Ghada Alsharif – Business Reporter
Feb. 10, 2023
Auto insiders say the shortage of new vehicles due to production halt and microchip shortfall during the pandemic will likely ease this year and next as supply chain issues improve.
There is a light at the end of the tunnel for new car buyers in Canada experiencing months-long delays amid a global vehicle shortage, industry analysts say.
The shortage began at the start of the pandemic in 2020 when the auto industry slammed the brakes on production as people were forced indoors. Simultaneously, there was a global shortage of semiconductor chips — a key component in all vehicles — as suppliers increased sales to electronics manufacturers as demand for cellphones, TVs and computers surged.
But vehicle inventory is expected to improve this year and next, said Sam Fiorani, V-P of global vehicle forecasting at AutoForecast Solutions, which should reduce wait times for buyers as supply chain issues for parts and chips eases and demand decreases amid economic uncertainty.
“We’re looking at a continual improvement through 2023 and into 2024,” Fiorani said. “Some 10 million units of production in 2021 were lost worldwide. This year, we’re expecting less than 3 million to be lost … and we’re watching more and more companies have steadier supplies of chips.”
According to the latest AutoTrader.ca price index, new vehicle inventory levels are on the rise driven mainly by the supply increase in trucks and SUVs, with a 39 per cent hike in the number of new domestic vehicles available in December of 2022 compared to the same period in 2021.
And in January, there was a 28 per cent increase in new vehicle inventory compared with the same period last year, said Baris Akyurek, director of analytics with AutoTrader.ca.
Both supply chain disruptions and microchip availability “have dramatically improved in the last while and therefore we are seeing an improvement in terms of inventory availability,” Akyurek said. “Things seem to be going in the right direction.”
Last year wait times as long as two years for new vehicles were reported. But as the sting of inflation continues, Fiorani said, consumers will likely be less inclined to buy new cars which should allow inventory to catch up.
The average selling price of a new car is running at about $45,500, more than 30 per cent higher than the 2019 average, according to a recent Scotiabank report. Black Book car data, however, shows dealership used car prices have fallen to $36,500 from a peak of $38,000 last summer.
But large price cuts for new wheels aren’t likely on the horizon any time soon as manufacturers still grapple with parts shortages, Fiorani said, and a focus on their more expensive and profitable models.
“This drives up the average price,” Fiorani said. Dealers in the U.S., he added, have about 30 days of inventory with roughly similar numbers in Canada, while buyers will have more negotiating power when it gets to 40 or 50 days, he said.
David Adams, president of Global Automakers of Canada, said it’s too soon to say when the market will stabilize.
“The semiconductor chip crisis from our perspective is not over and it’s not likely to be over until later this year,” Adams said, adding that a loss of three million units of production is “still a significant chunk.
“A lot of that production loss, probably about a third of it, is forecast to come from North America.”
While Adams agrees with Fiorani that inflation and economic uncertainty will, in theory, reduce demand, he stressed that the future of the auto industry is murky.
“Inventory levels have recovered a little, but certainly not to where they were before,” Adams said.“There’s still pent-up demand for vehicles because of the inventory shortages over the last couple of years now. So how much does that pent up demand actually get tamped down by people’s concerns about potential recession?”
