Automotive supply chain in for slow normalization in 2022

Car shoppers have had a tough time over the past couple years. The coronavirus pandemic increased the demand for both new and used cars, while simultaneously fueling equipment shortages throughout the automotive supply chain. These headwinds combined to create an environment characterized by surging demand, suppressed inventory and sky-high prices. 

Huge reductions in inventory and serious spikes in used car prices continued to plague consumers heading into 2022. In fact, used car prices are currently up over 35% year-over-year, according to the CarGurus Index. Used car prices are up over 40% between January 2020 and January 2022, highlighting the effects of the ongoing pandemic on the used car market.

Some of the growing demand for used vehicles can be attributed to consumers’ preference to travel via personal vehicle as opposed to public transportation during the pandemic, as well as their renewed appreciation for road trips during a time when airplanes did not feel like a safe option. The ongoing shortage of new vehicles, however, is another major driver of this increased demand. 

The automotive supply chain has been battling pandemic-fueled parts and chip shortages for about 18 months at this point. This challenge has made it impossible for manufacturers to keep up with consumer demand. While shortages persist, ACERTUS CEO Trent Broberg believes 2022 may ultimately prove less stressful for manufacturers, sellers and buyers alike. 

“There is some light at the end of the tunnel,” Broberg said. “The OEMs I have talked to are looking at first- and second-quarter ramp-ups in production. It won’t be full production yet because there will still be shortages, but there is some light in sight in probably about the next six months.”

Manufacturers are feeling the pressure to up their production big time, and that means finding ways to get around continued hurdles like shortages. One way some OEMs — including household name General Motors — are doing this is by dropping luxury accessories, like heated seats and steering wheels, to allow production to continue and focus on building up inventory. 

“Some OEMs are reducing the amount of chips based on feature functionality,” Broberg said. “Some of them are offering vouchers to come back and receive the chips after you purchase the vehicle.”

Consumers purchasing high-end new cars in the coming months may need to temporarily forgo some of the bells and whistles, but these measures will likely contribute to a steady rebalancing of the market, making it easier for buyers to access inventory at all. 

Overall, Broberg anticipates a slow ramp in OEM production over the coming months. This will, in turn, slowly push used car prices back down into a more familiar range. Still, car shoppers who can wait to make their purchases may need to hold off until at least midyear to avoid serious sticker shock.