Duane Paddock is used to carrying upwards of 800 vehicles at his self-named Chevrolet dealership near Buffalo, New York. But these days, thanks to the semiconductor shortage, he is selling most of the vehicles General Motors Co (GM) sends him as soon as they arrive.
Since the dealership has almost no inventory, Paddock’s sales staff are selling cars and trucks by showing customers a computer-screen view of what cars will look like and placing orders. Then they wait. It is working well enough that he does not think he will need to carry a huge lot of cars when, hopefully, the semiconductor shortage ends one day.
There is just one problem: He still has far more interested buyers than he has vehicles coming in, which is why auto-industry sales fell about 20% in the fourth quarter of 2021 and suffered the worst second half since the Great Recession more than a decade ago.
“This will be my lowest volume year in 20 years. We’ll end up around 2,500 units when I normally do 3,300 to 4,500,” Paddock said by phone. “Everything I’ve got coming in, we’re selling before they come in”.
Carmakers likely sold a seasonally adjusted annual rate of about 12.5 million new vehicles in December, down 23% from a year earlier, according to the average forecast of six market researchers. Most automakers will report their latest quarterly and annual US new car sales on Tuesday.
For the full year, auto sales likely came to 14.9 million vehicles, a 2.5% jump from the Covid-19-stricken days of 2020, according to Cox Automotive. The 2021 total is historically low for an industry that is used to selling about 16 million vehicles annually. The slowdown reflects a global microchip shortage that forced automakers to limit output or ship some vehicles without fully functioning features.
December is usually a huge month for carmakers, who typically use holiday promotions to fuel a year-end push. But not in 2021, said Cox analyst Michelle Krebs.
“It’s not a demand problem. It’s a supply problem,” she said. “We’re at least 1.5 million units of inventory behind 2020 and 2.5 million units behind 2019”.
Industry-wide, carmakers had about 18 days of inventory in December, according to TrueCar, an automotive pricing website. That was up slightly from the end of the third quarter when automakers had 16 days worth. But it was still less than half what they had a year earlier.
GM, which had kept production going early in the crisis, was hit particularly hard by the chip shortage in the second half. Toyota Motor Corp will likely beat GM in US sales for the year because it was able to sustain higher production, Cox predicted.
TrueCar estimated that GM’s December sales were down 43%, which would be the biggest drop of any automaker. Toyota sales fell about 30% and Ford Motor Co is likely to report a drop of about 20%, TrueCar projected.
GM had record-low inventory at the start of the fourth quarter because of downtime in the third, said company spokesman Jim Cain. The Detroit automaker’s production showed signs of improvement in the fourth quarter as more chips became available, he said.
To help cope with the vehicle shortfall, dealers said GM is allowing them to extend leases for customers who cannot find a new car.
Consumers who are able to find the vehicles they want are being forced to pay up. Automakers are using the semiconductors they get to build more-profitable models and those with the most options packed in, according to car shopping research firm Edmunds. All those high-trim-level pickups and sport utility vehicles resulted in a record average price of US$45,872 in November, 15% more than a year earlier.
December average transaction prices for GM and Stellantis NV were forecast at more than US$50,000 by TrueCar — the highest among mass-market automakers.
Carmakers have said there has been some relief in chip supplies and that they are starting to boost production. Inventory even inched up slightly in late November, reaching one million vehicles for the first time since August, Krebs said.
Chip-related constraints did not seem to slow the growth of Tesla Inc in the final three months of the year. The electric-vehicle maker said on Sunday it delivered a record 308,600 vehicles in the quarter, smashing analysts’ average estimate for about 263,000.
For the entire industry, analysts expected improved access to semiconductors and increased vehicle production this year. Edmunds predicted 15.5 million vehicles will be sold in 2022 and RBC Capital Markets analyst Joe Spak saw 15.8 million as output ramps up.
That is welcome news to buyers and sellers alike, who are eager to see a better selection — especially of less-expensive models. GM dealer Paddock said he has not seen the budget-friendly Chevy Malibu sedan since early last summer and finishes every month with maybe three new vehicles that are not already sold in advance.
“When will we get back to having inventory? My guess is two years from today,” he said. “It’s going to be a long time before you see inventory on customer lots”.