As I expected, U.S. new auto sales surprised downward in August and dropped for the fourth straight month. They decreased by 11.5% MoM to 13.06M SAAR (lowest since June 2020), down from 14.75M in July.

Auto Sales Have Been Restricted By Limited Supply

The global chip shortage has deteriorated significantly and has impacted U.S. vehicle production. The main problem is that modern cars are heavily relying on electronics that include semiconductors.

🌎 Modern cars are relying more on electronics that include #semiconductors ⬇ pic.twitter.com/UbaVCZwIqO

— Christophe Barraud🛢 (@C_Barraud) August 17, 2021

As a result, a lot of automakers were forced to cut auto production. According to CNBC, “Ford Motor is once again cutting production of its F-150 pickup truck and other highly profitable vehicles due to the ongoing global shortage of semiconductor chips. The automaker informed employees Wednesday of the cuts, which also impact production of its larger Super Duty pickups and Expedition SUV.“

In the meantime, Reuters highlighted “General Motors Co will reduce production at many North American assembly plants this month because of the ongoing semiconductor chip shortage, hitting its profitable truck and sport utility vehicles“.

Other supply chain disruptions have multiplied worldwide with ports shutdown in China and more recently in the U.S. because of Hurricane Ida. In this context, BEA data showed July domestic auto inventories in the U.S. crashed to the lowest since records began in 1967 and the trend is unlikely to improve soon.

Demand Has Been Dampened By Elevated Prices

The lack of inventory is driving the price of the new vehicles to record highs as both manufacturers and retailers continue to dial back discounts. According to J.D. Power and LMC Automotive, “For August 2021, average transaction prices are expected reach an all-time high of $41,378 and the first time above the $41,000 level. For context, average transaction prices are trending to be over 16% higher in August 2021 than they were in August 2020.” Therefore, it’s not surprising that consumers’ complaints about rising prices were at the highest ever.

Bottom Line: The sharp decline of new auto sales will affect the next retail sales report that will be released on Sep. 16th. In the meantime, industrial production for August (Sep. 15th) would probably suffer from another drop in “Motor vehicles and parts” production in a context where Hurricane Ida made significant damages.