The auto industry is facing worrying signs all across its horizon, including rising interest rates and fears of a recession.
But the biggest problem still seems to be making enough cars.
General Motors said Friday that its U.S. deliveries of new vehicles in the second quarter declined 15 percent from a year earlier, while Toyota Motor reported a drop of 23 percent in U.S. sales. The obstacle continues to be an inability to get enough computer chips to finish vehicles.
For now, at least, consumers are still eager to buy. Manufacturers are selling practically every car or truck they make and have seen no sign that inventory is building up on dealer lots, even as new-vehicle prices have climbed to record highs.
“That tells me that the vehicles are still moving, and that’s probably the No. 1 thing that I’m looking at,” Paul Jacobson, the chief financial officer of General Motors, told financial analysts at a conference last month.
G.M. noted that its factories were holding 95,000 vehicles manufactured without certain electric components that were in short supply because of the chip shortage.
At times automakers have dropped some features from vehicles because they or their suppliers didn’t have the chips they require. Honda has shipped vehicles without advanced parking sensors, and Volkswagen has produced models that don’t have blind-spot monitors that the vehicles would normally include.
G.M. plans to install the missing parts in its vehicles when they become available and then make deliveries to dealers.
If those vehicles had been shipped, its second-quarter sales would probably have been nearly level with its year-ago total.
“We will work with our suppliers and manufacturing and logistics teams to deliver all the units held at our plants as quickly as possible,” said Steve Carlisle, executive vice president and president, North America.
Understand Inflation and How It Impacts You
In a filing with the Securities and Exchange Commission, G.M. said the backlog would affect second-quarter net income, which it projected to be $1.6 billion to $1.9 billion. A consensus of analysts’ forecasts compiled by Bloomberg had pointed to earnings of $2.4 billion.
Because the company expects to ship most or all of the 95,000 partly completed vehicles by the end of the year, it reaffirmed its full-year outlook for net income of $9.6 billion to $11.2 billion.
That may be why G.M.’s stock rose on Friday despite the lowered forecast. Its shares ended the day 1.3 percent higher, outpacing the overall market.
But that outlook also assumes that demand will hold up as threats to the U.S. economy mount. Consumers are being squeezed by rising prices for gasoline and groceries. The average price paid for new vehicles in May was $47,148, up more than $5,000 from a year earlier, and the average monthly car payment was over $700, more than $100 higher than a year earlier, according to data from Cox Automotive, a market researcher. Since new models are in short supply, consumers are often paying $3,000 or more above sticker prices.
And last month, the Federal Reserve increased its benchmark interest rate by three-quarters of a point, in a bid to slow the economy and tamp down inflation, and has indicated that further increases may be necessary. Higher interest rates make home and auto loans more expensive, and the Fed’s move has already resulted in a slight slowdown in housing.
Some economists believe the risk of a recession is moderated by the increased savings that most consumers have built up since the coronavirus pandemic started in 2020. Eighty percent of consumers have more money in their checking accounts now than two years ago, Jonathan Smoke, the chief economist of Cox Automotive, told reporters this week on a conference call.
“These consumers are able to withstand inflation because they’ve got quite a bit of cushion and their wage growth is strong enough to deal with pricing increases,” he said.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Mr. Smoke also noted that the auto industry had produced significantly fewer vehicles than consumers wanted to buy for the past two years. “There’s pent-up demand,” he said. “It’s way less than a year ago, but it’s still there.”
A more pronounced slowdown in home sales could hurt the auto business, though. The two are closely linked. Most households buy new vehicles within six to 12 months of buying a new home since home purchases are usually connected to other life changes, Mr. Smoke said. Growing families may switch to a minivan or an S.U.V., or older consumers who downsize their homes may opt for smaller or more fuel-efficient vehicles.
Yet even if consumer purchases slow, automakers may be able to take up the slack by selling vehicles to rental-car companies. Rental fleets sold many of their cars when the pandemic caused travel to plummet in 2020, and have struggled to restock their lots amid the shortage of new cars.
The arrival of new electric vehicles is also drawing consumers to showrooms despite the uncertain economic outlook. Ford Motor recently started customer deliveries of an electric version of its F-150 pickup truck and is scrambling to expand capacity at a plant in Dearborn, Mich., to meet demand.
“We are not seeing any issues with demand at this point,” John Lawler, the chief financial officer of Ford, told financial analysts last month. “Demand continues to be ahead of supply.”
A precise accounting of the industry’s quarterly sales won’t be available until Ford reports its total on Tuesday. Tesla is also due to report its sales in the coming days, but it discloses a global total. Analysts are watching to see how Tesla was affected by a recent production stoppage at its factory in China during a coronavirus outbreak.
Semiconductor shortages arising from the pandemic’s disruptions remain a serious problem for manufacturers of a variety of products, including medical devices, aircraft, trucks, telecommunications equipment and energy infrastructure.
The shortages are fueling inflation because companies have to pay more for chips. And they are acting as a drag on the economy because companies can’t keep factories running at full tilt.
The situation is likely to last at least another year and a half, said Bindiya Vakil, chief executive of Resilinc, a firm in Fremont, Calif., that helps companies analyze their supply chains. “This is a long-term problem,” she said. “It all eats into company profit margins.”
Jack Ewing contributed reporting.