Chip crisis dashes industry's hopes for post-pandemic sales recovery

Hopes that 2021 would recover much of the auto sales lost to the pandemic in 2020 are fading as the semiconductor shortage continues to bring widespread factory stoppages.

Last month, IHS Markit, which many automakers use as their benchmark for production forecasting, said it was trimming its production forecast by 6.2 percent, or 5 million units, to 75.8 million for 2021.

"The outlook for Q4 now reflects heightened risk as challenges to the supply chain – primarily semiconductors – remain entrenched,” IHS analyst Mark Fulthorpe wrote. 

In its most recent note to investors, IHS said that 9.5 to 11 million units could be lost globally over the full year. In contrast to earlier statements from automakers and analysts expecting a recovery in the second half of 2021, IHS said Monday that the disruption could continue into the first half of 2022. 

"H2 2022 may be the point at which we look for the stabilization of supply, with recovery efforts now starting only from H1 2023,” the note said. "We are extending the window for potential disruption and delaying further the point at which we believe a meaningful recovery can begin.”

In North America, IHS said 1.2 million vehicles were lost in the first half. It also expects the industry to lose another 936,000 units in the third quarter along with 88,000 more in the fourth quarter. Most of those losses are being tied to cuts at General Motors, Ford and Volkswagen, IHS said.

In Europe, IHS estimates that some 1.1 million units were lost in the first half. Third-quarter loss estimates have been raised to 729,000 units from 666,000 units, primarily due to production halts at Stellantis and Volkswagen. 

That figure does not include up to 50,000 "incomplete” vehicles produced at VW that are missing critical parts that need to be added before they can be sold, IHS said.

On the demand side, LMC Automotive said at the end of September that it was cutting its global light vehicle forecast by 6 million units, to 81 million vehicles. In June, LMC had forecast demand of 87 million vehicles for the year.

"The hope of a return to pre-pandemic conditions and a full recovery in early 2022 has all but evaporated,” the analyst said.

LMC also noted that future vehicle demand could suffer from current conditions, in which automakers have prioritized higher-margin models and emissions-compliant (and costly) EVs, leading to higher prices and a scarcity of lower-end vehicles on showroom floors. 

"The lack of vehicle availability and the increase in pricing may have pushed a number of consumers in many countries out of the new vehicle market,” LMC said, "causing them to either hold on to an existing vehicle for longer, purchase a used vehicle, or buy out a lease, instead of purchasing/leasing a new vehicle.”

LMC now expects global light vehicle sales of 85 million units in 2022, a drop of 8 percent from its second quarter forecast, and 94 million units in 2023, a decline of 3 percent from the second quarter.

The German trade group VDA currently does not expect the production situation to ease until well into 2022, it told Automotive News affiliate Automobilwoche.

In response to an inquiry from Automobilwoche, the VDA said: "At present, the shortage of semiconductors means that demand for new cars worldwide cannot be met in full.”

Automobilwoche reported that wait times for new car deliveries are now a year or more in Germany, leaving dealers frustrated. Similar reports have been common in the U.S. for certain models.

Some reported that disappointed customers were walking out of their showrooms, only to find that the situation was no better at other brands.

Christian Roensch, managing director of the Schleswig-Holstein-based BMW dealer May & Olde, told Automobilwoche: "BMW is allowing production to continue, but is restricting special equipment. The vehicles are delivered to us dealers without the corresponding extras. If the extras are delivered to us after a few days, we retrofit the vehicles."

BMW and Daimler told the magazine that the chip shortage had forced them to produce or deliver incomplete vehicles. "The functions will be retrofitted as quickly as possible after the vehicle has been handed over, as soon as the relevant components are available again," Daimler said.

Other automakers have continued to feel the effects of the shortage in the second half. Among recent announcements:

• Volvo said Monday that September sales were down by 30 percent worldwide, and 42 percent in Europe, due to a lack of components.  
• Stellantis said that, with only so many semiconductors available, it was prioritizing EV production over internal combustion models. The group has already halted production for the rest of the year of Opel Grandland X SUVs at its Eisenach, Germany, factory 
• Volkswagen Group said on Monday that it had an order backlog of about 130,000 Golf compacts and more than 110,000 Tiguan compact SUVs as the chip shortage hobbles its production.
• Sales slumped in the U.K. by 34 percent, the worst September in 23 years. Registrations fell 33 percent in Italy, 20 percent in France and 16 percent in Spain as automakers contend with what may be the most protracted supply shortage in history.

But even as automakers struggle to fill dealer inventory and prevent idling factories, they have recorded healthy profits. 

Audi CEO Markus Duesmann on Monday called the chip shortage "a perfect storm,” but his brand surged to a 10.7 percent profit margin in the first half, higher than even 2019, despite being unable to build a mid-five-digit number of cars.

"We are dealing with it pretty well I would say," said Duesmann, who also sits on the management board of VW Group. He said the group was seeking closer ties with chipmakers and that the automaker would emerge stronger from the crisis. "But at the moment it's a day-to-day troubleshooting process," he said. 

One analyst firm, Fitch Solutions, has become more optimistic as the year has developed, but still says 2021 demand will not reach pre-pandemic levels. On Monday, Fitch said global passenger car sales would increase by 15 percent this year, an upward revision of a second-quarter forecast of 13 percent growth. Passenger-car sales will grow by 5.6 percent in 2022, Fitch said.

Fitch says the Europe region will be the locus of growth because of strong EV sales and government incentives to support them. Total vehicle sales – including commercial vehicles – were down by 21 percent in 2020, but this year the region will see sales increase 15 percent to about 19 million. Fitch did not break out passenger car sales by region.

That figure is still 2 million units below the 2020 European total of 21.2 million. Sales in 2022 are expected to grow by 6.6 percent.

"We forecast global sales to grow but stay below pre-pandemic levels in 2021,” Fitch said, adding, "Growth will return to trend levels in 2022.

Reuters and Bloomberg contributed to this report