Disruptions in the Automotive Industry in 2021
We have to bid goodbye to the year 2021. A lot of things happened within the year. Aside from the ongoing pandemic, other problems rattled the auto industry.
The new year is in, but let us look back on the disruptions that have shaken the automotive industry.
The COVID-19 outbreak deeply affected the healthcare industry around the world. However, it did not stop there. It also disturbed other sectors, including the automotive industry.
The coronavirus crippled many industries. Governments in the United States and other countries impose strict quarantines and lockdowns. They take the precautions seriously to manage and fight the virus. However, it also impacted work schedules in different sectors, including the automotive industry.
Due to the fast transmission of the virus among workers, Ford, GMC, and other automakers decided to shut down some of their factories. When the virus spread last 2020, many manufacturers postponed some of their vehicle productions. They either closed the factories or cut the work shifts in their assembly plants.
Because of the production suspensions, the car and truck makers only produced a limited number of vehicles. Without the newly built cars, the dealerships had to turn down a lot of orders. The auto industry lost billions of dollars because of their postponed productions.
As the problems in the auto industry started to pile up, the automakers had to walk on eggshells. They must maintain safety health protocols to avoid coronavirus transmission in their production plants. They also have to deal with the chip supply shortage.
Semiconductor chips are crucial for vehicle production. Because of the pandemic and continued demand for semiconductors, the chipmakers cannot keep up with their depleting supply. It is also an integral part of producing home appliances, computers, and other electronic products.
The demand for chips was high in the United States during the administration of President Trump. However, the suppliers hold back the chips for many industries. The U.S. government and Intel created regulations that affected the trade with Chinese chip manufacturers. Even before the virus outbreak began, the chipmakers experienced difficulties in their supplies and production.
The remaining trees that bear the sap to create materials for tires continue to deplete. Natural rubber plants can only thrive in humid and damp regions near the equator. They can only grow in selected areas such as Indonesia, India, Thailand, and Vietnam. If the supply of natural rubber continues to diminish, expect the prices of truck tires to increase in 2022.
Some people may not believe in climate change and global warming, but these factors affect the growth of rubber-bearing trees. Drought, sudden weather changes, and other intense natural disasters impact the growth of rubber plants. Also, too much rain triggers the development of a fungus called Phytophthora, which causes leaf disease in rubber plants.
If the supply of natural rubber continues to diminish, expect the prices of truck tires to increase in 2022. In February of 2021, the rubber prices hit a four-year high. China is the largest consumer of natural rubber globally and has the highest demand. They were able to stockpile but were penalized because of overstocking issues. Another reason for the low rubber supply is the lack of shipping containers.
Some local tire shops and online stores provide tire mounting services for free if you need new tires for your truck. Tire buyers will expect a price increase because of the soaring labor cost, raw materials, labor, and distribution.
Weather is unpredictable. Yet, some states in the United States did not expect extreme weather to cause trouble. The automakers in Detroit were affected, such as Ford, Toyota, and Nissan. They had to slow down production in some factories, or worse — shut down their plants due to the winter blitz.
The freeze overwhelmed the power grid in Texas. The supplies of natural gas from Texas to Mexico were interrupted as well. It left millions of households and industrial plants without power.
The shutdowns affected vehicle production across North America. The assembly plants in Michigan were also affected by the extreme weather.
High demand in pickup trucks
Despite the dwindling economy, many consumers are still interested in buying new vehicles. Many people are choosing trucks for business purposes and even for personal use.
In the United States alone, pickup trucks outsold the sales record of passenger cars. Since April 2020, truck makers have sold over 17,000 units. Now, it is considered the best-selling vehicle in the country.
Texas and California have the most extensive inclination for pickup trucks. Over 4 million trucks are in the Lone Star State, and about half a million in the Golden State. Texas is big on farming. People use their pickups for agribusiness, so most truck buyers in the area use them as workhorse rigs. In California, most truck owners use their vehicles for daily driving.
In 2021, many people were interested in buying a new pickup truck. Despite the strict lockdowns, the sales increased to 40 percent for GM, Ford, and FCA. However, the limited stock made it difficult to acquire nowadays.
If you waited the previous year for car and truck prices to fall before purchasing, you would have to wait a little longer.
The auto industry is currently experiencing car inflation. Over the last 12 months, it has lifted the prices across the board, including the car market. According to Goldman Sachs, the costs of used and brand-new vehicles will increase in 2022.
In 2021, used cars and pickup trucks will be among the biggest drivers of inflation. Brand-new vehicles have seen some gain, but only a measly 11 percent. Dealers of brand-new cars experienced revenue loss as the global chip shortage left them struggling with low to zero supply. The prices of secondhand vehicles soared to more than 30 percent. Buyers couldn’t buy new cars, so the used market flourished.
Increasing fuel prices
Americans are sensitive to fuel costs, significantly when the prices are rising. The U.S. is one country that purchases and consumes large amounts of fuel. According to research, the average driver can consume 570 gallons. According to the federal Energy Information Administration (EIA), the average cost of gas is 58.7 percent more than it did in 2020.
Since people usually buy gas on their own, the price changes are more noticeable. Just like the weather, fuel prices are unpredictable. It can instantly swing high, but the price rollback may be slow.
Learning from the challenges
In conclusion, the automakers and consumers must be ready for another wave of disruptions. They must also learn from the troubles that happened in 2021. They will help surpass the challenges that may be encountered in 2022.