From SPACs to chips: Five ways 2021 may have forever changed the auto industry

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  • The automotive industry may never be the same after 2021, a notorious year brought about by supply chain issues and massive changes from the coronavirus pandemic.
  • Supply chain issues historically led to low vehicle inventories, but also led to record pricing and profits amid resilient consumer demand and a lack of available cars and trucks.
  • In addition to supply and prices, other changes included electric vehicles, supply chains and new competitors.

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DETROIT – The automotive industry may never be the same after 2021, a notorious year brought about by supply chain issues and massive changes from the coronavirus pandemic.

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Supply chain issues — in particular, a global shortage of semiconductor chips — led to historically low vehicle inventories, but also led to record pricing and profits amid resilient consumer demand and a lack of available cars and trucks.

It’s a position that some auto executives, such as Ford Motor CEO Jim Farley, have promised to continue with in times of industry crisis due to higher margins for the automaker as well as its dealers.

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“It’s a better way to run our business,” Farley told investors earlier this year. “We have the most complex go-to-market systems I think are on planet Earth. We can simplify them all with stringent inventions.”

Ford is targeting a 50-day supply of vehicles instead of a 75-day or more supply. To help manage this, Farley wants customers to move the company to an order-based system instead of buying vehicles from dealer lots. He said it would help the automaker get fewer discounts and allow Ford to better manage its production.

Lower vehicle inventory levels and higher prices this year are among some of the changes that automotive executives and analysts believe may never go back to pre-2021 levels. Other changes included electric vehicles, supply chains and new competitors. Here’s additional information about those changes and more.

EVs

Nearly all major automakers announced a pivot to electric vehicles, with General Motors CEO Mary Barra describing the year as an “inflection point”, a significant change in tone for the automotive industry and EVs this year. marked.

Much of that change was led by Tesla becoming the world’s most valuable automaker by market cap in late 2020, as well as a greater focus on environmental, social and corporate governance.

While EVs, including plug-in hybrids, remain a niche market at around 4% of the US industry, executives and experts expect an aggressive ramp-up over the next decade.

Most notably, electrification of the pickup began with the deliveries of Rivian Automotive’s R1T in September and the GMC Hummer EV earlier this month. They are followed by the Ford F-150 – America’s best-selling vehicle for decades – in the spring and an electric version of Tesla’s Cybertruck is expected to arrive late next year.

SPACs

Electric vehicle companies going public through Special Purpose Acquisition Companies, or SPACs, was a trend that began in late 2020 but accelerated into 2021.

From battery and charging suppliers like Solid Power or ChargePoint to EV companies like Lucid Group, such companies have transformed the automotive landscape. While some don’t expect all companies to be successful, even one or two new companies can pressure legacy automakers to change their direction, as Tesla has proven.

Other new EV start-ups going public from the end of 2020 include Lordstown Motors, Canoo, Electric Last Mile Solutions and Faraday Future. EV start-up Rivian also went public this year but through an IPO instead of a SPAC deal.

vehicle list

Factory closures that began last spring due to the coronavirus pandemic and a global shortage of semiconductor chips have now pushed the number of new vehicles available in the US to a record low.

Keeping a low inventory of vehicles is something the automotive industry has played with in the past but has never really been able to keep up with; Specifically, the Detroit automakers that typically have the highest inventory levels.

Tyson Jomini, vice president of data and analytics at JD Power, believes that the longer the lower level of inventory lasts, “the more likely it is that these changes can be made permanent.”

“The challenge is this is a real estate industry and we have a core history of backsliding and overproduction because the temptation is always to cheat, produce another unit because of cost efficiencies,” he said.

According to Cox Automotive, the auto industry had about 1 million new vehicles on dealer lots in December, down from 1.8 million new vehicles available for consumers to buy this year and 2.5 million fewer than in 2019. J.D. Power reports that the national vehicle inventory this month stands at 850,000 vehicles, when retail sales are typically 1.4 million.

prices

Short supply has led to record dealer profits as consumers are willing to pay more for a new vehicle. Some dealers are also adding markups, or “market adjustments,” on high-demand products. While it is not unprecedented, the amount and scope are greater than ever, say analysts.

“Everybody’s going to make a lot of money out of here because of it. I don’t see it going back to pre-Covid levels,” Jeff Dyke, president of Sonic Automotive, told CNBC earlier this year. Has changed in the past year.

JD Power reports about 89% of new vehicles purchased by consumers sell at or above the manufacturer’s suggested retail price, also known as the MSRP or sticker price. This is compared to 12% in December 2019.

Cox Automotive reports that the average list price of a new vehicle last month was about $45,000, down from $40,000 a year ago.

“I would probably argue that some of them may be permanent,” said Jeff Schuster, president of the LMC of America. “I don’t think pricing is going to come back to pre-scarcity levels or that incentives are going to increase.”

delivery method

Chip shortages and electric vehicles are causing automakers to rethink their logistics and supply chains, as automakers try to protect themselves from a situation that happens again.

The changes range from producing more vertically integrated parts 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 risk of supply chain disruptions.

“As you would expect, we are committed to learning from this crisis to become a stronger company,” Farley said earlier this year. “We are taking advantage of this opportunity to revamp our supply chain to eliminate vulnerabilities down the road.”

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