If you ask those in the auto industry to sum up 2022 in one phrase I am pretty confident the response would overwhelmingly be “the semi-conductor crisis”. These little but vital components of all vehicles continued to take the spotlight in 2022. However, manufactures like Volkswagen can also tell you that 2022 was also a year that brought other significant challenges including the conflict in Ukraine and economic impacts such as high inflationary rates, logistical challenges around shipping, fluctuating fuel prices and concerns of an expected recession. Whilst the second half of 2022 offered a glimpse of hope there are still questions around what 2023 will have in store for the auto industry.
Similar to other international markets, the GCC felt the impact on the auto industry, particularly when it came to purchasing a new car or the prices paid for a used car. Traditionally, a stock market, GCC customers had become acquainted with walking into a dealership and taking ownership of their cars relatively quickly. However, with the impact on production, caused by the semi-conductor crisis, customers across the GCC faced issues in availability of vehicles, restrictions on configurations and delays to those vehicles once orders were placed.
The inability to quickly take ownership of a new car also had a flow on effect on the used car market. Cars traditionally depreciate at a rate of 20 percent in the first year and at around 33 percent over the first 3 years. However due to the supply issues, cars had the ability to retain their value with make and model highly impacting the sell-on price, regardless of model year or KMs driven. Whilst these issues were not unique to the region, we did witness more unique trends in the GCC. Firstly, we noticed that despite the increasing fuel costs, customer preferences were still for large SUVs and powerful fuel-consuming trim lines. This goes against the trends we witness in other markets like Europe, where consumers were much more conscious of the rising costs of running and operating a car. They, therefore, opting for smaller or more fuel efficient models.
Similarly, with fuel prices rising and long-term inflationary impacts, we saw interest in Electric Vehicles (EVs) increase but not nearly to the level of other international markets. While interest in the region is growing for EVs, consumers still remain skeptical of the infrastructure network, which varies significantly across the markets in the GCC, and implications they may face by moving to a battery operated vehicle. There is no denying that multiple factors from production to economic influences impacted the auto industry. However, the second half of 2022 saw a return to a more “normal” situation for the auto industry, particularly when it came to production. However, the semi-conductor crisis is far from completely resolved and will impact the auto industry in the GCC and the rest of the world into 2023.
In addition to semi-conductor crisis in 2023, there are also a number of other developments we predict will influence the auto industry next year. The most obvious being the expectation of a looming recession and increases in inflation in 2023. While it is understandable this will impact the GCC, I strongly believe the effects won’t be felt here as strongly as in the other regions. For Volkswagen, we still believe our customers want SUVs or sports cars and will continue to want these to be to high-spec models. Where we believe the change may occur is with customers opting for alternative methods to purchase these products through loans or leasing or looking to the second hand market to buy these vehicles. Production will continue to be an issue in 2023. Semi-conductors will continue to impact supply but additional concerns may arise due to the energy crisis in Europe and for the European brands. This may mean limitations to factory operations. Similarly in 2023, competition amongst the brands in the GCC will remain fierce. The industry in the region is dominated by volume or premium brands. Volume brands may need to be more competitive when it comes to price and offers, while premium brands will face competition when it comes to supply and timely fulfilment.
From a tech perspective, its often said that the auto industry is going through its biggest transformation in its history, with the shift to EV and the advancement of autonomous driving. However, the situation the industry has faced since the start of Covid and its long-term implications does mean something has had to give, I believe whilst still a priority for all brands the focus turns to fulfilling customer orders and tech developments. The roll out of Autonomous Driving will take a backseat with timelines for roll out being adjusted by brands across the board.
The year 2022 has been another wild and exhilarating ride. For Volkswagen Middle East, we have had lows but managed to finish the year with record highs. After over 20 years in the industry, I can honestly say that whilst it has been tough it’s also been highly rewarding. Similar to a race track, there were many twists and turns and as the year 2022 ends, it’s just not clear what the next turn will be in the next year’s lap.
Desmond Van Den Berg is Sales & Network Director of Volkswagen Middle East.
The opinions expressed are those of the authors and may not reflect the editorial policy or an official position held by TRENDS.