The past year has been characterised by a supercharged demand for vehicles and a supply shortage of those vehicles. Could this mismatch be about to correct itself?
There are some good signs for the automotive industry that this is the case. But, at the same time, a number of economic headwinds are emerging that are set to make next year a challenging one for the sector. In our latest industry state of play, we look at what trends are happening now – and what to look out for.
September marks the second month in succession with double-digit sales growth. According to the Federal Chamber of Automotive Industries (FCAI), a total of 93,555 vehicles were sold in September 2022, a 12.3% increase on the same month in 2021 (FCAI, ‘Strong Electric Vehicle Sales recorded in September 2022’, (5 October 2022)). That’s on the back of the market growing 17.3% in August 2022 (CarExpert, ‘VFACTS September 2022: Sales rebound, EV share hits new high’ (5 October 2022)). The results suggest that the constricted supply and low stock levels are starting to improve and that dealerships are making inroads towards meeting pent-up demand.
Of the vehicles sold in September, Korean carmaker Kia continues to blaze a trail. According to CarExpert, Kia grabbed second place for most vehicles sold, behind frontrunner Toyota, and relegated Mazda (usually second) into the third position (CarExpert, ‘VFACTS September 2022: Sales rebound, EV share hits new high’ (5 October 2022)).
Electric vehicles (EVs) set a new record market share in September 2022, capturing 7.7% of vehicle sales and breaking the previous record set in August (CarExpert, ‘VFACTS September 2022: Sales rebound, EV share hits new high’ (5 October 2022)).
FCAI Chief Executive Tony Weber said the figure showed that a growing number of Australians were committed to decarbonising their transport choices.
“During September 2022, 7,247 battery electric vehicles were sold, more than hybrid and plug-in-hybrid combined (5,141),” he said. “While the overall market share of battery electric vehicles remains low (2.7%), there is a clear market trend towards zero emission technology.” (FCAI, ‘Strong Electric Vehicle Sales recorded in September 2022’, (5 October 2022)).
Cheap consumer debt has been readily available for several years now, contributing to significant increases in home loan debt and average car loan size. But with interest rates on the rise, the effect on discretionary spending may see downward pressure on demand for new vehicles.
As it can take up to nine months for higher interest rates to start to bite, it may be that we haven’t yet seen the full effect of higher costs on vehicle sales.
With inflation hovering around 6-7% (Trading Economics, Australia Inflation Rate (2022 Data)) and real wages declining, purchases of new vehicles are likely to be delayed as consumers rein in the purse strings.
Motor industry services group Pitcher Partners says this provides an ideal opportunity for dealers who pivot to used cars to maintain volumes as consumer behavioural shifts take hold (GoAutoNews, ‘State of the industry – Part Three’ (8 October 2022)).
The sector has struggled with a shortage of semiconductors for over two years now. A confluence of factors has contributed to the worldwide shortage, including geopolitical tensions, a fire at a key semiconductor plant in Japan and low inventory levels brought about by just-in-time manufacturing models.
The global shortage worsened when auto manufacturers slashed their microchip orders while the electronics industry faced increased demand for phones and other personal appliances.
The lack of supply of semiconductors is still a factor affecting the global automotive and manufacturing industries generally. It may continue to remain an issue for as long as Ukraine is embroiled in conflict. According to Reuters, 45-54% of all semiconductor-grade neon is produced in the country (Reuters, ‘Russia’s attack on Ukraine halts half of world’s neon output for chips’ (12 March 2022)).
Skills shortages and staff retention continue to be problems for the automotive sector, brought about by a diminished apprentice intake, a reduction in the numbers of skilled migrants, and COVID-related business contractions.
Australian Automotive Aftermarket Association Executive Director Stuart Charity says there were skills shortages prior to the pandemic but that the situation has worsened.
"We are facing a skills crisis of unprecedented proportions,” Charity says. “It's not just dealerships – it's the aftermarket industry, it's the collision repair industry, too. There are estimates the shortage is something like 25,000 to 30,000 technicians.” (WhichCar? ‘Automotive trade sector facing ‘unprecedented’ skill shortage – Calls for Albo to tackle it at Jobs Summit’ (1 August 2022))
There’s no quick solution to the problem, although continuing to pay well above award wages, offering training incentives and supporting initiatives to bring skilled migrants into the country have all been identified as steps needed to address the issue.
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