European Car Sales Hit Lowest Point Since 1996

Let’s be honest: It has not been an easy recovery from the covid pandemic. Consumers are reluctant to go through with large transactions like buying a car. Meanwhile, global supply chain issues make finding new vehicles at dealerships challenging.

Decline in Europe

The result: car sales are continuously dipping. In Europe, new car sales have plummeted to the lowest rate in over two decades.

European Automobile Manufacturers’ Association (ACEA) reported that passenger car sales in the European Union were down 15.4% from last year. All four of Europe’s leading car markets—Germany, Italy, France, and Spain—saw sales decline by 18% from a year ago.

The decline in sales follows Europe’s trend in the first half of 2022. According to ACEA, new car registrations have decreased by almost 14% compared to last year. The United States has also seen a similar slide at around 16%.

Supply

In a statement Friday, the ACEA said the supply chain crisis is the main culprit for sales decrease.

The global chip shortage has also damaged the automotive industry. East Asian suppliers, which supply about 3/4 of the worldwide computer chip production, have been slowed down by pandemic-related lockdowns and labor shortages. European manufacturers have not been able to keep up with demand. ACEA director general Eric-Mark Huitema told EU officials last year to increase domestic chip production to lower Europe’s dependency on foreign suppliers.

“We see a structural undersupply in 2022, which is only likely to ease somewhat in the third or fourth quarter. The situation should improve in 2023, but the structural problem will not yet have been fully resolved,” said Arno Antlitz, chief financial officer at Volkswagen, back in April. Volkswagen’s sales fell by more than any other European carmaker last month, according to the ACEA.

The chip shortage is not the only factor causing declines. The Ukraine war has also cut off the supply of one essential vehicle production part: wire harnesses. Wire harnesses are the electrical components that run through vehicles and relay information and power. 7% of all wire harness exports to the EU are from Ukraine. The shortage has led some European automakers to produce harnesses in-house.

Although all these factors have led to decreasing auto sales, shortages of semiconductors -or microchips- have seen slight ease in June. European carmakers like Mercedes and BMW have seen supply and production normalize. Volkswagen has also shown optimism for the rest of the year.

Demand

Even with supply chain issues clearing up, automakers have been dealing with falling demand. Rising inflation rates in the U.S and Europe have consumers holding on extra tight to their wallets.

In their latest forecast, LMC Automotive wrote about the “underlying demand that has weakened in recent months—a result of a worsening economic outlook.”

High gas prices have made driving unattractive for future car-buyers. In a recent survey, Quicken loan provider found that Americans are cutting back on driving because of inflation: 66% of respondents said they had reduced their time behind the wheel.

Volkswagen CEO Herbert Diess told Bloomberg last week, “We are a little bit cautious about the outlook next year. We can significantly reduce the waiting times, but we are also not really doubling up capacities because the world will remain unstable. That’s our assumption, so we have to be a bit cautious.”