“It’s the perfect storm.” Same expression, different places and characters. Two big bosses of the Italian automotive sector thus describe the extremely difficult, almost dramatic situation that the sector is going through.
The long wave of the chip crisis and the pandemic in the countries that produce them, even if widely announced, is hitting the industry and distribution in these hours with the violence of a tsunami, just to remain in the meteorological similarity.
Result? Cars that cannot be found or delivered with a dropper, impotent dealers squeezed between the blackout houses and customers who are guaranteed deliveries in 8-9 months and, often, even beyond the year, used “fresh” reduced to practically zero, prices components on the rise, the September market predictably swooping and somewhat conflicting forecasts on the end of the semiconductor emergency.
The Motor1.com investigation
Motor1.com has heard the presidents and CEOs of almost all the car manufacturers present in Italy and the managers of the main dealerships. Many of the statements, all released off-the-record, i.e. without quotation, as well as being lucidly descriptive, seemed a sort of outlet for a truly worrying situation.
There are those who speak of a “disastrous crisis” and a “tragic” moment, others, perhaps because the parent company is geographically closer to the chip production areas, use less apocalyptic tones, but do not hide problems and unknowns. “There are so many trees that you can’t see the forest” is the metaphor that a dealer uses to summarize the climate of total uncertainty.
However, unnecessary alarmism must be avoided: everyone is trying to do everything possible, it is pointed out, to try to reduce the inconvenience for the final customers to the minimum possible.
But how did it get to this point? And what are the causes? Let’s go in order.
The chip and logistics crisis
The chip crisis comes from afar. As from far away, requests from car manufacturers come to large groups that produce semiconductors. The process of engineering and assembling a car in fact requires biblical times compared to the technological evolution of silicon devices.
Moral: the chips used by the automotive industry are the cheapest and those who build them prefer to concentrate production on the most innovative and advanced ones, generally intended for consumer electronics (Apple, Xiaomi etc.) and for which the margins of profit are much higher.
An iPhone used as a key
A production plant
This vicious circle started with the pandemic, which, together with occasional episodes (the fire of the Japanese factory Renesas Electronics in March or, more recently, the balloon that caused a blackout in Dresden by stopping the Infineon and Robert Bosch plants) has martyred production. An example? The lockdown of Malaysia, where 13% of the global chip supply comes from, a country where only 1% of the population is vaccinated
As if that were not enough, the shortage of raw materials and the fluctuating trend of the supply chain, which has not yet completely realigned after the blockade of the Suez Canal, further aggravate the landscape, stimulating the most elementary of the laws of the economy. : that of supply and demand.
Prices go up and will continue to rise. “significantly,” as Reinhard Ploss, CEO of Infineon Technologies said just a few hours ago. And in China, the authorities had to intervene to calm the race to rise. The fear is that all this series of contributing causes may eventually be discharged on the final customer.
The automobile as a “contingent” asset
The cahiers de doléances of top managers in this case convey a feeling of helplessness. Given the repeated stops in production caused by the “shortage” of semiconductors, the cars arrive in Italy with the dropper and as they are. “Of the sunroof on some models not even talking about it,” says the CEO of a company disconsolately.
And even in the supply, the bottlenecks are evident: “a small component for the LPG system used to cost two euros, now it costs 30”, says another managing director.
There are those who do not give peace about the progress of the contracts. “In mid-September we sold a quarter of the volume that we usually did in the same period of previous years,” reveals the top executive of a company. Which, compared to the market, suggests a heavy debacle for registrations this month.
There is no agreement on the end of the “nightmare”. The most optimistic speaks of “end of the year”, most of them are in line with the first half of 2022. But there is also the most pessimistic interpretation: “next year we will stop”.
IHS Markit has recently estimated a drop in world production of 5 million units, to less than 76 million cars. For 2022, the estimate is 82.6 million vehicles, but with a decrease of more than 9% on previous forecasts.
The insurmountable difficulties of the dealers
Put yourself in the shoes of the dealers, who are then private entrepreneurs in all respects. First the pandemic and the lockdown with closed dealerships, then the transition to electricity to be organized and digested by customers.
More: the time horizon traced by the EU for the end of the commercialization of endothermic engines, with all the annexes and connected, plus the heated debate still underway on the transformation from concession to agency of the contract that binds them to the manufacturers.
The production of a microchip
Now the chip crisis is breaking. There is enough to not be able to stay on the market anymore: in a few years for over 2,000 they have been reduced to less than a thousand, with increasingly narrow margins and aggregation processes that, at least, tend to strengthen their equity profile. “We don’t know how to do it anymore, we have to beg for cars”, complains a big dealer. “I see great uncertainties in the future and this is the worst of all for those who do business”, comments another concessionaire owner resigned.
That the distribution sector is the one with the most direct contact with the customer and “is willing to explain that it is not our fault, that we are the innocent terminals of an unsustainable situation”.
One might say: if new cars are unavailable as a fugitive, at least there are used ones. But no. The second-hand Euro 6 cars seem to have disappeared. Those who needed a “prompt delivery” vehicle, perhaps for work needs, were promptly grabbed, while the rental market lung stopped shortly.
The companies have in fact asked the manufacturers to extend their contracts, given the almost impossibility of guaranteeing replacement with the new one. A circumstance that determines a double problem: second-hand vehicles lack oxygen and the manufacturers, which have the cars in their financial statements at a certain carrying value, will also have to bear a loss in the income statement because when the cars return they will have a lower residual value.
At the end of the value chain there is the customer, an astonished, often unaware, spectator of this “perfect storm”. Those who go to buy a car see delivery times that were once inconceivable: 8-9 months are the norm, but it arrives well beyond 365 days. Obviously these are generic estimates, which depend on the model and set-up chosen.
“We happen to carry out a sale without problems until the moment of signing. But when the customer realizes that he will have the car available in several months, he gets up and goes away with pen in hand”, he observes not without some exaggeration. an important dealer.
The fact remains that buying a car today (always with the due exceptions, of course) seems like the Klondike gold rush. The manufacturers deliver the models they can and the dealers in continuous pressing on the counterparties try, with a push and pull induced by their commercial strength, to obtain as many “plates” as possible.
In short, right now that with the loosening of the restrictions due to the pandemic, the Italians would like to go back to buying / renting a car, it is precisely the product that is missing or has become rarefied. The demand is there, the offer is not (or almost).
Nobody knows exactly how it will end. It is not even the first time that, for marketing or other reasons, an asset is difficult to find. There are those who will make a virtue of necessity, those who may postpone the purchase in better times, those who will be really in difficulty.
The important thing, for once, is that there is not an exasperated ping-pong of blame. There will certainly have been serious and less serious inefficiencies, but the imponderable drama of Covid-19 unfortunately affects everyone in the same way. Also because if this is really the bottom, it will only be possible to go up.