Why the global auto sector faces a critical year

New car production is still below pre-pandemic levels, but will recover, albeit slowly.

we are in a new world. The move to EVs is gaining momentum, but the world has lost production of 46 million new cars in the last three years.

For the time being, the deficit will only widen, equivalent to a loss of around 10.7 million new car registrations in the top five European markets.

But as many have learned in recent years, our industry has always been very resilient.

continued supply shortage

There is no immediate fix to bring new vehicle production back to what we call ‘normal’.
Production is trending up again and lead-in times continue to shrink, but big changes are underway.

The types of vehicles consumers have access to and how they do so are changing. Vehicles are still a necessity, but affordability is a challenge. As a result, new cars are out of reach for many, and affordable used cars may continue to be preferred.

Subscription models are not yet popular. High demand for used cars has leveled off somewhat, but for now it’s a very safe market.

Manufacturer-led EV promotion

Essential materials such as cobalt, magnesium, platinum, and lithium are soaring in price, driving up vehicle production costs, especially for EVs. Some producers and countries lock in key products and make them difficult to source.

Add to this high interest rates and inflation in most EU countries there are understandable issues with business and consumer confidence.

These conditions are weakening consumer-driven demand for EVs. Supply can also slow down. However, EV is still a high priority. Legislation is an important driver, both nationally and globally. There are pressing goals, from approaching a ban on the sale of new internal combustion engine vehicles to racing to net-zero his carbon by 2050. Combined with the threat of fines and sanctions, these policies will accelerate the pace of change.

new entrants appear

The game has changed when it comes to popular car brands. Consumers are open-minded and not swayed by brand traditions in the EV space. Newer competitors, such as independent start-ups and companies backed by global conglomerates, could create unique automotive “brandscapes”.

Chinese brands looking to establish themselves internationally will fill the void left by established automakers as they phase out affordable but ultimately unprofitable older models. For now, many Chinese manufacturers will focus on offering internal combustion engine and hybrid variants as well as EVs.

China has huge acceleration plans for EVs, but there are barriers if Europe and the US don’t manufacture locally. .

Impact of agency model

The agency, or direct-to-consumer model, is a major topic of discussion. This makes sense in a world where business reputation and consumer experience are everything. Automakers want to maintain relationships with consumers without dealers acting as intermediaries. The agency model enables organizations to maintain brand loyalty, better control pricing and profitability, and enhance the showroom experience.

The dealer landscape is changing, but if manufacturers get it right, consumers are unlikely to notice much of a change.

Debate continues as to whether auto manufacturing has reached Death Valley. You’re right that overall sales (and thus production) have fallen off a cliff compared to pre-pandemic levels. But let’s not be so pessimistic. As we know, trying to repeat the industry’s previous successes is no longer realistic.

Changes are underway that bring uncertainty. But we need half a glass of spirit. We are in the Valley of Opportunities. 2023 could be a pivotal year in terms of reaching new horizons.

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