SHOPSMART AUTOS – CUSTOMER INFORMATION – JULY 31, 2021 (PT1)
How Long Will the Vehicle Inventory Shortage Last? Car shopping has been a rollercoaster ride since the COVID-19 pandemic hit the U.S. last spring, and customers shouldn’t unbuckle their seat belts quite yet. First, automakers shuttered their factories as many states’ stay-at-home orders prompted dealership showrooms to shut down. Demand plummeted and automakers quickly responded with incentives and financing offers to revive confidence. The plan worked — only a little too well. As dealers reopened, consumers snatched up vehicles faster than automakers could produce them. Now, a global microchip shortage is causing major production delays, and vehicle inventory has sunk again. Related: Car Shoppers Face Shorter Supply, Rising Prices How long will this situation last? And what should you do if you’re planning to buy a vehicle this year? We interviewed three industry experts about the drivers of the shortage, its impact on auto brands and when we can expect to see inventory stabilize. What’s Driving the Vehicle Shortage? The current global microchip shortage may be the elephant in the room, but according to Tyson Jominy, J.D. Power’s vice president of data and analytics, the inventory struggles can be traced all the way back to May 2020, when increased demand and COVID-related supply challenges first created a shortage among pickup trucks. “The incentives were kept on a little too high and a little too long,” Jominy said. “As we came into May, we were still running a lot of the 0%, 84-month offers, so the APR [annual percentage rate] support was very strong. It became apparent that we should have backed off. By the time we got to the end of May, pickup inventory was very much depleted.” Before the industry was able to get back on its feet and replace diminishing inventory, a burgeoning microchip shortage layered on another supply shock. The chip shortage has disrupted production for every major auto brand, and a supply issue of this magnitude is uncharted territory. That’s according to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. “There hasn’t been one component that has hampered this many companies and products,” Fiorani said. “It touches so many parts of the car, from power controllers to navigation, to power seats, everything like this has a semiconductor in it. It can stop everything. Any one of them can be a linchpin that brings everything down.” Vehicle manufacturers aren’t only competing against each other for microchips, but also players in other industries, namely, consumer electronics. Stephanie Brinley, principal automotive analyst at IHS Markit, explained: “Demand for semiconductors for nonautomotive uses increased dramatically,” Brinley said. “In the third and fourth quarter of 2020, consumer demand for things like cellphones, laptops and video games skyrocketed as people worked and schooled from home. Demand for semiconductors grew far more rapidly than semiconductor manufacturers expected or could produce, creating a backlog of orders.” Hardest Hit Vehicle Brands AutoForecast Solutions estimates that the global semiconductor shortage will pull more than a million vehicles from planned production across Western Europe, Asia and North America in 2021, but some plants may be able to recover production as the chip shortage improves. Total vehicles permanently lost in North America will reduce production this year by about 600,000 units, the company expects. U.S. automakers bear the brunt of the inventory crisis, with the Detroit Three accounting for the top 10 models impacted, according to a tally of AFS data by Automotive News. As of mid-May, Ford was the most shell-shocked brand, with 325,000 vehicles lost, including nearly 110,000 units of the popular F-Series pickup truck, according to the newspaper. GM and Stellantis had to forgo 278,000 and 252,000 vehicles, respectively. Following the F-Series, the most impacted models are the Jeep Cherokee (98,584 units), Chevrolet Equinox (81,833 units), Chevy Malibu (56,929 units) and the Ford Explorer (46,766 units). Is Help on the Way? Automakers and the U.S. government are both working to address the shortages. While Ford has shut down production for some models due to the microchip shortage, automakers like Nissan and GM have continued to build vehicles, though without some components that require chips. Just last week, the U.S. Senate took a bipartisan step forward to fight the inventory crisis by passing a bill that invests in domestic microchip production, among other things. Automaker Workarounds In the meantime, automakers are getting creative to fill dealer lots, according to Brinley. “Automakers are prioritizing components needed for high-demand vehicles and adjusting availability of some features and options,” she said. “In some cases, vehicles are being produced without some key components and being held until the components are available.”Tags: 2019 Subaru Forester Touring, 2020 BMW iX3, 2020 Chevrolet Suburban, 2020 dodge charger, 2020 EQC, 2020 Ford Super Duty, 2020 Honda Pilot, 2020 Kia Optima, 2020 Mercedes Benz, 2020 Nissan Versa, 2020 Subaru WRX STI, Audi SUV, BMW, Brandon K. 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