A new illness infecting the auto industry—a global shortage of semiconductor chips—has replaced the coronavirus and is causing new vehicle inventories to nosedive.
There is more demand than supply and that is the headline on the vehicle side.
Automakers are halting or slowing production because of chip and supplier shortages, and the result is a drop in supply. Cox Automotive subsidiary vAuto reports, vehicle inventories dropped to 2.24 million vehicles in April, representing a 44-day supply at the current selling rate. The inventory of new vehicles plummeted 37% from 2020 levels (constricting 420,000 vehicles since March) and 42% from 2019 levels.
Cox warns supply will trend down to the low-30s and suggests some pickups and SUVs have already hit the single digits. Historically, days of supply were at least 60, and even higher for configurable vehicles like pickups.
The firm also puts non-luxury vehicle inventories at 1.9 million, representing a 43-day supply. This figure is down from a 58-day supply in March. Luxury-model supply also dropped, falling from 60 days to 49. But Autotrader Executive Analyst Michelle Krebs reported an adequate supply of subcompact crossovers and some subcompact cars.
“There is more demand than supply and that is the headline on the vehicle side,” AutoNation CEO Mike Jackson informed investors last month. “We’ve adjusted pricing to reflect that, and you see the improvement in our front-end growth.”
The shortage will drive up prices for both new and used vehicles and consumers may spend weeks or longer searching and waiting for the vehicle they want.
Meanwhile, lower inventories present a booming opportunity for automakers and dealers. Higher prices and selling vehicles before they hit the lots will drive up profits. SUVs and trucks will command the highest prices.