Understanding America's Car Shortage
How Dire is the US's Shortfall of Motor Vehicles?
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The car is central and essential to American life—92% of American households own one, 87% of American commutes are done in one, and 82% of all personal trips use one. Americans have more cars per person and drive more than citizens in every other major country. The car and the interstate highway system are both mythologized successes of American ingenuity and hard work—and the automobile remains one of the quintessential symbols of American culture.
So it was especially disastrous when, starting in late 2020, the price for new and used vehicles in the United States began to skyrocket. Rental car fleets that were liquidated in 2020 needed to be resupplied as the economy reopened—but production was lacking behind and consumers simply weren’t selling their used vehicles. That initial surge in used car prices drove the first substantial burst of inflation and the ensuing “transitory inflation” debates, but the semiconductor shortage of 2021 ensured that motor vehicle production remained depressed for more than a year. Today, production has recovered to something close to pre-pandemic levels, but the accumulated shortfall means that America lacks almost 4.5 million new vehicles—and it could take some time for production to ease that shortfall and for the eased shortfall to manifest as lower prices.
Fixing the Assembly Line
Before the pandemic, American factories assembled nearly 11 million motor vehicles a year. The total cessation of production in the early pandemic caused that number to dip to about 8.8 million for 2020, and the semiconductor shortage caused that number to remain at only 9.1 million vehicles in 2021. Production has recovered to something resembling pre-pandemic levels in 2022, with the current pace of output sitting at only 400,000 vehicles a year below 2019 levels.
The net effect of that underproduction has left a cumulative shortfall of nearly 4.5 million new vehicles since the start of 2020—a number that is still, slowly, growing. For context, that figure represents about 1.6% of the total number of registered vehicles in the US as of 2019. The US isn’t making up for that shortfall with imports either—although there isn’t great data on the overall raw number of vehicles imported to the US, the BEA does publish the real value of US motor vehicle net imports. That number remains 18% below 2019 levels.
The silver lining, if there is any, is that US industrial capacity for motor vehicles sits at the highest level in history and 10% above 2019 levels thanks to the completion of investments made before the pandemic, new investments made during the pandemic, and some capacity expansion at existing plants. The vast majority of this capacity expansion, however, likely manifested as improvements to vehicle quality rather than quantity—using some back-of-the-envelope math we can estimate that US factories’ max capacity sits somewhere near 13.6 million vehicles per year, basically in line with pre-pandemic levels.
That max capacity number also reveals how difficult it will be to make up for the significant shortfall in production that occurred in 2020-2021. It would take more than a year and a half for US factories to make up the current 4.5 million vehicle shortfall if they permanently ran at full capacity, and longer if they also had to make up for the shortfall in imported vehicles. But automakers aren’t running at full capacity—in fact, despite rising prices and strong demand, US auto plants are only running at 3/4 of total capacity. Second-quarter utilization sits below any level from 2011-2019—which begs the question: why isn’t America making enough cars?
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