Sean-Bingham

“Automotive Armageddon”

Today I bring you a brief inside look into the crisis that’s been causing serious disruptive tremors in the automotive sector: the volatile mixture of lack of supply, inflation and interest rates increases.

In my years within the industry, I’ve witnessed various challenges, but the current landscape has earned a moniker that speaks volumes: “Automotive Armageddon.” It’s a situation that defies the norm, creating an environment that can only be described as a true ordeal. As prices surge due to the pressures of inflation and the bite of interest rate hikes, another dimension of this crisis comes into play – a severe lack of suppliers. The result? An industry marred by chaos, reminiscent of the tumultuous financial crash of 2008-2009.

Interestingly, though, today’s situation takes a different approach. Unlike the past recession where plummeting demand was the protagonist, our post-COVID landscape paints a contrasting picture. This time, supply has evaporated, leaving demand unfulfilled. This topsy-turvy scenario has inflicted more havoc than the economic turmoil of a decade ago. What sets this apart is the unique role supply has played, particularly in industries such as the automotive sector.

Supply chain shortages have induced an ongoing price surge in basic manufacturers prices with discount structures being severely curtailed. However, this isn’t limited to vehicle prices. Even the leasing landscape, with approximately 80% of UK fleets opting to lease their fleets, has been thrown into disarray. The domino effect is palpable – rising interest rates have dealt a significant blow to leasing costs, with every 1% increase translating up to £20 monthly addition to finance expenses.

The scenario is exacerbated by an unprecedented increase in swap rates – interest charges on asset purchases. These rates have ballooned from 0.45% in February 2022 to a staggering 5.19% as of now. The numbers don’t lie – this increase is more than a tenfold surge, spelling out considerable financial challenges for businesses.

Add in the further complexity of fleets starting to adopt fully electric vehicles, which by their nature are at a significantly higher capital cost (higher basic prices and even lower discounts), all the above have contributed to the perfect storm for fleets. We are living through the fastest pace of change and technological adjustment in the auto industry since it began, at the same time, global economic uncertainty caused by an unusual combination of pandemic and rising tensions around the world, especially in Europe, have amplified the situation.

This is a prime opportunity to capture the ever-evolving dynamics of an industry in flux. Timing will be critical – my future contributions to Market Intelligence will allow us to observe the market’s shifting trajectory and glean insights into its future course.

In conclusion, as the storm of inflation and interest rates continues to disrupt the automotive industry, there’s only one certainty: uncertainty. The landscape is transforming, and it’s our duty to stay abreast of these changes. With Q4 on the horizon, I’m eagerly anticipating how this situation evolves, and I’m committed to sharing the most insightful updates with you.

Sean Bingham

Sean Bingham

Email: sbingham@expensereduction.com
Phone: 01895 832864