Until 2023? Parts shortage will keep car prices at record highs

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TOLEDO, Ohio (AP) – In the spring, a computer chip shortage that had driven car prices up finally seemed to be easing. Some relief for consumers seemed to be in sight.

That hope has now faded. An increase in cases of delta-variant COVID-19 in several Asian countries that are major producers of auto-grade chips is exacerbating the supply shortage. This further delays the return to normal car production and keeps the supply of vehicles artificially low.

And that means, analysts say, record consumer prices for vehicles – new and used, as well as rental cars – will continue into the next year and may not fall back to earth until 2023.

The global shortage of spare parts is not just about computer chips. Automakers are also starting to see shortages in wiring harnesses, plastics and glass. And beyond automobiles, critical components for goods ranging from farm equipment and industrial machinery to sportswear and kitchen accessories are also bottled in ports around the world as demand outstrips supply in the face of a virus resurface.

“It looks like it’s going to get a little harder before it gets easier,” said Glenn Mears, who runs four car dealerships around Canton, Ohio.

Pressed by parts shortages, General Motors and Ford announced the shutdown of a week or two at several North American factories, some of which produce their hugely popular full-size pickup trucks.

At the end of last month, shortages of semiconductors and other parts became so acute that Toyota felt compelled to announce that it would cut production by at least 40% in Japan and North America. North for two months. The reductions resulted in a reduction of 360,000 vehicles worldwide in September. Toyota, which has largely avoided the sporadic plant shutdowns that have hit rivals this year, is now forecasting production losses until October.

Nissan, which announced in mid-August that the chip shortage would force it to close its massive Smyrna, Tennessee plant until August 30, now says the shutdown will last until September 13.

And Honda dealers are bracing for fewer shipments.

“This is a fluid situation that impacts the entire global industry supply chain, and we adjust production as necessary,” said Chris Abbruzzese, a Honda spokesperson. .

The result is that vehicle buyers face persistent and once unthinkable price spikes. The average price of a new vehicle sold in the United States in August hit a record high of just over $ 41,000, almost $ 8,200 more than just two years ago, JD estimated. Power.

With consumer demand still high, automakers feel little pressure to downsize their vehicles. Forced to keep their scarce computer chips, automakers have shifted them to more expensive models – pickup trucks and large SUVs, for example – thus pushing up their average prices.

The roots of the computer chip shortage plaguing the automobile and other industries stem from the outbreak of the pandemic early last year. U.S. automakers have had to shut factories for eight weeks to prevent the virus from spreading. Some parts companies have canceled orders for semiconductors. At the same time, with tens of millions of people squatting at home, the demand for laptops, tablets and game consoles has skyrocketed.

With the resumption of automobile production, consumer demand for cars has remained strong. But chipmakers had shifted production to consumer goods, creating a shortage of weather-resistant automotive-grade chips.

Then, just as auto chip production started to rebound in late spring, the highly contagious delta variant hit Malaysia and other Asian countries where chips are finished and other auto parts are being made.

In August, sales of new vehicles in the United States fell almost 18%, mainly due to supply shortages. Automakers reported that U.S. dealerships had less than one million new vehicles on their lots in August, down 72% from August 2019.

Even if auto production immediately returned to its highest level ever for vehicles sold in the United States, it would take more than a year to reach a more normal 60-day supply of vehicles and for prices to drop, according to the firm. of advice Alix. Partners calculated.

“In that scenario,” said Dan Hearsch, managing director of Alix Partners, “it’s not until early 2023 before they can even overcome a sales backlog, expected demand and build inventory. “

For now, as parts supplies remain scarce and production cuts expand, many dealerships are almost running out of new vehicles.

On a recent visit to the “Central Avenue Strip” in the suburb of Toledo, Ohio, a street full of dealerships, few new vehicles could be found on the lots. Some dealers have filled their lots with used vehicles.

The supply is so low and the prices so high that a potential buyer, Heather Pipelow from Adrian, Michigan, said she didn’t even bother looking for a new SUV at Jim White Honda.

“It’s more than what I paid for my house,” she says sadly.

Ed Ewers of Mansfield, Ohio, traveled about two hours to a Toledo-area Subaru dealership to purchase a used 2020 Jeep Wrangler four-door. He considered buying new, but decided that a used vehicle was more in his price range to replace an aging Dodge Journey SUV.

Mears, whose Honda dealership is running out of new inventory, said dealers manage to survive because of the high prices consumers have to pay for new and used vehicles.

He doesn’t charge more than the price of the sticker, he said – enough profit to cover expenses and earn money. Nor does he have to advertise as much or pay interest on a large inventory of vehicles. Many vehicles, he said, are sold before they arrive from the factory.

Orders for chips that were placed nine months ago are now starting to arrive. But other components, such as glass or parts made with plastic injection molds, are depleted, Hearsch said. Due to the virus and a general labor shortage, he said, auto parts makers may not be able to make up for lost production.

A provisional cause of hope began to emerge. Siew Hai Wong, president of the Malaysia Semiconductor Industry Association, hopes chip production should start to return to normal in the fall, as more workers are vaccinated.

Although Malaysia, Vietnam, Taiwan, Singapore and the United States all produce semiconductors, he said, a shortage of just one type of chip can disrupt production.

“If there is disruption in Malaysia,” said Wong, “there will be disruption somewhere in the world.”

Automakers have considered moving to an order-based distribution system rather than keeping huge inventory on dealer lots. But no one knows if such a system would prove to be more effective.

Eventually, Hearsch suggested, the delta variant will pass and the supply chain should return to normal. By then, he predicts, automakers will be lining up multiple parts sources and stockpiling critical components.

“There will be an end, but the question really is when,” said Ravi Anupindi, a University of Michigan professor who studies supply chains.

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AP writer Yuri Kageyama contributed to this report from Tokyo.

Nissan


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