Automotive News Canada - February 2021 - 22

* F E B R U A R Y 2021

CADA: Microchip shortage impacts
North America-built vehicles first
CONTINUED FROM PA GE 1

blood of our dealers. "
Global auto production took a hit
in the beginning of the year as supplies for computer chips in vehicles
tightened. Makers of those chips,
also used in smartphones, laptops
and gaming consoles, have been
slow to adapt to surging demand
for those products, as well as higher-than-expected demand for cars,
since the production shutdowns of
winter and spring 2020.

PRODUCTION CURTAILED
Vehicle output worldwide, including in Canada, has been affected.
FCA Canada, now part of Stellantis,
in January idled its Brampton, Ont.,
assembly plant because of the microchip shortage. It also shut down
its Windsor, Ont., minivan plant
in February for the same issue.
General Motors in February said it
would trim back production at three
plants, including CAMI Assembly
in Ingersoll, Ont., which builds the
Chevrolet Equinox. Ford, meanwhile, curtailed F-150 pickup production in the United States.
Other automakers, including Nissan, Subaru, Toyota and
Volkswagen, have also adjusted
plans as a result of the chip shortage.
Canadian dealers had already
been facing inventory challenges
stemming from the COVID-19 pandemic, which resulted in the shutdown of North American vehicle
manufacturing for about two months
in 2020 and has since spurred periodic shutdowns at assembly plants and
suppliers.
According to J.D. Power, it took
dealers in Canada about 29 days
on average to turn model-year 2021
vehicles in December, compared
with 48 days to sell model-year 2020
vehicles in December 2019.
" To me, that's telling us that
there's still a shortage of vehicles
if the incoming model year is turning that fast and it's not being balanced out enough by the existence
of unsold 2020 and 2019 [vehicles]
still out there, " said Robert Karwel,
senior manager of automotive at
J.D. Power Canada.
Steve Chipman, CEO of
Birchwood Automotive Group in
Winnipeg, estimated in late January
that inventory at his dealership
group's stores was down about 25
per cent year over year.
He said the group is especially short on pickups including the
Ford F-150, Chevrolet Silverado,
GMC Sierra and Toyota Tundra,
which are some of the group's most
in-demand vehicles. Other popular
vehicles such as the Nissan Rogue,
Toyota RAV4 and Honda CR-V Sport
were also in short supply, he said.

'SILVER LINING'
John Hairabedian, CEO of the
Quebec-based HGregoire dealership
group, said in late January that his
stores had been not been hit by the
microchip supply.
" I've heard that the microchip
[shortage] will soon start to impact
some of the brands that we represent, but we haven't seen it yet. "
Reuss said how and when dealerships would be affected by the microchip shortage would vary based on
the brands they sell. Dealers who
draw heavily on vehicles made in
North America were more likely
to feel the effect of shutdowns first,

The global microchip shortage
has forced automakers to curb
production at several North
American assembly plants,
including FCA's Windsor, Ont.,
factory, which began a three-week
shutdown Feb. 8. P H O T O : F C A

whereas those who receive more
vehicles from Asia or Europe would
be spared for a while longer since
it takes longer for those vehicles to
reach the Canadian market after
assembly.
" The silver lining is that it's happening in not necessarily the highest
sales months that we normally see
in Canada, " Reuss said.
Microchip issues could continue
into the spring selling season, traditionally a strong period for new-vehicle sales in Canada. Karwel said
he anticipated it remaining a problem for the industry until at least
late in the second quarter of 2021,
perhaps beyond.
The industry has been scrambling for solutions and received
good news in late January, when
Taiwan's economics minister said
its major chipmakers are willing to
prioritize supplies for automakers.
In at least one case, the shortage
tied back to former U.S President
Donald Trump's policies aimed
at curtailing technology transfers
to China. One automaker moved
chip production from China's
Semiconductor Manufacturing
International (SMIC), which was hit
with U.S. government restrictions in
December, to Taiwan Semiconductor
Manufacturing Co., which was overbooked, a person familiar with the
matter told Reuters.
Regardless, the situation is
expected to take months to sort out.
In the meantime, automakers are
" looking at their supply chains "
to find ways to avoid situations
like this in the future, said Brian
Kingston, CEO of the Canadian
Vehicle Manufacturers' Association,
which represents
the Detroit Three
automakers in
Canada.
Joe McCabe,
CEO of U.S.-based
AutoForecast
Solutions LLC,
said he would
not be surprised
if automakers,
McCabe: The
worried about
microchip
the fragility of
shortage
the supply chain
could prompt
and high demand
automakers
for microchips
to forge
across sectors,
partnerships
partnered to
aimed at
address the issue.
preventing
" There's no
similar
problems in the reason why all of
the [automakers]
future.
don't get together
FILE PHOTO
in the near future
and say, 'We can't deal with this
risk anymore. Why don't we all partner and put our own semiconductor
facilities in use?' " - ANC
- With files from Reuters.

