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Transmission: Low inventory levels could hamper dealership sales

(Image: Toyota. Tight inventory levels could hamper sales throughout the beginning of 2021.)

Happy New Year! New year, same newsletter. Here’s another awesome edition of Transmission, a twice-weekly newsletter assembled to chronicle the seismic shift in auto supplier networks as the industry goes cross-border and electric.

Tight inventory levels holding back consumer sales

Automakers across the entire industry are looking for 2021 to be the year of rebound. Sales last year were down significantly and supply chain vulnerabilities were exposed. With 2020 in the rearview, there are promising signs that point towards industry growth if one crucial thing takes place: tight inventory levels need to be replenished.

Vehicle sales were down 15% y/y nationwide but Q4 sales show promising signs of recovery. 

General Motors’ full-year sales were down 12%, but Q4 sales were up 5% compared to the year-ago period. Toyota’s overall sales were down by 11%, but Q4 sales were up 9.5% compared to the year-ago period. Volkswagen’s overall sales were down nearly 12%, but Q4 sales were up 4% compared to the year-ago period. The list goes on. And while not every automaker experienced Q4 growth, everyone is looking to 2021 to make up lost ground. 

If we combine the results from Q4 2020 with the recent distribution of vaccines, stimulus checks, and low interest rates, the perfect storm (of recovery!) forms. Consumers would feel safe walking to dealerships knowing they’ll be protected from COVID-19 and confident in their ability to snag a good deal. 

However, tight inventory capacity is hitting car dealerships across the nation. In an interview with the Detroit Free Press, Rhonda Jensen, general manager of a GM dealership in Bowman, MI, said, “2021 doesn’t show any signs of slowing down, but I am more worried about inventory from General Motors. If they get it to us, we can sell it.” For reference, GM ended the year with 410,875 total units left in inventory, compared to 616,023 in 2019.

(Chart: Freightwaves SONAR. Outbound tender volumes compared to last year. 20-21OVTI-Blue; 19-20 OTVI-Orange)

Data from the Northwest Seaport Alliance shows the Port of Tacoma, one of the West Coast ports that Mazda heavily relies on, experienced a 17.8% increase in imports in Nov. 2020 compared to Nov. 2019. Full container shipments were up 23.3%, while empty containers were down 20.8%. The lack of empty containers points to the tight capacity the freight market is experiencing right now. Seattle’s outbound freight volumes have been significantly higher than outbound volumes in 2019 which is also evidence of heightened demand. And, as I’ve mentioned previously, suppliers and OEMs have been working through the holidays to get cars to dealers. As OEMs start moving vehicles from factories to dealerships, they are being hit with higher transportation costs.

Historically, U.S. new car sale peak seasons occur in spring, from the end of February through May, and in the fall, from September through November. If dealerships can’t adequately replenish inventory around the beginning of spring to meet demand, sales could fall between the cracks. If all goes smoothly in the automotive supply chain this year, IHS Markit predicts that U.S. vehicle sales in 2021 will hit approximately 16 million units, compared to 14.4 million in 2020. Realistically speaking, the chances of a year without disruption in the supply chain are slim, so it’ll be intriguing to see what happens in the coming months.

Lookout! Potential labor issues could disrupt the auto supply chain in the near future

One of the biggest challenges the automotive supply chain faces revolves around labor. Trucks carrying loads of freight need drivers. OEMs need factory workers for vehicle assembly. One labor strike or pandemic-related outbreak can cause a ripple effect of delays throughout the entire supplier network. 

Here’s the short story: Back in late 2019, GM workers across all 55 facilities nationwide went on strike protesting low wages, health care coverage, and job security. The UAW and GM finally came to an agreement after 40 days that cost GM over $1.75 billion in lost productivity. However, one of the key issues that wasn’t completely resolved was job security, with a majority of temporary workers, some of which have been temps for 2-3 years, not getting a full-time promotion. As of a few days ago, Ford, GM, and the United Auto Workers came to an agreement that will see a combined 1,050 temporary workers from both automakers receive full-time jobs with benefits. Has GM decided to bite the bullet and raise costs in order to stabilize labor relations? 

Here’s the interesting thingThe Detroit Free Press reports that Toyota workers have reached out to Unifor, the union in Canada that the Detroit 3 negotiates with, after growing envious of the agreements made between GM, Ford and the UAW. If a labor strike were to take place, it could cause production disruptions for OEMs and deliveries for dealers.

On the topic of labor…stay on the lookout for labor unsettlement as EVs begin to take more priority in production plants. While EV’s may have less moving parts than ICE vehicles, the two have similar part counts. However, the engineering skills, manufacturing processes, and the materials needed to design components for an ICE-powered vehicle are different than the required skills for EV assembly. Factory workers may begin to grow unsettled as their normal jobs could be threatened by the rise of EVs and the new processes that follow it.

Industry News:

  • If you thought 2020 was tough on you, take a step back and remember the rise and fall of Nikola. Back in June, Nikola was considered a potential next Tesla, but after a series of embarrassing setbacks the company started heading downhill fast. But the fight’s not over yet for Nikola, who just added 3 new directors with rich experience in manufacturing and management. 
  • In preparation for the changing future that lays ahead of the automotive industry, Kia Motor Corp. has undergone a major rebranding effort. The automaker is implementing a new business strategy that includes investing $25 billion in emerging technologies such as robotaxis and on-the-go e-commerce.

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