Chip shortage is still ‘the big issue’ driving down car sales: Auto analyst

Edmunds Executive Director of Insights Jessica Caldwell joins Yahoo Finance Live to discuss supply chain issues amid chip shortages, weak car sales, the outlook for EV transitions as gas prices increase, and rising automotive prices.

Video Transcript

DAVE BRIGGS: Car sales running out of gas a bit in March while Toyota topped General Motors. Both giants suffered double digit declines, with GM down 20% in Q1. When will the industry speed back up? Jessica Caldwell is the director of Insights for Edmunds, and she joins us now. Jessica, nice to see you. So your reaction to the latest numbers. What stood out to you? And how long do you expect this to last? JESSICA CALDWELL: Not too surprising. We knew that Q1 would be pretty tough because last year, in the first quarter, we weren't suffering the inventory issues that we had now. So a lot of automakers reporting fairly heavy losses. I think the thing that stands out more in the first quarter was that we're not really in much better of a place than we were in 2021. We thought at this point, there would be signs that we would be kind of on that road to recovery, that the second half of 2022 would look a lot better. And it's starting to feel like that road to recovery is getting pushed back further and further. And we may not be in a normal place as quick as we thought, which, of course, is worrisome. DAVE BRIGGS: So why so? Why are we at the same point we were almost a year or even two years ago? JESSICA CALDWELL: Well, I think right now, what we're looking at is, the big issue still is the chip shortage. Things aren't necessarily getting a lot better on that front. In fact, if you look at just the past few months, we've had several big automakers, General Motors, Ford, they've had to stop production at some of their factories, even large truck factories, because they just didn't have the supply that they need to carry on producing. So that issue still hasn't been solved. It feels like it's one of those things that it's not happening very quickly, especially not as quickly as the automakers would like to see. So I think that's the main issue. And then, of course, we have the secondary issue of the conflict in Ukraine and Russia trying to figure out what are the supply chains that are affected in that region. And then, of course, the logistics issue and high gas prices. There's a lot going on in this space. DAVE BRIGGS: And we're seeing some numbers on the screen now. And it's always that one on bottom that jumps out. And speaking of the chip shortage, why isn't it taking less time? Why isn't it turning around? And how big of an advantage does that give Tesla? JESSICA CALDWELL: Yeah, I mean, they've had some issues with it as well. So it's not as if they have marched through this chip shortage issue without any problems whatsoever. They've been affected in some of their production, too. I think that, obviously, looking at a Tesla versus a General Motors, slightly different volume expectations, much different manufacturing complexities. GM produces a lot more vehicles, or Ford or Stellantis or whoever you want to put in that bucket. But I think that it is something that it is industry wide. I mean, Tesla expected to report pretty good numbers when they come out, but they still have some headwinds. And they've spoken also about the price of battery production going up. So not everyone is, I think, feeling that 2022 is their year of everything is going right. It feels like there's a lot that is definitely facing roadblocks, too. DAVE BRIGGS: The positive news, of course, the industry says 40% of cars are selling in their first week at lots. And prices continue to go through the roof. The numbers are a bit astounding. Prices rose $1,800 in 2019, $3,300 in 2020, and $6,200 last year. We're now well over $47,000 per car in an average price. How long do you see those increases continue, or when will it begin to flatten out? JESSICA CALDWELL: Mm-hmm, yeah, I mean, prices, that's the other side of the equation. Prices are extremely high, and that's what's saving automakers as well, is dealerships in terms of their low volume business right now are these high margins. I expect prices are still going to be high. I mean, we expect this inventory crunch to be lasting for quite a number of months. And as long as that's going on, and demand is so much higher than what the supply is. And we're still going to see really high prices. And people also on the used side, too, trying to get into the used market because new is too expensive. Those prices have risen dramatically as well. So you're not really getting a deal going to the used side. So it doesn't matter what you're buying. You're going to be paying a high price. DAVE BRIGGS: A lot like the housing market. Gas prices still high, $4.21 per gallon on average. And news today from the administration that they are increasing the miles per gallon required by 2026 now up to 49 miles to the gallon. Any reaction from the industry? And is that an attainable number, 49 miles to the gallon? JESSICA CALDWELL: Right, yeah. That's not necessarily translating into real world. So if you're driving your car out there, that's not necessarily the number that they're shooting for. It is a calculation based on a number of factors. But I think the industry is bracing itself for these numbers. I mean, the thing about this cafe requirement, it flip flops depending on the administration. President Obama set one in motion. President Trump rolled it back. Now it's going forward again. So it's kind of topsy-turvy. But that said, automakers are really bracing themselves for what would be the most stringent requirements. So not necessarily-- I'm not necessarily expecting outrage because I think that they saw this really coming. And they're moving towards electrification as well. So they're making those moves to have a wider fleet that is battery electric being offered. So I think that it's not necessarily, those numbers are probably a big shock today. DAVE BRIGGS: And as you said, always subject to change, given the political leanings of the administration. Director of Insights at Edmunds, Jessica Caldwell, thanks so much. Have a good weekend.