It has been almost five years since the start of the COVID-19 pandemic and resulting semiconductor shortages that rocked the North American region. The impacts that followed include disrupted supply chains, production shutdowns, parts shortages, as well as fluctuations in demand. Automotive production and inventory, and ultimately sales, all took a massive hit and still have not been the same since. That begs the question: will things ever get back to where they were before?
Before disruptions shocked the industry, total Light Vehicle (LV) inventory in the US at the end of November 2019 sat at 3.6 million units and a 67 days’ supply. However, lack of semiconductor chips during 2021 caused nationwide production stoppages – GlobalData estimates 2.3 mn total units of LV production in North America to have been impacted in 2021 due to the chip shortage and other factors. US inventory tanked to only 1.0 million units and a 25 days’ supply by the end of November 2021. Although conditions certainly have improved, inventory at the end of November 2024 still only sits at 3.0 million units and a 57 days’ supply.
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It is possible that inventory could go back to pre-pandemic levels if vehicle demand is there. However, demand would have to be higher than it was back then given that OEMs have now been more disciplined to better manage inventory levels so that vehicles are not piled up and left unsold, leading to increased costs. On the other hand, having low inventory levels can lead to potential customers going elsewhere and also leaves the automaker vulnerable to supply chain or other disruptions which would compound the situation. Therefore, it’s critical for manufacturers to maintain a healthy balance between preserving high enough inventory levels to meet demand and mitigate risks, while also avoiding the pitfalls of excess inventory.
Average new vehicle transaction prices are nearly $10k higher than they were
pre-pandemic, which has deterred buyers and dampened the need for more inventory, although automakers continue to make record profits. Additionally, the below chart shows that there was significant production overbuild from 2016-2018, leading to more than 4.0 million units in US inventory in 2018, signaling that current inventory may not go back to its previous levels.
Many OEMs have implemented strategies to better align and anticipate their supply with consumer demand. However, others have not been as vigilant and have had to take extreme measures to correct their excess inventory for some underperforming models. Stellantis has been guilty of this as recently as Q4 2024, where they halted production of the Jeep Gladiator at Toledo Supplier Park as well as the Jeep Grand Cherokee at Mack Assembly for weeks – both models had reached a days’ supply of over 100 days. Ford has faced similar issues throughout 2024, for example, halting output of the Mustang Mach-E in March 2024 due to mounting inventory and slowing demand for BEVs.
LV production in North America was at 15.6 million units in 2023, which is over 600k units less than the 16.2 million units in 2019, and GlobalData does not anticipate domestic demand and production returning to pre-pandemic levels until later in the decade. However, with the new Trump administration, there is a threat of 25% tariffs on imported parts and vehicles from Canada and Mexico which could further hinder growth in the region. A potential rollback in the Inflation Reduction Act could also pose as a risk, particularly for those automakers that have been investing in additional plant capacity to produce BEVs.
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By GlobalDataThe automotive industry is constantly evolving with numerous uncertainties and challenges and balancing supply with demand is just another maze that automakers need to navigate. Adapting to this new “normal” in the heavily competitive environment will be crucial to success going forward.
Taylor Prodin, Analyst, Americas Vehicle Production Forecasts, GlobalData
This article was first published on GlobalData’s dedicated research platform, the Automotive Intelligence Center.
