Increasing vehicle production may not be enough to satisfy demand

Much like the freight industry, the past couple of years have been a roller coaster for the automotive industry. Surging demand, parts shortages and shifting consumer buying patterns — all influenced by the coronavirus pandemic — have turned the industry on its head. Shortages are beginning to let up, pointing to a looming surge in new vehicle production. Still, the instability is expected to continue even after long-awaited new vehicles begin to hit lots later this year.

Purchasing a new car has been difficult to impossible over the past several months due to shortages of critical parts including semiconductor chips, rubber, foam, etc., forcing consumers and businesses like rental car companies to purchase through used car channels in record numbers. 

“What we are seeing in the automotive logistics space is very similar to the freight market,” ACERTUS CEO Trent Broberg said. “There are carrier capacity constraints, rates are through the roof and it’s a carrier market. All the fleets we are dealing with are also having challenges purchasing assets.”

Original equipment manufacturers (OEMs) are expected to begin shipping new vehicles at a decent pace during the third quarter. Dealerships are preparing for new vehicle shipments, and they expect to greet an onslaught of buyers who have been holding out for these releases over the past several months. Many of these buyers may still walk away disappointed, however, as a significant percentage of the new vehicles expected to be released this year have already been sold. 

“We are going to see a little bit of lightning in Q3, and Q4 is going to be on fire,” Broberg said. “A lot of dealerships have slowed down used purchasing over the past few quarters in order to prepare for OEMs to start releasing more vehicles again.”

Many industry experts believe the tightness across the market will continue even after new vehicles begin hitting lots in higher numbers, as pent-up demand is expected to continue outpacing supply in the immediate future. Additionally, uncertainty surrounding rapidly spreading coronavirus variants could drive both future shortages and even stronger demand.

While Broberg believes rates have leveled off, he expects capacity to remain constrained for the foreseeable future. This creates a significant gig economy opportunity within the space and creates an ideal environment for the resurgence of hot shots. Anyone who owns equipment capable of safely transporting finished vehicles has a chance to break into the space at this point. Unstable markets create opportunities for innovation.

“I have talked to a lot of people that believe the instability will continue into 2022 given the demand that is pent up right now for new vehicles,” Broberg said. “A lot of dealership groups are pre-buying vehicles ahead of potential delta variant issues or other supply chain disruptions, so they’re not stuck with limited supply right now.”

Ultimately, the pandemic has highlighted existing inefficiencies within the market. Rebounding from its aftereffects will take time, patience and innovation.