Find out how the pandemic has impacted the automotive supply chain, why it was so vulnerable, and what’s being done to fix it.
Have you been out to your lots lately and wondered where all your inventory is? Dealerships all over the world are asking the same question. I’ve talked about the causes a bit in the past, but a quick rundown in exactly what’s happening now and what’s coming on the horizon is past due.
So why are there so few new cars on your lot? If you guessed “the pandemic,” that’s basically right, but there’s a lot more nuance to the situation.
In an effort to make the supply chain as efficient as possible, automakers also made it incredibly fragile. They used the so-called “just-in-time model,” in which parts were ordered and shipped precisely when they were needed. This was done to reduce costs on inventory and storage.
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Problem is, knowing exactly what parts you need relies on accurate forecasting, which comes from existing data. When something unprecedented happens, like the first pandemic in the age of the automobile, forecasting goes out the window. As the supply chain sharpened to greater efficiency, automakers relied more and more on razor-thin timelines. Something was going to knock the entire operation off its rails eventually.
As the auto industry works to recover, it was hit again with a chip shortage (micro not potato), which I discussed at length and you can read in our archives. The short version there is that COVID along with some unprecedented weather systems (which are becoming more common) produced a worldwide shortage.
As the supply chain sharpened to greater efficiency, automakers relied more and more on razor-thin timelines.
This is far from the last supply crunch the auto industry will be facing. Outbreaks continue to happen with distressing regularity, and these will lead to some form of lockdown. In addition, the supply chain itself needs some serious tinkering to become a bit more robust so that this kind of shortage can’t happen again.
Automakers have reacted by moving away from the just-in-time model. Toyota, the pioneer in this model, is now looking to keep stocks of parts, some for up to four months. Volkswagen is building battery factories. Tesla is getting into the market of buying raw materials itself. Look for more of these sea changes as the OEMs finish their internal audits and decide what to do.
The automakers are aware of what the pandemic did to the supply chain and they’re looking for a way to recover. For some, this will be a move to more of a “just-in-case” model, while others will be acquiring more facilities or materiel.
For the time being, dealers will have to navigate a truly bizarre market.
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Great Article. The question is when will all the inventory return to the American dealerships. Where I live in the Plymouth Meeting, PA area dealership are selling new cars for full pop and adding on a dealership fee. We as American citizens are not buying it. The used car prices are 7x times the normal book value. We are not buying it. As you drive by the dealerships you see nothing but a huge inventory of unsold vehicles. Bring back the cars and the special incentives. USA!!!