Following a slow start, vaccines are flowing into people’s arms, stimulus checks are hitting bank accounts, and warmer weather means people can congregate more safely outdoors. The U.S. economy is poised for a major upswing as the year (and then some) of nationwide house arrest shows signs of parole.
Automakers should be the biggest beneficiaries of this improvement. A family of four receiving $5,600 in COVID-19 relief could make a sizeable downpayment on a new crossover and still have some cash left over to buy new clothes (the CDC is still silent on how the coronavirus caused two-thirds of American pants waists to shrink throughout the past year).
Instead, half-built vehicles are piling up on plant staging grounds, ready for drivers if they could just get a microchip to control a few critical systems. As noted in the News department of TMV’s January-February issue, the shortage of semiconductors cropped up in October and has progressively gotten worse. Initially, automakers could shuffle critical supplies from less-important vehicles to ensure the moneymakers still made it to lots. By February, however, Ford was shutting down F-150 pickup production, and General Motors (GM) was struggling to finish popular SUVs.
February’s big freeze in Texas isn’t helping either. Oil refineries shut down as no one in that state knows how to deal with freezing temperatures that occur outside of the kitchen equipment (full disclosure, I grew up in Houston and still have family there). The deep freeze temporarily shuttered oil refineries, meaning certain petroleum byproducts are in extremely short supply – for automakers, that means not being able to build seats due to lack of foam.
Economists use a highly technical term to describe short-term challenges that prevent taking advantage of growth opportunities, but I consider this a family-friendly publication, so I can’t print it here.
For a little context, these are far from the industry’s darkest days. As annoying as it is to see customers waving cash around while not having as many products as you’d like to sell to them, automakers are discussing the challenge in terms of lowered profits for 2021, not catastrophic losses.
This isn’t late 2008, at the start of the Great Recession. In November of that year, a Ford sales executive told me that the company wasn’t bothering with cash-back incentives anymore because they couldn’t come up with a number large enough to encourage car buying. Spurring demand, he said in 2008, was like pushing on a rope.
This moment will pass. Chip producers are increasing production, and those oil refineries are back up to capacity. If the severity of the COVID-19 pandemic continues to fall, the economy (boosted by massive federal spending) will improve, and automakers will sell all half-finished vehicles by the end of the year.
Watching pandemic-weary consumers spend their stimulus checks to pay down debt or get new phones may be painful for salespeople who want to hit their quotas today, but the future promises to be very bright for the industry within a few months.