Auto Demand Index Soars To An All-Time High Amid Chip Shortage

Auto Demand Index Soars To An All-Time High Amid Chip Shortage

The TechnoMetrica Auto Demand Index (ADI) increased 19 points, or 10.3 percent, to 199 in July, marking the index's highest level since we began tracking in February 2007.

Raghavan Mayur

The TechnoMetrica Auto Demand Index (ADI) rose 19-points, or 10.3 percent, to 199 in July – the index's all-time high since we began tracking in February 2007.

The average ADI since the onset of COVID has been 170, compared to 199 this month.

What Is ADI?

TechnoMetrica Market Intelligence developed the Auto Demand Index, or ADI, to measure consumers' intent to buy or lease a new vehicle in the coming months.

Every month, we conduct a national survey with around 1,300 adult Americans and ask the critical question, "How likely is it that you will buy or lease a new vehicle within the next six months?"  Based on the responses to the question, we compute an index score. For example, in our July survey, 15.8% of respondents said they are very likely to buy or lease a new vehicle, and another 17.0% said they are somewhat likely to do so.  We index these purchase intent levels to our anchor - i.e., vehicle purchase intent level of 16.5% in the first quarter of 2007 to 100.

TechnoMetrica has been tracking auto demand since 2007, and the data is a good predictor of what will happen in the near future.  The index's valuable intelligence can help OEMs, and their suppliers plan production and incentive programs and take proactive measures.

TechnoMetrica Auto Demand Index tracking since januar 2020 to july 2021 (current)

Momentum

Both our index momentum and sales momentum are strong.  Our momentum indicator for the Auto Demand Index rose in July and remains robust. Since we began tracking it in February 2007, the indicator reached its all-time highs this past December and January at 15.6.

The official annualized sales totaled 15.365 million units in June, moderating from its ten-year high of 18.771 million units in April.  The drop in sales was not on the demand side, but it was lower due to a combination of low inventories and stalled production and shipping delays caused by chip shortages.

Light Weight Vehicle Sales FRED, U.S bureau of economic analysis
Light Weight Vehicle Sales

The momentum indicator based on the seasonally adjusted annual auto sales rate is 0.3 million units off of its all-time high of 0.7 million units, again due to supply problems.

We use the difference between the 6-month exponential moving average (fast average) and the twelve-month exponential moving average (slow average) as our momentum indicator.

Technometrica Auto demand index Momentum at historic levels, difference between 6 month and 12 exponential moving average

Sizing Up The Current Economic Environment

In early July, the Congressional Budget Office doubled its forecast for U.S. economic growth in fiscal 2021 to 7.4%, and the International Monetary Fund raised its 2021 U.S. growth projection sharply to 7.0%.

The IBD/TIPP Economic Optimism Index, a leading measure of consumer confidence, declined 2.1 points or 3.7% from 56.4 in June to 54.3 in July. Despite the drop, the index is in positive territory.

IBD/TIPP Economic Optimism Index, Economic outlook, personal financial outlook, federal policies, economic optimism index tracking.

Consumer spending drives two-thirds of the economy. Optimistic consumers spend money on automobiles, home improvements, new homes, and other big-ticket items.

Multiple factors are helping to keep the index and its components in the positive zone.

  • Over one-half (52%) in our poll say that they are fully vaccinated, and another 14% have had the first shot. 65% have received at least one shot.
  • Most states have resumed normal operations, and the country is open with few restrictions. Most employers are calling back employees to attend work at their offices.
  • Americans are concerned about new virus strains.  However, consumer perception has shifted significantly, and Americans are generally optimistic about putting the pandemic behind them.
  • Most school systems will return to classroom studies this fall, potentially freeing up working parents who might have had to stay home to watch their children during this past school year's remote learning protocols.

Chip Shortage Status

The automotive industry is suffering as a result of the ongoing semiconductor chip shortage.  North American-based manufacturers have been hit harder than others because of America's over-dependence of chips from China, Taiwan, and Korea.

