Skip to main content

After a strong start to the year, auto sales have begun to slump. Two consecutive months of decline has pushed vehicle sales data to its lowest level since last August. The auto market could deteriorate even further in the months ahead as the ongoing semiconductor shortage threatens to limit production, shrink inventories, and inflate price tags. Major automakers including Ford and General Motors have recently been forced to shutter output at several factories.

Fortunately, major chipmaker TSMC has stated they will begin prioritizing automaker components, while the Biden Administration works to pass new funding for semiconductor research and manufacturing. However, it remains to be seen just how effective or immediate any relief will be against the global chip shortage.

Related ETF & Stocks: First Trust NASDAQ Global Auto Index Fund (CARZ), Ford Motor Company (F), General Motors Company (GM)

Vehicle Sales Fall Amid Rising Prices

After reporting impressive results in the first quarter, automakers appear to have slowed production amid a slew of resurgent supply chain issues.

MRP previously highlighted several headwinds facing the auto industry, but car manufacturers largely shrugged off shortages and disruptions to report strong Q1 sales. According to the Wall Street Journal, automakers reported impressive sales numbers in Q2 when looking at the year-over-year change, but that is largely due to the base effect when COVID-19 shut down the economy last spring.

However, it now looks like those supply chain issues are driving vehicle production lower. Total vehicle sales dropped from just over 19 million in April 2021, to 15.8 million in June of this year, the second straight month of decline, and the weakest reading in 10 months.

A report from Car and Driver found that new car sales in June were 14% lower than the same month two years prior. Similarly, CBS News writes imported vehicle sales fell 13.1% month-over-month, while domestic vehicle sales fell 8.2% over that same period. Those declines dragged total auto sales lower than pre-pandemic levels.

The economic re-opening in the first half of this year pushed consumers to purchase new vehicles, but it’s evident that strong demand is beginning to taper off. One key factor turning consumers away is higher price tags, as CNBC reports the average price of used car is $25,400, 21% more expensive than a year ago. New car prices have seen an uptick as well, climbing 4.9% year-over-year to an average price of $40,800.

The University of Michigan’s Survey of Consumers recently reported that elevated prices have depressed overall buying attitudes for vehicles and homes to their lowest level since 1982.

A report from Cox Automotive, highlighted by CNN, found that the sky-high prices for used cars may be cooling off. Wholesale used car prices fell in the first two weeks of July while used vehicle inventories at car dealerships increased, two strong signs that the run up in prices may have reached its peak.

However, the report also notes that retail price of used cars, what the consumer will pay, has continued to increase over the last month, albeit at a slower pace.

New Relief Aims to Ease Semiconductor Shortage

Automakers have had to jack up the prices due to lingering supply chain issues. Unfortunately, these are not expected to be resolved anytime soon.

The largest issue plaguing the industry is the global semiconductor shortage, which MRP has recently provided an update on.  Intel CEO Pat Gelsinger has repeatedly said he believes the chip shortage could last until 2023, but that its severity will begin to ease at the end of this year.

Per Car Scoops, Daimler holds a similar bearish sentiment…

To read the complete Market Insight, current clients SIGN IN HERE

For a free trial, or to subscribe and become an MRP client today, START A FREE TRIAL

Once you’re logged in, you’ll also gain access to:

  • Our Daily Investment Insights
  • Joe Mac’s Market Viewpoints
  • All of MRP’s Active Thematic Investment Reports
  • MRP’s Entire Research Library