Anyone want to buy a vehicle? A better question might be: does anyone have a vehicle for sale? Whether due to supply issues, demand issues, other issues, or all of the above, the fact remains that the first quarter of 2022 has not been a good quarter for vehicle sales. Just ask the automakers that saw double-digit declines in new light-duty vehicle sales: 23% for Honda; 20% for GM; 17% for Ford; 15% for Toyota; and 14% for Stellantis. While the numbers seem pessimistic, the manufacturers weren’t dour. Honda was pretty positive about its numbers, noting that demand was strong and they just couldn’t make enough vehicles to sell more, “we’re on a bit of a rollercoaster due to fluctuating power issues. parts supply, but strong March sales for Honda and Acura speaks to the fact that demand remains strong and our retail deliveries are based primarily on what we can supply to our dealerships.”
Some other interesting insights from the sales data:
As a result, LMC Automotive and Cox Automotive each cut their full-year U.S. light-vehicle sales forecast to 15.3 million units, citing a slower pace of recovery from market constraints. LMC called inventory levels “critically low”. Cox led his report by noting that not only are inventories low, but prices are high and the incentives to sell are gone (note – that’s how this whole supply/demand system works). Cox put it all at the feet of supply: “Auto sales will essentially be stuck at the current level until more supply comes in.”
Overall, the pandemic is not over. This continues to have the potential to significantly impact global vehicle volumes, particularly in China. Global vehicle production could lose up to 1.5 million units this year if China’s COVID-Zero policy is maintained, according to Fitch Solutions estimates cited in Bloomberg. More recently, gradual shutdowns in Shanghai in response to the COVID-19 outbreaks have disrupted production at several major automakers and suppliers.
Add to that, the continued shortage of microchips (for which no end appears in sight) is causing production stoppages at various plants: Jeep production at Mack Assembly’s Stellantis plant in Detroit and Belvidere Assembly plant. in Illinois; Chevrolet Silverado 1500 and GMC Sierra 1500 production at GM’s Fort Wayne Assembly Plant; and Mustang production at Ford’s Flat Rock Assembly Plant. Let’s not forget the war in Ukraine, which led German automakers to lose up to 150,000 production units in March due to supply disruptions.
Curiously, the industry feels both healthy (revenues, profits, margins, etc.) and stressed with an uncertain future (see above). Strangely, but strangely not so strangely, nothing about this situation feels new. Is this the new normal?
© 2022 Foley & Lardner LLPNational Law Review, Volume XII, Number 97