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Volvo: Safety Beyond the Star Ratings
Record low inventories and record high prices come curtesy of the global chip shortage and supply chain problems.
Drying Supply
The disruptions of a global chip shortage and attendant supply chain issues are still reverberating across the automotive industry and are projected to continue through at least the second half of 2023. Current dealer inventories nationwide are down to just an average 18-day supply. Comparing to pre-pandemic levels that typically sat in the 60-day-plus range and the picture becomes clear. Beyond the numbers, a drive past your local dealership will likely tell the same story in even starker terms. Lots across the US are less than half full, with many dealers down to the fewer than a dozen vehicles available for sale.
Sales Down, Prices Up
Thus far, dealers have been able to weather the storm of the pandemic. With supply down and demand still high, dealers have been free to raise prices. The average sale price for a new vehicle has been hitting record after record over the past year, hitting a new all-time high of $42,802 in September. That’s an increase of 19-percent year-over-year, from $36,000 this time a year ago.
Dealers have been able to increase prices thanks in part to government stimulus and pent-up demand keeping overall market demand robust. This despite the findings of a recent KBB survey that indicated that up to half of car buyers say they’re delaying purchasing a vehicle thanks to the chip shortage.
Even with high profits on a per unit basis, the lack of inventory has taken a bite out of carmakers’ sales numbers, especially in the third quarter of the year. New vehicle sales were down 26-percent for the month of Septembers, with total sales just north of 1 million units sold, the lowest of the year.
Most major manufacturers reported significant dips in sales. GM said its sales were down 40-percent year-over-year for the third quarter. Stellantis was also off some 19-percent year-over-year. Honda was down 11-percent, with Nissan close behind, down 10-percent. Toyota said they were off 1.4-percent for the quarter, but September was down sharply, down 22-percent.
The Global Chip Shortage Explained
The current chip shortage has its origins back to the early days of the pandemic as consumers stayed home and manufacturers pause production (in part due to lockdowns and partly due to cratering demand). As a result, chip manufacturers shifted their orders to other customers like makers of tablets and gaming systems. When automakers looked to ramp back up their production, they found the global supply of microchips was already spoken for.
Without major expansions in chip manufacturing (a multi-year, multi-billion-dollar endeavor in the best of times), automakers have been forced to pause and/or halt production lines numerous times over the past year.
And it’s not just a shortage of microchips hampering things, either. Supplies of steel, rubber, wiring and other materials are also constrained. Plus, pandemic-related disruptions to global supply chains, from shipping container logistics to congested ports to a global shortage of truck drivers, are further compounding headaches for carmakers.
Future Outlook
The Biden administration and manufacturers are now working out new and future solutions to the chip shortage, but such changes are inevitably medium-to long-term.
In the meantime, GM said they expect to see the chip shortage diminish in the fourth quarter. However, it should be said that manufacturers were optimistic back in the first and second quarters of the year that the chip shortage would have improved by this time.
Most projections estimate the chip shortage and attendant production delays will continue to weigh on the auto industry, perhaps as far as the fourth quarter of 2023. Last month, automotive consultancy AlixPartners estimated the chip shortage will cost industry some $210 billion in lost revenue for fiscal year 2021, doubling their projection from May 2021.
