Tight inventories, chip shortage likely to keep ceiling on US new vehicle sales into 2022

HOUSTON (ICIS)–US auto dealers continue to cope with record-low inventories brought on by production cuts related to the global semiconductor shortage, leading the National Automobile Dealers Association (NADA) to lower its sales projections for the year.

And ICIS demand analyst Jincy Varghese noted that the overall outlook for the industry “remains pessimistic” as the chip shortage is likely to persist at least until the first half of 2022.

Patrick Manzi, NADA chief economist, said he expects dealerships to continue to sell most of their inventory soon after it reaches their lots as consumer demand remains strong and consumers have been able to offset higher costs for new vehicles with very strong values for their trade-ins.

“Inventory levels should begin to slowly and steadily increase throughout 2022 but will likely remain below pre-COVID levels,” Manzi said.

NADA is now projecting total light vehicle sales for 2021 to be 15.2m units.

Varghese noted that the chip shortage could be intensified with the shift to electric vehicles (EVs) as they require more chips than conventional cars.

EVs only make up 3% of the current market, Varghese said, which should lessen the near-term impact.

Varghese said the chip shortage, brought on by extraordinary demand for consumer electronics seen during the pandemic, is likely to continue to weigh on production despite plans to increase chip production capacity.

Intel and Taiwan Semiconductor Manufacturing (TSMC) announced investments for new chip capacity, but it usually takes 18-24 months for a new chip plant to start operations.

PRODUCTION CUTS
North American automakers were forced to reduce production throughout the year because of the shortage of microchips that are used to control the engine, antilock brakes, power steering, fuel-monitoring system and heating and air conditioning in modern vehicles.

Varghese used Japanese automaker Toyota as an example.

Toyota had hoped to make up for previous production cuts in the fourth quarter but was unable to do so and saw its November production totals come up 50,000 units short in Japan and between 100,000-150,000 units short in other regions.

Some automakers have seen chip supply improve recently.

US automaker General Motors (GM) told ICIS recently that it added weekend overtime shifts at six North American plants in November and that the week of 1 November marked the first week since February that no GM assembly plants were idled because of the chip shortage.

The automotive industry is a major consumer of petrochemicals, which contributes more than a third of the raw material costs of an average vehicle.

Polymers used in automobiles include polypropylene (PP), polyurethanes, nylon, acrylonitrile butadiene styrene (ABS), styrene acrylonitrile (SAN), polycarbonate (PC) and styrene butadiene rubber (SBR).

Focus article by Adam Yanelli

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