Where Did the Cars Go?
Vehicle shortages hit buyers, sellers, renters, and tourism agencies
By Nancy Erickson

grew up in the car industry. Everything I’ve ever done has been in the car industry,” says Steve Allwine, president of Mendenhall Auto in Juneau. “I have never seen this set of circumstances ever in my lifetime.”

The problem is a lack of supply. “On the new car side, we don’t have a lot on the ground at any given time,” Allwine says of his Jeep, Subaru, Toyota, Honda, and Chevrolet stores.

Anyone shopping for a car or truck lately may have noticed a certain barrenness at dealerships, not just in terms of inventory on the lot but an absence of coffee and snacks in the waiting area. Marten Martensen, owner/dealer of Continental Auto Group’s five stores in Anchorage, says cutbacks have reached that deeply. He’s also had to eliminate costs such as courtesy shuttles and advertising and reduce his payroll by forty to fifty employees.

LoveTheWind | iStock

The supply problem began as a sudden drop in demand that was triggered, of course, by COVID-19. Then the pandemic’s sticky tentacles entangled the microchip industry, which extended into auto manufacturing, then auto sales and rentals, and now even tourism businesses are suffering a double blow for lack of automobiles.

In a state as dependent on travel as Alaska is, the auto and tourism sectors have had to get creative to meet the supply chain issues head-on.

“Many of our small business partners had a record-breaking summer [in 2021]… Our tours were sold out.”
Mandy Garcia
Salmon Berry Travel & Tours
Chain Reaction

Two years ago, the auto industry was chugging along fine, with between 15 million and 17 million new cars sold annually nationwide, plus three to four times that in used cars.

When COVID-19 arrived, the economic uncertainty halted car sales. “Meanwhile rental car companies are selling off their fleet,” says Charlie Vogelheim, an auto industry advisor. “Nobody’s traveling. Nobody’s renting cars. People are starting to cancel their orders and hunkering down.”

Seeing a drop in demand, suppliers of microchips postponed plans to ramp up manufacturing. Power outages in Texas last winter also slowed down chip production in that state.

Auto demand has returned, but without the microchips that modern cars and trucks depend on, manufacturers can’t keep up.

“Within a couple months, the auto industry, in and of itself, starts to recover, but now we’ve got a problem in terms of the supply chain,” Vogelheim explains.

“I’ve personally been in the Alaska car rental business for over thirty-five years and have never experienced anything like the last two years.”
Gary Zimmerman
Vice President
Floyd & Sons

Eighty percent of global microchip supply now comes from Taiwan and South Korea. Vogelheim—executive editor at Kelley Blue Book, vice president at J.D. Power and Associates, and host of the weekly podcast “Motor Trend Audio”—says the United States is attempting to revive its chip production, but building a new chip factory is a two-year process.

Vogelheim believes shortages will continue at least through the first quarter of 2022 and likely through most of 2023. To further complicate matters, some vehicle manufacturers are beginning to stockpile chips.

“If they get any at all, they want to get as many as they can,” Vogelheim says. “Kinda like you and I stockpiling toilet paper.”

Empty Lots

New car dealerships are working to remain innovative until inventory gets back to normal.

Martensen says his dealerships in Mazda, Volvo, Subaru, Honda, Acura, and Nissan are experiencing shortages in everything from new cars to rubber gloves worn by technicians.

“The new car shortage started in June of 2021,” says Martensen. “Our manufacturers basically told us they were canceling all of our incoming cars. We call it our pipeline.” His company is also seeing shortages of all types of parts—body parts for fender benders to mechanical repair parts.

He says manufacturers are being quiet as to when these shortages will end.

“I can’t really blame them because they want to meet demand as much as we do,” he adds. “They’re in the business to build cars as much as we’re in the business to sell them. They just don’t know when we’ll see more semiconductors.”

Allwine’s Juneau dealerships face a more unique challenge compared to his Anchorage counterparts.

Vehicle prices nationwide have escalated due to the high demand and low inventory, but because Allwine is the only game in a city accessible only by air or water, his pricing has to remain conservative.

“Retailers can choose what they sell their vehicle for. That’s the way it works, but because we’re in such a closed environment, we can’t do that,” says Allwine. “That is to say, maybe we’re not discounting them as aggressively as we have in the past, but we’re not overcharging. That’s a delicate balance for us in Juneau.”

Because of his association with domestic manufacturers—most of his inventory comes from the United States or Canada—Allwine says he has the ability to order a specific vehicle. But that doesn’t mean they will build it.

“If they have the availability of the component, they look at that as a sold order for a retail customer and will build that vehicle first,” Allwine explains. “That’s how we’re handling it: by selling into the future, into vehicles that are coming.”

Desperately Seeking Used Cars

“No doubt the pandemic has been the biggest challenge of the past twenty-five years for us,” says Steve Sautner, president of Dealers Auto Auction of Alaska. “Auctions are built on surplus goods. Surplus goods, in our case vehicles, are created when manufacturers put new vehicles into the supply chain. The pandemic has created new car shortages, which created used car shortages.”

