The auto industry is slowly recovering from the ups and downs of recent years.
COVID crippled US auto sales in 2020, as CNBC noted in December 2020. New vehicle sales were expected to drop at least 15% compared to 2019, the fourth steepest annual decline largest U.S. sales since 1980. Then, in 2021 and 2022, computer chip shortages nearly halted new car production, causing new and used vehicle prices to increase
A rebalancing began in late 2022 and the future looks a little brighter for the rest of 2023.
Supplyframe’s Commodity IQ statistics reveal that, excluding memory devices, 85% of semiconductor price dimensions will be stable as we move into the new year. The rest will move in favor of buyers during the second half of 2023. Commodity IQ predicts that nearly 60% of lead time dimensions will decrease in the third quarter versus 1% in the third quarter of 2022.
With supply issues easing somewhat in 2023 and vehicle supply increasing, we can expect to see less pressure on prices for older used cars. In addition, new vehicle sales prices and wholesale used vehicle prices have declined from their peak in spring 2022. The drop in prices is just beginning to trickle down to retail, but buyers of Used cars with stretched inflation may find some relief in 2023.
Electric vehicle (EV) adoption will also increase in 2023, but at a slightly slower pace than the past two years, according to Commodity IQ. Bloomberg says sales of electric vehicles rose from 3.2 million in 2020 to more than 10 million in 2022. And Commodity IQ data suggests sales of plug-in electric passenger vehicles will reach 13.6 million this year, with three quarters of fully electric vehicles.
Why do we want “normal” back in the first place?
These ups and downs make some people want to go back to what they consider normal.
But if you look under the hood, you’ll discover that the abundance of cheap inventory in recent decades hid some massive design and sourcing problems.
It is similar to what happens in a drought. With enough time, the receding waters begin to reveal what lies beneath the surface. But for the auto industry, instead of finding old castaways and long-lost relics, the COVID pandemic exposed deeply flawed processes.
This new reality made it impossible for automakers to continue to hide process inefficiencies that caused additional problems in a world where supplies were scarce.
So what is there to fix? It’s all about processes!
Like many other industries, automotive manufacturers and suppliers today follow many of the same processes that have existed for over 100 years.
Design teams look to the future, designing concepts that meet customer demands for more. Consumers expect manufacturers to offer more efficiency, features and amenities, and support the shift to electric and hybrid vehicles, all at a competitive price.
Engineers and supply teams work to bring these new designs to life while maintaining existing platforms. But every phase of the process, from design, to sourcing and production, happens in a vacuum. When a team finishes its work, it moves on to the next group and so on. So when the manufacturer encounters a parts shortage, an end-of-life component problem, excessive component cost increases, or some other problem, it goes back to the drawing board.
This is a massive problem that slows down business and results in lost sales, revenue and time.
The ups and downs will continue to arise
The last few months and years have come with many problematic surprises.
And all signs point to a world of constant volatility, uncertainty, complexity and ambiguity.
The relationship between China and the US is likely to deteriorate in the coming years. This could affect the availability of auto parts, including electric vehicle batteries. Many auto parts companies are electronic manufacturing service providers in Taiwan, which China claims.
Manufacturers should prepare for this possibility by considering new relationships with friendly countries so that they have access to critical inputs such as raw materials, semiconductors and advanced driver assistance technology (ADAS).
The most important development in the automotive sector, however, is the growth of the electric vehicle battery market. This market should see strong growth in the coming years as the adoption of electric vehicles accelerates.
But there are concerns about a possible shortfall in the global mining capacity needed to extract enough raw materials to make enough batteries to meet expected demand in the coming years. This is another indication that normal will not return.
Change is a constant: embrace it
Traditionally, manufacturers could focus on only 20% of their main suppliers and key costs. But now, because of the gold screw problem, you have to focus on 100% of these factors. Because only one part is missing to slow down, or completely stop, your production.
To ensure you increase the resilience of your products and can scale production as needed despite any volatility, understand that you need to look beyond cost considerations. It’s also time for car manufacturers and suppliers to rethink how processes flow and equipment interacts.
Move away from spreadsheets and static sources of information. Make decisions supported by real-time supply market intelligence to avoid surprises from an ever-changing supply chain. And inject more intelligence into your processes so that people in your organization have a permanent view of supply and demand trends. By doing so, your organization can connect the dots from design processes to sourcing and product lifecycle management; and you can make the right trade-offs to design your products for resilience and avoid going back to the drawing board.
These critical steps will better position you for the new normal and revolutionize your business just as you revolutionized the vehicles your business and customers rely on.
