June 22, 2021

Gp Delivers

The excellent automotive artisans

Chip shortage could pinch supply into Q3

“We’re getting to the point where inventory is a problem — if not at this moment, very soon,” Hesterberg said after reporting first-quarter results.

The retailer aims for a 45-day supply of new vehicles across brands but ended March at just more than 30 days. Dipping below that 30-day mark could become troublesome in part because of the large number of light-truck sales upon which Group 1 depends.

“When you get very far below 30 days’ of supply, you have trouble having many of the configurations that the truck customers want,” Hesterberg said. “It starts to get a little challenging for some of our brands.”

Still, Daryl Kenningham, Group 1’s president of U.S. and Brazil operations, told Automotive News that the ongoing supply constraint is unlikely to impact strategic plans or investments, calling it “a temporary inventory issue.”

Group 1 officials also noted that supply constraints have been worse, particularly during the 2011 earthquake and tsunami in Japan.

Sonic Automotive Inc. ended March in good shape with a 43-day supply of new vehicles, President Jeff Dyke said last week.

Dyke told analysts that domestic brands are being hit the hardest by the shortage and that “May is going to be the toughest month in terms of that.” But domestic brands represent about 12 percent of Sonic’s business, he said, noting that the retailer relies more on luxury brands.

“We’re just not going to be as affected,” Dyke said. Luxury automakers are “doing a great job [of] bringing product in from other parts of the world. We’ve got inventory. And so we should enjoy good new-car volumes through the second quarter and, of course, great margins.”

Those solid margins likely will persist for the rest of the year, he said.

Lithia Motors Inc. executives have said the company is in good shape to navigate the tight inventory period. Lithia had a 41-day supply of new vehicles at the end of March, excluding in-transit orders, COO Chris Holzshu said April 21. And the retailer has an adequate supply of in-transit vehicles replenishing on-the-ground inventory every day, he said.

“While select OEMs are experiencing reduced level of inventory, we currently have sufficient inventory to balance the current supply and demand trends expected over the coming months,” Holzshu said.

At AutoNation, new-vehicle inventory was at a 29-day supply at the end of March, down from 42 days at the end of December and 98 days a year earlier.

AutoNation CEO Mike Jackson told analysts on an April 20 earnings call that demand continues to outstrip supply on new vehicles. “And we expect this to continue through 2021” in part because of the microchip shortage, he said.

But, Jackson said, vehicle shipments in the second quarter will be double those in the same period in 2020 when factories were shuttered for weeks during the early months of the coronavirus pandemic.

The current supply constraints, Jackson said, are “nothing like a year ago.”

Melissa Burden, Jackie Charniga and Jack Walsworth contributed to this report.