US motor vehicle sales have been viewed as a gauge of overall economic strength for many years, particularly since the start of 2020 when the COVID pandemic took hold in the US. As lockdown measures were imposed, US light vehicle sales fell to an annualized rate of 8.61 million, which was the lowest in several decades. Later, as US consumers started to spend their pandemic savings, US light vehicle sales picked up, reaching an annualized rate of 18.30 million by April 2021, a 20-year high.
But as the year wore on, there was a notable decline in vehicle sales, back towards mid-2020 levels. The main factor for the decline was not economic uncertainty but a worldwide shortage of semiconductor chips. These chips are vital components for power steering, power brakes and the infotainment systems seen in most modern vehicles, but in most cases they are not as advanced as those used in computers, cell phones, televisions, and other electronics.
While these “legacy” chips are relatively cheap, they also involve antiquated technology that has a much lower profit margin for semiconductor manufacturers. As a result, those companies have been reluctant to invest in additional production capacity.
Dealer vehicle inventories have fallen to historically low levels. The 10 lowest seasonally adjusted readings for domestic auto inventories occurred from March through December 2021, but things seem to be changing.
US light vehicle sales came in at an annualized rate of 15.04 million in January, up from 12.54 million in December. This was still below the 16.78 million reading for January 2021, but it was the highest annualized rate for light vehicle sales since June and the largest monthly increase since May 2020. This suggests that the chip shortage is easing. If that is the case, it could have a significant impact on demand for the copper, PGM and energy markets as auto manufacturers ramp up production.
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Originally Published on February 4, 2022
