Will automakers curtail production or chase volumes when parts availability improves?

Henry Ford once said, “Do not find the fault, find the remedy.”

As it turned out, the solution was found by automakers.

With the onset of the global COVID-19 pandemic, 2 million units were cut from North American auto production in the spring of 2020, and the ensuing microchip shortage cost the industry 7.7 million units. Suddenly, the financial equation flips: demand now far exceeds supply, and margins for manufacturers and dealers have never been better.

Many automotive CEOs are saying that as parts availability improves, they’re not going back to the days of big cargo. They will be disciplined with lean production and maintain tight availability.

The angels feel perfected by these words.

But will manufacturers continue to listen to their better angels as parts availability improves? Or will the Devils tempt car companies with the prospect of increasing market share and increasing revenue?

I would not bet against the devils.

Before the pandemic, North American auto manufacturing only ran at 80 percent capacity.

Today, it is between 40 and 65 percent as the parts shortage continues to grow. According to the Bureau of Economic Analysis, domestic production fell from 300,000 units per month to 120,000.

There is not a single car company that is satisfied with this level of utilization of the plant.

Michel Krebs, executive analyst at Cox Automotive, wrote in a June 16 article, “New vehicle inventory remains at the same level it has been for months. [in May]According to Cox Automotive’s analysis of vAuto available inventory data, global computer chip shortages are easing, and vehicle production is resuming at normal levels, despite comments from some automotive executives.

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But the problem only gets worse: Over the next five years, AlixPartners estimates that automakers will invest $330 billion on new electric vehicle production capacity.

With massive investments already underway in North America, Ford has spent $11.4 billion on new EV plants in Tennessee and Kentucky. Hyundai announced $5.5 billion on a new plant in Georgia.

Others are rapidly following suit. Once these new EV plants go online, it will put even more downward pressure on existing internal combustion engine plant use as EV models become more prevalent.