The “2021” numerals have been towed into Instances Sq. final December by the Kia Sorento SUV after a cross-country road-trip that began on the automaker’s U.S. headquarters in Irvine, California, and coated greater than 5,500 miles with stops in 15 states.
DETROIT – The automotive trade could by no means be the identical after 2021, an notorious 12 months that introduced large adjustments sparked by provide chain points and the coronavirus pandemic.
The provision chain points – most notably, a world scarcity of semiconductor chips – led to traditionally low car inventories but in addition document pricing and income amid resilient client demand and the shortage of obtainable vehicles and vans.
It is a scenario that some auto executives equivalent to Ford Motor CEO Jim Farley have pledged to proceed when the trade will not be in a time of disaster due to the upper margins for the automaker in addition to its sellers.
“This can be a higher technique to run our enterprise,” Farley advised traders earlier this 12 months. “We now have essentially the most difficult go-to-market system I feel on planet Earth. We may simplify all of that with tighter inventories.”
As an alternative of a 75-day or extra provide of autos, Ford is concentrating on a 50 days’ provide. To assist handle this, Farley needs to maneuver the corporate extra to an order-based system as an alternative of shoppers shopping for autos off a vendor lot. It’s going to assist decrease reductions from the automaker and permit Ford to higher handle its manufacturing, he mentioned.
The decrease car stock ranges and better costs this 12 months are amongst a handful of adjustments that automotive executives and analysts consider could by no means return to pre-2021 ranges. Different adjustments concerned electrical autos, provide chains and new rivals. Here is further data on these adjustments and extra.
From General Motors CEO Mary Barra describing this year as an “inflection point” to nearly all major automakers announcing a pivot to electric vehicles, this year marked a significant shift in tone for the automotive industry and EVs.
Much of that change was led by the rise of Tesla to become the world’s most valued automaker by market cap in late-2020 as well as a greater focus on environmental, social, and corporate governance.
A Rivian R1T electric pickup truck during the company’s IPO outside the Nasdaq MarketSite in New York, on Wednesday, Nov. 10, 2021.
Bing Guan | Bloomberg | Getty Images
While EVs, including plug-in hybrids, remain a niche market at about 4% of the U.S. industry, executives and experts expect an aggressive ramp-up over the next decade.
Most notably, the electrification of pickups began with deliveries of the Rivian Automotive’s R1T in September and the GMC Hummer EV earlier this month. They are expected to be followed by an electric version of the Ford F-150 – America’s best-selling vehicle for decades – in the spring and Tesla’s Cybertruck late next year.
Electric vehicle companies going public through special purpose acquisition companies, or SPACs, was a trend that started in late-2020 but accelerated in 2021.
From battery and charging suppliers such as Solid Power or ChargePoint to EV companies such as Lucid Group, such companies have changed the automotive landscape. While some don’t expect all of the companies to succeed, even one or two new companies can put pressure on the legacy automakers to change their direction, as Tesla has proved.
Factory shutdowns starting last spring due to the coronavirus pandemic and occurring now due to a global shortage of semiconductor chips have caused the number of new vehicles available in the U.S. to reach record lows.
Keeping a lower inventory of vehicles is something the automotive industry has played around with in the past but never really been able to keep going; specifically, the Detroit automakers that typically have among the highest inventory levels.
Tyson Jominy, vice president of data and analytics at J.D. Power, believes the longer the lower inventory levels go on, “the more likely it is that these changes can be made permanent.”
Dealer inventory levels across the country remain extremely low due to a semiconductor chip shortage that has led to sporadic plant shutdowns and depleted vehicle inventories in 2021.
Michael Wayland / CNBC
“The challenge is it’s a fixed asset industry and we have a core history of backsliding and producing more because the temptation is always there to cheat, produce one more unit because of the cost efficiencies,” he said.
The auto industry had about 1 million new vehicles on dealer lots in December, which was 1.8 million fewer new vehicles available for consumers to buy this year and 2.5 million less than 2019, according to Cox Automotive. J.D. Power reports national vehicle inventories are at 850,000 vehicles this month, when retail sales are typically 1.4 million.
The low supplies have led to record dealer profits as consumers are willing to pay more for a new vehicle. Some dealers also are adding markups, or “market adjustments,” on high-demand products. While that’s not unprecedented, the amount and scope is more than ever before, analysts say.
“Everybody’s going to make a lot more money because of it from here on out. I just don’t see it going back to pre-Covid levels,” Sonic Automotive President Jeff Dyke told CNBC earlier this year, saying “the whole ballgame” has changed in the past year.
J.D. Power reports about 89% of new vehicles bought by consumers sold near or above the manufacturer’s suggested retail price, also known as MSRP or sticker price. That compares with 12% in December 2019.
Cox Automotive reports the average list price of a new vehicle last month was about $45,000, up from less than $40,000 a year earlier.
“I would probably argue that some of that could be permanent,” said Jeff Schuster, LMC’s president of the Americas. “I don’t think pricing is going to come back down to pre-shortage levels or incentives are going to increase.”
The chip shortage and electric vehicles are causing automakers to rethink their logistics and supply chains, as companies attempt to safeguard themselves from such a situation ever occurring again.
The changes range from more vertically integrating parts production to forming joint ventures or partnerships with EV battery and chip suppliers.
Toyota Motor earlier this month announced a new $1.29 billion battery plant for electrified vehicles in North Carolina. It followed similar announcements by GM, Ford and others to move production of EV battery components closer to home to reduce costs and lower risks of supply chain disruptions.
“As you would expect, we’re committed to learn from this crisis to be a much stronger company,” Farley said earlier this year. “We’re taking this opportunity to revamp our supply chain to eliminate vulnerabilities down the road.”