The challenges of the automotive industry

We all know that the car industry is constantly changing and facing new challenges. Not that long ago, electric cars were nothing more than the décor of Sci-Fi movies, but now, they are regular everyday vehicles with the perspective to dominate the car market in years to come. It is identical with self-driving technologies, in-car Wi-Fi, infotainment systems, and cars filled with AI capacity, which are slowly becoming your personal assistants. Technology changed the way we perceive, enjoy, and buy cars. Although it improved so many things, it also made a completely different environment in which car manufacturers and dealers sometimes get lost. Add to that the global pandemic of 2020, and you have an extraordinary period for all major players, which brought challenges that the industry hadn’t encountered before. Here are the most significant ones.

Fuel prices

Fuel prices are a constant concern and one of the key factors in car industry development. For the first time in decades, in 2020, the USA had become the biggest oil producer globally, passing Russia and Saudi Arabia, which previously held the first spot. This shift in oil production might result in varying fuel prices and an unstable market that could see a rise in gasoline and diesel prices in Europe. We all remember the spike in fuel prices in the early 2010s, which forced manufacturers to introduce downsized engines and helped the rise of electric vehicles. If American strategists decided to raise the fuel prices, it might happen again. Also, there are talks of imposing new and more demanding fuel economy standards for all car companies, which could influence the development of future models.

Supply Issues

2020 was the strangest year in modern history, but we will be experiencing the effects for years to come. In the car industry, one of the burning issues is interrupted supply lines. You have already heard about the semi-conductor chip shortage that had crippled car production all over the world. Although it is the most typical problem, it is not the only one, and in 2021, many car companies experienced issues in supplying raw materials (metal or aluminum). Besides the steel shortages, some companies have problems obtaining plastic parts and components, which delayed the deliveries as well as raise the prices of finished products. The chip shortage is estimated to cost the industry over 110 billion dollars which is an enormous blow to shareholders.

Production can’t keep up

At the beginning of the pandemic, many car manufacturers decided to halt production for several weeks. Not only due to health concerns of their employees, but also fearing that demand for new vehicles would drop as most people stayed at home. This meant the dealers only held on to a moderate stock of newly produced cars. However, when the demand came back on stream and production subsequently resumed, the manufacturers were now also facing the aforementioned issues with the supply of raw materials. This resulted in a level of production that could not keep up with the demand and orders being severely delayed. Whereas many dealers usually keep a reasonable inventory throughout the year, their already low stock got even shorter, eventually turning into an understock.

Rise of Electric Vehicles

The rise of EVs can be considered a challenge as well as a threat to the car industry as we know it. On the one hand, it is a challenge to implement new technology into personal transportation, how to change our habits, and how we use cars. On the other hand, it is a significant threat to the existing business model in terms of the type of fuel we will be using and how we buy, maintain, and repair our cars. The customers are not the only confused ones; the car companies are also somewhat reluctant to fully accept the electric future due to various concerns about the viability of the whole concept. The dealerships are even more affected since selling and maintaining the electric car uses an entirely different business model than the existing one. The general consensus amongst the major players in this field is that everybody supports the drive to make cars more efficient and environmentally friendly. However, the emerging EV market still doesn’t have a clear business model which would keep everybody’s jobs for years to come.

Digital Retail

If one thing pandemic thought us, online shopping could keep the industry running even if we cannot physically go to the store and buy the products. This trend is obvious in the car industry, where dealerships start to rely more and more on digital approaches to selling their cars. Not just in terms of marketing and promotional purposes but in terms of directly selling cars online. Even though there is nothing like seeing and test driving the vehicle in person, recent reports state that more and more people are purchasing cars online without a single visit to the dealership. Some even chose to get them delivered to their home address, altogether avoiding human contact with the dealer or salesperson. The question that is often asked is will this make a classic dealership, with its facilities, obsolete?

Concept Of Shared Mobility

Although there were many startups in the field of shared mobility, none of them proved to deliver revolutionary solutions to the market. However, several companies introduced their projects of urban mobility solutions during a pandemic, which included a fleet of cars scattered across the town, a mobile app, and a monthly subscription. The idea is simple; you use the app to locate the closest vehicle, unlock and start it with your phone, use it as much as you want and then park it. The price of such service is lower than what you would pay for a monthly lease, fuel, insurance, or parking, making shared mobility a perfect solution for people who need a car but don’t want or cannot afford to own one. We can expect more and more such projects which can also help in reducing traffic and pollution in urban areas.

Nearly every single player on the automotive market is currently facing at least one or more of these hurdles.

Do these challenges seem familiar? Share your experiences below.