Until 2023? Shortage of parts will keep auto prices high

TOLEDO, Ohio (AP) — In the spring, a shortage of computer chips that had driven up auto prices finally seemed to be easing. Some relief for consumers seemed to be in sight.

That hope has now faded. An increase in COVID-19 cases from the delta variant in several Asian countries that are major producers of auto-grade chips is compounding the supply shortage. This further delays the return to normal car production and keeps vehicle supply artificially low.

And that means, analysts say, record consumer prices for vehicles – new and used, as well as rental cars – will continue into next year and may not come down to earth again until 2023.

The global parts shortage isn’t just about computer chips. Automakers are also starting to see shortages of wiring harnesses, plastics and glass. And beyond automobiles, vital components for goods ranging from agricultural equipment and industrial machinery to sportswear and kitchen accessories are also bottled up in ports around the world as demand outstrips supply in the face of a resurgent viruses.

“It looks like it’s going to get a little harder before it gets easier,” said Glenn Mears, who runs four car dealerships around Canton, Ohio.

Pressured by parts shortages, General Motors and Ford announced one- or two-week shutdowns at several North American plants, some of which produce their hugely popular full-size pickup trucks.

Late last month, shortages of semiconductors and other parts got so bad that Toyota felt compelled to announce it would cut production by at least 40% in Japan and America. North for two months. The cuts meant a reduction of 360,000 vehicles worldwide in September. Toyota, which has largely avoided the sporadic plant closures that have plagued rivals this year, is now forecasting production losses in October.

Nissan, which announced in mid-August that chip shortages would force it to close its huge plant in Smyrna, Tennessee, until August 30, is now saying the shutdown will last until September 13.

And Honda dealerships are bracing for fewer shipments.

“This is a fluid situation that is impacting the industry’s entire global supply chain, and we are adjusting production as necessary,” said Chris Abbruzzese, a Honda spokesman. .

The result is that vehicle buyers face persistent and once unthinkable price spikes. The average price of a new vehicle sold in the United States in August hit a record just over $41,000, nearly $8,200 more than two years ago, JD Power estimated.

With consumer demand still high, automakers feel little pressure to downsize their vehicles. Forced to hold on to their scarce computer chips, automakers have funneled them into more expensive models — pickup trucks and large SUVs, for example — driving up their average prices.

The roots of the computer chip shortage plaguing the auto and other industries stem from the eruption of the pandemic early last year. US automakers had to close factories for eight weeks to help prevent the spread of the virus. Some parts companies have canceled semiconductor orders. At the same time, with tens of millions of people confined to their homes, demand for laptops, tablets and game consoles has exploded.

While auto production has picked up, consumer demand for cars has remained strong. But chipmakers had shifted production to consumer goods, creating a shortage of weatherproof automotive-grade chips.

Then, just as auto chip production began to rebound in late spring, the highly contagious delta variant hit Malaysia and other Asian countries where chips are finished and other auto parts are made.

In August, sales of new vehicles in the United States fell nearly 18%, mainly due to supply shortages.

Automakers reported U.S. dealerships had less than 1 million new vehicles on their lots in August, down 72% from August 2019.

Even if auto production were to somehow immediately return to its all-time high for vehicles sold in the United States, it would take more than a year to reach a more normal supply of vehicles in 60 days and for prices to fall, said consultancy Alix Partners calculated.

“In this scenario,” said Dan Hearsch, managing director of Alix Partners, “it’s not until early 2023 that they might even overcome a sales backlog, projected demand, and build inventory.”

For now, with spare parts supplies remaining tight and production cuts spreading, many dealerships are nearly out of new vehicles.

On a recent visit to the “Central Avenue Strip” in suburban Toledo, Ohio, a road packed with dealerships, few new vehicles could be found on the lots. Some dealerships filled their lots with used vehicles.

The supply is so low and the prices so high that one potential buyer, Heather Pipelow of Adrian, Michigan, said she didn’t even bother to look for a new SUV at Jim White Honda.

“It’s more than I paid for my house,” she said sadly.

Ed Ewers of Mansfield, Ohio traveled about two hours to a Toledo-area Subaru dealership to purchase a used 2020 four-door Jeep Wrangler. He considered buying a new vehicle, but decided that a used vehicle was more in his price range to replace an aging Dodge Journey SUV.

Mears, whose Honda dealership is running out of new inventory, said dealerships are managing to survive due to the high prices consumers have to pay for new and used vehicles.

He doesn’t charge more than the list price, he said — enough profit to cover expenses and make money. It also doesn’t have to advertise as much or pay interest on a large inventory of vehicles. Many vehicles, he said, are sold before they arrive from the factory.

Chip orders placed nine months ago are now starting to arrive. But other components, such as glass or parts made with plastic injection molds, are sold out, Hearsch said. Due to the virus and a general labor shortage, he said, auto parts makers may not be able to make up for lost production.

A tentative cause for hope began to emerge. Siew Hai Wong, president of the Malaysian Semiconductor Industry Association, hopes chip production should begin to return to normal in the fall as more workers are vaccinated.

Although Malaysia, Vietnam, Taiwan, Singapore and the United States all produce semiconductors, he said, a shortage of just one type of chip can disrupt production.

“If there is disruption in Malaysia,” Wong said, “there will be disruption somewhere in the world.”

Automakers are considering moving to an order-based distribution system rather than keeping huge supplies on dealer lots. But no one knows whether such a system would prove more effective.

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Eventually, Hearsch suggested, the delta variant will pass and the supply chain should return to normal. By then, he predicts, automakers will line up multiple parts sources and stockpile critical components.

“There will be an end, but the question really is when,” said Ravi Anupindi, a University of Michigan professor who studies supply chains.

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