The worst of the microchip shortage, which has curtailed global vehicle production, squeezed new-vehicle inventories and raised average transaction prices in Canada to record highs, may be over.
Jeff Schuster, president of global forecasting at Michigan-based LMC Automotive, said Nov. 15 the industry has pushed past the chip shortage’s peak, though some of the changes it has wrought are likely to turn permanent as automakers refine their post-pandemic playbooks.
“We believe the worst of it is over,” Schuster said during the J.D. Power and Canadian Black Book TalkAuto at Home virtual conference. “I always hate saying that because inevitably something else will happen, but I think in this case, we’re at least looking at a flat fourth quarter and then some improvements.”
Schuster said the recovery in 2022 will be “marginal,” with worldwide inventory levels remaining well short of replenished. In North America, 2.2 million vehicles were struck from production schedules during the first nine months of 2021, and another 300,000 will follow by year’s end. Around 90 per cent of the disruptions are chip-related, Schuster added.
The tight inventories have hit vehicle buyers’ wallets. Average transaction prices in Canada rose to $42,744 in September 2021, up nearly 13 per cent from $37,951 a year earlier, Schuster said.
Consumers were willing to pay more, even as vehicle buying incentives slid by a third, falling to an average of $3,593 this September from $5,361 in 2020. A 38-per- cent decline in luxury incentives was even more pronounced, Schuster said, yet the rebound in luxury sales has outpaced mainstream vehicles.
“We have seen a skewing, a return of the premium vehicles to the market from an overall standpoint. This could have to do with the shortages, it certainly could have pushed buyers into more of a vehicle than they were initially looking for.”
Resale value has been one of few bright spots for buyers, Schuster added, pointing to trade-in equity rising 31 per cent year-over-year in the third quarter.
“Because of used car pricing being up and holding, consumers, at least if they have a trade-in or are selling private party, they do have the ability to offset some of that transaction pricing increase by equity in their trade-in going up.”
Schuster forecasts new vehicle sales in Canada to close out 2021 at 1.68 million, before climbing to 1.74 million and 1.84 million in 2022 and 2023, respectively.
The tight supply of vehicles will slowly ease as automakers play catch-up, but inventory strategy at dealers may be forever changed. In the past, a vehicle typically sat on a lot for 65 days before selling, Schuster said. In the third quarter of 2021, that days-to-turn figure dropped to 50. He anticipates automakers working to keep that number low with concepts such as build to order.
“We’re going to be looking at a different environment going forward,” Schuster said, pointing to 45 to 50 days as the point the market is likely to settle