CAR SALES BOUNCE BACK, BUT UNCERTAINTY LOOMS
Auto sales in California rebounding, but shortage of semiconductor chips a concern
“We’re poised for a recovery, particularly as ... vaccines take hold and people feel more secure.”
Like many sectors of the economy, auto sales took a massive hit early last year due to the immediate economic effects of the pandemic. California car dealers have seen improvement but the economic effects of COVID-19 — including a global shortage in semiconductors — continue to make for uncertain times.
“There’s still a recession, there’s still high unemployment. There’s still lots of people suffering but the folks who can afford to purchase new vehicles pretty much are back in the market,” said Brian Maas, president of the California New Car Dealers Association.
Sales of new cars and trucks in California dropped 21.7 percent in 2020, according to figures compiled by Experian and released by the car dealers association. That’s the biggest drop by percentage since 2009, when the Great Recession led to a nosedive of 28 percent drop in sales, compared to 2008.
In the second quarter of last year — right after Gov. Gavin Newsom instituted stay-at-home orders statewide on March 19 — new registrations fell 48.9 percent in California compared to April through June 2019.
But the figures improved as the year progressed. With dealerships instituting cleanliness and social-distancing protocols, the drops became less severe — down 19.6 percent in the third quarter and 12.6 percent in the fourth quarter.
“We’re climbing our way back,” Maas said.
Economic forecasters for the car dealers association predict sales of
1.77 million new cars and trucks in the Golden State in 2021, up from 1.64 million last year. Before last year’s turndown, California dealers had racked up registrations of more than 2 million vehicles for five consecutive years.
“We’re poised for a recovery, particularly as we emerge out of COVID and vaccines take hold and people feel more secure that their jobs are going to remain or that they can get a job as the economy recovers,” Maas said.
But a sense of uneasiness remains, partly due to questions about the spread of a COVID-19 variant.
A more immediate concern for the auto industry, however, is a sudden shortage of semiconductor microchips.
The silicon chips essential for laptops, game consoles and TVs are also needed in the manufacturing of cars and trucks. Dealers only slightly exaggerate when they call today’s cars “computers on wheels,” since semiconductors are used in everything from brake sensors and power steering to navigation and entertainment systems.
Last spring as the virus spread, automakers slowed down production and — analysts say — semiconductor companies shifted focus
to consumer electronics, which saw an uptick in demand in the form of chips for virtual learning, remote health care and working from home.
As the auto sector has recovered, semiconductor manufacturers have been unable to keep up with demand.
Carmakers have been forced to put production on hold due to the shortage. GM, for example, announced last week it is shutting down three plants, ramping down production in a fourth and may miss its 2021 targets.
“Semiconductor supply for the global auto industry remains very f luid,” a GM spokesperson said in a statement.
It takes lead times of up to 26 weeks to go through the complex manufacturing process to produce semiconductors. It’s hoped the shortage can be rectified in a few months but the auto sector is antsy.
“If that problem persists, particularly across multiple manufacturers, that could suppress some of (projected sales) numbers for 2021,” Maas said.
As for California’s figures for 2020, sales of SUVs and roomier vehicles remained strong. The Toyota RAV4 sold 57,449 units, second only to the Honda Civic, which posted 59,335 units.
Despite the overall downturn, the market share for electric and
hybrid vehicles in California rose from 13.2 percent in 2019 to 15 percent. Tesla delivered 38,580 of its Model 3 in 2020, making it the state’s ninth bestseller.
San Diego County performed better than other parts of the state, reporting a decline in registrations of 13.4 percent in 2020. Los Angeles and Orange counties recorded a fall of 19.7 percent and the Bay Area posted a decline of 23.6 percent.
The California used car market outperformed the new vehicle market, seeing a relatively modest drop of 8.5 percent compared to the previous year. As the average price of a new vehicle rises to about $40,000, a used car or truck appears more attractive.
“For a lot of folks, particularly who may be in some economic distress or are worried about that, they’re saying, ‘I can’t afford the new one, I’m going to go for the used one instead,’” Maas said.
Not surprisingly, “fleet sales” of vehicles coming from commercial businesses absorbed a major punch in 2020, dropping 39.5 percent. It was largely due to the decimation felt by rental car outlets that lost business due to the pandemic in the form of reduced airline and highway travel.