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Ag Metal Miner

Ag Metal Miner

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Chip Shortages And Inflation Are Plaguing The Auto Industry

  • The ongoing microchip shortage is taking a toll on the automotive market.
  • Automakers are also facing declining demand due to surging inflation. 
  • In addition to supply and demand concerns, “premium” car companies are facing increasing scrutiny over quality issues.

The Automotive MMI (Monthly Metals Index) dropped by 6.32% this past month, a downward trend it has been maintaining since May. The drop comes despite valiant efforts to put out some of the fires plaguing the car manufacturing industry. But with the microchip shortage, surging inflation, and issues with both supply and demand, the automotive market can’t seem to catch a break.

J.D. Power Quality Study Puts “Premium Vehicles” on Blast

In an automotive market this tight, the industry does not need bad press. Unfortunately, that’s exactly what happened when leading market research firm J.D. Power published its latest report this past weekend. The 2022 U.S. Initial Quality Study (IQS) took the time to highlight the issues currently afflicting the industry. However, they also called out “premium” car companies for their extensive quality issues.

How bad? Apparently, this proved the highest number of vehicle problems reported in the 36-year history of the study. In fact, J.D. Power charted an 11% increase in “problems per 100 vehicles” compared with 2021. The report also stated that vehicle quality has declined across the board since the pandemic,  pricier models had more quality issues than more affordable cars.

This largely has to do with cars having so many more “bells and whistles.” After all, many of these high-end features require increasingly rare components. You might remember hearing how BMW now offers its heated seat function on a subscription basis. While this may not become the norm, it shows a symptom of a very large problem.

According to J.D. Power’s Director of Global Automotive, David Amodeo, “automakers continue to launch vehicles that are more and more technologically complex in an era in which there have been many shortages of critical components to support them.” He also added that “given the challenges automakers and their dealers had to face in the past year, it’s somewhat surprising that initial quality didn’t fall even more dramatically.”

Car Manufacturing Experts are at a Loss

This weekend, Automotive News published an article detailing the difficulty of forecasting the car manufacturing industry. The crux of the argument being that there are so many problems at work that analysts can’t account for all the different variables.

It’s rare for analysts to throw up their hands and say, “we simply don’t know,” but not completely unheard of. That said, this doesn’t necessarily mean we can stop listening to experts. In fact, it might be smart to think of this as a “call to attention.” That is, those investors who previously followed just one or two forecasting sites would do well to get a second, third, and fourth opinion.

Related: China And Saudi Arabia Intensify Energy Cooperation With Critical Deal

Fortunately, numbers are still numbers. For instance, LMC Automotive found that U.S. new light vehicles (NLV) sales were just 6.78 million from January to June. However, the National Auto Dealers Association found that NLV sales for July had actually gone up by 2.5%. It’s good news, sure. However, it’s important to remember that those figures are still down 8.9% from 2021.

And while those numbers are all factual, they don’t paint as clear a picture as they would in a normal market. Until some of these extenuating factors are mitigated, it will be hard for investors and buyers to find solid footing in the car manufacturing industry.

UK Experts Feel They’re Falling Behind the EV Car Manufacturing Curve

A recent editorial in The Guardian gave voice to many UK residents who feel their government isn’t taking steps to meet electric vehicle demand. It’s true that the country is dealing with a lot. Their Prime Minister, Boris Johnson, recently resigned, inflation recently clocked in at 9.4%, and the cost of living soared.

But there are also other concerns. For instance, the UK produces a wide range of automobiles, including Jaguars, Minis, and Land Rovers. The UK also saw a huge rise in the demand for electric vehicles. However, many feel that the UK fell behind other European nations. This isn’t just in terms of EV production but in terms of component production as well.

EV batteries contain lithium, cobalt, and nickel, supplies which are hard to shore up – especially now. And while the rest of Europe is building some 35 batter Gigafactories at the moment, the UK so far has one. To make matters worse, little action was taken on behalf of manufacturers to get the ball rolling on more.

Jaguar / Land Rover, for instance, has expressed interest in moving its EV production to Slovakia. Meanwhile, a proposed gigafactory in Coventry has been tied up in debate for months. And while the current Sunderland factory may expand in the future, experts estimate the country will need at least six more factories to meet future demand.

In short: the country isn’t where it needs to be, and there’s no plan in place to get it there. Though they certainly have “bigger fish to fry” at the moment. The UK cannot ignore its automotive market.

By AG Metal Miner

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  • DoRight Deikins on August 10 2022 said:
    Think there are problems now? Wait until the next PRC sanctions on the US and they create an effectual blockade of Taiwan. Of course, those sanctioned chips could go to the UK and the EU if they started playing nicely with the Bear and kowtowing to the Middle Kingdom.

    Or have they learned that sanctions just hurt the one who makes the sanctions. Easier to send lower quality chips. When supplies are constrained, you have to take what you can get.

    The play list can be found in 1984. Just follow along. Or one could follow the guidance in the old book, but no one reads that anymore. Do they?

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