The semiconductor shortage, inflation and the Ukraine conflict have combined to stall a recovery in vehicle supply and sales, but what will the next year hold for your fleet?
We asked industry experts for their view.
September is usually the second biggest month for car and van registrations annually, but while it showed a near-10,000 increase in car sales on the same month in 2021, registrations were still 34.4% below pre-pandemic levels in 2019.
Despite the UK no longer operating under Covid-19 restrictions, overall car sales in 2022 are 8.2% down on 2021, with the number of vans sold dropping by more than 20%. The issue, the Society of Motor Manufacturers and Traders said, is that the car and van makers continue to battle supply constraints to fulfil a backlog of orders. Mainly this is due to the continuing shortage of semi-conductors.
So, will business still be struggling to source vehicles in a year’s time, and what will registrations in September 2023 look like? Will the market have returned to normal, with business able to find the vehicles they need and replace ageing ones on their fleets?
Many industry analysts had expected an improvement in supply by now, but it seems that the constraints will continue for some time. In his recent report on the UK automotive sector, Mike Allen, Head of Research at financial services group Zeus Capital, said: “New car supply shortages remain acute and will persist into 2023: ongoing component shortages, compounded by the war in Ukraine and fresh Covid-19 shutdowns in Asia, have hampered production.
“New car supply should improve in H2, according to recent statements from original equipment manufacturers, as semiconductor manufacturing ramps up, Covid restrictions are lifted in China, and parts previously made in Ukraine are sourced from elsewhere. Nevertheless, even if supply issues for components were resolved overnight, the lost output will take significant time to recover.
“We now expect new vehicle supply to not return to normal until 2024.”
It’s a view David Leggett, Automotive Analyst at data and analytics company GlobalData, agrees. He said: “Major demand headwinds are building as UK economic growth slows sharply and this will hit the UK’s car market recovery in 2023, just as global semiconductor shortages ease.
“GlobalData forecasts that the UK car market this year will struggle to reach 1.6 million, with just 1.8 million new car sales projected for 2023.
“At that level, 2023’s UK new car market would still be over a fifth down on 2019’s 2.3 million sales. A weak recovery is in prospect.”
Simon Harris, Head of Valuations at UK Vehicle Data also believes that with the economy teetering on the brink of recession, demand for new cars next year might well be dampened, despite supply improvements, and that some of the recent registration increases, such as in September, have been fulfilling longstanding orders.
He added: “Many manufacturers still have hectares of near-completed cars stored, waiting for those vital parts so they can be returned to the factory and finished for delivery.
“Earlier predictions of a 2.1 million new car market in 2023 are now very unlikely to be realised, although we should see a gradual easing of the semiconductor bottleneck, and reduced lead times.”
He thinks diesel demand will continue to wane, while an increased choice of plug-in hybrid models with more usable EV ranges will help bridge the gap to full electric for those not ready to make the leap.
“Although energy costs are expected to be higher for quite some time, it is unlikely to dramatically affect the appeal of EVs, as most will be charged at home for less than the cost per mile of petrol and diesel alternatives. But demand for ICE cars, particularly for small to medium models, should remain healthy for those whose budgets, or circumstances don't yet fit choosing an electric car,” he added.
Philip Nothard, Insight & Strategy Director at Cox Automotive said the problem of supply “will remain challenging to navigate until, at the very least, the end of 2023”.
He added: “By the end of 2022, we will lose close to 40 million vehicles from being produced in the last three years.
“The lost volume from production will never return to the market; therefore, the shortage we've seen and continue to experience will influence supply for years to come.”
It looks as though by September 2023, lead times will have finally reduced, and there should be more availability. What is not yet known is if higher margin sales to private buyers will take priority over business registrations for the vehicles manufacturers are able to bring to market. That may depend on the economy, and how well-off retail customers are feeling.
If consumers hold back from making purchases, there could be more availability for businesses, who can defleet older vehicles that have been on fleet longer than expected and replace them with new models. While the overall market may not grow markedly, fleet and business share of it might increase as a result, especially through electric cars and vans which are likely to be the vehicles powering the recovery.
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