The global pandemic caused many aspects of the supply chain to be unexpectedly backed up, and it may still take many months for all the complications to be fully unwound. In the meantime, however, that leaves various aspects of what are normally healthy markets for various consumer goods with a severe lack of inventory — and that includes automobiles.
Specifically, vehicle manufacturers around the world have been stymied by delays in production and backorders of the microchips automakers use in the small computers that power all sorts of vehicle functions. A recent Automotive News poll found that 93% of leaders in the automotive industry believe the global chip shortage is a huge problem for the sector, leading many to source from alternative suppliers whenever possible. The problem, of course, is that because this is an issue affecting not only automakers, but also electronics manufacturers and more, demand is through the roof and competition for any alternative source of microprocessors is heated.
As such, nearly 3 in 4 respondents indicated that they believed the shortage would last at least another six months, meaning that things might not be back to pre-pandemic norms until the start of 2022. The poll also found that this issue led many companies in the industry to realize their previous supply-chain strategies were not effective, and they are working on implementing changes that will make them more agile to mitigate risk — if they haven't started this process already.
In the meantime
Of course, with this issue expected to linger for months, and no other real recourse available, many automakers are putting the brakes on their manufacturing efforts for the time being, according to CNBC. The industry titan Ford Motor is one such company, having recently announced plans to either slow or halt production at six plants in the U.S. and two more abroad this month. Some of the company's most popular models — including the F-150 pickup truck, Bronco Sport and Explorer SUVs, and Mustang sports car — will be affected by this change.
This is not a new trend, either. Ford has already announced that it believes it will see its vehicle production efforts fall by half over the course of the year, leading to 1.1 million fewer vehicles rolling off its lines in 2021. That, in turn, is expected to cost the company some $2.5 billion. However, that massive sum is still just a drop in the bucket where the wider industry is concerned; some industry estimates show that the chip shortage alone is going to result in some $110 billion in losses for the auto industry this year alone.
The impact on other companies — and consumers
It's not just automakers themselves that are feeling the squeeze from this shortage. The Automotive News poll found that 30% of industry respondents believed auto dealers would be even more affected than manufacturers, and that's certainly playing out across the U.S. already. The Lehigh Valley Morning Call reported that some auto dealers in Pennsylvania are already seeing the effects of changing consumer preference, with purchases that are made at lots themselves dropping from 95% of all sales to just 60%, as more people buy direct from dealers online to make sure they can pick as many of their preferred options as possible.
With the vehicle shortage in full swing, many dealerships have a fraction of their typical inventory available on the lot, meaning that the pickings are slim in person and demand is through the roof. Often, available vehicles are being listed online and then scooped up almost as soon as they arrive at the lot.
All this demand over the past several months is also leading to higher prices for buyers. In comparison with the same period in 2019 (that is, the last pre-pandemic second quarter), sales were only down 0.4% for the three-month period from April to June, but the average sales price was north of $40,000 by the end of that time. Of late, prices have been rising at a rate of at least 7% per month.
Given that this trend is likely to continue at least through the end of 2021, and perhaps deep into 2022, the effects of constrained inventory and growing demand are likely to lead to even higher prices in the months ahead.
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