The global automotive industry is on its way to recovering from the pandemic, but several challenges remain going into 2023. The main pain points in the industry next year are expected to be:
Table of Contents
Component shortages constrain car production
Slow improvement in semiconductor shortage
Difficult investment decisions regarding EVs
Continued consolidation of the dealer sector
Focus on customer satisfaction and profitability
Component shortages constrain car production
The global shortage of semiconductors and other automotive components has led to low inventory levels at car dealers. This in turn has meant that customers have had to wait a long time for new cars.
The supply of microchips has been a bottleneck for car production since the pandemic. The factories have not been able to meet the high demand as car sales rebounded in 2021. This created major delivery problems for automakers who were forced to cut back on production.
Although the chip shortage has begun to ease somewhat during 2022, there is still an acute shortage of certain components. This means that production limitations are likely to persist during 2023.
Slow improvement in semiconductor shortage
Despite some progress, the semiconductor shortage is not expected to be fully resolved until 2024. The auto industry will therefore have to manage continued disruptions and production losses during 2023.
Several factors contribute to the slow recovery:
- It takes time to build new semiconductor factories to increase production capacity.
- Demand for chips is expected to increase further in the coming years, not least from the growing EV market.
- Geopolitical tensions can affect deliveries and prices of raw materials.
Automotive companies therefore need to plan for the chip shortage to be a fact of life even next year. Long-term planning and close collaboration with suppliers will be critical.
Difficult investment decisions regarding EVs
EV sales have really picked up steam, but uncertainty remains about the pace of further development. This makes it difficult for automakers and dealers to determine how much and how quickly they should invest in EVs.
Some influencing factors are:
- The availability of charging infrastructure varies greatly between different geographical markets.
- EVs' high prices mean they are still unaffordable for many buyers.
- Subsidies and policy incentives vary by country, impacting demand.
Wrong investments can become costly. At the same time, adapting too slowly poses the risk of losing market shares. Companies need to carefully analyze trends and forecasts to make well-balanced decisions about investments in EVs versus traditional vehicles.
Reduced service needs for EVs
For auto repair shops and dealers who rely on service revenue, the advent of EVs represents a major shift. EVs have fewer moving parts and therefore require less - and different - service than gasoline and diesel vehicles.
This can lead to reduced revenue from workshop operations and parts sales. Dealers need to find new sources of income and business models to offset the shortfall.
Possible ways forward include:
- Focus on service and maintenance of EV batteries.
- Offer charging services and home charging solutions.
- Broader offerings of accessories like tires, rims, audio systems, etc.
- Focus on customer satisfaction and upselling other services to EV owners.
Continued consolidation of the dealer sector
The trend of mergers and acquisitions in the dealer sector into larger chains appears set to continue. During 2022, the Swedish auto giants Bilia and Bröderna Olsson acquired several smaller competitors and expanded aggressively.
Advantages for the large players are increased purchasing power with automakers and economies of scale in procurement, IT systems, marketing, and more. Smaller independent dealers may find it harder to compete.
At the same time, opportunities exist for independent dealers to find niches and offer something unique that the big chains lack. Personal service and customer proximity can be success factors.
Focus on customer satisfaction and profitability
Whether a dealer chooses to join a larger corporation or remain independent, the recipe for success is fundamentally the same: Have satisfied customers and run a profitable business.
By delivering good customer experiences and service, relationships can be strengthened and repurchase intent increased. Profitability is achieved in part through efficiency, good staff, and oversight of costs and revenue streams.
A well-run business is poised to survive and thrive, regardless of industry trends and external circumstances.
Summary
2023 is expected to be another tumultuous year for the auto industry. Continued supply chain disruptions, uncertainty surrounding EV investments, and intensifying competition will require adaptability and strategic thinking.
By preparing for trends like reduced EV service needs and increased consolidation, dealers can secure their future. The key is to always keep customers' needs in focus and operate profitably.
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