Worldwide demand brace for impact

After two and a half years after facing one major setback after another, the global light vehicle market continues to struggle to gain real traction. Despite rising sales rates in recent months, this is largely the result of a rapid improvement in the Chinese market, which itself has benefited from a temporary cut in the purchase tax on cars. Supply bottlenecks continue to be the main reason behind improving sales performance in many regions of the world. But as Europe and North America head into winter, the economic outlook becomes increasingly dismal in the face of stubbornly high inflation, inevitably eroding potential demand for new cars.

Vehicle buyers will no doubt look back fondly on the deals that were available pre-pandemic. Parts shortages these days have forced OEMs to focus on real-money spinners in the range—high-margin, high-priced variants. For example, in the United States, average vehicle prices crossed the US$40,000 threshold for the first time in July 2021, and continued to rise until the end of the year.latest data shows The average price is just over US$46,000, slightly higher than last year, but at least for now there are signs that this price increase is leveling off. And while U.S. prices have risen, incentives offered by OEMs have fallen to record lows. This isn’t just a US phenomenon, it’s actually a new car phenomenon as well. In the UK, for example, as new-car buyers turned more and more to the used-car market, used-car prices have jumped by a quarter in the last two years. Many people who are planning to finance a new car are buying their current car. So not only are vehicles more difficult to come by, they are also more expensive.

Geographically, however, there are clear differences between mature markets* and immature markets. The former group find themselves in a much tougher position than the latter. While the mature markets are operating at three-quarters of the levels they were in 2019, the non-mature markets consolidate and see full recovery in volumes. The high volume of chips in products from mature markets may help explain some of this downturn.

Supply-side turmoil masks the true strength of underlying demand in the global monthly sales figures. However, this demand is definitely weakening as the global economic outlook deteriorates and customers’ appetite for big purchases such as new cars weakens. Household budgets will become increasingly strained as inflation rises and central banks push up borrowing costs. As a result, demand will continue to evaporate — although not the current baseline assumption, it is likely that next year the decline in demand will decrease to accommodate the increase in supply, and the balance will still occur at a reduced level. There is. One remedy for the weakness in vehicle production from last year is that the waiting list for new vehicles is piling up. These backlogs have ensured a significant amount of sales for some time.

Supply chain challenges are expected to ease during 2022, but are unlikely to be resolved, with continued headwinds of rising costs for energy, logistics and materials weighing on profits and end-user pricing. It is expected that the pressure will continue. The worsening global economic outlook has lowered the prices of industrial metals such as steel and aluminum, saving some costs for the auto industry. However, prices for electric vehicle-focused commodities, especially lithium, remain elevated, mainly due to concerns about continued supply shortages.

Barring a few recent exceptional months, the global light vehicle market is well below the 90+ million level seen prior to 2020. Russia’s invasion of Ukraine only added to the turmoil facing supply chains in the latest global LV sales forecast. For 2022, he is 5 million units lower than his pre-conflict view (Jan 2022). An expected increase in semiconductor supply should ease some of the more extreme pricing in the second half of 2022 and into 2023. This is because OEMs will inevitably relax their focus on the most profitable vehicles. However, pre-pandemic global market volumes are not projected until 2024, and risks are still skewed to the downside, especially given that the recession could deepen further.

*Mature markets include USA, Canada, Western Europe, Japan, South Korea, Australia and New Zealand. The rest are considered immature markets.

https://lmc-auto.com/news-and-insights/global-demand-braces-for-impact/ Worldwide demand brace for impact

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