June 12, 2021, 12:17 p.m. EDT

Why buying a car will be harder and more expensive through the end of the year

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By Claudia Assis

As pent-up consumer demand for used and new vehicles meets a pandemic-fueled parts shortages, auto makers are changing the way they do business and one style of car is even getting an unexpected boost.

Add cars to the growing list of items that are pricier and harder to get, with no change in sight at least for this year: Vehicles are staying on lots for far fewer days, sales incentives have dried up, and auto makers are missing out on sales because their inventories are so low.

See also : Opinion: Here’s why higher prices for car rentals, airfares and computers won’t lead to higher inflation

May’s seasonally adjusted annual rate of about 17 million cars sold in the U.S. was down from about 19 million in April due to the tighter inventories, but up from 12 million in May 2020, one of the worst months in the U.S. in terms of COVID-19-related shutdowns and restrictions.

If not for tight inventories, however, observers say that May’s seasonally adjusted annual rate would be closer to 20 million.

“You wouldn’t see pricing as high as it is if there wasn’t a backlog of demand that is not being met,” said analyst Karl Brauer with iSeeCars.com. “There’s absolutely potential for more sales … Production is not keeping up with the level of demand for new cars.”

May sales were better than expected and “quite strong all things considered,” but it’s clear that the market is starting to see the impact of the supply situation on end demand, RBC Capital analyst Joseph Spak said in a recent note.

“Inventory constraints (are) beginning to show up in sales results,” he said.

This was most evident for Ford Motor Co. /zigman2/quotes/208911460/composite F +1.59% , Spak said, which has lost out on sales of its best-selling F-150, with F-150 inventories already low coming into the ongoing chip shortage because of a model changeover.

See also: GM stock ends at record after auto maker says first half will be ‘significantly better’

“We wouldn’t be surprised to see the impact begin to creep into the results of other OEMs over the coming months as we don’t think inventory is likely to begin to improve until late summer and potentially not normalize until 2023-24 time frame,” Spak said.

The seasonally adjusted annual rate could drop in the coming months on a continuation of a supply-driven slowdown amid demand that “remains quite healthy,” he said.

General Motors Co. /zigman2/quotes/205226835/composite GM +1.70% earlier this week said it was starting to build SUVs and pickups without a common fuel-economy feature, its automatic stop and start system, because of the chip shortage.

Several auto makers got creative, spreading out the chips they had, leaving out chips in easy-access areas in the vehicles and then storing the nearly finished cars until they got a new batch of needed materials. Tesla Inc. /zigman2/quotes/203558040/composite TSLA +2.61% Chief Executive Elon Musk tweeted recently that Tesla prices were increasing due to the supply-chain pressures.

The pandemic brewed both the surge in demand and the shortages.

Cooped up in their homes amid public-health shutdown orders, and newly wary of public transportation, taxis, and ride-hailing, a lot of people realized they wanted a car, iSeeCars.com’s Brauer said.

Related: Ford stock jumps as plan to offer more electric vehicles earns Wall Street praise

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