The automotive industry has been on a rough ride over the last few years, but are there signs that it is beginning to recover? A combination of COVID-19 shutdowns, essential material shortages and the cost of living crisis have all impacted on the ability to produce new cars as well as drivers desires to buy them.
The production and sales of new cars have been in decline since before the pandemic began, and it seems to have taken this industry longer than many others to stabilise. In contrast, demand for used cars soared, along with the price, causing what seemed to be a very confused market place.
However, there is now a glimmer of hope as it looks the automotive industry may now be on its way back. To explain further, Tracy Hill, Marketing Manager at Car Mats UK shares her insight into the sector.
New car statistics
It seems that the number of new cars being registered is now starting to increase as production levels are finally ramping up. Whilst the overall sales of new cars are still lower than where they were in 2019, the trend seems to have turned and more new cars are rolling off forecourts than they have been for the last few years.
The summer has never been a great time for car sales, but in Europe, there was year-on-year growth in August, traditionally the quietest time. Germany and France both recorded a 3% increase in sales, whilst Spain registered 9% more and Italy managed 10%. It is hoped that as we now head into autumn and winter, sales will start to increase at a steady and reliable rate, but they are still far short of the pre-pandemic levels and have a long way to go yet, with many figures still 20-35% below where they were before. The UK tends to share the fate of Europe’s new car markets, and saw a 1.2% increase in August, although this still sits 25.6% below 2019 levels.
New car industry problems
The new car industry first ran into problems when the COVID-19 pandemic first hit, and many businesses were forced to close. At the time, this led to redundancies meaning that when production was able to resume, it was at a much lower rate.
Around the same time, the world was hit with a massive shortage of microchips, something which is included in almost every new car. There were also shortages of many other types of materials, meaning that many car producers were struggling to source materials or being forced to pay extortionately high prices for them. Without these, nothing could roll off the production line and buyers were faced with the choice of a long wait, or purchasing a used car instead.
To add to the woes of the industry, the price of gas and oil have increased massively at a time when many economies are heading into recession and people are becoming increasingly careful of their money. This means that many have been resisting splashing out on a new car, or have been buying a cheaper, used alternative instead.
Used car markets
With a shortage of new cars, the price of used cars has begun to skyrocket thanks to the increased levels in demand and surging inflation. However, it seems that this is another automotive market that is beginning to stabilise. Despite the economic crisis that we are now facing, many of the recent best sellers are still between £20,000 and £40,000, whilst cars at the cheaper end of the market are moving much more slowly. However, stock levels of used cars are still low and are continuing to drop, which is likely to be the case until the new car market has caught up its shortfall.
It is expected that sales of used cars will begin to drop, and it is models which are more than four years old which are likely to be hardest hit. Consumers are tending to want newer cars that still fall under warranties and offer a degree of reliability that means they are less likely to be landed with expensive repair bills.
One type of car which is experiencing an upsurge is that of used electric vehicles, which were up 53.3% year on year from July. However, there is a limited amount of stock in this area, so sales are unable to grow much further than this.
Production problems
Whilst some production problems seem to have been overcome, there are others which may still be an issue thanks to the ongoing energy crisis. The shortage of gas that has been created by the war in Ukraine means that the brakes could once again be put on car production. It is estimated that this could mean that car production in Europe could be slashed by as much as 15%.
What the future holds
Whilst this news all seems positive, it is important not to get excited just yet. With an economic recession just around the corner and incredibly high prices for all types of fuel showing no signs of decreasing, buyers may yet be frightened off. Whilst electric cars have become a popular option, many consumers are now fearful of increasing their electricity bills and are still weighing up whether this cost is better than the petrol and diesel counterparts.
The outlook for 2023 still seems a little uncertain, but trends are showing that things seem to be on the right lines. There is now hope that the automotive industry is returning to normal, but with an economic crisis looming and the ongoing war in Ukraine, is it still difficult to predict what might happen.
The cost of living crisis may yet take a greater chokehold on the industry, with buyers choosing to hold onto existing vehicles and their cash for a little longer than normal. Once again, factories may well be faced with shortages, and so it is hard to tell whether history is set to repeat itself. Consumer confidence is a fragile thing at the moment, so it remains to be seen whether the automotive industry can ride out the next 12 months or not.
