Auto sales plunge as makers struggle with chip shortage
Soumya Rangarajan wanted her next car to be electric. She placed an order for a Volkswagen ID.4, but after six months of waiting to get her hands on the sport-utility vehicle, she gave up. She decided to buy out the lease on her gaspowered Ford Escape instead.
“I would still like to get an electric vehicle, but I’m buying out my Escape because I need something to drive,” said Rangarajan, who works as a hospital doctor in Ann Arbor, Mich. “I just don’t know how long this holdup is going to be.”
Automakers don’t know either. After sounding an optimistic note in the first half of the year as soaring car prices padded their profits, auto executives have become more resigned to supply chain headaches after recent COVID-19 outbreaks in Malaysia hampered semiconductor production. That has in turn drained vehicle inventory, pushing up prices on both new and used cars.
“I think everybody had a kind of come-to-Jesus moment after hoping through the first half of this year that things were going to get better,” said Haig Stoddard, an analyst at Wards Intelligence. “Things are getting worse and they’re not going to get better, at least through the end of this year.”
Automakers likely sold about 12.3 million new vehicles at a seasonally adjusted annualized rate in September, down 25 percent from a year ago, according to an average of six market researcher forecasts. That’s lower than August’s 13.1 million pace, and downright whiplash from the near-record annual rate of 18.3 million in April, buoyed by a fresh supply of chips.
U.S. car dealers had just 17 days worth of new-car inventory on their lots in September, compared with 42 days a year ago, according to market researcher TrueCar. The average September inventory from 2015 to 2019 was 64 days, according to Wards.
Most automakers will report their latest U.S. sales numbers for the latest quarter on Friday. Ford and Tesla, which only posts global sales, are expected to follow suit as soon as the next day.
General Motors, which idled key truck plants in September, likely took the biggest sales hit among major automakers. Deliveries may have dropped as much as 58 percent this month from a year ago, according to Joe Spak, an analyst at RBC Capital Markets.
While Detroit automakers have generally fared worse than their Asian counterparts in the chip crisis, Toyota, Honda and Nissan also struggled with supply constraints and shutdowns this month, Spak wrote in a Sept. 23 note.
The bottlenecks extend beyond chips. Rubber, electrical parts and components are scarce; there’s also a labor shortage and shipping logjams, Stoddard said.
“The whole supply chain is just breaking apart because manufacturers can’t keep up with overall demand,” he said.
The lack of new vehicles is affecting the used-car market, too. The average used-vehicle price touched a record $25,829 at the end of August, a 34 percent jump from the comparable pre-pandemic period in 2019, according to Cox Automotive. Used-car sales also have slowed because of lack of supply, according to Cox’s senior economist Charlie Chesbrough.
Carlos Hidalgo Jr., general manager of a Chrysler, Dodge, and Jeep Ram dealership across the bay from San Francisco, said he paid a customer $2,000 more than the lease value to buy back a 2018 Jeep Grand Cherokee this week.
“It’s a better way to source vehicles, because if we go to auction, we have to pay through the roof,” he said.
The California dealership is clean out of new models like hybrid Pacifica minivans, plug-in hybrid Jeep Wranglers, and Dodge Charger Scat Packs — popular muscle cars that pack a 485-horsepower Hemi engine. Hidalgo’s father, who owns the dealership and shares his name, said 9 out of 10 customers are opting to buy out their lease rather than trade it in for a new car.
While many dealers are still making a tidy profit on tight inventory, the dramatic drop in sales volumes will likely hurt automakers’ third-quarter earnings. GM already signaled as much in August with a full-year outlook that disappointed investors.