The Latest Slump in Car Sales Has Winners and Losers

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BMW Microchip is weathering the storm better than GM, and car dealers are coping better than component suppliers

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The much-loved microchip shortage was already curtailing vehicle production and deliveries to dealers in the spring. Yet the industry still had substantial inventory—April was one of the best months on record for sales—and made huge profits. Now nobody has anything to sell except those vehicles that are allowed to supply the chip.

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The flip side of tight supply is high prices. US consumers paid an average of $42,368 for new vehicles in September, up 17% from the same month last year, according to preliminary estimates from data provider JD Power. The lack of production is also forcing car makers to prefer higher-margin vehicles such as pickup trucks, thereby improving their sales.

How strong the pricing and mix balance will be in the face of weak sales in this month’s results season for US carmakers and dealers. Overall, the effect could be something of a wash. In the third quarter, US consumers spent 3% more on light vehicles than on the same period pre-pandemic 2019, says Tyson Jomini, JD Power’s vice president of data and analytics. While that was down from 28% growth in the second quarter, it doesn’t seem to have introduced cash-flow problems at the industry level. But the effect is unevenly distributed.

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BMW recently upgraded its implicit profit forecast for 2021 on the grounds that “positive pricing effects for both new and used vehicles will continue” to account for the hit from falling car sales. Rocking secondhand value feeds directly into the returns carmakers earn in their large leasing operations. The Mannheim Index of US used-car wholesale prices hit a new high in September after falling in the summer.

Peers will also benefit from that trend — perhaps more than analysts are predicting — but BMW may otherwise be somewhat of an outlier. The Bavarian company seems to have been most affected by the chip shortage, perhaps because it has traditionally outsourced much component production and therefore has more experience with managing suppliers.

General Motors sits at the other end of the spectrum, with third-quarter profits expected to be particularly weak. One reason has nothing to do with the chips: In August it extended its previous recall of Bolt electric vehicles at great expense. But it was also an unexpectedly bad quarter for production as the pandemic hit key semiconductor suppliers in Southeast Asia. After decades as a US leader, GM’s market share fell to just 13.1% in the third quarter, trailing Toyota’s 16.5%.

Unusual market dynamics are giving an opportunity to challenge brands more generally. Hyundai and its partner Kia have particularly benefited with a record 10.8% US market share in the third quarter. The lack of vehicles “encourages a little more brand switching,” says Jessica Caldwell, an analyst at the car-shopping website Edmunds.

US dealers still seem to be thriving. J.D. Power estimated that as a group they made $4.2 billion in profit from new vehicle sales in September—a record for the month despite inventory shortages. Conversely, many automotive suppliers up the industry supply chain are suffering.

Dealer margins on new vehicle sales used to be extremely low. In today’s topsy-turvy market, it pays to be as close as possible to consumers who can no longer interact.

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