How General Motors crashed on this chip hurdle

Paddock’s sales staff is selling General Motors cars by showing customers a computer-screen view of what cars will look like and placing orders.

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’s selling most of the vehicles General Motors Co. sends him as soon as they arrive.

Since the dealership has almost no inventory, Paddock’s sales staff is selling cars and trucks by showing customers a computer-screen view of what cars will look like and placing orders. Then they wait. It’s working well enough that he doesn’t think he’ll need to carry a huge lot of cars when, hopefully, the semiconductor shortage ends one day.

There’s 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 U.S. 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-stricken days of 2020, according to Cox Automotive. The 2021 total is historically low for an industry that’s 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.”

Industrywide, carmakers had about 18 days of inventory in December, according to TrueCar, an automotive pricing website. That’s up slightly from the end of the third quarter, when automakers had 16 days worth. But it’s 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 U.S. sales for the year because it was able to sustain higher production, Cox predicted.

TrueCar estimates 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 projects.

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 say GM is allowing them to extend leases for customers who can’t 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 $45,872 in November, 15% more than a year earlier.

December average transaction prices for GM and Stellantis NV were forecast at more than $50,000 by TrueCar — the highest among mass-market automakers.

Carmakers have said there’s been some relief in chip supplies and that they’re starting to boost production. Inventory even inched up slightly in late November, reaching 1 million vehicles for the first time since August, Krebs said.

Chip-related constraints didn’t seem to slow the growth of Tesla Inc. in the final three months of the year. The electric-vehicle maker said Sunday it delivered a record 308,600 vehicles in the quarter, smashing analysts’ average estimate for about 263,000.

For the entire industry, analysts expect improved access to semiconductors and increased vehicle production this year. Edmunds predicts 15.5 million vehicles will be sold in 2022 and RBC Capital Markets analyst Joe Spak sees 15.8 million as output ramps up.

That’s 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 hasn’t seen the budget-friendly Chevy Malibu sedan since early last summer and finishes every month with maybe three new vehicles that aren’t 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.”

For all the latest Technology News Click Here 

Read original article here

Denial of responsibility! TechAI is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.