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Vehicle Sales Fall Amid Rising Prices
After reporting impressive results in the first quarter, automakers appear to have slowed production amid a slew of resurgent supply chain issues.
MRP previously highlighted several headwinds facing the auto industry, but car manufacturers largely shrugged off shortages and disruptions to report strong Q1 sales. According to the Wall Street Journal, automakers reported impressive sales numbers in Q2 when looking at the year-over-year change, but that is largely due to the base effect when COVID-19 shut down the economy last spring.
However, it now looks like those supply chain issues are driving vehicle production lower. Total vehicle sales dropped from just over 19 million in April 2021, to 15.8 million in June of this year, the second straight month of decline, and the weakest reading in 10 months.
A report from Car and Driver found that new car sales in June were 14% lower than the same month two years prior. Similarly, CBS News writes imported vehicle sales fell 13.1% month-over-month, while domestic vehicle sales fell 8.2% over that same period. Those declines dragged total auto sales lower than pre-pandemic levels.
The economic re-opening in the first half of this year pushed consumers to purchase new vehicles, but it’s evident that strong demand is beginning to taper off. One key factor turning consumers away is higher price tags, as CNBC reports the average price of used car is $25,400, 21% more expensive than a year ago. New car prices have seen an uptick as well, climbing 4.9% year-over-year to an average price of $40,800.
The University of Michigan’s Survey of Consumers recently reported that elevated prices have depressed overall buying attitudes for vehicles and homes to their lowest level since 1982.
A report from Cox Automotive, highlighted by CNN, found that the sky-high prices for used cars may be cooling off. Wholesale used car prices fell in the first two weeks of July while used vehicle inventories at car dealerships increased, two strong signs that the run up in prices may have reached its peak.
However, the report also notes that retail price of used cars, what the consumer will pay, has continued to increase over the last month, albeit at a slower pace.
New Relief Aims to Ease Semiconductor Shortage
Automakers have had to jack up the prices due to lingering supply chain issues. Unfortunately, these are not expected to be resolved anytime soon.
The largest issue plaguing the industry is the global semiconductor shortage, which MRP has recently provided an update on. Intel CEO Pat Gelsinger has repeatedly said he believes the chip shortage could last until 2023, but that its severity will begin to ease at the end of this year.
Per Car Scoops, Daimler holds a similar bearish sentiment, predicting the semiconductor shortage to last at least until 2022, a worrisome sign for automakers looking to get back on track in the coming months. Bloomberg reports that Daimler expects their sales to fall in Q3 on a quarterly basis, but stabilize in Q4 if no additional disruptions occur.
Ford has recently halted operations at multiple factories due to the shortage, and projects to lose 1.1 million units of production in 2021, according to Supply Chain Dive. General Motors is facing similar supply constraints, as they announced last week they will cut production of most of their trucks until they can get their hands on additional chips.
If supply chain disruptions continue to halt production, consulting firm AlixParnters predicts the auto industry could lose $110 billion in revenue in 2021, per CNBC.
Fortunately, some relief is finally on the way for carmakers. The Biden Administration recently announced they are laying the groundwork for a $52 billion dollar spending package for semiconductor research and manufacturing, per Automotive News. This aims to directly boost the auto industry’s recovery efforts and get back on track toward pre-pandemic production levels.
Further, US Commerce Secretary Gina Raimondo has held several meetings with both chip makers and car manufacturers to try and ease the effects of the shortage. She recently said that there are signs of improvement as major automakers start to receive a bit more of what they need, per Bloomberg.
Similarly, top chip producer Taiwan Semiconductor Manufacturing Company (TSMC) has stated they will prioritize automaker orders for semiconductors in the third quarter of this year, per DigiTimes. Bloomberg also reported on the matter, stating TSMC will boost their microcontroller production by up to 60% this year, a key component for automobiles.
It remains to be seen whether relief efforts will ultimately help automakers get back on track, but some aid is better than none.
Looking Ahead
The auto industry is likely to be hampered in some capacity by the semiconductor shortage until at least 2022. After a strong two quarters for carmakers, June total vehicle sales came in lower than forecast, sparking some concern about a decline in consumer demand amid the surge in prices.
If major automakers have to continually depress production, minimal inventory could keep prices elevated through the end of the year. Government assistance, as well as semiconductor manufacturers prioritizing automaker components, should help ease some effects of the chip shortage, but the next few months will be crucial for the auto industry to get back on track toward pre-pandemic levels of production.
Investors can gain broad exposure to the automobile market via the First Trust NASDAQ Global Auto Index Fund (CARZ). |
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