold out as long as I can.”