- All right, I think we found one.
- [Narrator] This is Adam Lee.
He's the chairman of Lee Auto Malls,
which owns 16 dealerships in Maine.
- That's used.
Used.
Used, used.
- [Narrator] He's looking for a new car
on their Toyota lot.
- I don't know if we're gonna find a new car
but let's keep walking for a minute.
- [Narrator] This is an experience recent car shoppers
are likely familiar with.
Pandemic-related supply chain issues
have pushed new vehicle inventory
to historic lows, prompting higher prices
and months-long waits for new cars.
- People wanna buy more cars than we have,
than we can possibly produce.
This is not something
that's happened in the industry in decades.
- [Narrator] The disruption, coupled with the shift
toward electric vehicles is now causing consumers
and automakers to rethink how Americans buy cars.
So let's take a walk around a dealership
and through an EV showroom
to see how the car purchasing process has changed
and what it might look like in the future.
Buying a car has typically started here,
at the dealership, but these days,
there's not much to see.
- If you'd come here a couple of years ago,
you just would have seen row after row,
probably 10 to 15 rows of new inventory
and some used
but now what you've got is a whole bunch of empty lot.
- [Narrator] Nationally, there were about
1.1 million new vehicles available at the end of May.
That's less than 1/3 of what it was pre-pandemic.
And inventory at Lee's dealerships
is the lowest it's ever been.
- I found one, I found the one car we have,
the one new car.
- [Narrator] So rather than searching the lot,
many shoppers now search the internet.
- We are seeing an increasing level
of pre-car buying activities happening online,
whether that's researching what kind of vehicle you need,
whether that's reaching out to the dealership
and increasingly being able
to see what inventory the dealership has.
- [Narrator] At Lee's dealership,
sales representatives field these online inquiries,
helping shoppers find cars
and warning them about which vehicles
may not be in stock for weeks, even months to come.
- In some cases, we have a one-year waiting list.
And so we sort of try to encourage them,
if they're looking at a vehicle
that's gonna take a year to arrive
to look at alternatives.
And a lot of times,
people they know what they want, they'll wait.
- [Narrator] Waiting means getting in line.
And getting in line means putting down a refundable deposit.
- Shem, how are you? - Good.
- [Narrator] At Lee's Toyota dealership,
around 300 deposits are still waiting cars.
- On the one hand, it's nice to have 300 sold orders
in the bank.
When the cars come in, they go out.
On the other hand, in the old days,
those cars would have already been sitting on the lot
and we would have delivered them already.
But everyone seems to have adapted pretty well.
- [Narrator] Analysts say leaner inventory
has actually benefited many dealers
as the expense to carry a vehicle on the lot
is greatly reduced.
- The less time you keep a vehicle
on your dealership lot,
and the faster that you can sell it,
it is going to be a more profitable sale.
- [Narrator] Overall sales volume at Lee's dealerships
are down roughly 10 to 15% from pre-pandemic levels
but he says the business, like many other dealerships,
is still quite profitable.
A big reason?
The cost of cars.
- I happen to have the MSRP sticker
to the one new car we have in the lot.
- [Narrator] That price Lee is showing
is the manufacturer's suggested retail price or MSRP.
Suggested is the keyword here
because dealers are the ones
who ultimately price the vehicle.
So this car is 45,109.
- [Narrator] Typically, buyers would negotiate
that price they see in the window down even further but now.
- I don't think there's an awful lot of negotiating going on
on the price of the new car,
at least not at our stores.
- [Narrator] With few cars and high demand,
shoppers don't have much power to negotiate.
But dealers and analysts say negotiations
were trending out even before the pandemic.
- Price negotiation is a scenario
that consumers love to hate.
Hate to love.
(Stephanie chuckling)
And they want to be able
to feel like they've gotten a bit of a deal on something
but they don't like the process of it.
- [Narrator] Even without negotiation though.
Shoppers could typically expect to pay less,
thanks to deals and rebates that push prices below MSRP.
But incentive levels on new vehicles
hit historic lows in May,
averaging 2.5% of the average transaction price.
- Right now, dealers don't have to offer them.
When they're going to have to offer incentives
and when this negotiation sort
of starts to resume will depend on inventory coming back.
- [Narrator] And that could take more
than a year analysts say,
meaning prices are likely to remain high.
So far this year, average prices
have been over MSRP each month.
In May, buyers paid an average of about $900 over sticker.
For in-demand models, markups can be in the thousands.
- We have always chosen not to mark up a hot vehicle.
Just that we feel the sticker price, it's reasonable.
Three years ago, we would have been thrilled
if you said you're gonna sell every car at MSRP.
We would have said, "That's great."
- [Narrator] Manufacturers have warned dealers
against markups, saying they hurt
the brand's image with consumers.
But again, dealers set the price,
at least for legacy automakers.
Startup electric vehicle companies,
like Lucid Motors take a different approach,
selling their cars primarily online,
directly to consumers.
- Oftentimes, they know what they want
and in that case, having a digital experience
that is directly connected to the company
that's producing the vehicles just simplifies it.
- [Narrator] There is an offline component here.
Lucid, like Tesla and Rivian
have showrooms where customers can browse,
sit in and customize a car in VR
before they decide to buy.
But when they do, the price is the price.
No negotiation, no incentives.
- I think it allows both sides,
both Lucid and the customer
to really focus on learning and experience,
rather than this confrontational negotiation
that typically takes place.
- [Narrator] But selling from a studio like this
isn't legal everywhere.
State franchise laws require vehicles
in most places to be priced and sold by a dealer.
- Ideally, there wouldn't be any laws
that say that a manufacturer of products
can't sell them directly to their customer.
So yeah, we're actually working to find ways
to overturn those rules.
- [Narrator] While it's only EV makers
using the direct sales model now,
legacy automakers are eyeing a similar approach
as they shift electric.
Ford, in particular, plans to release new rules
for how it sells its EVs in September.
CEO Jim Farley spoke last month
about keeping zero inventory at dealers
and sales being 100% online.
- [James] I think our dealers can do it
but the standards are gonna be brutal.
They're gonna be very different than today.
- [Narrator] Some dealers are concerned
this may be an attempt to cut them out.
Farley recently met with around 300 dealers
to discuss concerns about EV sales.
He emphasized that dealers are key to Ford's success.
Lee, who doesn't sell Fords, sees a hybrid model.
- Maybe you order it online from the manufacturer
but I believe it's gonna, for most,
it will go to the dealership,
and they'll deliver the car to you.
- [Narrator] This possible shift in approach
toward EV sales comes as manufacturers
and dealers alike are learning
from the changes over the last two years.
- There were seeds for a potential for changes
in a process that wasn't always comfortable for consumers,
and those seeds were there
and they are being explored, and they've been accelerated
by a number of things by Tesla, by challengers
and certainly by macro and external events.
- [Narrator] Question is what's here to stay?
Analysts and dealers expect more online activities
and less negotiation in the future
but say incentives will return as inventory does,
even if it doesn't go back to where it was.
- I think lower inventory levels may stick.
I hope they do.
It would be better
if we had 100 new cars sitting here, not 300.
We don't need that many.
- [Narrator] Still, it's not an empty lot
or even a full one that worries Lee.
Instead, he's concerned about rising interest rates
and a possible recession.
- I think some of these changes might help dealers
weather the next recession
but in the end, if people aren't buying cars,
you're not making money.
(pensive music)