It has been a torrid time in the auto industry over the last two years as a result of the pandemic and the knock-on effects. The industry has been plagued by supply chain issues, which have greatly hampered production and left motorists having to wait several months for a car. As a result, new car sales have plummeted with a 9% drop in July recently reported.
Effect Of Supply Chain On Motor Industry
No End in Sight
The SMMT recently cut its full-year forecast for new car sales to 1.6mm – this would make 2022 the most challenging year in the auto industry for 30 years. This cut is a result of the first 6 months, which have been tougher than anticipated. It is also thought that these supply chain issues will be around for a while although it is hoped that the chip shortage will ease over the next year (but still impact production).
Of course, there are other factors at play that are stopping people from buying new. The cost of living, energy, and fuel crises are all preventing consumers from making big purchases and these issues are going to get worse before they get better. Instead, many are hiring cars and taking out contract hire gap insurance as a short-term option.
The Main Culprits
There are a few problems in the supply chain right now, but it is the ongoing semiconductor chip shortage that is causing the most chaos (it is being dubbed “chippagedon”. Essentially, there are not many manufacturers of semiconductor chips, and production was slowed during the pandemic, but demand has remained high which has resulted in a huge shortage over the last 2 years. Chip manufacturers have invested in additional production capacity, but it is predicted that the shortage will continue well into 2023 and continue to cause disruption in the auto industry (and a handful of other industries).
What the Future Holds for the Auto Industry
It is difficult to predict what the future holds for the auto industry when there are so many issues at play and the full impact of these issues is yet to be seen. The easing of the chip shortage over the next year should increase production and the demand for electric cars could help to give the industry a boost, but the political uncertainty and cost of living crisis will no doubt have a massive impact on the auto industry in the short term.
The auto industry has been under great strain ever since the start of the pandemic and supply chain issues have been hampered by a handful of other issues domestically and around the world. How the auto industry will perform in the next year and beyond is hard to predict, but it is hoped that the global chip shortage will at least ease and helpfully help the industry to start its recovery.
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