Automotive factories throughout the United States and around the world are facing a critical moment in their history. Production levels have not snapped back to pre-pandemic levels, and the consequences are dire. Two main factors are contributing to this slump in productivity, and understanding these issues is crucial in grasping the complexity of the situation.
First and foremost, the demand for new cars simply hasn't bounced back to pre-pandemic levels. In 2016, the US witnessed a record 17.5 million car sales, according to data from the forecasting firm GlobalData. However, this number gradually decreased to 17 million by 2019. The pandemic had a devastating impact on the automotive industry, resulting in a significant decline to 13.8 million units sold in 2022. While sales have partially recovered, they are expected to fall short of 16 million units in 2024.
High prices have become a significant deterrent for potential buyers, driving them away or forcing them to consider used car markets. This phenomenon is largely attributed to rising costs and increased competition in the market. According to Jeff Schuster, Global Vice President of Automotive Research at GlobalData, "That cost pressure isn't necessarily going to fully go away, which is why we don't believe demand is going to get back to where it was."
The second critical factor contributing to the decline in productivity is the ongoing transition to electric vehicles. Although the 2020s were expected to mark the dawn of the electric vehicle era, this hasn't materialized as predicted. "The market of electric vehicles was supposed to bloom in the 2020s, and it just hasn't occurred to that level yet," noted Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. Automakers are facing an unprecedented puzzle, struggling to design vehicles, supply chains, and factories that can accommodate multiple powertrains.
For more than a century, the automotive industry has relied almost exclusively on gasoline-powered cars. The transition to electrification was initially expected to be a smooth and seamless process, with automakers hoping for a clean jump to a world dominated by battery-powered vehicles. However, the reality has been far more complex and unpredictable. As Michael Robinet, executive director, automotive consulting, at S&P Global Mobility, aptly pointed out, "I've been at this for over 35 years. I can never remember a period like this — with so many possibilities up in the air that could really change the trajectory of the industry."