Scarcely a single automotive article has been written this past year or so that hasn’t come with the caveat that delivery times for certain models are likely to be longer than expected due to global events.
It started with the immediate impact of Covid-19 that indirectly led to a shortage of the vital computer chips that make functional nearly every part of a new car from the infotainment systems to the powertrain management. Adding to the chaos now is the appalling invasion of Ukraine that has thrown yet another spanner in the works, especially for German manufacturers that rely on wiring supplies from two major plants in Ukraine. The shortage of both wiring looms and semiconductors has created acute issues for companies who simply cannot get finished cars out the factory door fast enough to meet pent-up demand.
So, with the coronavirus apparently coming under control in Europe and the war in Ukraine dragging on, just how did the car industry get here and does the future look any brighter for dealers and car buyers?
When Covid-19 hit, with lockdowns in many countries across the world and the closure of car factories as per public health requirements, demand for new cars totally fell away. What didn’t fall away, however, was the demand for consumer electronics such as games consoles, smartphones and smart TVs. Consumer electronics, like cars, rely heavily on semiconductors and, even though the average modern car (particularly electric models) can have upwards of 3,500 on-board chips, the automotive industry’s demand is really a drop in the ocean compared to the volume of semiconductors required by other industries. In light of market conditions, semiconductor manufacturers shifted their focus to more profitable customers, which meant that when the automotive industry tried to cast-off again, they were faced with a situation where, because they weren’t able to get their hands on a sufficient number of chips, they weren’t able to manufacture complete cars. This has led to stocks of unfinished models piling-up outside factories and a severe shortage of supply.
Other problems compounded the issues: a lack of capacity at ports around the world leading to massive shipping backlogs; a fire at a major semiconductor plant in Japan in 2021; the blockage of the Suez Canal; and a drought in Taiwan. The latter incident created problems in that the manufacture of semiconductors requires vast quantities of pure water, which, in itself, is one of the main reasons why it’s only profitable to make chips in vast quantities. The requirement for enormous plants means that the supply of semiconductors is concentrated in the hands of a relatively small number of companies operating a small number of plants, and it’s this lack of agility that means that the industry just isn’t able to instantly switch back to supplying an adequate number of chips to the car industry.
The aforementioned shortage of wiring looms due to the war in Ukraine has also led to a situation where, in addition to already battling with a semiconductor shortage, car factories in Germany (Audi’s and Volkswagen’s in particular) are being forced to plan shutdowns and temporary line closures for certain models, particularly luxury and high-demand electric cars. Coronavirus outbreaks around the world, especially a recent one in China, have also impacted the supply of finished cars and parts globally, with Tesla, VW and Renault all affected.
What’s the situation in Ireland now?
Internationally, the situation is incrementally improving, but stock levels remain low and are likely to remain so for the foreseeable future.
At present in Ireland, stock levels are currently either low or non-existent with demand generally outstripping supply for the upcoming “222” models. The Irish distributor for Mercedes-Benz, for instance, reports only 60 per cent of its requirement for the 222 sales season. Some distributors such as those for Peugeot, Renault and Opel have managed to secure delivery of new cars to meet the predicted July surge in demand, however other manufacturers estimate that for certain high-demand models and those built to order (from BMW, MINI, Volvo and others), customers may be waiting until at least the first quarter of 2023.
Other manufacturers have been reducing the number of options available on their cars, Mazda offering certain grades and models without the option of high-end Bose speakers, for example and Citroën delaying the introduction of new 75kWh batteries in its electric models. This is all with the goal of eliminating some of the supply-chain bottlenecks that are currently constraining supply to consumers.
At present, as a result of the car supply situation, both the cost of used cars and car rental (both in Ireland and abroad) remain significantly inflated compared to pre-pandemic levels.
When will the situation improve?
Even though the supply situation has improved slightly in recent months, most industry bosses don’t see the supply chain getting back to normal any time soon. Mercedes’s Ola Källenius and Tesla’s Elon Musk said that they expect problems to continue well into 2023 or even 2024. In the short term at least, manufacturers will likely continue prioritising the supply of chips for their most profitable cars, so it’s probable that certain models within manufacturers’ ranges will be affected by chip supplies for longer than others.