No end in sight for new car supply issues
In this section, we discuss the primary factors driving the current new car market and share our latest new car forecasts.
The start of a new year is often seen as an opportunity to start anew, to move on from the trials and tribulations of the previous year and set our sights on a better future. This is undoubtedly the case in the automotive industry after more than a year dogged by new car production issues, increased lead times and skyrocketing used car values.
But as we approach the end of the first full month of trading, a sense of déjà vu is setting in.
New vehicle supply constraints remain nearly as prevalent as they were a year ago, with the hopes of semiconductor and material shortages improving in the early parts of 2022 rapidly falling away. While some green shoots within the supply chain are starting to appear, we are unlikely to see much improvement until at least early 2023.
Normal seasonality has become a thing of the past, at least for the time being. However, the industry has proven to be remarkably adaptable throughout the pandemic, and it must continue to do so while this volatile and uncertain trading climate continues.
New car supply constraints – the reasons why
Microchip and material shortages continue to hinder new car production across the global auto industry.
As a result, several OEMs have indicated that they no longer expect to reach original volume targets in 2022. The impact isn’t uniform; some manufacturers, such as Citroën and Polestar have fared better than others and have managed to increase production and hit sales targets. However, this is very much model specific, and we cannot expect normal volumes to return this year.
The industry has often focused purely on semiconductors as the reason for supply shortages, but the actual causes are more complex. Yes, microchip shortages are causing a major headache, but transitioning to EVs is also impacting supply chains. Factories need to be reconfigured to accommodate EV production and other alternatively fuelled vehicles. These changes don’t happen overnight, but they are necessary to move towards cleaner and greener personal transportation.
A section of the market believes that when the pandemic is over, and manufacturers have semiconductors and materials in abundance, the market will return to how things were before. But our view is that this cannot be the case. Over the last two years, governments across the globe have made it clear that clean power is the future, most notably at the COP26 climate conference in November; therefore, it would be impossible for the automotive industry to return to its old ways. Alternatively fuelled vehicles will only become more common from now, and consumers are becoming increasingly open to adopting them.
As OEMs continue to invest in new technologies, COVID-19 continues to affect the global workforce. Labour shortages are still prevalent, and every country has their own set of restrictions and regulations that need to be navigated.
Then there’s Brexit, a word that some would prefer to forget about due to its added complexities to the UK logistics industry. Delays remain when trying to access the UK, and many European OEMs have decided to focus their strategies on local markets, which could cause further supply issues in the UK down the line.
While all these compounding issues are creating uncertainty for automotive manufacturers, retailers, and suppliers alike, we must remember that a consumer is waiting for their new vehicle at the end of the supply chain. Unfortunately, lead times continue to stretch into the months, not weeks, and the longer this continues, the more pressure this will put on the used car market as some consumers look for alternative options.
However, in most cases, consumers have proven to be prepared to wait for the vehicle of their choice. Therefore, profitability and margin retention play a significant part in retailers’ strategies. Learnings from the supply shortages have clearly proven that when targets and volumes are not being chased, there are still ways to make a profit from new vehicle registrations.
The new van market
“The new LCV market is perfectly balanced, with 2021 closing on an impressive 355,380 new vans registered – +21.4% more than 2020 and only -2.8% v. 2019 averages.
“The robustness of the LCV sector is clear, and as we enter 2022, the new market is going to be fuelled further from the major fleet, rental and leasing sector, placing thousands of orders as the manufacturers try and find solutions to keep up with the strong demand in the UK. The number of vans that have been ordered but not yet built for the UK market is as much as 405,000, and from this, if manufacturers find the perfect solutions to accelerate these production volumes, 2022 could be one of the strongest ever new van markets on record for the UK.”
Matthew Davock, Director of Commercial Vehicles, Manheim Auction Services
New car forecasts – Q1 and Q2 focus
Building on recent new car figures, the market factors mentioned above, and in line with previous Cox Automotive forecasts, we have adjusted our new car registration forecast for 2022.
Source: Cox Automotive
In our best-case scenario, we predict Q1 2022 will end on 564,645 registrations, a +32.7% increase year-on-year, but -15% down compared to the 2000-2019 average and -19.5% when compared with the most recent pre-pandemic 2019 performance.
Q2 2022 is forecast to end on 486,828 registrations, a +0.5% increase year-on-year, but -12% down compared to the 2000-2019 average, and -14.3% compared to the most recent pre-pandemic 2019 performance.
In our mid-case scenario, we predict Q1 2022 will end on 506,804 registrations, a +19.1% increase year-on-year, but -23.7% down compared to the 2000-2019 average and -27.7% when compared with the most recent pre-pandemic 2019 performance.
Q2 2022 is forecast to end on 435,813 registrations, -10% down year-on-year, -21.2% compared to the 2000-2019 average, and -23.3% compared to 2019 registrations.
In our worst-case scenario, Q1 2022 we predict the quarter will end on 431,787 registrations, a +1.5% increase year-on-year, but -35% down compared to the 2000-2019 average and -38.4% when compared with the most recent pre-pandemic 2019 performance of 701,036 registrations.
Q2 2022 is forecast to end on 387,249 registrations, -20.1% down year-on-year, -21.2% compared to the 2000-2019 average, and -23.3% compared to 2019 registrations.
New car registrations - annual comparison
Source: Cox Automotive
New car forecast - 2022 full year
Source: Cox Automotive
Our best-case scenario for 2022 sees the year end on 2.091 million registrations, a +26.9% increase year-on-year, but -9.5% down compared to the both the 2000–2019 average and the most recent pre-pandemic 2019 performance.
In our mid-case scenario, we predict the year will end on 1.879 million registrations, +14.1% increase year-on-year, but -18.7% down compared to the both the 2000-2019 average and the most recent 2019 pre-pandemic performance.
In our mid-case scenario, we predict the year will end on 1.681 million registrations, a +2.1% increase year-on-year, but -27.3% down compared to the both the 2000-2019 average and the 2019 pre-pandemic performance.
The US perspective
“From a supply perspective, the new vehicle market in the US is starting 2022 similarly to how 2021 ended, with new supply severely constrained but seeing modest improvement from the absolute lows of the year. In addition, sales have been impacted by a slow start of the year because of record COVID-19 cases driven by the Omicron variant as well as waves of harsh winter weather, especially in the eastern half of the country. We had expected limited supply to cause the first quarter to see the lowest sales pace of the year. Still, the slow start to the year further impedes additional improvement. However, this should be temporary, as once the Omicron wave recedes and winter weather becomes less of a factor, the market should see improving sales as the year progresses. Supply remains down more than 70% from normal, so even with gradual improvement, manufacturers and dealers will continue to enjoy strong pricing power and higher margins as a result. Credit conditions remain relatively favourable, but rates are moving higher as financial markets react to shifting monetary policy by the Federal Reserve. As a result, credit may become more of a factor as the year progresses.”
Jonathan Smoke, Chief Economist, Cox Automotive Inc