Rising Vehicle Prices May Not Offset Dip in Sales

Demand for New Cars Drops

Surging prices for new vehicles may no longer be enough to lift the entire auto industry amid a decline in demand for new cars. After months of record sales and profits, vehicle makers’ luck seems to have turned in September. Last month, 12.2 million light vehicles were sold, the lowest in more than 10 years, except for the spring of 2020 when chip shortgages and COVID-19 forced plants to close.

Though the entire industry is facing challenges, some vehicle makers like BMW (BMWYY) are doing better than others such as GM (GM). Success for some carmakers is hinging on access to supplies of chips.

BMW Pulls Ahead

BMW has been benefiting from rising prices for its new and pre-owned vehicles in recent months. So much so the vehicle maker raised its implied profit target for this year, saying higher prices will make up for declining car sales.

Unlike some of its rivals, BMW has not been hit as hard from semiconductor shortages—partly because BMW has long outsourced component production and as a result has more experience managing supply chains than some of its rivals.

On the other hand, GM is underperforming. Wall Street bracing for the automaker to post weak profits in its third quarter. Part of that is due to a recall of GM’s Bolt EV. Semiconductor shortages are also weighing on the company’s bottom line.

Hyundai Sees an In

With inventory shortages persisting, there is an opportunity for Hyundai (HYMTF) and Kia, its vehicle affiliate, to gain market share from struggling rivals. As of the third quarter, Hyundai and Kia’s market share stood at a record 10.8%. Toyota (TM) is in first place in the US with a 16.5% market share, while GM’s market share has fallen to just 13.1%. A lack of vehicle supplies is causing buyers to look at brands they may not have considered in the past.

Despite the lack of inventory, US car dealers are still making money. Dealers collectively made $4.2 billion in profits from new vehicle sales in September, which is a record for the industry. It will be interesting to see which companies and dealers can keep up the momentum amid shortages.

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