Automotive dealers: Manganese and chips
In a past life I used to sell and ship raw materials to the steel industry. Recently there was a very interesting article in the FT about the critical global shortage of manganese.
What does this have to do with the car market, you ask? Manganese is a key component for making alloys for the car industry, and China controls 87% of its production. With the current furnace closures in China, the FT advises that Europe could run out of manganese by the end of November and, at this point, all automotive manufacturing will cease. The lack of manganese has the potential of making the chip shortage look positively benign. There’s a very good article about this from the New Zealand Herald here:
Headline Autotrader figures
- 2021 stock, MoM 16.9% increase, YoY 1% increase
- 2020 stock MoM 4.6% decrease, YoY 42.1% decrease
- Total market MoM 1.9% increase, YoY 9.0% decrease
Top 5 automotive brands by market share of 2021 stock
- VW 12.8%
- Audi 9.4%
- BMW 9.0%
- Mercedes 6.0%
- Skoda 5.3%
Automotive brief
All our figures on demand show that there has been the slowdown that you would expect in the final quarter. However due to serious macro factors affecting the industry with chip shortages, shipping delays, and maybe no manganese, the supply continues to be tighter than the reduced demand. There’s no sign that this will change this side of Christmas.
We’ve just entered the quarterly earnings season for manufacturing and, across the board, we’re seeing reductions in units sold in Q3. For instance Mercedes sales are down 25%, BMW group down 12.2% and VW group down 24.4%. Interestingly this has not been reflected in similar revenue reductions. The manufacturers are focusing their chips on the vehicles that have the highest margins.
We’ve created a chart to show the scale of change of nearly-new stock on the market. This looks at the historic Autotrader data for sub-one year stock in October, and divides this by the franchise network of c.4,700 dealers. You can see the scale of the reduction here:
| October | Stock level | Per dealer | % change since 2018 |
|---|---|---|---|
| 2021 | 20,682 | 4 | -75% |
| 2020 | 30,806 | 7 | -63% |
| 2019 | 63,905 | 14 | -23% |
| 2018 | 82,604 | 18 | 0% |
In other news
This month we’ve seen the Marshall takeover of Motorline. They’re both Mediahawk customers and the strategic fit is very impressive. I’ve no doubt the Marshall family will be stronger and fitter as a result. With the global headwinds, we fully expect to see further consolidation across the retail sector. Those with the strongest balance sheets will be the ones who weather the uncertainties best, and make the most of opportunities that become available.
Our call index shows that demand is coming off as it would traditionally do in the final quarter.
