The current woes affecting the automotive supply chain have made it hard for dealerships to keep cars in the lot. The good news is that many of these woes seem to be improving, so you need to be able to adjust and meet changes in supply and demand.
Here’s what you need to know to prepare for these changes:
What Is the Automotive Supply Chain?
The automotive supply chain is one of the most complex yet vital supply chains in the world. The automotive supply chain consists of many different layers and components from manufacturers to retailers and everything in between.
And since this supply chain is so complex, an issue in one area can easily affect other components of the chain.
What Are the Components of the Automotive Supply Chain?
There are three key components of the automotive supply chain: Dealerships, manufacturers, and suppliers. Let’s explore each of these components in greater detail so that you can better understand the entire automotive supply chain:
- Suppliers: Suppliers are the basis of the automotive supply chain. They provide manufacturers with the materials they need to produce vehicles. There are three different types of supplier tiers. Tier 1 suppliers provide automotive-grade parts or systems directly to manufacturers. Tier 2 suppliers provide parts that end up in cars but usually don’t work directly with manufacturers. Finally, Tier 3 suppliers provide raw or close-to-raw materials like metal or plastic.
- Manufacturers: The parts and materials from suppliers then move on to manufacturers who deal with the design, marketing, and assembling of automobiles. Manufacturers are often referred to as “original equipment manufacturers” or OEMs and include popular automobile brands like Toyota, Honda, Ford, Chrysler, Fiat, etc.
- Dealerships: Dealerships order automobiles from manufacturers, transport them to their lots, and sell them to consumers. Dealerships are retail locations that are actually independent of the manufacturers themselves — although they usually incorporate the brands they sell into their name and marketing material in some way or another.
6 Indicators That Point Towards an Industry Slowdown
The automotive industry is facing a lot of challenges that could be contributing to a slowdown. Here’s what you need to know:
1. Truck Driver Shortage
Truck drivers are essential components of the automotive supply chain since they transport both parts and completed vehicles from manufacturers to dealers so that they can then be sold to consumers. However, it’s increasingly difficult to transport parts and vehicles because there aren't enough drivers on the road.
Even before the pandemic in 2019, the American Trucking Association noted it was going to be short at least one million drivers in the coming years. This shortage was exacerbated by COVID-19 issues that caused drivers to retire earlier or leave the industry entirely for a safer career choice. Despite recruitment efforts, there doesn’t seem to be a quick or easy solution to this shortage.
2. Rising Gasoline Prices
Rising gasoline prices are also problematic for the supply chain since higher gas prices automatically translate into higher transportation costs. Right now, the national average price for a gallon of diesel fuel is $3.51. One month ago, the national average was $3.30, and one year ago it was $2.38.
Companies that are still struggling economically due to the long-term economic effects of COVID but are trying to recover may find it difficult to earn a profit on their products. Rising gas prices and rising truck driver costs can quickly drive up transportation costs, cut into earnings, and affect the supply chain.
3. High Turnover Rate For Drivers
The existing truck driver shortage is further exacerbated by high driver turnover rates. Drivers are leaving the industry in droves due to difficult working conditions and comparatively low salaries. It’s no secret that being a truck driver is a tough job that can be mentally and physically draining. Spending hours on the road away from home definitely isn’t easy.
Many drivers decide that they can live a better lifestyle with a different career while still earning the same amount of money — potentially more. And even though drivers are being offered incentives to stay on including raises and more breaks, this is a deep-rooted issue that cannot be solved by ineffective band-aids.
4. Longer Commutes
Since there are fewer drivers on the road, existing drivers are having to make longer commutes to transport vehicles and other products. Unfortunately, this unintended result can easily exacerbate the original issue — truck drivers leaving the industry either for early retirement or other career paths.
The truck drivers that are left are forced to pick up the slack and work in even tougher conditions that may cause them to choose to leave the industry as well. Essentially, we are caught in a vicious cycle when it comes to truck drivers and the supply chain.
5. Decreasing Consumer Demand
Another potential issue with the automotive supply chain isn’t directly related to transportation. Instead, it’s related to demand. Consumer prices for automobiles have skyrocketed in the last year and a half. In May of 2021, the average price for a new car was $38,255 — a record high. This price was 12% higher than it was just a year prior. Most years, price increases are in the low single-digits, so to see a double-digit increase was certainly a shock to consumers.
Combine these higher prices with household economic struggles brought on by the pandemic, and it should come as no surprise that people aren’t looking to buy cars right now — they simply cannot afford them.
6. The Chip Shortage
In order to understand lower consumer demand caused by higher prices, it’s important to first understand what brought us to this point. Unsurprisingly, it’s also related to the COVID-19 pandemic. A shortage of computer chips that are used in cars has led to a major kink in the supply chain.
This shortage in computer chips came as factories had to shut down operations in the early stages of the pandemic. From there, this shortage led to a lack of vehicles available for sale — which drove prices up since more consumers were then competing for fewer vehicles. All of these issues are connected, which means that, unfortunately, there’s really no quick or easy solution.
What Can Car Haulers and Brokers Do?
While car haulers and brokers make up a small part of the supply chain, they still have an important role to play when it comes to addressing and overcoming these challenges. The goal of logistics providers should be to alleviate supply chain pressures for suppliers, OEMs, dealers, retailers, and auctions. But how can they make this happen in such a challenging environment?
Logistics providers like RPM are committed to providing the capacity for our customers’ transportation needs. We can help you overcome supply chain issues by offering five-to-seven-day transport windows, same-day shipping, touchless pickups, and white-glove concierge service. We are ready to meet the challenge of increased demand as the chip shortage and pandemics begin to subside so that you can quickly move the units you need to satisfy consumer demands and meet company sales goals.
RPM offers a whole host of vehicle transportation services — working within OEM, retail, fleet management, rentals, remarketing, auctions, and POV to provide full truckloads, singles, and specialized hauls.
Conclusion
As the automotive supply chain begins to recover and rebound from COVID-related restrictions and issues, you need to be prepared to adjust to new trends and demands from consumers and manufacturers.
Partnering with an experienced and dependable logistics provider like RPM can help you prepare and rise to the occasion.
Sources: The Automotive Supply Chain, Explained | Medium President of Truck Driving School Says Driver Shortage Is Causing Supply Chain Issues | NPR Global Chip Shortage Makes It Tough to Buy Certain Cars | Consumer Reports