Inventory is 'atrocious'

put a damper on consumers heading out, "
Karwel said, " but the lockdown is twinned
and because extended financing terms
with the supply issue. "
allow the consumer to pay more over a lonOntario Premier Doug Ford strengthger period of time, Karwel said. New vehiened the lockdown measures Jan. 12 by
cles sold in January were on the lot for an
issuing stay-at-home orders, and began
average of 66 days compared with an averreopening the province slowly on Feb. 10.
age of 88 days during the same
Alizadeh called the invenperiod last year.
tory shortage " atrocious " and
" If the entire industry was
" horrible. " He said that he has
in a sales-distress state, we
fewer than 30 days' inventory
wouldn't see vehicle price risat his Ford and Lincoln stores
ing, days to turn dramatically
and that " a Jeep Wrangler is
depressed and dealer margin
nonexistent. "
Shahin Alizadeh of
and front-end gross increasWhen it comes to ordering
Downtown Auto Group a vehicle, the wait for some
ing, " Karwel said. " From
in Toronto said some
what we see, it looks like a
models can span 90 to 120
of his stores have
supply situation. "
days, he said.
fewer than 30 days
Canadian dealers sold
" There might be a sense
of inventory and that
90,890 new vehicles in
[among buyers] that if inven " a
Jeep
Wrangler
is
January, down 17.4 per cent
tory is that scarce: 'Do I want
nonexistent. "
from the same month a year
to jump in and buy a car? Am
PHOTO: FCA
ago, according to estimates by
I getting less-than-aggressive
DesRosiers Automotive Consultants. But
pricing?' " Alizadeh said. " And that might
January 2020 was the fourth-best January
be true. "
on record, and January of this year was
DISINCENTIVE FOR INCENTIVES
short one sales day, DesRosiers noted.
Most of the car companies that continue
The numbers appear to support that
to report monthly reported losses, includview.
ing Honda and Hyundai, with decreases of
Incentives fell to a record low $4,500
31.3 per cent and 20.5 per cent, respectively. per vehicle to end 2020 - the lowest mark
" With the whole country in various
since 2012 - and Karwel sees no bottom in
degrees of lockdown and the auto industry
sight.
still working through supply-chain disrup " You're not going to see incentives
tions, the market decline was no surprise, "
rise. Based on ongoing supply disruptions,
said Andrew King, managing partner at
you're not going to see the average rise
DesRosiers Automotive.
much. In fact, it might fall to the $4,000
mark. "
INVENTORY SHORTAGE 'ATROCIOUS'
Some high-margin segments continue to
But the double-digit sales plunge and
sell, Karwel said.
anemic supplies have dealers such as
For example, 72 per cent of all the fullAlizadeh worried that the market's strugsize utility vehicles sold in January did so
gles will run into the next several months
in fewer than 30 days. A year ago, it was
if COVID-19 doesn't subside and inventory
50 per cent. Of all full-size trucks sold last
remains low.
month, 56 per cent sold in fewer than 30
" We had a good run through 2020, and
days.
we felt we came to a point where we man " There are certain buyers out there in
aged expenses better and improved our
certain segments, and [those vehicles are]
business model, " said the CEO of the
selling fast, " Karwel said.
Downtown Auto Group.
Scotiabank economist Rebekah Young
" We had somewhat of a stable business
said consumers in January likely chose
model, and January threw it all out the
to defer car purchases, a trend that could
window. [It] was absolutely a brutal month. fuel " some pent-up demand in the months
January was, quite frankly, a bloodbath. "
ahead. "
Alizadeh declined to disclose his monthIn the wake of 1.55 million sales in 2020
ly sales figures for his 10 dealerships.
and despite continued volatility over the
Global automakers, particularly those
next two quarters, Young is forecasting
based in North America, still haven't
" a healthy rebound to 1.8 million units in
recovered from the pandemic-induced
2021, with improvements weighted towards
shutdowns of 2020. And now, a shortage
the second half of the year once [COVID-19]
of microchips has curbed auto production
immunizations are broad-based and fleet
around the world.
comes back online as travel resumes. "
" Certainly, the lockdown in Ontario
- ANC
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TRANS-CANADA NEWS
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foundation from the dealership itself,
said Mark Ripley, dealer principal.
Ripley said the dealership is on
board to host next year's fundraising
event, which in previous years was held
by, and at, the hospital. The COVID-19
pandemic made that scenario impossible in 2020.
When the hospital foundation
approached the dealership, a longtime
supporter, to be host, " we decided that
we could keep everyone safe by using
our drive-through lanes for people who
wanted to come and donate, " he said.
- Joe Knycha

Pandemic project will pay
'dividends down the road'
VICTORIA, B.C. - CREDIT COVID19 for turning what was to be a minor
building upgrade at Kia Victoria into
a wide-ranging renovation incorporat-

ing substantial environmental improvements.
After buying the dealership the previous fall, Greg Churchill and Brad
Ostermann planned to improve signage
and interior layout and install new furnishings, reports the Times Columnist
newspaper.
But when the pandemic was declared
last March and local vehicle sales tumbled, they decided to also " go green " in
a big way, spending about $1 million
over six months to outfit the building
with a solar panel array, LED lighting,
low-flow plumbing fixtures, heat pump
and for customers, a fleet of loaner bicycles.
The project was " a gamble for sure, "
said Ostermann, but with a near-empty
dealership and improvements already
booked, they thought: " Why not set ourselves up for dividends down the road? "
- Joe Knycha
- ANC

Automotive News Canada - February 2021

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