When I wrote Today’s Motor Vehicles’ 2020 industry outlook article, a novel coronavirus had been detected in China, but it looked like a small, regional outbreak unlikely to impact the global automotive and commercial truck markets. By late January, when I recorded a webinar detailing the 2020 outlook, COVID-19 was worth a mention, but the virus still looked like a regional problem – something worth tracking but not a global concern.
By March, plants nationwide were shut down, and the industry effectively lost all of Q2’s sales and production. Despite those challenges, manufacturers rallied. Those with excess production space made ventilators and facemasks. Others developed systems to let non-production employees work from home. For the year, profits were high. In 2021, that ability to shift production and stay profitable during the worst possible conditions point to a strong recovery.
Two major challenges will remain for automakers and truck producers in 2021. The good news is that neither is consumer demand, which analysts expect to rebound nicely throughout the year. The bad news is that there’s little companies can do in the short term to address the problems.
Chip shortage – As noted in News, semiconductor producers can’t make computer chips fast enough to meet global demand from automakers, truck companies, game console designers, and other consumer electronics buyers. Higher demand and supply chain problems have led to delayed deliveries for automakers and makers of computer gaming systems. Semiconductor companies have pledged to increase output, but shortages that could temporarily shutter plants are likely to continue, off-and-on, throughout 2021.
Pandemic production – Keeping factories staffed was difficult throughout 2020, and problems will persist in 2021. Outbreaks at auto plants have been rare, but facilities have had to slow production to put more space between workers and stagger shifts to avoid crowds entering and exiting factories. As vaccines become available, some of those problems could ease, but most manufacturing experts expect social distancing and extra precautions to remain for the foreseeable future.
How quickly sales will rally this year will depend entirely on how healthy people are. If COVID-19 continues to rapidly expand and mortality rates echo those in December 2020, sales will be depressed. If vaccines become widely available and tame the illness, things could improve faster.
Analysts, none of whom predicted the sharp decline in 2020, are anticipating a strong rise in sales this year, but not to pre-pandemic levels. Cox Automotive predicts a 15.7 million total for 2021, up 8% from 2020’s 14.5 million sales figure. TrueCar’s Automotive Lease Guide (ALG) is slightly more optimistic with a 16 million vehicles prediction, up 10%. For context, 2020 was the first year to fall to less than 17 million in sales since 2014’s 16.5 million total.
“The recovery came faster than most expected, providing strong momentum and pent-up demand going into 2021,” says Nick Woolard, lead industry analyst at TrueCar. “Retail demand is healthy and will remain the driving force for total vehicle sales in 2021. Fleet sales will also increase, but at a much slower pace, due to the uncertainty surrounding travel.”
Economists are touting a new term to describe the auto industry’s continued performance – a K-shaped recovery. A V-shaped recovery is when the economy rapidly declines and just as rapidly returns to normal. An L-shaped recovery is a rapid recovery followed by a very slow return. K-shaped describes an economy splitting in half: a V-shaped rapid return for relatively wealthy white-collar workers who were able to shift from working in offices to working at home during the pandemic, and an L-shaped drop and stagnation for people who lost their jobs and see few new employment prospects.
Dealers surveyed by Cox Automotive say the industry will emerge from the pandemic stronger and more profitable, but few expect an immediate return to the 2015-to-2019 boom. Nearly 23% of dealers expect to get back to normal by the end of this year with another 25% predicting it will take until the end of 2022.
Prospects for long-haul trucks weren’t great heading into 2020. A typical boom-bust cycle had analysts predicting slow sales and production for manufacturers as they’d saturated the market with new vehicles between 2016 and 2019. The pandemic changed that thinking.
While in the short term, companies struggled to staff plants and source components like other manufacturers, the glut of unsold vehicles quickly disappeared. In an economy where people stopped going to stores, home delivery became a key service as COVID-19 spread worldwide. Class 8 large trucks, medium-duty delivery vehicles, and service vans were hot commodities with long lists of potential buyers.
“To repurpose a phrase, commercial vehicle demand started 2020 like a lamb and left the year like a lion,” says Kenny Vieth, president and senior analyst at Columbus, Indiana-based commercial truck analytics company ACT Research. “At the start of 2021, the challenges for medium- and heavy-duty OEMs and suppliers are flipped 180° from a year ago. Where the challenge a year ago was in winding down build rates to align production with tepid demand, the industry’s challenge today is to ramp-up as rapidly as possible to meet soaring demand.”
Starting 2021, Vieth says the problems facing commercial trucks are all on the supply side – computer chip shortages, rising steel prices, staffing during a pandemic – not a lack of interest from potential customers. He adds that the biggest growth is from long-haul trucks. Vocational trucks used on construction sites still face some demand challenges, though they continue to sell.
“Order performance continues mixed across the three market components that ACT tracks, with truck orders benefiting from e-commerce demand and recreational vehicles (RVs) enjoying a pandemic-related boost, although one wonders about the staying power of this phenomenon with vaccines arriving, while social distancing continues to weigh on school bus orders,” Vieth notes.
With overall vehicle sales down sharply last year, electric vehicles (EVs) outperformed by staying flat. By manufacturer, the market was mixed. Globally, Tesla passed its 500,000 annual sales target (give or take a few hundred cars), but much of that growth came in China. U.S. sales were fairly flat. GM’s Chevy Bolt EV sales gained, but it phased out the Volt plug-in hybrid. BMW i3 and i8 EV sales were down sharply, as were Nissan Leaf sales.
Several automakers plan to compete with Tesla this year with Ford launching its Mustang Mach-E crossover EV (technically, it went on sale in December with three units sold) and GM’s GMC Hummer EV truck, due out late this year. Globally, Hyundai and Volkswagen are expanding availability of EVs, and Honda is working with GM on new electrics. Several startups also plan to launch vehicles this year including Lordstown Motors with its Endurance EV pickup and Rivian with its electric cargo vans and pickups. Many of the startups are initially focusing on commercial buyers.
Cox Automotive’s survey of dealers shows 30% of new-car dealers have already begun upgrades to service bays to offer maintenance services on EVs. Nearly half of dealers (46%) believe traditional automakers will combine for higher EV sales than Tesla this year. Tesla is also expanding capacity for new vehicles with new plants underway in Germany and Texas, but neither is likely to be online early enough in 2021 to impact availability of EVs in the short term.
ACT Research https://www.actresearch.net
TrueCar Automotive Lease Guide (ALG) https://www.true.com
Cox Automotive https://www.coxautoinc.com