Sep 22, 2021 - Economy

The outlook for automakers gets cloudier by the day

Image of Toyota factory workers in France

Photo: Francois Lo Presti/AFP via Getty Images

The outlook for global automakers and suppliers continues to worsen, amid heightened risk from supply chain disruptions, including the ongoing semiconductor chip shortage.

Driving the news: IHS Markit slashed its forecast for global light-vehicle production in 2021 by 6.2% — about 5 million vehicles. It's cutting even deeper — 9.3% or about 8.45 million vehicles — for 2022.

It's unusual for IHS Markit to whack its forecast by so much, but the compounding effects of the chip shortage, including COVID-19 restrictions in Southeast Asia where packaging and testing occurs, warrants the pessimistic outlook, the company said in a release.

  • About 4 million units of production have already been lost through the first half of 2021, and another 3.1 million or more units could be lost in the third quarter, per IHS Markit.
  • The chances of making that up by the end of the year are becoming less likely.

Of note: Toyota cut its September production plans by 40% and said it will reduce its targets for October too.

  • "This is symptomatic of the ongoing volatility in the sector and the continued lack of visibility beyond the very short term," said Mark Fulthorpe, executive director for global light vehicle forecasting at IHS Markit.

What to watch: There could be a silver lining, however.

  • RBC Capital Markets auto analyst Joseph Spak said the lower outlook could be "a clearing event" for the industry.
  • While the industry needs time to build back inventory, manufacturers might not go back to prior levels of production because they've seen that there's higher profit in keeping vehicle supplies tight, he noted.
  • Ford and GM have talked about trying to better match supply and demand through the use of "order banks" instead of shipping lots of cars to dealers and letting them figure out how to sell them.

Yes, but: Automakers have a history of falling back on bad habits.

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