If you’re wondering why auto production isn’t returning to norm, you’re not alone. S&P Global Mobility recently lowered its production forecast for light vehicles worldwide, citing the weakening world economy and strained automotive supply chains. The company’s estimate for global light vehicle production in 2022 and 2023 was lowered by 2.6 million units. Europe was hit particularly hard, with its reliance on Russia and Ukraine. Volkswagen warned that it may need to make similar cuts soon.
While the global shortage of microchips has finally eased, automakers haven’t returned to normal production. The first half of 2019 alone will lose $60 billion. Meanwhile, consumers are forced to settle for less. Top-tier models are scarce, and backlogged orders must be filled. As the supply of semiconductor chips grows, automakers are struggling to keep up with the demand for new cars. Manufacturers are resorting to cutting features to stay afloat, which in turn makes consumers fewer options and pay more.
While new-car prices continue to rise, the sales figures are mirror-images of these rising prices. Last month, the average new car transaction was 8% higher than a year ago. According to the Kelley Blue Book, new-car sales have been falling since the recovery from the Global Financial Crisis. The drop in August marked the lowest new-car sales since the recovery from the Global Financial Crisis. This explains why auto production isn’t returning to normal.
While chip shortages may help the auto industry in the short run, this doesn’t mean that normal car buying will resume. Experts predict a new chip shortage in 2022. Some automakers have already halted production of popular models, while others have stepped down production. Chips are needed for new models, so the chip shortage could be even greater. Therefore, automakers should make their next decisions now to avoid further problems.
The chip shortage is one of the biggest challenges facing the auto industry. Earlier this month, the Automotive Industry Association (AAA) reported that there were 500,000 fewer vehicles produced globally than expected in the first six weeks of 2022. This shortage has hit North America hardest, which is why automakers like Ford and Toyota have ceased production of certain models. Toyota also recently revised its operating profit forecasts after its profits sank by 21% in the previous quarter. Even Japanese automakers such as Subaru and Mazda are finding it difficult to produce cars.
Chip shortages have caused many automakers to halt production for weeks at a time in the first half of the year. GM is also facing similar problems. It couldn’t offer some features on some of its models because of a lack of chips. However, the company’s North American production lines are no longer experiencing downtime, despite the slowdown in production. Moreover, it has restarted second shifts at several of its assembly lines, including the Fairfax, Kansas, and the Ramos Arizpe, Mexico plants, which build Chevy Blazers and Equinox SUVs.
After World War II, demand and supply were out of sync. After the war, U.S. auto plants began production. However, the prices rose far beyond MSRPs, and the shortage of new vehicles triggered a crash in car prices. Currently, the price of new vehicles is at a record high and dealers are struggling to fill their lots. Moreover, if production doesn’t return to normal, prices could rise further and affect consumers.
