Chip Shortages Drive Inventory Management Challenges

Issue:

So why does there continue to be a lack of inventory at many car dealerships? One cause is a shortage of microchips that go into everything from engines to dashboards and from air bags to braking systems. As explained in a recent article from the Wall Street Journal, the auto industry often holds major sway over its component and parts suppliers because one car maker can represent such a huge portion of any OEM company's business. But now, those same semiconductors that go into cars are going into everything from smart phones to door bells and robotic vacuum cleaners. Lots of companies—indeed, lots of industries—are competing for the same supply of chips.

Other contributing factors for the chip shortage: Just one chip maker out of Taiwan controls a substantial share of the production for the auto industry (see this Feb. 9th story from the WSJ). And the shortage was aggravated further on Saturday by the earthquake that hit off the northeast coast of Japan, stalling production from at least one other manufacturing plant. (The factory was reportedly hoping to resume production within a week, according to a report in Automotive News.)

Opportunity/Idea:

If you're working with a car dealer who says inventory is tight, understand that this is a situation that could last for a while. But also note that this problem will impact some nameplates more than others, and that each dealer might get a "surge" of inventory for one model, while waiting on orders for another. So explore how you can help with that inventory management process, by focusing on models which are more readily available at any given time. Also, ask whether it is a good time to place more focus on the used vehicle side of the lot. But that is not a given, either, as pre-owned inventory has also been tight. Used vehicles are available through more channels than ever before (see this February 15 article from Automotive News). That's why you've heard so many dealerships running campaigns offering to buy their customers' cars; is that an angle of attack for you?

Ways you might use this issue to gain an appointment:

  • Offer to help your client manage inventory flow: More than ever before, car dealerships must be nimble, adjusting their messages to reflect the ebb and flow of inventory available. I'd like to talk with you about a creative strategy that can turn on a dime, depending on the inventory you're most likely to have in stock at any given time.
  • Offer to help your client with pre-orders: At some dealerships, it seems like the most popular models are gone before you even get to the lot. At _________, we'll help you reserve the [model] of your dreams.
  • Offer to help your customer compete on pre-owned: The current economic climate creates a situation where consumers are looking for value. With that, along with the inventory shortages some dealerships are facing on the new car side of their lot, it might be smart to review the profile of people who had the stated purchase intention of buying a used car in the next year. [You should be able to create a profile of purchase intenders using Scarborough, Marshall Marketing, or Resonate research.]

Using this issue in a Needs Analysis:

  • Is the manufacturer or your dealer group giving you any sense of when inventory for new [brand] models might loosen up a bit? Trade publications are suggesting that it could be late summer or even early next year… but what are you hearing from your people? And what strategies do you have for driving revenue in the meantime?
  • With the inventory situation the way it is, should we be placing more emphasis on the used-car side of the lot—or certified pre-owned—or would it make even more sense to hit the consumer with the offer that "we'll buy your car?"

Sources:

https://www.wsj.com/articles/car-chip-shortage-ford-vw-gm-11613152294

https://www.wsj.com/articles/no-quick-fix-for-auto-chip-shortage-11612883643

https://www.autonews.com/suppliers/japan-chipmaker-renesas-resume-output-quake-hit-plant-tuesday

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