North America

Bill Rinna, Director, Americas Vehicle Forecasts

23 February 2021

Semiconductor shortage challenges North America’s recovery

The semiconductor component shortage that has impacted the automotive industry across the globe has been especially troublesome for the North American industry, which has been dealing with a depleted inventory situation since April 2020, due to the COVID-19 pandemic. The rebound in US Light Vehicle demand continues to gain traction, with sales exceeding expectations at the start of 2021, even as dealerships grapple with exhausted vehicle stocks and customers face fewer choices and, more importantly, fewer incentive options. The combination of low inventory and solid demand has created an arduous environment for the industry.

According to our partner Wards Intelligence, US inventory was down by over 20% year-on-year at the end of January, at 2.8 million units, with days’ supply falling to 61 days, from 76 days at the same point last year. The January-March timeframe is typically when inventories are built up, but due to the semiconductor shortage, automakers are simply trying to stay afloat and provide the right mix of vehicles to meet consumer demand. Due to the lack of parts, shortened shifts, slower build rates and plant shutdowns have become the norm and will likely continue through April, if not longer. Taking these factors into account, as well as the ongoing strength in the pace of demand, we do not see inventory returning to normal levels until the fourth quarter of this year, or the early part of next year.

“In light of the announced and known disruptions in the region, as of mid-February, the production loss is estimated at more than 190,000 units”

But given that the chip situation is still quite fluid and that several plants have suffered additional weather-related disruptions, the situation could deteriorate further before it improves. We currently expect North American production to be hit hardest in the first quarter, with pockets of disruptions continuing – albeit to a lesser extent – in the second quarter. This assumption led us to reduce our Q1 production forecast by over 250,000 units, with an additional downside risk of 100,000 units. In light of the announced and known disruptions in the region, as of mid-February, the production loss is estimated at more than 190,000 units, which, so far, is in line with our latest forecast. For now, we expect most of the volume to be recouped, as needed, primarily in the second half of the year for high-demand models and new launches. North American Light Vehicle production is still projected to surpass 15.7 million units by the end of 2021.

On the demand side, we do anticipate some distortions in the recovery strength over the next two to three months as inventory is depleted further, but full-year demand is unlikely to experience a material disruption. We forecast that US Light Vehicle sales will surpass 16 million units in 2021, with further upside potential if, as anticipated, inventory recovers in the second half of the year.

While the semiconductor shortage of the winter may have put a freeze on some production volumes for the time being, the issue should be resolved by the spring and usher in warmer prospects for vehicle production and inventories in the region.