As we approach the end of 2021, the impact of the semiconductor shortage on the auto industry has yet to peak, contrary to initial expectations of this happening by the end of the second quarter. Not only has the impact intensified in the last two months, but the hope of a return to pre-pandemic conditions and a full recovery in early 2022 has all but evaporated.
Just three months ago, consumer demand had been strong across most markets globally and Light Vehicle sales were expected to increase by more than 10 million units to 87.5 million. A global GDP growth forecast of 6.3%, supported by financial stimulus and the reopening of economies, was behind the projected volume increase. But as the Delta variant surged and the chip shortage persisted, the wind was taken out of the recovery sails. While we do still expect growth in 2021, the demand outlook has been cut by more than 6 million units, to 81 million, which represent just 50% of the growth back in June.
Given the extreme volatility of the situation, global Light Vehicle production this year is predicted to be only marginally better than last year. The inability, thus far, to rebuild inventory and the likelihood of additional downtime in the final quarter create further downward risks to the trajectory of the demand recovery over the next 18 months. Disruptions and plant closures from the shortage of chips and other parts (including brake components, wire harnesses and connectors) are now expected to hamper both production and demand well into the second half of 2022 and possibly into early 2023. The industry is also having to grapple with logistics issues and delays at ports around the world, not to mention a shortage of drivers and other transport problems.
Demand expectations have also been cut beyond 2021, given the much longer recovery path for global vehicle production. We now expect global Light Vehicle sales of 85 million units in 2022, a drop of 8% from our Q2 forecast. For 2023, we now forecast 94 million units, representing a decline of 3%.
As we analyse the new recovery pattern and factor in the magnitude of the supply-side issues – and the additional risks they pose to the medium-term forecast – a theory is emerging that an element of the demand recovery may be lost, at least for the next two to three years. The lack of vehicle availability and the increase in pricing may have pushed a number of consumers in many countries out of the new vehicle market, causing them to either hold on to an existing vehicle for longer, purchase a used vehicle, or buy out a lease, instead of purchasing/leasing a new vehicle. These factors exert yet more pressure on an already challenging recovery and create a dynamic environment that requires constant monitoring.