The car industry is reporting the lowest car sales for June since 1996. The figures are quite startling to be honest. Year on year car sales were down 24% when compared to June 2021. For the first half of the year car sales are down 12% compared to the same period in 2021. Electric car sales continue to climb (within a depressed market) whilst diesel cars are increasingly unpopular with the public for a number of reasons, with sales down over 50% over where they were before Covid.

What are the issues behind the supply chain problems?

There are multiple issues behind the challenges that the car industry are struggling with. Some of it is, of course,  to do with people drawing in their purse strings given the pressures being faced from the cost of living crisis but beyond that we see global economics at play. There is a widely reported shortage of silicon chips at the present time. This is affecting all sorts of electrical goods sectors but in particular there is a huge impact on the motor industry. Delivery times on new electric vehicles are currently running from between 40 weeks to a year. As you can imagine, the secondhand market for electric (and petrol powered) cars is extremely buoyant!

Supply restrictions and lessons being learnt

China, the source of many components for cars globally, is still struggling with Covid issues and various ports are closed and container traffic is down 30% on where it was before Covid. There is increased competition for those components that are around and that adds on to the price being paid by the consumer, if they can actually buy the car they want in the first place. In response to the squeeze on chips and components, car manufacturers are reducing the range of cars available. That, again, adds on to the demand for the models that are being manufactured.

There are lessons being learnt by the car industry in response to the problems being encountered. Supply chains are being re-examined, options for manufacturing components closer to where the cars are being built are being taken forward and the whole way the industry interfaces with the public, in terms of physical showrooms, is now under threat. Costs have to come down somehow and the effect of that may be less choice and higher prices.

What are the wider implications for business?

What are the implication of this for businesses overall? Generally as a business, you should always be aware of any vulnerabilities in your supply chains. You can’t always change risks and impacts from global situations but you can think about what you would and could do if a supplier went out of business. What parts of your processes are vital to the business overall? There may be opportunities to mitigate risk by building up relationships with other businesses in the same sector. That may give you options for bridging short term supply issues.  You should also check your written agreements and see whether they are fit for purpose in the current “interesting” times we live in.

rhw commercial solicitors, Guildford, Surrey. Contact rhw’s Company/Commercial Team for advice on how rhw can help your business become more robust.

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