Supply chain constraints inside the global auto ecosystem have dampened overall sales as producers struggle to keep up with demand until advanced microchip production ramps up.
Light vehicle sales recovered to 14.75 million per year in July, but broad delays in production point to more turbulence ahead.
Lack of inventory and access to sophisticated technology that consumers demand in new automobiles will almost certainly continue to limit overall sales, pushing manufacturing growth and sales into later this year and next.
Light vehicle sales recovered to 14.75 million per year in July, well below the 16.27 million annualized pace of the past year as broad delays in production point to more turbulence in sales. That July figure may have been the high point for the rest of the year because of lean inventories, according to an analysis from the Wards Automotive Group.
Light vehicle sales are still roughly 1.8 million below their five-year moving average and more than 12% below their pre-pandemic levels.
General Motors will shut down production at three North American plants that make large trucks.
While some of the long-term decrease is attributable to changing choices in transportation and to consumers holding on to what have become better and longer-lasting vehicles, some of that decrease in the past year is simply because new vehicles are not available.
And the bottleneck in supplies is only continuing. General Motors recently announced that it will shut down production at three North American plants that make large trucks. Subaru said that it had seven days of inventory in contrast with the 45 days that is better aligned with demand.
Until the global auto supply chain and its technological underbelly can catch up, it will be difficult to meet demand this year even as consumers pivot away from purchasing goods in favor of spending money on services.
Auto production in the United States has been falling since the 1970s, when consumer preferences first shifted to more efficient foreign models. But inventories have undergone a more dramatic decline over that same period, which we attribute to greater efficiencies along the supply chain.
But then the pandemic hit last year, leading semiconductor manufacturers to shut down production. The reduced supply of chips eventually affected automakers and inventories as dealerships were stripped bare.
According to the Bureau of Economic Analysis, production of new vehicles fell 45% from February 2020, the month before the pandemic, to June of this year. Over the same time, inventories have decreased by 68%, We can see the effect of those losses in the inventory-to-sales ratio dropping from more than 3.0 in 2017 to 0.8 as of June.
It all has an effect on the price of cars. In the accompanying chart below, we show that increases in inventories are associated with decreases in prices, as dealers shed overhead. (The right-hand axis is in reverse order, with the green line going down to show price increases.) It follows then that as inventories are depleted, prices for cars increase.
As demand for solitary transportation increased during the pandemic, and as the supply of new cars decreased because of limited production, prices for those cars have gone up.
The price of new cars in June was 5.3% higher than before the pandemic, while the price of used cars increased by 43%, according to Consumer Price Index data compiled by the Bureau of Labor Statistics.
We anticipate that production and distribution of semiconductors will resume in full over the coming months, and that the cars waiting for those parts will at some point flood the market.
At that point, we expect the prices of cars to resume their normal trends or to sink, depending on the speed at which those parts arrive and how long consumers wait for delivery.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.