More than 9 million cars are sold at auction every year nationwide, Sautner says. Auctions bring buyer and seller together to obtain a mutually agreed upon price, handle administrative functions of the sale, and resolve disputes that may arise. Sellers include banks, corporate fleets, rental car companies, and auto dealerships.

Marcus Waehler is owner of Red White and Blue Auto Sales, a used car dealership in Anchorage. He says it’s particularly challenging to find clean, well-priced inventory.

“Auction volumes are low. Less people are trading in vehicles or selling their vehicles and more dealers are competing over less inventory,” Waehler says. This dynamic began in May 2020 and has vigorously continued to this day.

“Now with new car dealers unable to obtain new vehicles, rental companies unable to purchase new vehicles for their fleets, and an unexpected surge in demand, everyone began to compete to purchase the same small number of available used cars in the marketplace,” says Waehler. “As a result, used car prices have soared 30 to 40 percent above pre-pandemic levels.”

“This just doesn’t happen in the car industry,” says Martensen of Continental Auto Group. “Cars are a depreciating asset. That is no longer the case.”

Waehler says he’s had to expand and adjust his buying habits to match market values and pay what is necessary regardless of published Kelley Blue Book values, whose valuation services have simply been unable to maintain pace with the market.

Rental Health Emergency

“Everybody loves a challenge, right,” says Gary Zimmerman. “I’ve personally been in the Alaska car rental business for over thirty-five years and have never experienced anything like the last two years.” As vice president of Floyd & Sons, Zimmerman operates major rental car companies in Anchorage and Seward.

“I can’t really blame [auto manufacturers] because they want to meet demand as much as we do… They’re in the business to build cars as much as we’re in the business to sell them. They just don’t know when we’ll see more semiconductors.”
Marten Martensen
Continental Auto Group

Rental car companies normally restock their fleet with new vehicles in the spring. With the onset of COVID-19 in 2020, Zimmerman canceled inventory that spring, and manufacturers actively started canceling pending orders shortly after. With too many vehicles remaining in his fleet, he started liquidating inventory.

But when the rental car market started recovering and Zimmerman was ready to restock his fleet, he couldn’t.

“Manufacturers would inform us that our orders placed months earlier were being canceled—often at the last minute,” he explains. “Due to new car shortages and every manufacturer struggling to supply inventory, we ran with a smaller fleet in 2021 than even our 2019 fleet level.”

Guides, Not Rides

The pandemic has challenged Alaska’s travel and tourism industry any number of ways: travel restrictions, ever-changing mandates and industry protocols, decreased visitor revenue, workforce recruitment and retainment, and inventory supply shortages. That includes rental cars, according to Sarah Leonard, president and CEO of the Alaska Travel Industry Association.

Alaska saw zero cruise ship activity in 2020 and only a little in 2021. Consequently, many travelers who had plans to cruise to and from Alaska opted to visit regardless and sought out self-drive itineraries, using rental cars for transportation rather than rail or bus services, according to Roberta Warner of Alaska Tour & Travel.

“Travelers were hitting up anyone and everyone that might have a car rental,” Warner says. “Our team had the unfortunate position of frequently being the bearer of bad news, informing travelers that we too were sold out or unable to secure them a car rental reservation.”

Salmon Berry Travel & Tours takes a different approach that lightens the demand for rental cars.

Located across from the Visit Anchorage Log Cabin Visitor Center in downtown Anchorage, Salmon Berry prides itself on their high level of guest services. When travelers arrive without transportation, agents set them up with daily guided tours.

In 2021, “Many of our small business partners had a record-breaking summer,” says Salmon Berry co-owner Mandy Garcia. “Our tours were sold out. Without rental cars, we had many more days of explaining to guests what they could do within walking distance.”

If and when rental cars were available, prices were comparable to a day-long private guide tour, but Garcia says even the private guide options were sold out.

Person-to-Person Alternative

With cars unavailable for travelers to rent, some travelers resorted to alternatives, such as U-Haul trucks or RVs. Visitors also have an option that’s new to Alaska: Turo.

Just as Airbnb enables homeowners to monetize idle property, Turo allows private vehicle owners to list and rent their vehicle directly to a customer. Many individuals in Alaska cashed in on the lack of rental cars in 2021 by lending their own cars.

Brian Huling rented out his 2014 Subaru Outback all last summer for $244 per day, even though it was his only vehicle.

“It worked out pretty good; way easier than I thought it would be,” says Huling, who also works in the travel industry. “Seemed like every single person was using Turo for the first time, just like me.”

“It was moderately inconvenient to not have a car, but it wasn’t a $1,000-a-week inconvenience,” he adds. Riding his bike or borrowing a car took up the slack.

Huling is looking at buying a new car and would normally trade in his Subaru, but he is considering keeping it because of Turo.

“Finding a car—that’s the other hard part,” he says. “I’m trying to get a dealership to order me one, but they haven’t confirmed that they can get one. I’m looking at some in the Lower 48, but that requires driving it up here or shipping, so I haven’t pulled the trigger on that quite yet.”

“I made half of my vehicle’s value—what I paid for it—just this summer,” Huling says. “It made buying a new car a little easier—if you can find one.”