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Hurricane Ida, chip shortage hurting car dealers

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Jim Appleton, President of the New Jersey Coalition of Automotive Retailers, joined Yahoo Finance to talk about the severe shortage of cars on dealer lots.

Video Transcript

ADAM SHAPIRO: We want to turn our attention to an expectation that's going to disappoint a lot of people expecting to be able to get a new car, if unfortunately their vehicle got damaged in the recent hurricane, Hurricane Ida. But there is news that is not going to be good for a lot of people.

Let's bring in Jim Appleton. He is New Jersey Coalition of Automotive Retailer's president, and it's good to have you here. And in a nutshell-- we already know there's a difficulty getting a new car because of the chip shortage, but how big an impact is the flooding damage throughout the Northeast, the mid-Atlantic, and then in the South from the hurricane, going to be on demand for cars?

JIM APPLETON: Well, look the hits just keep coming, right? I mean the car business was stressed because of the shortage of chips, dealer inventories were down by 80%, 90% in some cases before the flood. And while dealer inventories weren't impacted, demand has been impacted. So probably tens of thousands of vehicles across the state of New Jersey-- and I'm not even counting those in New York and down in the Southeast, is entirely new demand that is going to be very difficult for dealers to meet.

SEANA SMITH: Jim, how long do you expect this to persist, just in terms of dealers not being able to get the cars on the lot that they need? Is this a problem that we're talking about for six months, that we're talking about a year, a year and a half? I guess how long do you expect this to be an issue?

JIM APPLETON: You know that's a really good question, Seana, and I wish I had a firm answer for you. I will tell you, A, it depends. Some automakers, I think, have done a better job of sourcing chips, others not so much. Some automakers had inventories that were in the process and will get to dealers. Others don't. The problem is we don't manufacture cars anymore. We assemble them from parts that are shipped in from all over the world. And it doesn't matter whether you're building the cars in Germany, or Mexico, or the US, it's the same story.

And these rolling chip shortages, these rolling manufacturing pauses, which have caused chips and other component parts to become unavailable, is something that's just going to take some time to work out of the system. I think we're looking probably at a Q2 of 2022 before we start to see any significant easing of the chip shortage that's affecting new cars.

And by the way, the same issues are present in the used car market. And because people aren't able to get into a new car, the demand for used cars is higher, and the supply is lower, because there aren't people trading in those used cars. And the used cars that they have to trade now are junk because they've been flooded.

ADAM SHAPIRO: And Jim, if this were a normal year, without the chip shortage, we would be 17 million plus units sold. Do you have any sense from the manufacturers and what they're sharing with the dealers, what this number is going to look like at the end of the year?

JIM APPLETON: I think it's high 14, low 15.

ADAM SHAPIRO: Not a good number. The tax credit that's being debated on electric vehicles-- it favors those cars that are $55,000 or less, and it also would favor cars that are manufactured by union employees. Have the dealers got any concern about that or is that just another thing that's going to help them move at least EVs?

JIM APPLETON: Well, look I think the dealers that I represent in New Jersey today offer 40 different models with a plug. In four years from now, they'll be offering 140 models with a plug. Many of those are or will be coming in under $55,000. We have serious concerns about politicizing the car business. We understand that government incentives are needed to move the electric vehicle market today, both cash on the hood incentives, and tax breaks, but also investment in infrastructure. And we don't think it's a good idea for this to be based on where the vehicle is built or by whom.

SEANA SMITH: Jim, I guess why do you think it's taken longer than maybe we initially anticipated for people to adopt electric vehicles here in the US? Because when you compare it to what we're seeing overseas in a number of places, the US still lags behind. And from what you're hearing from the dealerships, what you're hearing from customers, I guess why do you think that is?

JIM APPLETON: Well, Seana, I think it's pretty simple. Government has failed to put its money where its mandates are. There are a dozen states across the country, which represent 40% of all motor vehicle sales, which are under the Calif-- ZEV mandate, the California low emission vehicle mandates. But most of those states have done nothing, or until recently, very little of anything, to help incentivize the marketplace. And so the real reason is because government can mandate, and manufacturers will build and innovate, but for dealers to be able to sell vehicles, they have to compete in the marketplace.

And consumers are just not seeing the value proposition yet with EVs. The typical EV is going to come in at around $11,000 to $13,000 more than a comparably equipped internal combustion engine vehicle. Now that's the bad news. The good news is, when government does bring incentives, as we have here in New Jersey-- $5,000 cash on the hood-- and there are federal tax incentives available, that delta gets closed pretty quickly. And dealers are in a position to be able to sell consumers on the value proposition once those incentives are in place.

And then of course, the other issue, which people talk about a great deal, is range anxiety. What we need is a more ubiquitous and universal set of high speed charging stations scattered throughout the country, that will give consumers the confidence that when they're away from home, they can find a place to charge and they won't be stranded on the road. Filling your car up with gas is a pretty easy thing to do. I happen to drive an electric vehicle. I love the electric vehicle I drive, but there are times when I've got a little bit of range anxiety. And so I think government needs to really adopt policies that will bring about a universal charging network that makes consumers more comfortable with the decision to purchase.

ADAM SHAPIRO: Jim, your mouth to God's ears, because I've wondered why they haven't standardized the charging systems yet on the cars. But got to let you go. We look forward to having you come back to discuss that, because we're out of time. Jim Appleton is New Jersey Coalition of Automotive Retailers president.