A choice of futures

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t has been a difficult year for the automotive sector, with unprecedented challenges on all sides. Aside from the obvious and continued ripples of the COVID-19 pandemic, the last year has seen fuel shortages and logistics issues. The semiconductor shortage is hitting the supply of new cars hard, but there are also shortages of rubber, metals and other raw materials. In the commercial vehicle sector, there has been a widely reported shortage of HGV drivers, only one of the many labour shortages seen across the sector.

But alongside these challenges there are opportunities, as seen in the growing electric vehicle (EV) sector, and the growth of the used car market.

In an environment like this, Cox Automotive’s Insight Report has often acted like a valuable weathervane for the motor sector. The report focuses on the UK but highlights parallels within the industry around the world.

This year, the message is clear. The sector will need to get used to working and planning through uncertainty. The organisations and leaders that will still be here to see Cox’s Insight Report in 2031 will be the ones who can deploy a growth mindset and see opportunity among the challenges today.

It is a year that has already seen forecast shifts in the market accelerated by global events.

“Back in 2018, we forecast a 20/80 auction/digital split by 2023,” says Philip Nothard, Insight and Strategy Director for Cox Automotive. “While COVID-19 has accelerated that trend, it is a journey that we have been on now for many years. There will still be a need for physical auctions, particularly for speciality vehicles and older cars. However, there are opportunities to explore the benefits that pan-European and global operations can bring.”

Greener vehicles have remained a growing sector, if a small part of the overall market, with battery electric (BEV) and plug-in hybrid electric vehicles (PHEV) making up approximately 16.6% of the UK market by the end of September 2021, versus 8.8% at the same time in 2020.

Natural gas vehicles (NGVs) and LPG-fuelled cars have also both shown growth in Europe during the last year, proving that electrification is not the only potential route towards decarbonisation.

There are also many immediate problems for the automotive sector to navigate. Some of the world’s best-known car manufacturers are showing lead times of 12 to 18 months on some new vehicles due to a combination of the pandemic backlog and a global shortage of materials.

A new vehicle will be fitted with over 1,000 microchips, and those vehicles are only getting more complex. As manufacturers wait for the shortage to resolve itself, some have experimented with making and shipping vehicles without the less essential microchips, so that customers can retrofit later, but this solution is likely to raise new problems.

Meanwhile, uncertainty around COVID-19 still persists, with new variants, and some governments ready consider the virus endemic.

Typically, the Insight Report will present three forecasts, a Best, Medium, and Worst-Case Scenario. However, with so much uncertainty across so many different axis, Cox Automotive has taken a different approach this year.

The intention is to spotlight several possibilities, with pros and cons to each situation.

In assembling this scenarios, Cox Automotive considered four factors. These are “necessity”, “affordability”, “availability”, and “economy”.

Necessity comes down to how much need there is to invest in new or used vehicles. This can be subject to a variety of factors – for instance, with increased flexible and work-from-home arrangements, having multiple vehicles may no longer be necessary and vehicles that are driven less will last longer. At the same time, as fear of COVID-19 drives commuters from public transport, there may be increased demand.

Affordability looks at the purchase price and ongoing running costs of vehicles. Possible drivers here include EVs and increased complexity potentially driving up manufacturing costs, alongside shortages of materials and labour. Household disposable income is also a factor here, which has largely recovered to pre-pandemic levels, but with few signs of growth in the short to medium-term.

Availability examines how COVID-19, Brexit, and semiconductor shortages will impact the amount of product on the market for customers. Just-in-Time supply chains are under review, and manufacturers are considering how they can best streamline their resources, with a growing focus on raw materials, factories and supply chain partners positioning themselves in the same geographic locations to minimise both emissions and transport costs.

Finally, there is the economy, using data from the Organisation for Economic Co-operation and Development (OECD) from September 2021. Global GDP has risen above pre-pandemic levels, with further anticipated growth in the coming year. However, there are still issues among supply chains, increased food and commodity prices, and rising transport costs.

Taking all of this into account, Cox Automotive have suggested three scenarios across the new and used automotive sectors.

The first of these scenarios is called “Take a Rain Check”, which is possibly the most cautious of the three predicted outcomes. Plans for the automotive sector are put on hold. Lack of new vehicle supply continues, slowing economic recovery, and increased debt leads to declining business and consumer confidence. Recovery from the impact of COVID-19 is expected to be slow, but vehicle requirements continue to increase from 2025 onwards.

Supply constraints will continue throughout the decade, with a lack of good quality used stock while the electrification roll-out has not gone as smoothly as the industry hoped. EVs will be priced out of reach of some demographics, creating inequality in the marketplace.

Scenario two is called “Keep Calm and Carry On”. It is slightly more optimistic, with fairly steady economic recovery and returning confidence countering the impact of inflation for the first few years. While some ongoing effects remain and, like the virus itself, become endemic, the buying and selling of used vehicles is likely to return to something like ‘business as usual’. In this scenario manufacturers overcome most of the supply chain issues and maintain market share through the transition from ICE to increasingly electrified vehicles, which become cheaper in the second part of the decade, as battery technology advances.

The final scenario is one called “Back to the Future”. It depicts a healthy post-pandemic bounce back in the economy with returning confidence and government fiscal stimulus. People return to offices, commuting more, travelling for leisure, and perhaps even requiring a second or third vehicle to meet their family’s needs.

Vehicle ownership and use grows as manufacturers and fleets switch to EV by 2025. Government fiscal stimulus will support business model innovation and reconfiguring the automotive sector to meet the technology demands of the future.

This future sees the growth of Mobility-as-a-Service, connectivity, and autonomy. There are minor challenges due to oversupply of ICE vehicles in the early years and a shortage of raw materials towards the end of the decade, but the market remains unharmed.

It is certainly the most appealing of the scenarios Cox Automotive offers, but to survive, or indeed thrive, the industry must be ready to adapt to any of the three.