Demand for Cars Faces Test With Rising Rates (VIDEO)

I bought a brand new Toyota pickup when I was in my early twenties, in the early 1980s, and interest raters were astronomical. What did I know back then? (*Eye-roll.) Double-digits, sheesh.

At the Wall Street Journal, "As More Cars Hit Dealership Lots, Buyers Feel Pinch of Rising Interest Rates":

Improved supply chain lifted dealer inventory and sales, but economic obstacles are weighing on customers.

More new cars and trucks are finally trickling into dealerships as supply-chain troubles ease and auto makers increase factory output. Now, rising interest rates and other economic pressures are starting to put a damper on the car-buying mood.

Several major auto makers reported U.S. sales declines in the third quarter as inventory levels remained pressured, despite some improvement in recent months. General Motors Co. posted a 24% jump in third-quarter U.S. sales as its vehicle availability increased after it was disproportionately hit last year by supply-chain constraints resulting from Covid-related shutdowns in Asia.

The auto industry has grappled for nearly two years with choppy factory schedules and thin dealership stocks, stemming from semiconductor shortages and other supply problems. Those troubles are easing and vehicle availability is slowly improving, the car companies say.

Auto executives continue to express confidence they will be able to fill a big backlog in consumer demand as production normalizes. But a worsening economic picture and higher interest rates are raising questions about whether consumers will still keep snapping up cars and trucks at the same pace once stock levels improve.

“There’s a lot of negative consumer sentiment in the marketplace. So we’re obviously concerned about that,” Hyundai Motor America Chief Executive Randy Parker said Monday, citing rising rates and stock-market declines. Hyundai’s third-quarter sales rose 3%.

Still, Mr. Parker said it was too early to say whether demand is weakening significantly and said he is cautiously optimistic that it will hold up. He said sales slowed last week partly because of Hurricane Ian’s impact on the Southeast, making it more difficult to gauge underlying consumer demand. Auto makers pointed to continued low vehicle inventories as the reason for weaker third-quarter sales. Toyota Motor Corp. said sales fell 7% in the July-to-September period. Stellantis NV’s dropped 6%, with the Jeep maker citing continued supply constraints, and Nissan Motor Co. reported a nearly 23% drop in U.S. sales for the third quarter.

Overall, industrywide sales in the U.S. for the third quarter were about 3.36 million, roughly flat over the prior-year period, according to Wards Intelligence. Ford Motor Co. is set to report U.S. sales results on Tuesday.

Electric-vehicle leader Tesla Inc. on Sunday said global vehicle deliveries in the third quarter rose about 42% to a record 343,830, but were hampered by vehicle-shipping capacity. The deliveries total fell short of Wall Street estimates.

EV startup Rivian Automotive Inc. also reported on Monday that it had produced 7,363 vehicles at its factory in Illinois and delivered 6,584 to customers during that same period. The figure remains in line with Rivian’s target of producing 25,000 vehicles this year, the company said. Rivian’s stock was up more than 6% in after-hours trading Monday.

Rising interest rates are making it harder for U.S. buyers to afford record-high pricing on new vehicles, a byproduct of the scant inventory at dealership lots. Gone are the days of 0% financing on new vehicles, which car companies and dealers have long used as a staple promotion to sell cars.

The average interest rate on a new-car loan in the U.S. hit 5.7% in the third quarter, the highest in three years, according to research site Edmunds.com.

Americans also are financing more of the purchase price than ever, reflecting record-high car prices. The average amount financed per vehicle in the third quarter was $41,347, compared with $38,315 a year earlier, according Edmunds.com. And 14% of auto-loan customers during that same period took on a monthly payment of $1,000 or more, up from 8% a year earlier, the firm found. “It seems likely that much of the pent-up demand from limited supply is quickly disappearing as high interest rates eat away at vehicle buyers’ willingness and ability to purchase,” said Charlie Chesbrough, senior economist with research firm Cox Automotive.

The firm last week lowered its 2022 U.S. sales forecast to 13.7 million new vehicles, which would be down 9% from last year. In the five years leading up to the pandemic-plagued year of 2020, the industry sold more than 17 million vehicles annually.

So far, though, car companies and dealers say that most new vehicles that get shipped from the factory are quickly snapped up by buyers.

There were nearly 1.3 million vehicles on dealership lots or en route to stores in August, up 10% from July and 19% higher than a year earlier, according to research firm Wards Intelligence. That represented a 29-day supply, the highest in months but still roughly half historical norms.

“There is still really strong consumer demand, and huge replacement demand,” said Duncan Aldred, head of GM’s Buick and GMC brands, during an interview at the Detroit auto show last month. “I think that will probably overcome a lot of the economic headwinds.”

