Overheard: Another Way to Measure Effects of the Chip Shortage

Overheard: Another Way to Measure Effects of the Chip Shortage

Another way to measure effects of the chip shortage and supply-chain issues is to look at the Inventory to Sales ratio.

Data Did You Know: Another way to measure how the chip shortage and supply-chain issues are affecting the auto industry is to look at the Inventory to Sales ratio for motor vehicle and parts dealers. 

As the chart show, the inventory level is typically 2 to 2.5 times that of the level of sales. It usually spikes during recessions (gray bars) when unsold vehicles pile up, until the auto companies cut production to match a slump in sales. But, after the 2020 recession caused by the lockdown, the production cutback over-corrected and the ratio has remained low, currently at 1.32 times sales in March of 2022, the latest data available.

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