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Demand for used cars likely to linger after worst year for UK car production since 1950s

Vehicle production was 34% below pre-pandemic 2019 and a number of carmakers have said this week that supply chain issues are persisting

UK motor manufacturers turned out the lowest number of cars last year since 1956, new data showed today, mainly due to a computer chip shortage and other effects of the pandemic.

This comes after car manufacturers including Tesla and Hyundai yesterday suggested superconductor and other supply chain issues are persisting in 2022, with a US Department of Commerce report this week also predicting the shortage of chips will persist until the second half of the year.

Last year the shortage of chips and hence new cars led to a surge in demand of used vehicles, leaind to a boom in the prices of used cars, giving an unprecedented boost to car dealers of the old school (Caffyns, LookersMarshall Motor Holdings, Pendragon Group and Vertu Motors) and newcomers like Cazoo Group, Cinch and Motorway.com.

According to the Society of Motor Manufacturers and Traders (SMMT), UK car production in 2021 fell 6.7% to 859,575 vehicles. 

Output was 61,353 less than 2020, which itself was badly affected by coronavirus lockdowns, and 34.0% below pre-pandemic 2019.

On the bright side, British car factories produced a record number of electrified vehicles, up 29.6% to more than a quarter of the total output.

The overall poor performance can be attributed to several factors, most of them direct consequences of the pandemic, said the SMMT.

The shortage of semiconductors, a critical component in modern car manufacturing, was the principal cause of the decline, with factories having to reduce or even pause production while awaiting parts whose supply has been heavily constrained by the global pandemic.

Grounds for auto optimism

But the SMMT said there were grounds for optimism in 2022 with a potential £4.9bn of investment announced and an expected recovery in production.

The latest independent production outlook for 2022 forecasts UK car production to increase to more than 1mln units, representing a 19.7% uplift on the 2021 total, despite the loss of production in Swindon.

Analyst Susannah Streeter at Hargreaves Lansdown said: “It’s another example showing how the ongoing supply chain crisis is holding back manufacturing growth, and although new chip manufacturing plants are being built around the world, there is no easy fix to the problem, as many will take years to become fully operational.

“The industry is also at a crossroads, with the end of the road in sight for new diesel and petrol models but many customers are hesitant about joining the electric vehicle revolution due to a severe case of range anxiety.”

With EV charging networks patchy in many parts of the UK, Streeter said it was unlikely there will be an immediate rush of new converts, especially given the cost of living squeeze and most EV models coming in at a higher initial price point.

“With car manufacturers across the board investing billions in EV production, it’s clear mass adoption will come, once the infrastructure is in place and if the chip shortage can also be overcome,” she said.

“For now consumers are keeping mechanics busy to ensure their older motors stay on the road, and opting for second hand models instead with the value of used cars at record levels.”

She noted that repairing cars and other motor vehicles was the second largest driver to monthly GDP recovery above pre-coronavirus levels last November, “demonstrating the extent to which car repair garages have been in demand”.

Read More: Demand for used cars likely to linger after worst year for UK car production since 1950s

2022-01-27 05:34:00

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