The global automotive industry has faced significant supply chain disruptions over the past few years, stemming from the COVID-19 pandemic, lockdowns in China, the war in Ukraine, and other factors. These disruptions have led to shortages of key components like semiconductor chips, resulting in reduced vehicle production and long wait times for new car buyers. However, recent data indicates the worst may be over for the auto supply chain.
Are chip shortages easing?
Semiconductor chips are essential components in new cars, used in everything from engine management systems to infotainment centers. A shortage of chips beginning in late 2020 has severely constrained auto production. But chip supplies now appear to be improving. Lead times for chip deliveries have declined from over 20 weeks in late 2021 to around 14 weeks now, according to Susquehanna Financial Group. Several major chip makers are ramping up capacity to meet automotive demand. The CEO of processor designer ARM stated that the “worst is behind us” for chip shortages. As supplies improve, automakers are able to increase production. General Motors said it expects chip supplies to remain stable through 2023. While not yet back to normal levels, the easing chip shortage is a positive sign for vehicle output.
Has vehicle production rebounded?
Due to insufficient chip inventories, global light vehicle production fell dramatically during the pandemic. Output dropped 16% in 2020 and a further 5% in 2021, per IHS Markit. But in 2022, vehicle production has steadily recovered as chip supplies stabilize. IHS forecasts light vehicle production will reach 82 million units this year, up 7% from 2021 and approaching pre-pandemic levels. Production is rebounding especially sharply in North America, projected to rise 22% in 2022 after plunging 21% over the previous two years. More abundant chip supplies are allowing automakers like Ford and Stellantis to increase factory output to meet strong vehicle demand. Barring an unexpected shock, vehicle production should continue ramping up as chip availability improves.
Are new car inventories being rebuilt?
The chip shortage led to a massive decline in dealer inventories of new cars. In the U.S., new vehicle inventories dropped below 1 million units in 2021, down from over 4 million before the pandemic. This created a seller’s market, with buyers paying over MSRP for hard-to-find models. Inventories have staged a comeback in 2022. At the end of September, U.S. dealer stock stood at 1.59 million units, up from 1.16 million a year ago. Inventory rebuilding has been especially strong for popular pickup trucks. Ford F-150 inventory surged above 200,000 units, compared to under 40,000 a year ago. While still below historical averages, rising inventories signal improving vehicle availability for consumers.
Is vehicle pricing becoming less inflated?
With demand far outpacing constrained supply, vehicle prices have been severely inflated in pandemic conditions. The average new car transaction price in the U.S. hit a record $48,301 in March 2022. But as inventories rebound, some pricing pressure is easing. The average new vehicle price dropped to $47,138 in September, per Cox Automotive, indicating less need for consumers to pay over MSRP. Toyota recently said it will end temporary factory shutdowns by November, boosting output to help normalize inventories and pricing. J.D. Power forecasts average new car prices will decline by 4% in 2023 as production volumes catch up to demand. While still elevated, vehicle prices appear to have passed their peak as supply chain conditions slowly mend.
Are there risks of further disruptions?
Though supply chain conditions have improved off their nadir, risks remain that could disrupt vehicle production and send prices higher again. The zero-Covid policy and fresh lockdowns in China this year have idled factories in a major automotive production hub. A resurgence of infections in China could cause more shutdowns. The war in Ukraine has increased costs for key raw materials like aluminum, palladium, and nickel used in auto manufacturing. A potential energy crisis in Europe this winter could force production cuts at regional automakers. Investors also worry that rising interest rates and inflation may dampen consumer demand, resulting in destocking. Though unlikely, a deeper economic slump could renew supply chain turmoil.
Conclusion
In summary, data suggests supply conditions are beginning to normalize for automakers after two years of severe disruptions:
- Chip shortages are easing as supplies improve
- Vehicle production has rebounded close to pre-pandemic levels
- Dealer inventories have rebuilt from 2020-2021 lows
- New car prices have cooled off their peaks, though remain elevated
Barring an unexpected shock, the worst effects of the auto supply crisis appear to be waning. Production should continue ramping up as components become more available. This bodes well for vehicle availability and pricing relief after a period of shortages and inflation. Some risks, like China lockdowns and economic uncertainty, remain on the horizon. But the auto industry seems to be past the deepest troubles in its pandemic-disrupted supply chain, marking a positive development for carmakers and consumers alike. Continued improvement in supply conditions will be key to sustaining auto sector recovery in 2023 and beyond.
Global Light Vehicle Production
| Year | Production Volume (Millions) |
|---|---|
| 2019 | 92.2 |
| 2020 | 77.1 |
| 2021 | 73.4 |
| 2022* | 82.0 |
*Estimated full year production based on IHS Markit forecast.
U.S. New Vehicle Inventory
| Month | Total Inventory |
|---|---|
| September 2021 | 1.16 million |
| September 2022 | 1.59 million |
Average U.S. New Vehicle Transaction Price
| Month | Average Price |
|---|---|
| September 2021 | $45,572 |
| March 2022 | $48,301 |
| September 2022 | $47,138 |