The auto industry is facing troubling signs across the horizon, including rising interest rates and fears of a recession.
But the biggest problem still seems to be making enough cars.
General Motors said Friday its second-quarter U.S. new-vehicle shipments were down 15% from a year earlier, while Toyota Motor reported a 23% drop in U.S. sales. The obstacle continues to be the inability to obtain enough computer chips to complete the vehicles.
For now, at least, consumers are still eager to buy. Manufacturers are selling virtually every car or truck they make and have seen no signs of inventory building up at dealerships, even as new vehicle prices hit record highs.
“It tells me that vehicles are always on the move, and that’s probably the number 1 thing I look at,” Paul Jacobson, General Motors’ chief financial officer, told financial analysts at a conference last month.
GM sold 582,401 cars and light trucks from April to June, compared to 688,236 a year earlier. Toyota sold 531,105, compared to 688,813. honda said its sales in the United States fell 51% to 239,789 vehicles.
GM noted that its factories had 95,000 vehicles made without certain electrical components that were in short supply due to chip shortages.
Sometimes automakers have dropped certain vehicle features because they or their suppliers didn’t have the chips they needed. Honda has shipped vehicles without advanced parking sensors, and Volkswagen has produced models that lack blind spot monitors that vehicles would normally include.
GM plans to install the missing parts in its vehicles as they become available and then deliver them to dealerships.
If those vehicles had shipped, its second-quarter sales likely would have been nearly the same as a year ago.
“We will work with our suppliers and our manufacturing and logistics teams to deliver all units held in our factories as quickly as possible,” said Steve Carlisle, executive vice president and president, North America.
Understanding inflation and its impact on you
In a filing with the Securities and Exchange Commission, GM said the backlog would affect second-quarter net profit, which it forecast between $1.6 billion and $1.9 billion. A consensus analyst forecast compiled by Bloomberg had pointed to a profit of $2.4 billion.
Since the company expects to ship most or all of the 95,000 partially completed vehicles by the end of the year, it reaffirmed its outlook for the full year for net income of $9.6 billion to $11.2 billion.
That may be why GM shares rose on Friday despite downside forecasts. Its shares ended the day up 1.3%, outpacing the broader market.
But that outlook also assumes demand will hold as threats to the U.S. economy increase. Consumers are pressured by rising gas and grocery prices. The average price paid for new vehicles in May was $47,148, up more than $5,000 from a year earlier, and the average monthly payment for a car was over $700, more than $100 more than a year earlier, according to data from Cox Automotive, a market researcher. . Since new models are rare, consumers often pay $3,000 or more above list prices.
And last month the The Federal Reserve has raised its benchmark interest rate by three-quarters of a point, in an effort to slow the economy and curb inflation, and indicated that further increases may be needed. Higher interest rates are making home and auto loans more expensive, and the Fed’s decision has already led to a slight slowdown in real estate.
Some economists say recession risk is moderated by the increase in savings most consumers have accumulated since the coronavirus pandemic began in 2020. Eighty percent of consumers have more money in their checking accounts two years ago, Jonathan Smoke, the chief economist of Cox Automotive, told reporters this week on a conference call.
“These consumers are able to withstand inflation because they have some cushion and their wage growth is strong enough to cope with price increases,” he said.
What is Inflation? Inflation is a loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual change in prices of common goods and services such as food, furniture, clothing, transport and toys.
Mr. Smoke also noted that the auto industry had produced far fewer vehicles than consumers wanted to buy over the past two years. “There is pent-up demand,” he said. “It was less than a year ago, but it’s still there.”
A more pronounced slowdown in home sales could hurt the auto industry, however. The two are closely linked. Most households buy new vehicles within six to 12 months of buying a new home, because home purchases are usually tied to other life changes, Smoke said. Growing families may opt for a minivan or SUV, or older consumers who are downsizing their homes may opt for smaller or more fuel-efficient vehicles.
Yet even if consumer purchases slow, automakers may be able to pick up the slack by selling vehicles to rental car companies. Rental fleets sold many of their cars when the pandemic caused travel to plummet in 2020 and struggled to restock their lots amid the shortage of new cars.
The arrival of new electric vehicles is also attracting consumers to showrooms despite the uncertain economic outlook. Ford Motor recently began deliveries to customers of an electric version of its F-150 pickup truck and is working to increase capacity at a plant in Dearborn, Michigan, to meet demand.
“We don’t see any problem with demand at this point,” John Lawler, Ford’s chief financial officer, told financial analysts last month. “Demand continues to exceed supply.”
An accurate accounting of the industry’s quarterly sales won’t be available until Ford announces its total on Tuesday. Tesla is also due to report on its sales in the coming days, but it is disclosing a worldwide total. Analysts are watching how Tesla has been affected by a recent production shutdown at its factory in China during a coronavirus outbreak.
Semiconductor shortages resulting from the disruptions of the pandemic remain a serious problem for manufacturers of various products, including medical devices, planes, trucks, telecommunications equipment and energy infrastructure.
Shortages fuel inflation as companies have to pay more for chips. And they act as a drag on the economy because companies can’t keep factories running at full capacity.
The situation is expected to last at least another year and a half, said Bindiya Vakil, chief executive of Resilinc, a Fremont, Calif., company that helps companies analyze their supply chains. “It’s a long-term problem,” she said. “All of this eats into the company’s profit margins.”
Jack Ewing contributed report.