Consumers looking to buy a car in 2021 might be in for a bumpy ride.
Automakers and executives moved into 2021 with a sense of optimism, hoping to replenish their supply after numerous auto factories shut down last spring due to the coronavirus pandemic. Many factories have reopened but face inventory issues due to a chip shortage.
Chips are used to control everything from power trains to digital safety systems. They have remained in short supply, leading to factory closures and production cuts, according to NBC Business. Some of the country’s most popular automakers are among those impacted, including General Motors, Honda, Nissan, Toyota, and Volkswagen.
In addition to chips, a month-long shortage of semiconductors sent production to a screeching halt while winter storms in Texas wreaked havoc on plastic production. A plastic shortage means slower production of seat foam, car body parts, and other materials.
In Ohio, Honda blamed severe weather over the past few weeks have caused some challenges.
“Our purchasing and production teams are working to limit the impact of this situation and are adjusting production as necessary in order to carefully manage the available supply of parts and meet the needs of customers, “said Honda in a statement. “In some way, all of our auto plants in the U.S. and Canada will be impacted, with most of the plants temporarily suspending production during the week of March 22.”
Volvo, whose South Carolina plant has been impacted, predicted that the chip shortage will have a “substantial impact” on production, with the company implementing “stop” days to prevent further supply-chain complications.
This means fewer options, higher prices, and longer wait times for customers. Auto sales are expected to sink by about 25% this year alone, as noted by the Wall Street Journal. This also means tighter restrictions for customers as dealerships may also forego specials like zero percent interest and implement some of the highest loan requirements since 2011. Borrowers with credit scores below 660 accounted for 16% of new retail sales in May, down 21% from March.
Despite the inventory issues, this has not stopped customers from trying to snag a new ride.
Some dealers are working to transform “new car” customers to “used car” customers but are also having difficulty finding used cars to meet the demand.
Abel Toll, a Northeast-based car dealer, told the Wall Street Journal that sources for used cars, such as vehicle trade-ins and gently used rental cars from auctions, have withered in the past year.
“Inventory will be the big challenge of the year,” said Toll.
In addition to inventory challenges, consumers are facing rising gas prices.
Once plagued by plummeting prices and low optimism from industry leaders, gasoline prices have made a comeback to the tune of 30% to $2.88 per gallon.
Commodities, such as copper and gas, have been rising across the board along with positive data surrounding higher consumer spending and more robust job creation. Elevated fuel prices increase concerns from consumers and experts of rising inflation.
As restrictions are eased, observers and industry insiders expect demand to increase and refiners to churn out more fuel to meet demand.
“The market is telling me I need to turn my refinery on and run it as hard as I can,” said RBC Capital Markets managing director for global strategy Michael Tran. “Can we push north of $3? Absolutely.”
