SEATTLE — Global microchip shortages are being felt at the local level as car shoppers pay almost retail prices for used vehicles.
A few dozen cars currently fill the lot at Daily Deals Auto Sales in Seattle.
“We take very good pride of all our cars. We buy them. We hand -pick them. Basically, we don’t just buy any car,” said owner George Riad.
As the name suggests, the company’s goal is to provide deals on cars.
“We have Subarus. We have trucks. e have sedans. We have manual transmissions. We have SUVs,” Riad said as he pointed to cars on the lot. “We try to do all prices from 3995, all the way to 40 grand.”
Since April, the small dealership has been selling cars faster than it can buy them.
The dealership tries to keep a full inventory of 50 vehicles. Today, it has 28 cars — the most Riad has had in more than six weeks.
“I ended up with, at the end of April, 10 cars,” Riad said. “And we were furious because we can’t replace the cars we’re selling, so that’s when we start pricing these cars a thousand to two thousand more.”
Last year, on average, Riad sold 20-25 cars a month. This year, that number has doubled. In April and May, he sold 45 cars a month on average. Even still, in August, he is selling 30 cars per month.
But more cars doesn’t mean he is making more money. In that same time frame, Riad said his profit margin has dropped 50%.
“We’re not buying them as cheap as we were buying them a year ago,” Riad said. “So we’re paying all this money for these cars, and our profit margin obviously dropped this year because, you know, we’re buying high, and we’re trying to compete with the market.”
The issue Riad is facing is part of a nationwide trend.
Earlier this year, a global microchip shortage hindered new vehicle production. In turn, used cars that would typically trickle down to small sellers were retained and purchased by large dealerships. Ultimately, this drove up the price of used cars to new, retail levels and made it difficult for small sellers to stay competitive.
“It’s simply supply and demand. We have so many buyers coming into the market and buying cars, and we cannot keep up with buying cars,” said Riad. “The newer car stores are basically buying these cars that they used to say, ‘Hey, we don’t want these old cars. We’re going to send to auction.’ And then the little guys like me will go to the auction and buy these cars. Now the newer car stores are keeping these cars for their lots because they’re empty. … So it’s just shortage of cars.”
In recent months, Riad said trying to purchase cars at the auction has been “cutthroat.” There are fewer vehicles. And oftentimes, they are sold for almost retail value because of the supply shortage.
“It blew my mind because how are you going to make money when you go to the auction and buy three, four cars at retail. How are you going to make money?” he said.
According to a new iSeeCars study, used-car prices nationally have jumped a staggering 32.7% since last June.
In Seattle, used-car prices have spiked 27.7%; that equates to $6,991.
Riad said that number holds true for newer cars in the market. Meanwhile, Riad said the older cars are up about $1,500 to $3,000.
For example, Riad purchased a 2016 Mercedes with relatively low mileage and only one previous owner at auction for about $31,000; he’s selling it for $31,995.
He will make less than a thousand dollars on the car and expects it to sit on his lot longer because his company is not a Mercedes-Benz dealership.
This time last year, that same car would have cost him $25,000 to $26,000. He would have sold it for $27,000 to$28,000.
“So, five to six thousand cheaper than what it is now,” Riad said.
Riad said with such a small profit margin, it doesn’t make sense for him to buy a lot of high-ticket cars. Instead, he finds cheaper, in-demand vehicles that will sell quickly.
“If we do enough a week, then we’re able to survive and sustain the dealership,” said Riad. “We try to price these cars very aggressive, so I don’t want it to sit on the lot for two months or 50 days.”
Currently, Riad is selling about 28 cars a month and makes between $700 and $1,000 per vehicle.
While sales have slowed since April, Riad doesn’t expect the buying frenzy to end just yet.
“I think it’s going to maintain this for another six months to a year. I would say it’s not going to be anytime soon … because the auction is still going to be very high prices,” he said.
According to the study, sports cars and pickup trucks have seen the steepest price increase, making them the worst to buy and the best to sell. Small SUVs, hatchbacks and minivans are the most affordable.
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