A slow sales upswing is just beginning

Inventory and semiconductor shortages continue to almost new vehicles sales — and will do so for some time — but 2023 could mark a return to pre-pandemic production levels, say industry analysts.

February sales were up an estimated five per cent over the same month in 2022, although it was the second worst February sales performance of the last 10 years, said DesRosiers Automotive Consultants (DAC).

There was a wide chasm between automakers still reporting monthly.

Honda Canadafor example, posted a 37-per-cent drop in total sales — including both Honda and Acura brand sales — down to 4,551 vehicles compared with the same month a year ago.

On the opposite end of the spectrum, Kia saw its Canadian sales climb 32 per cent to 15,632.

Neither automaker offered reasons for the significant swings.

Despite historically low sales in February, “the market has now achieved year-over-year gains in four straight months as the breadth of improved vehicle availability gradually widens, and consumer spending remains resilient,” DAC Managing Partner Andrew King said in a statement.

The seasonally adjusted annual rate of sales for the month came in at 1.7 million units which King said is “broadly in line with the level seen in January.”

LONG RECOVERY

But Sam Fiorani, vice-president of global forecasting at US-based AutoForecast Solutions, said those automakers who were best prepared for the global semiconductor shortage and didn’t expect it to simply blow over are outproducing — and outperforming — those that just assumed the shortage would pass.

In his March report, Fiorani said this year “is expected to begin the long recovery to full production and ‘normal’ sales levels.”

Michael Carmichael, CEO of southwestern Ontario-based group UpAuto, isn’t so sure.

“There’s lots of promise that things are going to get better, but we haven’t seen it yet,” said Carmichael, whose dealerships sell General Motors, Nissan, Honda, Volkswagen and Subaru brands in the Stratford area. “We still can’t fill all our orders. It’s across brands. The stuff that isn’t in high demand, that we can get.”

He has a customer at a recently acquired Volkswagen store waiting for a Golf R ordered in September 2021. Another is waiting on one ordered in March 2022. And three more orders were placed in January.

“It’s like, ‘where are we at on these’?” Carmichael said. “But they haven’t complained to us. Like so many things, ‘yeah, I have to wait six months, a year.’”

SALES MOMENTUM

Despite the bottlenecks, Fiorani said automakers are still on pace to sell 1.64 million new vehicles in Canada this year.

AutoForecast Solutions projects that US, Canadian and Mexican manufacturers will end up cutting about 936,400 vehicles because of the microchip shortage by the end of the year — roughly a third of the projected global total. That level would be significantly lower than the chip-related production losses of 2022 and 2021, when a total of 4.85 million North American vehicles were lost, according to AutoForecast Solutions.

Globally, the firm expects automakers to produce 2.8 million fewer vehicles in 2023 due to a shortage of chips.

Scotiabank Economics agrees automakers are working toward more traditional production numbers, and aren’t there, yet.

“The prolonged recovery in North American auto production stagnated in the second half of 2022 and automakers expect slow production to linger in the upcoming months,” the bank said in its most recent Global Auto Report.

“Though facing strong headwinds, the demand side factors remain relatively solid as incoming data suggests greater economic resilience,” Scotiabank said. “Economic conditions have proven to be more resilient than anticipated, particularly reflected in tight labor markets, where strong employment growth and still-high job vacancies support greater job stability and provide a buffer in the case of a downturn.”

HIGHER SALES TARGETS

Global Automakers of Canada CEO David Adams, who represents the interests of overseas brands in Canada, called January and February “two positive months to start off 2023.”

He said light-truck sales comprised almost 87 per cent of all new vehicles sold. That’s up a percentage point from the previous month.

UpAuto’s Carmichael said despite current inventory shortages, automakers are giving him increased monthly and annual sales targets in 2023 when compared with a year ago.

He called one automaker’s new goals a “huge lift” and said some of the numbers had gone up “dramatically.”

He said on the face, the numbers looked good and seemed to forecast a robust sales year, but it was difficult to hit some of those new, higher numbers in February.

“I’ve got the vehicles sold, but I don’t have the inventory,” Carmichael said. “So, ask me about how I feel about January and February inventory in December.”

Despite more than two years of inventory shortages, demand remains strong.

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