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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.

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Bruce is the Audience Insights Manager at Babcox Media.

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. 

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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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