Car & Automotive

Five ways 2021 may have forever changed the auto industry

The “2021” numerals were towed into Times Square last December by the Kia Sorento SUV after a cross-country road-trip that started at the automaker’s U.S. headquarters in Irvine, California, and covered more than 5,500 miles with stops in 15 states.

Kia

DETROIT – The automotive industry may never be the same after 2021, an infamous year that brought massive changes sparked by supply chain issues and the coronavirus pandemic.

The supply chain issues – most notably, a global shortage of semiconductor chips – led to historically low vehicle inventories but also record pricing and profits amid resilient consumer demand and the lack of available cars and trucks.

It’s a situation that some auto executives such as Ford Motor CEO Jim Farley have pledged to continue when the industry is not in a time of crisis because of the higher margins for the automaker as well as its dealers.

“This is a better way to run our business,” Farley told investors earlier this year. “We have the most complicated go-to-market system I think on planet Earth. We could simplify all of that with tighter inventories.”

Instead of a 75-day or more supply of vehicles, Ford is targeting a 50 days’ supply. To help manage this, Farley wants to move the company more to an order-based system instead of customers buying vehicles off a dealer lot. It will help lower discounts from the automaker and allow Ford to better manage its production, he said.

The lower vehicle inventory levels and higher prices this year are among a handful of changes that automotive executives and analysts believe may never go back to pre-2021 levels. Other changes involved electric vehicles, supply chains and new competitors. Here’s additional information on those changes and more.

EVs

A Rivian R1T electric pickup truck during the company’s IPO outside the Nasdaq MarketSite in New York, on Wednesday, Nov. 10, 2021.

Bing Guan | Bloomberg | Getty Images

While EVs, including plug-in hybrids, remain a niche market at about 4% of the U.S. industry, executives and experts expect an aggressive ramp-up over the next decade.

Most notably, the electrification of pickups began with deliveries of the Rivian Automotive’s R1T in September and the GMC Hummer EV earlier this month. They are expected to be followed by an electric version of the Ford F-150 – America’s best-selling vehicle for decades – in the spring and Tesla’s Cybertruck late next year.

SPACs

Vehicle inventories

Dealer inventory levels across the country remain extremely low due to a semiconductor chip shortage that has led to sporadic plant shutdowns and depleted vehicle inventories in 2021.

Michael Wayland / CNBC

“The challenge is it’s a fixed asset industry and we have a core history of backsliding and producing more because the temptation is always there to cheat, produce one more unit because of the cost efficiencies,” he said.

The auto industry had about 1 million new vehicles on dealer lots in December, which was 1.8 million fewer new vehicles available for consumers to buy this year and 2.5 million less than 2019, according to Cox Automotive. J.D. Power reports national vehicle inventories are at 850,000 vehicles this month, when retail sales are typically 1.4 million.

Prices

Supply chains