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Automotive Market

July 2, 2021

What are retail sales figures and production trends telling us about the automotive market? Catch our newest TrendsTalk episode with ITR Analyst and Speaker Taylor St. Germain to learn more.



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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi, everyone. My name's Taylor St. Germain. I'm an analyst and speaker with ITR Economics, and thank you for joining me on this episode of the TrendsTalk.

Today, I wanted to discuss the automotive market and approach it from a few different angles, wanting to first start off looking at some of the retail sales figures that are quite attractive, especially in the most recent months. And then I wanted to talk about production, and we'll filter in some semiconductor conversations as chip shortages seem to be the headlines as it relates to the automotive market.

So, first let's start from a good news standpoint, like vehicle retail sales quarter-over-quarter. The current 312 rate of change is at 66.8%. That data comes to us from WardsAuto. So that 312 rate of change, again, is comparing the most recent three months to the same three months one year ago. And the reason I mentioned that is because it is important to know that we are comparing to a pretty tough second quarter of 2020, really in the heart of the COVID-19 shutdown.

But nonetheless, it's still great to see the quarter-over-quarter growth rate close to 67% year-over-year. We're at 5.1% at the time of this recording in terms of those retail sales figures, which is great. That positive momentum is building and our ITR checking points suggest we're going to continue to see some positive movement from the retail side of the automotive market. When we look at the total of the last 12 months, we're at about 16.1 million units. That is below the pre-pandemic peak, but again, moving in the right direction. We're seeing a lot of positive movement, especially so far this year in 2021.

Now, of course, a big reason for that explosion in light vehicle retail sales is the purchasing power of our consumers. And while inflation is creeping up on us and it has been for the last few months, it's important to note that from a disposable personal income standpoint, the U.S. consumer is in great shape. We're saving more money than we were coming into the pandemic. We have more disposable income available. And even though those metrics are slowing down a bit the further away from stimulus checks that we get, it's still quite positive. And so U.S. consumer with a good portion of money in their pocket is helping drive those vehicle retail sales even higher, and that's likely to continue as we look at the second half of the year.

However, there seems to be a bit of a disconnect in terms of retail sales and production. Now production of light vehicles, particularly here in north America, is certainly ramping up, but not as quickly as we would like, and some of that is due to supply chain concerns. And one of the main concerns around the supply chain is semiconductors or chip shortages. And if you look at the semiconductor data as of late, there is a very obvious discrepancy when you look at the semiconductor billings versus semiconductor production. And so if you look at semiconductor billings, for example, the most recent data point that, 312 rate of change again, the quarter-over-quarter growth rate is that about 47.9%. So that's billings, billings at almost 48%.

But then if you look at the production side of chips and semiconductors, that quarter-over-quarter growth rates only at 18%. So 48% in billings versus 18% in production, there's an obvious disconnect there and the disconnect is that we can not keep up with the orders from a production standpoint. And of course COVID-19 has a significant impact on those figures. Now it's likely that we're still working to catch up as we work through the second half of 2021, so I'm unfortunately not here suggesting that the supply chain woes are behind us at this point.

The U.S. has done a fantastic job vaccinating its population, but that's not the case for the global economy. There are many countries around the world that are still in that low single digit percentage in terms of vaccination numbers, and that's certainly having an impact on being able to ramp up production as we come out of the pandemic. So there is a very obvious disconnect between the billings or bookings for semiconductors versus how much we're actually able to produce.

So what does that mean for production of light vehicles? Well, here in North America, we actually track the series called North America Light Vehicle Production. It's one of our ITR Trends Report series, so if you'd like to keep up with that on a monthly basis, please subscribe to that Trends Report. But in terms of vehicle production, we are in what we call Phase A recovery, meaning year-over-year, we're still in the negative territory, but we're seeing that year-over-year growth rate improve and actually move back towards the zero line. So currently North America light vehicle production is down 4.4% compared to the same period one year ago.

However, we have a positive what we call checking point and ITR Economics, which is that the 312 rate of change is now up at 42.5%. So a lot of momentum building quarter-over-quarter. However, let's talk about the number of units we're producing in North America. If you look at north America light vehicle production, some of the last 12 months we've produced about 13.8 million units. Now that is down significantly from where we were at the end of 2019, where we were producing about 16 million units. So there's still a lot of progress to be made coming out of this pandemic. We're producing about two million units lower in 2020 than we were compared to the end of 2019.

So, again, the upward momentum is building that positive quarter-over-quarter growth rate is a great news from a checking point standpoint, but we're still in that recovery phase of the business cycle. And again, this is a series we forecast on a regular basis in the Trends Report and if you subscribe to that trend support, you know Phase B accelerating growth is on its way. However, because of some of the supply chain concerns, that production just has not been able to ramp up as quickly as we would like.

Now that was a North America figure. I think it's important that I separate the different pieces of North America. So if you look at the United States from a light vehicle production standpoint, year-over-year, we're down 1.2%. That's actually a pretty attractive number when you compare it to Mexico and Canada. Mexico is down 7.6% and Canada's down 16.1%. So the U.S. is certainly leading the way in the recovery from an automotive production standard. And to get even more specific, if you look at the big three here in North America, particularly here in the U.S., you'll notice the big three quarter-over-quarter growth rate is actually up 31.1%.

So, again, we're seeing that positive momentum building. Year-over-year, we're lagging slightly behind in terms of that recovery, but the quarter-over-quarter growth rates are starting to show us a lot of positivity. So Phase B accelerating growth is on its way. And if, again, you subscribe to our Trends Report, you know there's some attractive years of growth in the automotive sector ahead of us, but we'll start to see a slowdown as we get into '22 and '23. So it's important that as we accelerate into the second half of 2021, we're taking advantage of that growth and understand the automotive market's expected to grow for the next few years. Again, just understand when the pace of growth is expected to slow versus accelerate.

Finally, I wanted to leave with a comment surrounding the market share perspective from combustion vehicles versus the hybrid or electric vehicles. So the media likes to talk a lot about hybrid vehicles or electric vehicles, and I think they distort the overall picture. If we look at internal combustion units at the end of 2020, it was about 3.9 million units. Compare that to hybrid at 179,000 units and electric at about 80,000 units at the end of 2020. So really all I wanted to leave you with here today is I know that there's positive momentum building in some of the hybrid and EV markets, but the internal combustion vehicles still hold about 94% of the overall market share at the end of 2020.

It's always important that we investigate what the media is telling us and try to support what they suggest with data, and I think it's a much different picture. So yes, hybrid and EVs have been gaining ground, but it's very slow, and 94% of that market still belongs to internal combustion vehicles. So that's all the time I have here today. I hope you enjoyed this episode of TrendsTalk. I'm Taylor St. Germain, and we'll see you next time.


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