Persistent chip crunch could generate more profits for automakers in 2024 | Local News

(TNS) – Automakers could take advantage of high prices from limited inventory due to semiconductor shortages through 2024 – and they have no intention of going back to old ways.

Excess demand over supply for new vehicles — crimped by too few microchips needed for vehicle electrical components, from driver assistance features to infotainment — has driven up average transaction prices to record highs in 2021, swelling the balance sheets of automakers and the profit sharing of their check workers.

Conditions are expected to moderate this year, analysts say, but the constraints are unlikely to be resolved for a few years as the world waits for more capacity to connect.

“I don’t think it will be until 2024 when inventories are back to pre-crisis levels,” said Colin Langan, chief automotive analyst for Wells Fargo & Co., during an Automotive Press webinar. Association in Detroit. “This is good news for automakers who should see good prices and great news for dealers who will continue to see above-average new-vehicle margins.”

Stellantis NV has made strong pricing and cost reduction efforts to achieve a net profit of $15.1 billion in 2021, nearly triple the combined 2020 profits of its predecessors, Fiat Chrysler Automobiles NV and the group French PSA. Its adjusted operating margin of 11.8% beat its forecast of 10%, despite losing about 20% of its planned production for the year.

The automaker is forecasting another year with a double-digit margin in 2022, albeit only 3% growth in the North American market, which helped fuel last year’s profits.

“The size of the markets will be primarily driven by semiconductor supply,” CEO Carlos Tavares said on an earnings call. “We believe that the situation will evolve in the right direction. … Hopefully things will get better. It will be slow. It will take time. 2022 will not be, from this point of view, the year in which we can say that we are back to normal.

Stellantis’ North American dealer inventory shrank by 186,000 units in 2021, pushing average US transaction prices up about 20% to around $47,000. There are signs of recovery, however: globally, the automaker’s December inventory fell 59% year-on-year to 791,000 vehicles, but rose nearly 100 000 vehicles compared to September.

Consulting firm AlixPartners LLP found that 8.2 million vehicles went unproduced last year due to chip shortages as well as tractor-trailer and sea transport disruptions and labor issues. ‘artwork. Around 505,000 vehicles have already been lost this year, with Japan being the most affected, followed by North America and Europe. The result is that 58% of last year’s inventory and vehicles were sold in three weeks or less.

Earlier this month, General Motors Co. reported making $10 billion in profit in 2021 and beating its guidance, while Ford Motor Co. met guidance and posted net income of $17.9 billion. dollars.

On Wednesday, GM CEO Mary Barra at the Wolfe Research Virtual Global Auto, Tech and Mobility Conference said GM will “never return” to past inventory levels.

“We are working to build every vehicle we can build because the demand is so high,” Barra said. “We expect a favorable pricing environment to continue as stocks will take well beyond 2020 to recover.”

Dan Hearsch, managing director of automotive and industrial practice at AlixPartners, cautions against the idea of ​​a “new normal,” however.

“Automakers are really obligated to cooperate with each other,” Hearsch said of the conditions today. “Nobody can cheat, because nobody can make enough vehicles to drive demand. When supply catches up, when things bounce back, and then when demand goes down, because it’s a cyclical market and it will eventually decrease, we will return to the most typical fluctuations.

Ford has also changed its retail model in response to the results seen in 2021. It encourages vehicle orders and wants them to make up a larger portion of sales in the United States – instead of customers buying batches of dealers – to keep prices high. Orders accounted for 5% of sales. In January, 37% of retail sales were orders.

But automakers want more semiconductors to run their factories and get vehicles into the hands of customers.

“I was up until 11 p.m. last night, a normal night for an automotive executive these days. It’s transient. It’s frustrating. It’s painful,” Ford CEO Jim Farley said at the Wolfe Research conference. “Whether it’s the dealers or us, no one likes to have unfinished inventory waiting. It’s incredibly expensive and our industry has put up with it for far too long.

A severe freeze in Texas, a fire at a chipmaker in Japan and pandemic-induced restrictions in Malaysia prolonged the shortage of chips last year. Companies are now ordering what they need multiple times in an effort to keep their place in the queue for wanted parts, as wait times have increased by 91%, according to AlixPartners.

The number used in vehicles has doubled since 2017, and electric vehicles use more than their motor counterparts, according to IHS Markit Ltd. This could jeopardize the rise of electric vehicles, according to AlixPartners.

Ford is reassessing its entire portfolio in light of the situation, Farley said. In November, it signed a non-binding agreement to collaborate on production and technology advancements with semiconductor supplier GlobalFoundries Inc.

Stellantis in December signed an agreement with iPhone contract maker Foxconn Technology Group to create four new families of chips that will cover more than 80% of its semiconductor needs and use the same type used in smartphones, laptops and other consumer electronics which account for 95% of the semiconductor industry. Production, however, will not begin until 2024.

GM also works with a roster of semiconductor companies on co-development, sourcing and manufacturing, helping provide supply chain predictability.

“Automotive took a little longer than some of these other markets to realize their rules had changed,” Amsrud said. “It wasn’t Ford competing with GM for capability. It was Ford competing with LG and Apple and all these other guys for capacity, and I think that’s what really showed how intertwined the systems had become.

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