GM said Monday that semiconductor availability has improved and output has stabilized, allowing it to stock more cars and increase sales. The number of vehicles on dealership lots or en route to stores at the end of the third quarter rose 45% from a year earlier, GM said.

Auto executives have said the semiconductor shortage that has plagued output for nearly two years is gradually easing. Still, shortages continue, and the impact tends to be felt unevenly across regions and companies...

 

U.S. Food Supply Is Under Pressure

Empty shelves sure don't reassure hungry shoppers, that's for sure. 

At WSJ, "Parents Want Schools to Be Open. Schools Are Struggling to Comply":

.@MelissaTweets Remember we were talking about hoarding/no supplies of water in March 2020 (at my Costco, for example)? Well, here’s my local Ralph’s this morning, MLK Day, January 17th, 2022. Short supply: 💧 💦 💧 pic.twitter.com/ktSJaa8Xv3

— Donald Douglas 📘 (@AmPowerBlog) January 18, 2022

The U.S. food system is under renewed strain as Covid-19’s Omicron variant stretches workforces from processing plants to grocery stores, leaving gaps on supermarket shelves.

In Arizona, one in 10 processing plant and distribution workers at a major produce company were recently out sick. In Massachusetts, employee illnesses have slowed the flow of fish to supermarkets and restaurants. A grocery chain in the U.S. Southeast had to hire temporary workers after roughly one-third of employees at its distribution centers fell ill.

Food-industry executives and analysts warn that the situation could persist for weeks or months, even as the current wave of Covid-19 infections eases. Recent virus-related absences among workers have added to continuing supply and transportation disruptions, keeping some foods scarce.

Nearly two years ago, Covid-19 lockdowns drove a surge in grocery buying that cleared store shelves of products such as meat, baking ingredients and paper goods.

Now some executives say supply challenges are worse than ever. The lack of workers leaves a broader range of products in short supply, food-industry executives said, with availability sometimes changing daily.

Supermarket operators and food makers say that overall supplies are ample, despite the continuing labor shortages and difficulties transporting goods. They say that shoppers will find what they are looking for, but may have to opt for different brands.

Eddie Quezada, produce manager at a Stop & Shop store in Northport, N.Y., said Omicron has stretched his department more than any previous wave of the pandemic, with one in five of his staff contracting Covid-19 in early January. Deliveries also have taken a hit, he said: Earlier in the month he received only 17 of the 48 cases of strawberries he had ordered.

“There is a domino effect in operations,” Mr. Quezada said.

At a Piggly Wiggly franchisee in Alabama and Georgia, about one-third of pickers needed to organize products and load trucks at the grocery chain’s distribution centers were out sick in the first week of January, said Keith Milligan, its controller. The company has been struggling to get food to stores on time due to driver shortages and staffing issues that haven’t improved, Mr. Milligan said, leaving Piggly Wiggly to change its ordering and stocking plans daily in some cases. Frozen vegetables and canned biscuits are running low, he said.

In-stock levels of food products at U.S. retailers hit 86% for the week ended Jan. 16, according to data from market-research firm IRI. That is lower than last summer and pre-pandemic levels of more than 90%. Sports drinks, frozen cookies and refrigerated dough are especially low, with in-stock levels in the 60% to 70% range. In-stock rates are lower in states such as Alaska and West Virginia, IRI data show.

“We were expecting supply issues to get resolved as we go into this period right now. Omicron has put a bit of a dent on that,” Vivek Sankaran, chief executive of Albertsons Cos., said on a Jan. 11 call with analysts. He said the Boise, Idaho-based supermarket giant expects more supply challenges over the next month or so.

Similar challenges at packaged-food and meatpacking plants mean that shortages could linger, industry officials and analysts said. The Agriculture Department showed cattle slaughter and beef production over the week of Jan. 14 were down about 5% from a year earlier, with hog slaughtering down 9%. Chicken processing was about 4% lower over the week ending Jan. 8, the USDA said. Labor shortages are also affecting milk processing and cheese production, according to the agency.

Because it often takes weeks for meat to reach store shelves from the plants, the current Omicron-related labor problems at producers could prolong supply issues, said Christine McCracken, executive director of meat research at agricultural lender Rabobank. “This might mean less meat for longer,” she said.

Lamb Weston Holdings Inc., the top North American seller of frozen potato products, said in January it expected labor challenges to continue affecting production rates and throughput in its plants, where staffing shortages have already disrupted operations. Conagra Brands Inc., which makes Birds Eye frozen vegetables and Slim Jim meat snacks, said earlier this month that more of its employees have been testing positive for Covid-19 at a time when elevated consumer demand already is outpacing the company’s available supplies...

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