North American Auto Manufacturing Recovery Delayed

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Even as the effects of the pandemic winded down thanks to successful vaccination campaigns, this year came with its own set of challenges for the sector. Namely, the worldwide shortage of microchips, the transition to USMCA from the decade-old NAFTA and an increased focus on sustainability through environmentally-friendly means of production and electric vehicles. Recovery from the pandemic now seems like it will take longer than previously expected, according to the Global Vehicle Sales Overview of November 2021 by IHS Markit.

After an 8.51 percent decrease in its economic growth rate in 2020, followed by a 6.1 increase during 2021, expectations for Mexico point to a 2.4 percent increase during 2022 boosted by fiscal stimuli. “We are living through quite a robust process of economic growth, practically in the entire global atmosphere,” said Guido Vildozo, Senior Manager, Americas Light Vehicles Forecasting, IHS Market, during the International Mexican Automotive Industry Congress (CIIAM) event organized by INA, in collaboration with Mexico Business.

North America’s year-on-year growth between 2021 and 2020 is forecast at 4.6 percent over 782k, as the expected recovery along 2021 was deeply hit by the semiconductor shortage. US vehicle sales from September 2021 saw more of the same with no sales gains as overall consumer spending trends remain positive, but October and November saw downgraded sales. Meanwhile, in Mexico, September saw the lowest SAAR of the year as the lack of inventory became tangible.

Sales in both Mexico and the US go hand-in-hand due to the former’s dependence on American consumers. Both markets are expected to see a bump in sales in December due to the festive season, with Buen Fin increasing sales. Still, semiconductor shortages will remain the industry’s bane, with production losses representing almost 11.5 million vehicles.

The entire Northern Hemisphere is being affected by the semiconductor shortage, but North America saw the lowest impact among Europe, Greater China and Japan and South Korea during the last year with a 3 percent growth in sales. This latest forecast, however, is still seeing adjustments due to ongoing cancellations. “The primary motive for this forecast is practically the topic of semiconductors, as visibility in terms of demand spans approximately six to eight weeks. This is impacting us severly and is causing the volatility we are seeing,” said Vildozo.

The seminconductor shortage’s impact on the industry is not expected to wind down until after 2022, as the first half of the year will see semiconductor lead times stabilize at 26 weeks due to continued demand from OEMs and Tier 1s. “It will not be until 1H23 that supply conditions will support sustained production recovery,” said Vildozo.

The base forecast for global production scenarios around October sees 2022 challenged, with expected growth over 2021 and no repeat of external shocks but little gain in structural capacity. A pessimistic forecast sees an increase of only 1.6 million units regarding global production from 74.4 million in 2021 to 76.0 million in 2022, which would stabilize with inflated growth of up to 102.7 million in 2025. An optimistic forecast sees growth production of 86.9 million units for 2022 but a lower long-time increase, with 2025 reaching 97.3 million instead.

"The automotive industry will improve in 2023 with the unlocking of the value chain after a complicated outlook forecast during 2022," said Vildozo. The industry is expected to see long-term recovery massively increasing after an initially slow increase in 2022. However, Vildozo highlights that these forecasts missed an increased dependence on TSMC, the leading supplier of semiconductors with more than half of the world’s share and little focus on the automotive industry as it prioritizes other electronics such as computers and cellular phones.

Another factor hindering certainty in the future, thus affecting possible recovery periods for North America, is the upcoming 2024 US presidential election, as President Biden introduced laws prioritizing an increase in the sale of electric cars and an overall focus on sustainability. This, however, could be replaced by a new administration with different ideals. This could mean a shift in electric vehicles as an area of focus for the entire continent, as Mexico’s production will follow the emissions goal of the US. Should a new administration not favor these types of vehicles, Mexican manufacturing would follow suit.

According to Vildozo, the next five years will see the number of electric vehicles produced multiplied fivefold. This will largely impact the industry as it will mean 15 percent of all products will be for electric vehicles. The US recently assigned US$8.5 billion to electrification. “The topic of electric vehicles is set to impact the automotive industry and continue to shape it well after the issue of semiconductors is resolved and growth returns to the continent’s automotive sector,” he added.