More parts shortages hit auto industry, affecting new inventory

On Friday, Mar 19, a fire at Renesas Electronics Corp northeast of Tokyo, Japan has exacerbated the semiconductor shortage affecting the auto industry. The manufacturer has stated that it will be at least a month until the factory will restart, and Renesas’ CEO Hidetoshi Shibata has stated that the impact on supply would be significant. Two-thirds of the microprocessors made in their factory are destined for auto production, and the news caused Toyota, Nissan, and Honda shares to decline simultaneously.

However, that’s just one of the parts shortages currently facing the automotive industry. The winter storm in February idled factory production for petrochemicals required for certain products such as seat foam, and the shortage is now being felt by manufacturers. With alternative materials being sought, one anonymous industry exec stated that “this problem is bigger and closer than the semiconductor issue.”

Further strain from ship run aground

And on Mar 24, a massive 1,312-foot shipping container, Evergreen Group’s Ever Given, ran aground in the Suez Canal, the world’s largest and busiest shipping canal. Stuck against the bank and nearly blocking the whole width of the canal, hundreds of cargo ships are being delayed passage until the ship is moved. Carrying more than 20,000 containers, and disrupting the transport of millions more, the Ever Given’s plight is assuredly going to have an impact on parts supplies for manufacturers as well as vehicle imports. To what extent is unknown, and it could be days before the canal s cleared.

Inventory hasn’t fully recovered since March 2020

Carmakers and dealerships have had incredibly successful rebounds since the pandemic restrictions were lifted mid-2020. Sales have bounced back despite the volume of inventory fluctuating wildly in the past year. However, inventory levels have yet to return to the pre-pandemic numbers from before the eight-week shutdown experienced across the country in Q2 2020.

Going into Q2 2021, inventory levels are expected to remain suppressed due to parts shortages and strong sales. The supply chain issues mean that carmakers will be building fewer vehicles this year. Ford expects its global output to be down 20% over the first quarter, and that could worsen in the coming months. According to Cox Automotive Market Insights, GM says that production slowdowns and idled plants could cost them between $1.5 billion and $2 billion in 2021.

High-profit vehicles affected most

At the heart of the issue currently are pickup trucks, the industries most popular and profitable segment. General Motors’ trucks, the Silverado and Sierra, have just 42 and 41 days’ supply respectively, well below the industry average nationally. They have been continuing to manufacture these models absent a fuel management module due to the microprocessor chip shortage and noting to the end use that fuel economy will be diminished. Colorado/Canyon models were below 40 days’ supply.

Ford’s supply of F-150 models is currently at 65 days, and production lines will continue rolling out new vehicles without a module, but they plan to park the vehicles until modules arrive to complete the builds.

Toyota’s trucks are even lower than GM’s – the Tacoma has under 25 days’ supply and the Tundra is between 27 and 33 days.

With short supplies and manufacturing interruptions, dealers could have to approach selling popular models in a different way. Whether pre-selling incoming inventory or switching customers to in-stock models, or turning to the pre-owned market in the meantime, the parts shortage looks to imminently affect the retail side.

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