More than one million vehicles have been delayed due to production delays, with American automakers Ford, Stellantis, and GM accounting for the lion's share of 850,000.  Ford has halted production on some models due to the chip shortage. Nissan and General Motors have continued to produce vehicles without certain chip-required components.

American Manufacturers Hardest Hit By Chip Shortages
Source: Visual Capitalist
Hardest Hit Models
Source: Visual Capitalist

The chip industry expects the shortage to gradually ease and return to normalcy in the first quarter of 2022.

Both automakers and the federal government are working to address the shortages.  Last week, the United States Senate took a bipartisan step forward in combating the inventory crisis by passing legislation that, among other things, invests in domestic microchip production.  The bipartisan legislation includes $52 billion in subsidies for domestic chip manufacturing.

Hot Demographic Segments

Households with incomes of $100,000 or more, parents, those between the ages of 25 and 44, Blacks and Hispanics, urban households, those who have a college degree or more, and those who are married are the demographic segments most likely to shop for new vehicles.

Regionally, the Northeast is the most bullish, followed by the South and the Western United States. The Midwest comes in the last place.

Urban areas are hot, suburban regions are moderate, and the rural regions are cool.

Hot Demographic Segments of TechnoMetrica Auto demand index july 2021

Time Frame

The average purchase lead time is 98 days, according to our latest data.  The shrinkage over the past 18 months is approximately 20%.  Market momentum and consumer eagerness to purchase a new vehicle drive the market's time frame to a closer conclusion.  

Note the downward trend line.

Technometrica auto demand index: tracking poll Time to purchase, january 2020 - july 2021

Luxury vs. Non-Luxury

The luxury market pulled back a bit in July.  We anticipate that luxury sales will account for approximately 38 percent of total sales, with non-luxury sales accounting for the remaining 62 percent.

We expect the sales ratio between Asian, European, and American OEMs to be 36 percent, 28 percent, and 36 percent, respectively.  The decrease in the share of European OEMs reflects the pullback of the luxury segment.

TechnoMetrica Auto Demand index Americans intent to buy Luxury vs. Non-Luxury Demand, tracking results march 2020 till july 2021

Hot Vehicle Types

Compact (18%), Mid-size (17%), and small SUV (14%) are the most popular, followed by sub-compact (13%) and large SUV (10%).

Technometrica Auto Demand index Vehicle Preferences in the United States

Robert Austin's Views

  • This is a classic "seller's market." Demand for new cars exceeds the supply at this moment, and it will be some time before the supply can catch up.
  • Buyers should not expect to have a lot of bargaining power when they visit their dealership in the next few months.
  • Perhaps the biggest opportunity from a car owner's perspective is the unexpected increase in the value of their present cars due to a shortage of new vehicles.  So, if you have an extra vehicle in your family fleet, this might be an excellent opportunity to consider selling it.
  • Also, if you have a leased car approaching the end of its lease in the next few months, it would be worth your while to check to see what your buyout price would be on that car.  It is possible that buying it out and then selling it on your own will put some money you did not expect in your pocket.
  • If you are looking to bargain on the purchase of a new car, the only opportunities that are likely to happen between now and the end of the year are those cars that are being built now as 2021 models and may need to sit in inventory until the missing microchips are produced and installed.  Those cars may end up not being available for sale until the 2022 model year cars have arrived.  This would technically make them a last year's model and increase your bargaining power.

Raghavan Mayur's Views

Demand is not a worry for OEMs. Fulfilling the demand is the worry.  On the demand side, the economy as a whole is strengthening, which benefits the automotive industry. Demand will continue to outstrip supply until chip shortages and production bottlenecks are resolved.

As a result, many customers will have difficulty locating the desired model. Those new car buyers who cannot purchase their desired models will almost certainly increase demand for gently used vehicles.

OEMs can charge a premium for their products while providing few incentives.

Due to the chip situation, it is challenging to forecast auto sales for the rest of the year. We'll get a better picture as the situation improves and production returns to normalcy.

About The Survey

From June 30 to July 2, TechnoMetrica polled 1,424 adults online using a sample taken from its online panel network. The credibility interval for the survey is +/- 2.8 points.


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