The coronavirus crisis, which has forced a halt in automobile production at various times around the world, has put sand in the gears of an normally well-oiled machine - that of supply and demand in the automotive industry.
While business is gradually resuming across North America, some dealerships are still struggling with inventory issues. The example of some American dealers located in Iowa shows just how fragile the balance is. It’s too early to tell if the same problems arise in Canada, but it’s instructive to look at the new challenges facing some dealers south of the border.
One case in point, as reported by Reuters, is that of Jerry Bill, who runs a Ram dealership in Iowa. The coronavirus has him worried, but not, as you might assume, about a lack of buyers. Rather, the concern is a potential lack of vehicles to meet demand.
He is clear about the near-term challenge: "Our biggest issue will be if we don't get more inventory." The dealership, Stew Hansen Chrysler Dodge Jeep Ram, sells about 2,700 new vehicles a year in Urbandale, a suburb of Iowa's capital Des Moines.
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After a drop in sales in April, when consumers stayed home, he expects pickup truck sales in May to come in about the same as last year. And if demand remains strong, he will run out of popular models in June. FCA (Fiat Chrysler Automobiles) slowly restarted its production lines for Ram pickup trucks this past Monday after a two-month shutdown.
The challenge obviously will be to fill, and quickly, the lots of dealerships that continue to sell pickup trucks at a substantial clip.
Differing situations
The U.S. economy contracted dramatically in the first quarter of the year as a result of the coronavirus and the containment measures implemented to slow its spread. Worse, economists are predicting an even bleaker second quarter.
However, the situation has not been the same everywhere. The pain has been spread unevenly not just in the United States, but also here in Canada.
While states such as New York, Michigan and Ohio closed up shop virtually completely for some periods, dealers like Stew Hansen's in Iowa provided FCA and the other U.S. giants, General Motors and Ford, with a certain lifeline: strong pickup truck sales in the midst of the pandemic.
Last month, overall sales of cars and light trucks in the U.S. reached their lowest level in 50 years. However, U.S. pickup truck sales, particularly in the southern and western states that were less affected by the pandemic, were significantly higher according to industry executives and analysts.
There is now strong pressure to boost model production to send models to dealers in areas of the country where demand is strong but supply is declining.
This is especially true for General Motors. In some places, dealers are literally running out of stock on certain models, in part due to the 40 days of production lost because of last fall’s strike action.
The result, says Cox Automotive analyst Michelle Krebs, is that if a consumer can't find what they want at one dealer, they may go to another brand.
Fears related to the recovery
In March and April, U.S. car manufacturers offered significant incentives - such as seven years of interest-free loans - so that dealerships could continue to move stock.
"A lot of people that have two-year-old trucks can get into a new one for the same (monthly) payment or lower," said Noah Wolter, general manager of Charles Gabus Ford in Des Moines. That's the easiest swap ever," added Wolter, who sees his dealership sell about 1,500 vehicles annually.
Demand for full-size pickup trucks is "incredibly strong," says Mark LaNeve, Ford's U.S. sales and marketing manager. This segment accounted for 21% of all vehicle sales in the U.S. in April compared to a monthly average of 13% to 14%.
At Stew Hansen, Jerry Bill said that thanks to the incentives, customers were able to get a Ram truck that normally sells for $55,000 USD for $44,000. This encouraged some to switch from SUVs and cars to newer models of trucks equipped more as luxury vehicles than older work trucks.
Mike Koval, Acting Ram Brand Manager at FCA, explained that inventory of some versions of his Ram trucks "was a little short", but that the automaker was working hard to increase deliveries to states where dealerships remained open during the epidemic.
Carl Moyer, owner of Karl Chevrolet in Ankeny, Iowa - the second-largest Chevrolet dealership in America with sales of 4,000 new vehicles a year - said he began the crisis with a large inventory. That cushion has disappeared.
When asked when he might start to worry if he didn't get new pickup trucks from GM to replenish his inventory, his reply was simply, "Today".
This will also be something to watch out for in certain regions of Canada in the coming weeks.