Are Canadian dealers being shortchanged on inventory?
It’s a question that has often come up in my conversations with dealers across the country, as they grapple with inventory challenges stemming from last year’s COVID-19 production shutdowns and this year’s microchip shortage. Some wonder if automakers are giving priority on inventory to dealers in the United States, where the new-vehicle market is much larger and where margins are generally higher.
I asked Tim Reuss, the CEO of the Canadian Automobile Dealers Association (CADA), if he was aware of such an issue. He said the CADA has been “actively monitoring the situation” with brand dealer councils, but he said the CADA has seen nothing to confirm some dealers’ suspicions.
“To be clear, we are very concerned about the current supply situation, but we don’t have any data at this point to suggest that the problem is bigger in Canada due to OEM policy,” Reuss wrote in a message to Automotive News Canada.
The microchip shortage is putting a strain on the industry. Automakers have been forced to cut back production of some models at plants around the world, including some in Canada. It’s an issue that could compound inventory challenges some Canadian dealers are already facing.
Case in point: According to J.D. Power, about three-in-four full-size SUVs in January were sold in 30 days or less, compared with about half a year earlier.
“That essentially means there aren’t very many units out there, and that what is being produced at factories is being likely prioritized for the U.S. domestic market, where profit margins might be higher than in export markets such as Canada,” wrote Robert Karwel, senior manager of automotive at J.D. Power Canada, in an email.
That was reflected in January new-vehicle sales numbers, Karwel said. Six automakers in Canada – Honda, Hyundai-Kia, Mazda, Subaru, Toyota and Volvo – publicly reported January sales figures. Combined, their sales were down 17.6 per cent from a year earlier, according to the Automotive News Research and Data Center.
Meanwhile, combined January new-vehicle sales among those six automakers in the United States rose 0.3 per cent from a year prior.
“The U.S. has certainly been on a tear for dealer margins, so it could also be that U.S. dealers are better at lobbying for allocation,” Karwel said.
Joe McCabe, CEO of AutoForecast Solutions LLC, said other factors could be at play.
“We have not heard any sinister reasoning on this issue,” he said in an email. “If we had to make an educated guess, the combination of reduced availability due to COVID and the semiconductor shortage, combined with strained cross-border logistics for the same reasons could impact deliveries north. Again, nothing confirming this is the reasoning or if there [are] actual decisions by the OEMs to not ship north.”
Whatever the reason, many Canadian dealers are likely to feel the pinch on inventory in the coming weeks and months as the industry sorts through a myriad of production issues. Constraints on production could last into the third quarter, according to an IHS Market forecast.
Email John Irwin at [email protected].